Venezuela says correcting currency-control faults

Reuters, 05.22.03, 1:45 PM ET By Silene Ramirez

CARACAS, Venezuela, May 22 (Forbes-Reuters) - Venezuela's government, facing a barrage of complaints that tight foreign exchange controls are throttling the economy, said on Thursday it was correcting faults in the currency regime to speed up the allocation of dollars for essential imports.

The controls were introduced more than three months ago in Venezuela, the world's No. 5 oil exporter.

Private importers and exporters have said the painfully slow allocation of dollars by the state currency board Cadivi is strangling business activity, disrupting manufacturing and creating shortages in an economy that needs hard currency to import around 60 percent of its needs.

Business leaders say the dollar drought is threatening to ruin many companies. They accuse leftist President Hugo Chavez of using the controls in a political vendetta to punish firms that supported a crippling opposition strike against him in December and January.

In an interview on Thursday with state television, Finance Minister Tobias Nobrega acknowledged there had been problems in operating the foreign exchange controls.

"What we're talking about is improving the operation of the system, which has had faults and we have to admit that. The necessary decisions are being taken," Nobrega said.

He added the government had decided this week to reduce Cadivi's role, making it a "technical office" and transferring regulatory and decision-making powers to the cabinet.

But there were questions about whether the reforms would really streamline the system. Opponents of the currency curbs had warned the government from the start they would create bureaucratic bottlenecks and opportunities for corruption.

The complex procedures for companies to obtain dollars were also being revised, Nobrega said.

"What needs to be done at this stage is to unblock the whole issue of imports," he added.

THREAT OF SHORTAGES

Cadivi, headed by a retired military officer who is a political ally of Chavez, has so far only handed over a meager $12 million for imports and other priority purposes.

Importers, exporters and retailers say they are operating with dwindling inventories and warn the country faces shortages of essential food items and other goods unless the allocation of dollars is speeded up. The government says it is importing basic foodstuffs, such as flour and cooking oil, to prevent shortages from occurring.

Nobrega said the government had set an initial target of approving in a week pending requests from companies for dollars totalling $267 million.

Since the curbs were introduced, total requests amounting to only $205 million have been approved by Cadivi. This compares with the $40 million to $60 million the Central Bank had previously released into the economy every day when normal currency trading was permitted.

Former paratrooper Chavez, who survived a brief coup last year, decreed the draconian currency controls to halt heavy capital flight and a sharp slide in the bolivar currency triggered by the grueling two-month opposition strike.

The strike, which failed to force Chavez to resign and call early elections, slashed Venezuela's oil output but ouput has now recovered to pre-stoppage levels.

Nevertheless, Venezuela is suffering its worst recession in recent history and inflation and unemployment are rising.

Nobrega said the currency controls would not be lifted in the short-term. He added they would remain in place until the political atmosphere was calmer, government oil income was stabilized and permanent mechanisms were set up to control speculative capital movements.