Venezuela Q1 collapse shut 2,000 firms-industry

Reuters, 05.26.03, 2:18 PM ET  

CARACAS, Venezuela, May 26 (Forbes.com-Reuters) - Close to 2,000 Venezuelan companies went out of business in the first quarter of 2003 when the economy, squeezed by a general strike and currency controls, shrank a record 29 percent, the head of the leading industrial association said Monday.

Lope Mendoza, president of the Conindustria federation that groups firms in the industrial and manufacturing sectors, described the quarterly gross domestic product (GDP) contraction announced by the Central Bank Friday as "the worst tragedy experienced by Venezuela in its contemporary history".

"With the 29 percent (GDP) fall in the first quarter, more than 1,950 companies closed down," Mendoza told reporters. He did not specify the size or type of companies hit by the contraction, the steepest ever recorded by Venezuela and probably one of the sharpest ever seen in Latin America.

Conindustria and other private sector business associations have fiercely criticized the policies of left-wing President Hugo Chavez. They accuse him of trying to stifle private business and of seeking to install Cuba-style communism.

These business groups backed a grueling opposition strike against the populist president that gripped Venezuela, the world's No. 5 oil exporter, in December and January.

The strike, which failed to force Chavez to resign, disrupted oil production and exports, slashed government revenues and triggered heavy capital flight and a slide in the bolivar currency. To halt this, the government slapped tight currency controls onto the economy which further reduced business activity.

In its report for the first quarter, the Central Bank said the manufacturing sector contracted by 35.1 percent.

Mendoza saw the decline continuing and predicted the sector, which accounted for 13 percent of GDP, would shrink over the year by 25 percent. He foresaw unemployment in the sector reaching the same percentage by the end of the year.

"We don't see the government taking measures to stimulate national production to reverse this situation," he added.

Private manufacturers, including major food producers, have complained bitterly that the stringent foreign exchange restrictions are starving them of dollars they need to import essential raw materials and spare parts.

They say that if dollar allocations are not speeded up, or unless the currency controls are relaxed, more companies are likely to go out of business.

Chavez, a former paratrooper who was elected in late 1998 and survived a coup last year, has defended the controls, saying they will not be lifted in the short-term.

Government officials say the curbs have boosted Venezuela's depleted foreign reserves and that the country's oil production has been restored to pre-strike levels of above 3 million barrels per day (bpd).