Venezuela's currency plunges; banks to strike against Chavez
Thursday, January 9, 2003
CARACAS, Venezuela -- Venezuela's currency reached a record low against the dollar Wednesday after banks said they will close for two days to support a 38-day-old strike seeking President Hugo Chavez's ouster.
Demand for dollars soared on speculation that Chavez's government, facing a fiscal crisis because of dwindling oil and tax revenue, would devalue the bolivar to balance its budget. Nervous depositors wanted dollars before the banks closed, not knowing what the bolivar would be worth when banks reopen next week.
Jose Torres, president of Fetrabanca, the umbrella group for bank workers unions, said banks will shut down today and Friday, adding weight to a strike that has dried up oil income in the world's fifth largest oil exporter.
The bank strike underscored the intransigence of both sides, despite international pleas for them to help the Organization of American States negotiate a solution to the standoff.
The bolivar plunged by as much as 13 percent before its official close at 1,510 bolivars per dollar, down 6 percent, said the Central Bank, which uses an average of all the day's trading prices. Previously the lowest close was 1,492 per dollar on Sept. 15.
Earlier Wednesday, the government had tried to raise money by offering 40.5 billion bolivars in government bonds, worth at $29 million at that point. There were no takers.
National guardsmen fired tear gas Wednesday to disperse pro-Chavez street activists throwing objects at the National Elections Council building, where opposition leaders were holding a news conference.
The strike leaders are calling for a Feb. 2 nonbinding referendum on Chavez's rule and want him to schedule elections in 30 days if he loses the referendum.
Chavez insists the constitution only requires him to respect a possible recall referendum next August, the midpoint of his six-year term.
Chavez has gone so far as to threaten nationalizing striking banks, which have opened just three hours a day since Dec. 9. Thousands line up each morning outside Caracas banks that are splattered with graffiti reading "I want my money!" and "Banker Thieves!"
Before Wednesday, the bolivar's value had fallen by more than 45 percent since Chavez abandoned exchange controls last year to curb capital flight. Venezuela spent $6 billion in 2001 to support the bolivar.
The strike briefly sent international oil prices above $30. The state oil company is seen as gradually picking up activity but is still operating well below normal. Crude output is estimated at around 400,000 barrels per day, compared to the pre-strike level of 3 million barrels a day. Exports, normally 2.5 million barrels a day, are at 500,000 barrels a day.
Chavez has managed to somewhat stabilize domestic gasoline supplies through imports. Caracas streets were jammed with traffic Wednesday, and many businesses were open. However, international franchises, large malls and many factories were closed, emptying industrial parks. Public schools opened for the new year on Monday but some private schools have delayed classes.
Three Venezuelan navy ships were collecting Colombian rice, beans and other staples to alleviate strike shortages in Venezuela.
Late Tuesday, Energy Minister Rafael Ramirez vowed to crush the strike by decentralizing the oil monopoly, where 30,000 workers are on strike.
Chavez's government will cut jobs at the Caracas headquarters of the company, a hotbed of dissent where 7,000 are employed, Ramirez said. His government is systematically firing strikers at the giant company.
Paul MacAvoy, an economics professor at Yale University who has followed the industry for 30 years, said he's never seen a restructuring plan like the one proposed by Chavez.
Since production, refining and distribution operations are scattered, a single operational headquarters -- rather than two separate ones, as proposed by Chavez -- is the industry norm, he said.
"This looks like a political ploy to show (Chavez) supporters the company is being dismantled for their benefit," MacAvoy said.
The strike has all but shut Venezuela's oil industry, which contributes half of government income. Other revenue is down because thousands of businesses closed, affecting tax collection. The government is cutting its $25 billion 2003 budget by 10 percent.
Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, said the planned PDVSA shake-up "could become a problem rather than create more efficiency."
"This is certainly not a move seen in a democracy. It looks like something done under a controlling state," he added.