www.vheadline.com Posted: Friday, March 07, 2003 By: Robert Rudnicki

Venezuelan Federation of Chambers of Commerce & Industry (Fedecamaras) vice president Albis Munoz has criticized the government for taking so long to implement its currency controls, insisting that the longer the measures are delayed the more businesses will be forced into bankruptcy. 

The Currency Administration Commission (Cadivi) had been due to publish a list of approved products the would be seen as essential in terms of dollar applications on its website this Wednesday, but so far the list has not been released.

"The people who are handling this clearly don't have the technical ability to do it," Munoz said of the Cadivi board.

"We are very worried because we've just come out of a civic strike which had already restricted inventories, and now we are experiencing a foreign exchange freeze that has lasted 45 days."

reuters.com Thu March 6, 2003 05:00 PM ET By Pascal Fletcher

CARACAS, Venezuela (Reuters) - Venezuelan business leaders attacked the government on Thursday for taking so long to implement currency controls, while a 45-day drought of dollars squeezed private firms already fighting to survive after a two-month opposition strike.

Access to U.S. greenbacks has been suspended since the government of leftist President Hugo Chavez halted forex trading from Jan. 22 to stem capital flight and check a slide in the bolivar currency triggered by the crippling general strike.

Despite official promises that the new centralized control mechanism for allocating dollars -- at a fixed rate to the bolivar -- would be in place by Wednesday this week, the new state currency board CADIVI has still not introduced the system.

Importers and exporters were still impatiently waiting for CADIVI to publish a list of authorized products deemed essential for the nation that would allow them to receive dollars from the Central Bank for their operations.

"We are very worried because we've just come out of a civic strike which had already restricted inventories, and now we're experiencing a foreign exchange freeze that has lasted 45 days," Albis Munoz, acting president of Venezuela's biggest private business association Fedecamaras, told Reuters.

She questioned the ability of the new government currency board, which is headed by retired army captain Edgar Hernandez, a known Chavez loyalist who took part in a botched 1992 coup bid led by the former paratrooper turned president.

"The people who are handling this clearly don't have the technical capacity to do it," Munoz said.

"The government is like a child with a new, very powerful toy," said Jose Gregorio Pineda, chief economist at the Venezuelan-American Chamber of Commerce in Caracas.

The dollar drought amounts to a double blow for private businesses, many of which sacrificed lucrative Christmas and New Year sales to join the Fedecamaras-led strike that tried to force Chavez to step down and hold early elections.

The work stoppage, which fizzled out in early February, failed to budge the populist president, who has ruled since 1998.

But it slashed oil production in the world's No. 5 petroleum exporter, pushing the economy deeper into recession and forcing the government to introduce stringent currency and price controls.

The new currency regime set a fixed exchange rate of 1,596/1,600 bolivars to the dollar, after the bolivar had lost about half its value against the U.S. dollar in the past year.

POLITICAL VENDETTA

Chavez and Hernandez have made clear that under the tight forex curbs the nation's dollars will be primarily used for obtaining essential goods like food and medicine or for vital inputs for industries and services.

They have made clear foreign exchange will not be made available for "luxuries," such as imported cheeses or whiskeys or high-cost personal travel. Even fast-food franchises like McDonald's, which are very popular in Venezuela, are not expected to be on the initial dollar authorization list.

Private businessmen, especially those who took part in the December and January opposition strike, fear the currency controls will be used by Chavez in a political vendetta against them. He has vowed not a single dollar will be given to foes he regularly pillories as "terrorists" and "coup mongers."

"This is not just an economic crisis, but a political one, too," Munoz said. Fedecamaras president Carlos Fernandez, one of the leaders of the recent anti-government strike, is currently under house arrest facing rebellion charges.

Pineda said concern over the controls and the way they were being implemented also extended to foreign companies.

"A lot of businessmen in Venezuela are a pretty hardened bunch. They've worked in places like Nigeria, but even they are frightened by what these forex controls will mean," he said.

"The delay in implementing has just made matters worse. It creates even more uncertainty apart from the political problems and dealing with the recession," he added.

Munoz, echoing views expressed by private economists, predicted the curbs would create shortages, spawn a flourishing black market in dollars and stimulate inflation, which jumped 5.5 percent in February, the highest monthly rise in nearly seven years. Annualized inflation rose to 38.7 percent.

The government is drawing up legislation to penalize those who violate the controls. Local media published parts of the draft law, which foresees jail terms of up to 14 years for offenders. Business chief Munoz described this as too severe and said it would not prevent illegal currency deals.

"If the country's political crisis is not resolved, our survival is on the line," she said.

Long-running negotiations between the government and the opposition, brokered by the Organization of American States, have so far failed to produce an agreement on early elections.