Corruption fears tarnish Venezuela currency curbs

Reuters, 05.19.03, 6:38 PM ET

CARACAS, Venezuela, May 19 (Reuters) - Business owners trying to decipher Venezuela's complex currency controls to access U.S. dollars are being approached by shady middlemen offering to cut through the red tape -- but at a price.

Accusations of corruption are surfacing nearly four months after the Venezuelan government introduced strict foreign exchange curbs, which critics say have starved the world's No. 5 oil exporter of hard currency even as it battles to shore up its battered economy.

In interviews with Reuters, two private local firms who applied to the state currency board Cadivi said they were contacted by "fixers" offering to secure them access to greenbacks in exchange for a 12 percent commission.

One executive at an oil machinery importer, who spoke on condition of anonymity, said in March Cadivi refused his firm's application to register for the dollars it needed to import equipment for the oil sector.

But a few weeks later the firm received two unsolicited phone calls offering to help them register with Cadivi and also obtain U.S. currency for a commission and a $600 fee.

"One said 'We know that your application was rejected. I have someone who can help with your registration,'" the oil executive said. "How did they know that? They had to have some inside contact."

Foreign diplomats in Caracas, who monitor domestic trade developments, say they have also been informed of similar cases by other businessmen.

It was not clear who the callers were or how they were able to access information about which companies had applied to Cadivi and which had been refused.

The executive at the oil firm said his company received the calls after Cadivi refused its registration, alleging they had failed to adequately prove the nature of their business.

He rejected the unsolicited offer although his company, like many others, has been crippled by the hard currency drought. The firm normally carries out multiple imports to ship in petroleum equipment from overseas.

"We want to do things the right way. This isn't just one import and that's it. Our company relies on access to dollars through legal means, whatever they are. There has to be a regular flow of currency," he said.

But a Cadivi official contacted by Reuters dismissed suggestions of corruption. The official said the board managed applications through a strict registration system that monitored all transactions.

"This system is under tight control," the official said.

MANY CONTROLS, NOT MANY GREENBACKS

Venezuela decreed the draconian currency and price control regime in February saying it needed to shore up the economy after a two-month opposition strike disrupted vital oil output but failed to oust President Hugo Chavez.

Nearly four months after the curbs were put in place, Cadivi has only approved around $140 million in applications. But very few firms appear to have received hard currency.

Before the new forex rules, Venezuela's currency market traded about $60 million a day alone.

Government officials blame the delays on companies who have failed to properly complete the application process. But private analysts warned months ago that the controls would foster corruption and a black market in dollars.

"The system is so cumbersome and the requirements so byzantine that it has become a blunt instrument that is bludgeoning all of the economy," one foreign diplomat said.

Venezuela's economy shrank nearly 9 percent in 2002 and economists predict that it will contract even more this year with inflation and unemployment climbing higher.

Opponents of Chavez, elected in 1998 on promises to aid the poor, said the currency curbs are already causing shortages in basic foods, such as flour. More than 60 percent of Venezuela's goods are imported.

During the early 1990s, Venezuela implemented an earlier currency control system that spawned a huge black market and rampant corruption. Already, the black market has reappeared with the bolivar trading at around 2,200 bolivars to the U.S. dollar. The official fixed rate is 1,600 to the dollar.