<a href=www.vheadline.com>Venezuela's Electronic News Posted: Monday, May 05, 2003 By: Jose Gabriel Angarita

VenAmCham's Jose Gabriel Angarita (economist) writes: More than 100 days since January 21, 2003, when the Venezuelan foreign exchange market closed its doors and the supply restriction became absolute, the chief executive explained that "the State has no intention of monopolizing foreign exchange, but rather, of competing with the private sector" and confirmed that exchange controls will continue to be very strict. He also acknowledged the shortages of some regulated products and announced a massive import plan to counteract them.

About 6,200 tons of chicken will be imported from Brazil, by land and by sea; 80,000 bags of wheat flour will come from Italy, and a reserve of 12 million eggs will be built up to cover demand. The Venezuelan government made clear its intention of continuing with its food import plan to cope with shortages.

It is very important to stop and analyze the implications and consequences of the government's good intention to relieve the Venezuelan consumer's plight, only in the short run.

In the first place, under the Andean Community of Nations (CAN) rules, imports from Brazil must meet the Andean Community requirements and the health requirements spelled out in Resolution 449 on Trade with Third Countries, and are subject to a tariff in accordance with the prescribed variable rates.

In the second place, we should not forget the negative effect of imports of these products on Venezuelan producers, for whom the exchange controls and price regulations have imposed inefficiencies in productive processes, generating unemployment and leading to company failures. Foreign competition will intensify the critical situation in the food sector.

Neither should we neglect the potential macroeconomic implications of the massive import policy the government plans to apply when the main goal of the exchange controls --rebuilding the foreign reserves -- is threatened by the outlays made for external purchases. There may also be distortions in the current account of the balance of payments, since the tradable goods sector is deeply depressed.

Obviously, this situation will be sustainable only in the short term; in the medium term, national private enterprise will continue weakening even more, and if the current policy remains in force the smaller companies will tend to disappear, adding large numbers of employees to the ranks of the unemployed. Reversing the process will require an industrial policy designed to strengthen national capital for transfer to all the sectors of the economy, stimulus for an efficient allocation of resources, and creation of new jobs.

By Alex Kennedy and Peter Wilson

Caracas, April 30 (<a href=quote.bloomberg.com>Bloomberg) -- Venezuela's economy is suffering from a lack of imports as the government's foreign exchange commission doesn't make dollars available for companies to pay for overseas suppliers.

This is very bad, very negative, and very worrisome,'' Central Bank Director Domingo Maza said before a press conference. And it's not happening because of a lack of dollars.''

Maza, one of seven central bank directors and a holdover from the previous government, said the central bank made available $1.2 billion to the country's foreign exchange commission for sale this month. The commission has ``used less than $1 million.''

The government banned dollar sales in January after a two- month general strike cut oil production by as much as 95 percent. Oil sales provide 43 percent of government revenue.

Venezuela imports about 60 percent of its food, clothing, medicine and electronic goods. Last Updated: April 30, 2003 11:36 EDT

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Tuesday, April 29, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita

VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: More than three months after the exchange controls went into force, first in response to a contraction of oil revenue and then to maintain an adequate stock of foreign reserves (which had fallen to 11.031 billion dollars on January 21, the day the measure was taken), reserves had climbed back to US$14.321 billion as of April 25, regaining $3.290 billion.

When the reserves held by the Central Bank of Venezuela (BCV) are reinforced by the oil industry's recovery and that of oil exports, a total absence of access to foreign exchange is no longer justified because the reserves are on the mend.

What has not improved are the distortions provoked by the exchange and price controls, which put pressure on the supply of goods in the economy. Some industry organizations are deeply concerned over the depletion of inventories and the impossibility of replacing them, because no foreign exchange is available.

The continuity of food supply depends on the speed with which the Foreign Exchange Administration Commission (CADIVI) approves the dollars needed by the processing industries to import raw materials. According to the president of the Venezuelan Food Industry Chamber (CAVIDEA), many companies have shut down production lines and laid-off personnel. Unemployment in that industry is estimated at 26%, and could reach 30% by the end of this year. And similar conditions prevail in other sectors, which have already seen their products disappear from supermarket and grocery shelves ... that is the case for chicken, eggs, and hard white cheese, among other items.

The foregoing does not mean that we will experience supply problems in the very near future, but, if the dollar drought continues over the coming months, the situation for businessmen will become unbearable. They will not be able to keep their companies running and large numbers of jobs will be lost. When the State's emergency import plan to supply the domestic market is added to that prospect, the Venezuela's industry will be even more severely depressed.

The government may have many reasons for keeping the controls in force, but one of the most important barriers to their removal are the fiscal implications such a move might have. The dilemma centers on the combination of interest rates (dependent on the level of liquidity in the economy) and the exchange rate.

The Treasury's massive need for financing requires liquidity to be kept high, in order to put downward pressure on interest rates and make it easier to sell government bonds to the banks ... but in that case, it will be very difficult to return to free currency convertibility.

If, on the other hand, the authorities devalue the exchange rate, that will have a positive effect on the fiscal accounts with which Venezuelans are quite familiar ... but everything will depend on the recovery of oil invoicing and production, which, though quite far along, may not be sufficient to produce a substantial improvement in the government's near-term cash flow.

Article in Spanish

Forbes.com-Reuters Reuters, 04.22.03, 11:52 AM ET

CARACAS, Venezuela, April 22 (Reuters) - General MotorsCorp.'s (nyse: GM - news - people) Venezuelan unit, the biggest vehicle assembler in the South American country, has restarted production after a three-week halt caused by government foreign exchange controls, a spokesman said Tuesday.

"The plant has reopened; everything is back in business," General Motors Venezolana's marketing and sales director Peter Friedrich told Reuters.

He added that in talks with the government, the company had succeeded in ironing out the problems caused by the currency curbs which had forced General Motors to temporarily suspend assembly operations in Venezuela at the end of March.

Squeezed by a crippling opposition strike that slashed vital oil exports, leftist President Hugo Chavez's government halted foreign currency trading in January, tightly restricting the supply of U.S. dollars to the economy.

Venezuela's foreign-owned vehicle assemblers, along with other local manufacturers dependent on imports, had been unable to import essential parts due to the tight restrictions and more than two months of delay in the allocation of dollars.

The restart of GM's Venezuelan unit indicated that the government was moving, albeit slowly, to activate mechanisms to allocate hard currency to health, food and industrial sectors.

But private business leaders have fiercely criticized the forex controls, introduced to stem heavy capital flight and halt a sharp slide in the bolivar currency triggered by the opposition strike in December and January. They say many local companies will face bankruptcy because of the curbs.

Friedrich said the government had widened the list of imported car components for which dollars would be allocated, removing an obstacle that had hindered General Motors' assembly operations. The company was also registering itself on a list of importers and exporters authorized to receive dollars.

After losing exports for March and April, General Motors Venezolana expected to be able to complete its scheduled May exports of models to Colombia and Ecuador. "We are very optimistic that we can fulfill our schedule," Friedrich said.

STORM OF COMPLAINTS OVER CONTROLS The state currency control board Cadivi has said it will give priority in the allocation of dollars to essential food and medicine imports, and to inputs for strategic industries.

Venezuela's state news agency Venpres said Cadivi had so far authorized dollars to more than 100 companies, including the Venezuelan units of Swiss food maker Nestle SA <NESZn.VX>, U.S. food manufacturer Kraft Foods Inc. (nyse: KFT - news - people), U.S. cereal maker Kellogg Co. (nyse: KFT - news - people) and U.S. grains trader Cargill Inc.

But problems persist. Venezuela's No. 1 telephone companyCANTV <TDVd.CR> (nyse: VNT - news - people) said last week the lack of a working conversion mechanism under government foreign exchange controls meant foreign shareholders would probably be unable to receive in dollars their share of a dividend due April 23.

CANTV's main shareholder is U.S. telephone company Verizon Communications Inc. (nyse: VZ - news - people). Private sector business leaders have pilloried the currency controls as restrictive and unworkable, warning that the dollar drought will stifle business and swell Venezuela's jobless rate, which the government estimates at 16 percent. Private economists say the real figure is far higher.

Businessmen and economists have severely questioned the technical ability of the currency board Cadivi, which is headed by retired army officer Edgar Hernandez, a political ally of former paratrooper Chavez. Both took part in a botched coup attempt in 1992.

Despite the barrage of complaints from foreign and local businessmen, populist Chavez has effusively praised Cadivi, saying it was doing a "tremendous job."

The president said the controls were "here to stay," although some of his ministers have said they will eventually be lifted as the oil-reliant economy shows signs of recovery.

Opponents in the business community have accused Chavez of using the controls in a political vendetta to deny access to dollars to firms which supported the grueling opposition strike in December and January. The stoppage tried unsuccessfully to force him to resign and hold early elections.

Copyright 2003, Reuters News Service

Forbes.com-Reuters, 04.17.03, 3:56 PM ET    

CARACAS, Venezuela, April 17 (Reuters) - Venezuela's No. 1 telephone company CANTV said Thursday the lack of a working conversion mechanism under government foreign exchange controls meant foreign shareholders would probably be unable to receive in dollars their share of a dividend due April 23.

The announcement by CANTV <TDVd.CR>(nyse: VNT - news - people), whose main shareholder is U.S. telephone company Verizon Communications (nyse: VNT - news - people), was an example of multiple problems raised by the slow introduction of regulations governing the currency controls.

These were decreed by President Hugo Chavez's government Feb. 6 to stem capital flight and halt a slide in the bolivar currency caused by a crippling two-month opposition strike that slashed oil output by the world's No. 5 petroleum exporter. The strike ended in early February.

CANTV said in a statement sent to Reuters that the remaining portion of the ordinary dividend for 2003 of 71 bolivars per share, or 497 bolivars per American Depositary Share, to be handed over April 23, would be paid in bolivars.

Under the foreign exchange control regime, the state currency control board CADIVI must approve and establish procedures for the conversion of bolivars into U.S. dollars for the payment of dividends to foreign investors. The government has set a fixed rate of 1,600 bolivars to the dollar but is establishing detailed procedures for different transactions.

"As of the date of this announcement, CADIVI is yet to establish such procedures (for dividends) and therefore it is unlikely that foreign investors will be able to receive their portion of the dividend in dollars by April 23," CANTV said.

Left-winger Chavez's government had announced that the repatriation of profits and payment of dividends to foreign investors would be authorized under the controls, which have been heavily criticized by Venezuela's private sector.

DOLLAR DROUGHT DRIES UP BUSINESS Business leaders say the stringent currency curbs, coupled with tight price controls and long delays in the introduction of bureaucratic mechanisms to allocate dollars for essential imports and foreign investment transactions, are virtually paralyzing business activity in the already battered economy.

CANTV said it was working with CADIVI to try to facilitate the process of requesting the purchase of dollars with which to pay dividends to foreign investors.

"At this point in time, the Company cannot reasonably give any guidance with regards to the length of the process and possible dates for the conversion of bolivars into dollars," it said in its statement.

In February, CANTV reported that its 2002 net income fell nearly 28 percent and the company posted a fourth-quarter loss as its results were undercut by the opposition strike, a sliding bolivar and a smaller nonresidential client base.

There have been other cases of the currency controls hitting foreign investors and manufacturers in Venezuela.

General Motors Corp.'s (nyse: GM - news - people) Venezuelan unit, the largest vehicle assembler in the South American country, said last month it was temporarily halting production because of problems caused by the foreign exchange curbs.

Foreign-owned vehicle assemblers like GM have been unable to import essential parts due to the restrictions and a long delay in the allocation of dollars.

Despite the barrage of complaints from foreign and local businessmen, populist Chavez has effusively praised the currency board CADIVI -- which is headed by a political ally -- saying it was doing a "tremendous job".

He said the foreign exchange controls were "here to stay," although some of his ministers have said they will eventually be lifted as the oil-reliant economy shows signs of improvement.

Opponents in the business community have accused Chavez of using the controls in a political vendetta to deny access to dollars to firms which supported the grueling opposition strike in December and January. The stoppage tried unsuccessfully to force him to resign and hold early elections.