Venezuela allocates first dollars in forex controls

Reuters 03.28.03, 5:08 PM ET

CARACAS, Venezuela, March 28 (Reuters) - Breaking a two-month hard currency drought, Venezuela's government on Friday approved the first allocation of dollars for essential imports under strict currency controls which many private firms fear will put them out of business. Leftist President Hugo Chavez's government suspended foreign exchange trading in January and decreed the curbs to halt capital flight and a slide in the bolivar currency triggered by a crippling opposition strike in the world's No. 5 oil exporter. The government set a fixed exchange rate of 1,600 bolivars to the dollar but a 65-day delay in the implementation of the hard currency allocation mechanism had left importers, exporters and individuals clamoring for greenbacks. Edgar Hernandez, head of the state currency control board Cadivi, said on Friday the board had authorized the allocation of $5.29 million covering the first five applications of a list of 60 requests made by companies seeking dollars to import goods. "This is expected to be paid out today," Hernandez, a former military officer and a political ally of Chavez, told a news conference in Caracas. He did not say what products were involved but added other allocations would follow. Oil-rich Venezuela imports around 60 percent of its basic needs and business leaders said the dollar drought threatened many firms with financial ruin. They have also predicted the currency controls will generate corruption, cause shortages of products and stimulate inflation. Hernandez said an additional $30,000 had also been authorized to cover the needs of students studying abroad and other special cases requiring hard currency. Foes of Chavez, including many private business executives who supported the strike in December and January, have accused the populist president of trying to use the currency controls in a political vendetta to starve them of dollars. They say the president, who survived a coup last year, is trying to crush his powerful private business opponents as part of a plan to implant Cuban-style communism in Venezuela. Chavez says the strike, which slashed vital oil output and exports, inflicted serious damage on the oil-reliant Venezuelan economy. He says the controls are needed to protect the country's international reserves and ensure that scarce dollars are used to import essentials like food and medicine. Hernandez said the long delay in the start of the centralized dollar allocations was due to logistical problems. The government has said the curbs will be lifted when oil exports recover momentum and political tensions ease. Before the forex market was closed Jan. 22, the Central Bank had been selling an average of around $60 million a day. Since the controls were introduced, a flourishing black market in dollars has emerged, in which the greenback is being traded at between 2,200 bolivars and 2,300 bolivars. Opponents of Chavez have appealed to the Supreme Court to annul the controls, arguing they were unlawfully introduced without the approval of the National Assembly. The country's top tribunal has still not made a ruling on the appeal.