Venezuela Central Bank's Leon says ease forex curbs

Reuters, 06.04.03, 5:59 PM ET By Ana Isabel Martinez CARACAS, Venezuela, June 4 (Reuters) - A Venezuelan central bank director on Wednesday rebuked the state currency control board for its slow allocation of funds and warned the country's recession would worsen without a swift release of dollars. Armando Leon, one of the directors of the Venezuelan Central Bank, urged the foreign exchange board Cadivi to ease its stranglehold on access to hard currency, which the battered economy badly needs for growth. "We are getting into an extremely complicated and difficult situation, and we need to ease the currency control system," Leon told reporters. He insisted the Central Bank was not calling for an end to the curbs, established four months ago to halt capital flight and protect the local bolivar. But he urged Cadivi to speed up the flow of foreign currency to the economy, which relies on imports for 60 percent of its needs. The economy of the world's No. 5 oil exporter contracted around 29 percent in the first quarter of 2003 after a two-month opposition strike slashed crude production and the strict currency controls hampered growth. "The situation in the country is very complex, and I don't know who is going to be to blame if the economy keeps falling or unemployment keeps growing while public policies are so ineffective," he said. Leon forecast that gross domestic product (GDP) could fall around 10 percent this year even if the economy sees a recovery in the last few months of 2003. "There will be a very serious contraction but much less than what we saw in the first quarter," he said. The central bank director said that since February only about $18 million had been actually handed out by Cadivi to companies and importers compared with $40 million to $60 million traded daily in the foreign exchange market before the controls. Even in recession, the economy required about $30 million to $33 million daily, he said. Cadivi said on Tuesday that it had authorized about $469 million since March, but it did not give details on how much of that had been actually handed over to applicants. ECONOMY IN CURRENCY BOARD'S HANDS While Leon said improved flow of currency is essential for economic recovery, he said the oil sector -- one third of GDP -- had recovered from the strike in December and January, implying vital crude revenues had returned to normal levels. "The danger is that if the system for assigning dollars continues to be so inefficient, the economic slide could be repeated, but this time because of Cadivi," he said. The scarcity of dollars has spawned a black market where the U.S. dollar trades at 2,400 to 2,500 bolivars against the official fixed rate of 1,600 bolivars to the greenback. The government boasts the controls have allowed it to bolster international reserves, help bring down interest rates and improve investors' perception of the country's risk. But opposition leaders and private sector representatives say the controls have come at a cost: a suffocated economy, thousands of firms closed, unemployment approaching 20 percent and accumulated inflation at nearly 14 percent in May.