story.news.yahoo.com Wed Jan 22, 3:59 PM ET Add Business - Reuters to My Yahoo! By Patrick Markey

CARACAS, Venezuela (Reuters) - Venezuela on Wednesday suspended foreign exchange trading in a desperate bid to stem capital flight and a slide in the bolivar as the government battled an opposition-led strike which has drained its oil-reliant economy.

The Central Bank said it would close the foreign exchange market for five trading days and prepare temporary currency exchange and transfer curbs to fend off the impact of the shutdown, which aims to force President Hugo Chavez to resign.

Finance Minister Tobias Nobrega said the government planned also to slash its 2003 budget by 10 percent or $2.2 billion, extend a temporary bank debit tax through 2003 and continue with a domestic public debt swap to counter the economic damage of the strike.

Venezuela's bolivar has tumbled more than 28 percent during the seven-week-old work stoppage and its international reserves have fallen. Oil output in the world's fifth-largest petroleum exporter has been slashed by the strike to a fraction of its normal levels.

Economists said foreign exchange controls would give the government some short-term breathing room, but the economy would suffer the longer the controls were maintained.

"This looks more like a knee-jerk reaction of theirs to the currency weakness," Jose Cerritelli, a Bear Stearns Andean economist, said. "But in the long term, people look to escape the controls by taking their money out."

A government source told Reuters on Tuesday that the cabinet was still not clear what currency measures it would introduce. But the government did not plan to devalue the bolivar for now, the source said.

The economic crunch has raised fears that Venezuela may default on its foreign debt later this year. But the Central Bank said the government would maintain the necessary operations to make those debt payments.

Chavez, a fiery populist who was elected in 1998 and survived a coup in April, has branded his foes as "terrorists" who are trying to topple him again through an economic coup and by draining hard currency from Venezuela. He has refused to quit and vows to defeat the strike.

Venezuela's Trade and Production Minister Ramon Rosales said the suspension of the exchange market aimed to halt what he called the "attack against our international reserves."

"The aim of this measure is to preserve our reserves which are the only guarantee of Venezuela's recovery after this oil sabotage," Rosales told Reuters.

FALLING RESERVES, BATTLE FOR OIL Venezuela's international reserves have fallen to $11.05 billion, a drop of 7.5 percent so far this year. The government also has $2.85 billion in its FIEM rainy-day savings fund and insisted recently that hard currency levels were sufficient.

Rattled by political uncertainty, the bolivar currency has lost more than 24 percent of its value this year alone. The central bank reference rate for the bolivar closed Tuesday trading down 5.1 percent at 1,849.50/1,853 bolivars.

Opposition leaders hope their strike, which began on Dec. 2, will pressure former paratrooper Chavez to agree to early elections. They say that rather than deliver on promises to ease poverty, he has wielded power like a dictator and driven Venezuela toward economic ruin and Cuba-style communism.

The bitter stalemate has raised international concern after the strike drove world oil prices to two-year highs. It has also severely disrupted domestic fuel and food supplies, pushing Venezuela's already weak economy deeper into recession and stoking social unrest.

But negotiations to break the deadlock have been stalled over the timing of possible elections. Former U.S. President and Nobel Peace Prize winner Jimmy Carter on Tuesday proposed to the government and the opposition a blueprint for elections that would also end the strike.

The currency trading shutdown is the latest government measure to combat the effects of the strike, now in its 52nd day. Many private businesses are still closed and the fuel shortages have forced Venezuelans to wait for hours outside gasoline pumps.

Chavez, who led a botched coup six years before his victory at the polls, has fought back, sending troops to seize control of oil installations and refineries and importing food and gasoline to offset shortages.

Strike leaders claim the government has failed to break the stoppage. But in a first sign of a crack in the oil shutdown, some tanker pilots in the key western oil and shipping hub of Maracaibo went back to work this week. (Reporting by Patrick Markey, additional reporting by Ana Isabel Martinez and Silene Ramirez; editing by Dave Zimmerman; Reuters Messaging: pat.markey.reuters.com@reuters.net; 58-212-277-2656; email: pat.markey@reuters.com) (Xtra clients: Click on topnews.session.rservices.com to see Top News pages in multimedia Web format. If you cannot access the pages, ask your IT department to check your Internet firewall settings. For a technical advisory, click on .)

www.miami.com Posted on Thu, Jan. 23, 2003 By FRANCES ROBLES frobles@herald.com

CARACAS - In what was dubbed ''The great Caracas takeover,'' at least a million people descended on Venezuela's capital Thursday to support President Hugo Chávez in the eighth week of a nationwide strike aimed at ousting him.

The event was also called to mark the 45-year anniversary of the fall of Marcos Pérez Jiménez, Venezuela's last dictator. The irony was intentional: those against Chávez believe he's a dictator in the making whose leftist policies show a tendency toward communism.

''We're out here telling the people this is a legitimate and democratic government,'' said Pedro Carreno, a pro-Chávez legislator. ``Nothing will overthrow it.''

Masses of people waving flags and chanting 'Ooh, Ahh, Chávez no se va'' -- ''Oh, Chávez won't go!'' -- filled major highways and boulevards.

Government leaders claimed ''millions and millions'' of people attended, many of whom drove in from the nation's interior.

While the government tried to paint the march as a spontaneous offering of support, the people arrived on hundreds of buses from around the nation. It was unclear how the travel was financed.

The march was intended as a smack in the face to the opposition movement, which organizes nearly daily rallies here.

www.alertnet.org 24 Jan 2003 00:49

(Adds Chavez reaction in paragraphs 5, 9, 11) By Tom Ashby

CARACAS, Venezuela, Jan 23 (Reuters) - Anti-government oil workers said Venezuelan crude output extended a two-week recovery on Thursday despite their prolonged strike, reaching 25 percent of capacity at 812,000 barrels per day (bpd).

The government has used troops and replacement crews to break the seven-week-old protest, intended to force President Hugo Chavez from office, but still faces huge problems restarting oil refineries and persuading foreign shippers to return to what was the world's fifth-largest oil exporter.

Opposition data lag government estimates on oil output, which peg production above 1 million bpd, but both figures show a steady recovery over the past fortnight.

"The government might get it up to 1.3 or even 1.5 million barrels per day, but alone they will never get back to the 3 million we had before," an opposition spokesman said.

President Hugo Chavez told a massive rally on Friday that output was rising faster than he had expected, and expected to reach 2 million bpd in the first week of February.

In a daily report on the oil industry, dissident employees of state-owned Petroleos de Venezuela (PDVSA) said most of the latest output gain was in the east, where flows reached 498,000 bpd. In the western Lake Maracaibo, production dipped slightly to 222,000 bpd, while flows from southern fields near the Colombian border reached 92,000 bpd, the opposition said.

Oil used to provide more than half of Venezuelan state revenue, and the 53-day-old strike has caused an economic crisis in the OPEC member nation. Chavez announced a massive budget cut and suspended foreign exchange trading Wednesday.

Strikers want to force the left-wing leader to resign and hold early elections in the deeply divided South American nation of 26 million people.

Chavez raised the stakes in the bitter conflict on Thursday, telling supporters that he had already sacked more than 3,000 PDVSA rebels and blaming a spate of oil industry accidents on sabotage by the strikers.

The opposition said the government was neglecting crucial safety procedures in its rush to restore output, blaming the accidents on unqualified strike-breakers.

"The anti-patriotic, privatizing, neoliberal, fascist, coup-plotting, depraved oligarchy thought they would kick us out of power by the end of the year through the oil strike, or rather the oil sabotage, because there is no strike here," Chavez said, adding the strike had failed.

EXPORT STILL SLOW

Despite two weeks of higher flows at the wellhead, oil exports have remained around 500,000 bpd, a fifth of normal levels, according to shipping agents.

About 90 percent of the country's oil refining remains closed, according to opposition estimates, and foreign ship owners say insurance risks due to uncertified port staff and poor safety practices prevent them stopping in Venezuela.

Before the strike, Venezuela pumped 3.1 million bpd of crude oil and refined a third of the oil, supplying 13 percent of U.S. import needs.

The strike has helped drive world oil prices to two-year highs, and caused severe fuel shortages on the local market.

Some blue-collar oil workers have returned to work to avoid losing their jobs. But support for the strike remains strong among skilled workers at oilfields and refineries, and managerial staff in the company head offices.

Bladimiro Blanco, an anti-Chavez member of the Fedepetrol oil union, said 85 percent of his 20,000 membership, including blue collar PDVSA employees and contractors, stayed on strike on Thursday.

PDVSA chief Ali Rodriguez said last week that 75 percent of contract workers have returned to work, while half of the management was still out.

Earlier this week, oil tanker pilots in the western Lake Maracaibo oil hub went back to work after accepting a big pay packet from the government.

The move has eased port operations in the region which pumps half the country's crude oil, but export levels have not recovered partly because foreign ship owners have stayed away.

Pilots in the east of the country have been working normally since the beginning of January, but ship agents say very few tankers are leaving from these ports.

news.ft.com By Andy Webb-Vidal in Caracas Published: January 23 2003 19:28 | Last Updated: January 24 2003 1:09

Top diplomats from six countries are due to meet in Washington on Friday to search for a solution to Venezuela's escalating political and economic crisis.

Colin Powell, US secretary of state, is to meet foreign ministers and representatives of Brazil, Chile, Mexico, Portugal and Spain - members of the so-called "group of friends" of Venezuela.

The meeting follows the failure of a two-month mission by the Organisation of American States to broker a settlement between Hugo Chávez, Venezuela's president, and opposition groups.

Meanwhile, oil exports from what was previously the world's fifth-largest exporter have collapsed to about 10 per cent of previous levels as a result of the strike by oil employees.

Analysts say the crippling and costly stoppage, which has sent crude prices to a two-year high, will leave Venezuela struggling to produce half of its former capacity of 3m b/d until at least several months after the strike is over.

Concerns are also growing that the highly polarised crisis threatens to evolve into civil war if unresolved. A suspected bomb exploded on Thursday near a pro-government rally, killing one person and injuring 12.

"It really is a race against time for the international community to put something on the table and get both sides to agree to avoid a bloodbath," said Miguel Diaz, director of the South America Project at the Center for Strategic and International Studies.

Two proposals were floated this week by Jimmy Carter, former US president, who said an amendment to the constitution that cuts Mr Chávez's mandate from six years to four - ending it this year - could pave the way for early elections. Alternatively, both sides could agree to fix a date in August for a recall referendum on Mr Chávez's rule.

But opposition groups, led by business leaders and union bosses, suspect Mr Chávez will renege on any agreement and are loath to lift the strike, even as it weakens.

Mr Chávez, wary about the inclusion of the US in the "group of friends", warned against the group taking a stance that impinges on Venezuela's "sovereignty".

Diplomats in Caracas said the wording suggested Mr Chávez was ready to risk diplomatic isolation to stay in power, despite opinion polls indicating that as many as 70 per cent want him to step down.

Foreign businesses operating in Venezuela are, meanwhile, becoming concerned over what looks set to be the imposition of foreign exchange controls, as the government appears unready to establish a new currency trading system.

Mr Chávez said exchange controls would replace the central bank's dollar auction system, which was suspended on Wednesday after a 31 per cent slide this year in the domestic currency, the bolívar, and the depletion of foreign reserves.

A central bank source said a new system had yet to be designed and the bank would only act as "cashier", rather than operator.

Economists expect exchange controls to include a preferential dollar rate for key imports, while the authorities turn a blind eye to a parallel market in which the dollar is likely to trade at a premium of anywhere between 20 and 40 per cent.

Bankers said the dollar was on Thursday being offered at about 2,300 bolívars, a 25 per cent premium to Wednesday's close, despite currency trading officially being suspended.

The replacement system will be revealed next week, but businesses are concerned over a range of effects.

"The three principal concerns of the private sector are transparency, flexibility and the possible use of exchange controls as a political weapon," said Antonio Herrera, vice-president of the Venezuelan-American Chamber of Commerce.

"Without having a definite formula in place, you can create an atmosphere of intense speculation and a panic situation in the next few days."

At least in the short term, the impact of exchange controls is more of a concern to domestic businesses than to portfolio investors on Wall Street.

Unlike the impact of the collapse of Argentina's convertibility system in 2001, Venezuela's foreign debt accounts for only 1 or 2 per cent of emerging market debt portfolios.

The prospect of exchange controls is a signal that, for now, the Venezuelan government is intent on avoiding default on its $22bn of external debt.

www.alertnet.org 23 Jan 2003 19:12

CARACAS, Venezuela, Jan 23 (Reuters) - Crude oil output in strike-hit Venezuela rose by 98,000 barrels per day (bpd) on Thursday to 812,000 bpd, or 25 percent of capacity, striking oil workers said.

The government, which is battling to break the seven-week-old opposition-led strike by using replacement workers, says oil production has already surpassed 1 million bpd.

The opposition figures said most of the gains were in the east of the country, where flows reached 498,000 bpd, while western fields' output dipped slightly to 222,000 bpd. Output from the smaller fields in the south reached 92,000 bpd, the opposition said.

Before the strike, aimed at forcing President Hugo Chavez from office, Venezuela pumped 3.1 million bpd of crude oil.