Venezuela's Chavez brings back leftist economic ally

Forbes.com-Reuters, 04.22.03, 4:49 PM ET

(Adds Giordani's return, analyst's quotes, background) By Silene Ramirez CARACAS, Venezuela, April 22 (Reuters) - Venezuelan President Hugo Chavez Tuesday brought back a veteran left-wing soulmate to serve as his Planning Minister after firing the previous minister for disagreements over economic policies.

Former paratrooper Chavez, whose oil-rich nation is facing its deepest recession in recent history, demanded 48-year-old economist Felipe Perez resign after sharp differences had emerged among members of the president's economic team.

But the biggest surprise came when Chavez named his successor, bringing back 62-year academic Jorge Giordani, who had been the president's first Planning Minister for the first three years of his rule in the world's No. 5 oil exporter.

The announcement came as a shock to many analysts, who had welcomed Giordani's substitution by Perez back in May last year, soon after a dramatic military coup that briefly toppled populist Chavez. They saw Giordani as closely associated with Chavez's left-leaning statist economic policies which have been fiercely opposed by business and labor opponents.

"It was a surprise to a lot of people. I don't think that people expected this," Jose Cerritelli, Andean economist with Bear Stearns in New York, told Reuters.

He recalled that Chavez, who has spooked many investors with his fiery, revolutionary and anti-capitalist rhetoric, had praised Giordani recently for being "an anti-IMF policy maker". Giordani's return was likely to lead to an even wider divergence between Chavez's government and Washington-based lending agencies, Cerritelli added.

"Felipe (Perez) made a great effort in a very difficult period. Now Jorge (Giordani) is coming back to take up again all the main objectives of the great national development project that he used to direct," Chavez said.

POLITICS OVER ECONOMICS

Perez, who has a Ph.D from Chicago University, had publicly disagreed with Chavez's decision, backed by most of the rest of the government economic team, to decree tight foreign exchange and price controls earlier in the year.

Perez had also had differences over forecasts and polices with Finance Minister Tobias Nobrega and directors of the country's Central Bank.

His departure came at a time when Chavez's government was struggling to cope with the deep recession triggered by months of political turmoil and an opposition strike that slashed oil output in December and January. The strike, which fizzled out in early February, severely cut government revenues.

Many local analysts were aghast over the return of Giordani. "It's incredible. This is a minister who left because he failed in the first three years when the economy was quite prosperous. And now Chavez brings him back when the situation is worse," Orlando Ochoa, an economist from Caracas's Andres Bello Catholic University, told Reuters.

"It shows that Chavez's priority is politics, not the economy," he added.

Perez had also been seen as a follower of Chavez's self-styled "revolution" in Venezuela. Under Giordani, the Planning Ministry had been the leading voice in Chavez's economic team.

But Perez's influence, and his credibility among local and foreign investors, waned quickly as he became known for unrealistic forecasts and eccentric public pronouncements calling for "positive thinking" to turn around the economy.

Appearing on his "Hello Economy" show on state television, Perez regularly berated local businessmen for what he called their negative attitude and recommended a change of heart.

BATTLE FOR INFLUENCE

Finance Minister Nobrega, a banking and finance specialist has been spearheading the government's efforts to negotiate voluntary debt swaps with local and foreign bankers to ease a payments crunch.

But analysts said the return of Giordani, who had dominated the government's economic policy when he was in office, could lead to a confrontation with Nobrega.

"I think there could be trouble with Nobrega as they are both strong figures," said Benito Berber, an analyst with New York-based consulting firm IDEAGlobal.

Venezuela's already faltering oil-reliant economy went into a nosedive after the grueling opposition strike, which failed to force Chavez to resign and hold early elections.

Opponents of Chavez accuse him of ruling like a dictator and of dragging oil-rich Venezuela towards economic ruin by trying to install Cuba-style communism.

The strike caused the government to slap tight foreign exchange and price controls onto the economy to stem heavy capital flight and halt a sharp slide in the bolivar currency.

The International Monetary Fund, which urged Venezuela to ditch the currency curbs, has forecast a huge 17 percent contraction for the economy this year following a fall of nearly 9 percent last year. (Additional reporting by Pascal Fletcher, Patrick Markey)