Venezuela says firms must behave to get dollars

reuters.com Fri February 28, 2003 04:06 PM ET By Alistair Scrutton

CARACAS, Venezuela, Feb 28 (Reuters) - Venezuela's new state currency control board, already branded a tool to punish leftist President Hugo Chavez's business foes, warned on Friday only firms "acting normally" would get vital dollars to trade abroad.

A new mechanism to allow importers to buy dollars will begin on Wednesday, six weeks after populist Chavez halted currency trading and fixed the exchange rate to stop the economy of the world's No. 5 oil producer from imploding amid a recent opposition strike.

Ex-paratrooper Chavez had warned that "coup mongers" -- the term he uses to describe his enemies -- would not get a dollar under the new system and businessmen worry he wants to squeeze private firms by denying his opponents access to trade.

Opposition leaders say the stringent currency curbs give weight to their accusations that the president is ruling like a dictator and wants to install Cuban-style communism.

Edgar Hernandez, a retired military officer and head of the new currency board, said that firms and banks which had hoarded goods or shut their doors during the two-month strike had not been acting normally.

"We intend to manage access to dollars as objectively as we can ... but there are firms that need a change in attitude ... the economic establishment hasn't a normal attitude," said Hernandez, a stiff-backed man with army-style short-cut hair.

But that did little to dispel fears that some businesses, including fast food outlets, may not get dollars to import.

Opposition leaders say the stringent currency curbs give weight to their accusations that the president is ruling like a dictator and wants to install Cuban-style communism.

Some 60 percent of Venezuela's goods currently come from abroad and companies from steel producers to whiskey sellers desperately need dollars to keep operating.

"We must pray for the currency controls," Hernandez, who is an ally of Chavez and took part in a botched 1992 coup led by him, said in a speech immersed with religious imagery.

"Companies must act with love," he added, advising that they donate 10 percent of their profits to social projects and another 10 percent as incentives for workers.

Since Jan 22 it has been impossible for companies to buy dollars unless they purchase on a burgeoning black market where the dollar is up to 40 percent more expensive.

Hernandez said 19 banks, including some of the biggest in the country, signed deals to process the dollar applications from firms. Banks include major foreign banks operating in Venezuela such as Citibank C.N and ABN Amro AAH.AS .

The currency board will publish by Tuesday the imports that the government will give priority to, including basic foods and plastic packaging and supplies for utility industries.

"Those that are not on the list should not apply (for dollars)," he said.

FAST FOOD OUTLETS NEED NOT APPLY

Venezuelans may soon face a shortages of their favorite hamburgers and foreign cheeses.

"I don't know how products for fast food restaurants will be imported. To use them as an example, these all closed in December and January (during the strike). Are we going to give dollars so that they can import?" Hernandez said.

He also said imported luxuries like some foreign cheeses, "some very tasty ones", may also become scarce.

Under the new system supervised by the state currency board companies must apply for dollars through banks. Banks then should receive the dollars from the Central Bank in a process expected to take at least ten days from start to end.

Opposition leaders and private businessmen have warned that the curbs would just further depress the Venezuela economy, already expected to contract by up to 14 percent this year.

Business also fear a mound of red tape will boost contraband and introduce opportunities for state corruption.

Hernandez said the currency controls could be lifted by the end of the year, conditioned on state oil firm PDVSA recovering production lost during a two-month opposition strike that petered out in February.

Opposition leaders and dissident oil workers began the shutdown Dec. 2 to try to pressure Chavez to accept early elections, causing the the Venezuelan bolivar to slip about 24 percent against the dollar from the start of 2003.

The new currency regime set a fixed exchange rate of 1,596/1,600 bolivars to the dollar. (Additional reporting by Pascal Fletcher)