Chavez opponents say currency controls will collapse economy

CARACAS, Venezuela -- Venezuela's business leaders warned Thursday that foreign currency controls imposed by President Hugo Chavez will breed corruption, fuel inflation and push the nation's fragile economy to the brink of collapse.

They also suspect Chavez will use the controls to repress opponents and punish those who staged an unsuccessful two-month strike seeking to oust him.

Chavez announced the controls late Wednesday night, two weeks after suspending the sales of U.S. dollars as the bolivar currency sank to record lows. The fixed exchange rate took effect Thursday, and trading in dollars resumed.

The new controls fix the bolivar currency's value at 1,596 per dollar for sales and 1,600 for purchases, but the government can adjust those rates as it sees fit. The bolivar closed at 1,853 on Jan. 21, the last day of trading, but on the black market it traded at 2,500.

Chavez vowed to deny access to U.S. dollars for "coup-plotting" corporations that participated in the strike -- a major blow in a nation that imports 60 percent of its raw materials and most of its food.

"This lends itself to any type of witch hunt," said Antonio Herrera, vice president of the Venezuelan American Chamber of Commerce. "There are no court rulings of any type defining which businesses are 'coup plotters' and which aren't."

Many news media supported or promoted the strike, which ended this week in all sectors but the oil industry.

Past governments -- including the 1984-1989 Jaime Lusinchi administration -- used currency controls to restrict newspapers' ability to buy newsprint, 100 percent of which is imported.

"This is a serious threat," said Miguel Otero, director of El Nacional newspaper. "Given that (Chavez) labels all the newspapers coup plotters, we can conclude there will be no dollars for us."

Chavez says strike organizers should blame themselves for the controls, which he said would help Venezuela pay its foreign debt.

The strike prompted nervous citizens to exchange their Venezuelan bolivars for dollars as the bolivar lost 25 percent of its value this year. Inflation topped 30 percent and foreign reserves dropped by $2 billion to about $11 billion.

The work stoppage cost the economy at least $4 billion and forced the oil-rich nation to spend millions of dollars importing gasoline. Analysts predict the economy could shrink 25 percent this year after an 8 percent contraction in 2002.

A commission appointed by Chavez and the Central Bank will decide who can buy dollars. Food, medicine and other basic imports have priority.

Dollar requests could take as long as 45 days to process under the new rules. That could force many businesses to buy black market dollars at higher prices to avoid bureaucratic delays or rejections, opening the door to more inflation and corruption, analysts said.

Sales of local government bonds, which are sold overseas for foreign currency, also will be restricted, Chavez said.

Store owners opening for the first time since the strike began Dec. 2 worried the exchange controls will create shortages in this import-dependent country.

"We're raising prices to protect ourselves," said Luis Diaz, an electronics store owner who fired 10 of 12 employees so he could afford to reopen this week.

Before the strike, Venezuela was the world's fifth-largest oil exporter and a major U.S. supplier, producing 3.2 million barrels a day.

As the industry walkout continues, the government says it has increased production to 1.8 million barrels a day, although dissident staff with the state-owned oil monopoly Petroleos de Venezuela, S.A., say production is at 1.2 million barrels.

PDVSA has fired 9,000 of 40,000 workers, company spokesman Rafael Gomez said Thursday. He said it was unlikely they would be rehired with any settlement -- a key issue in ongoing electoral talks between the government and the opposition.

The Organization of American States is mediating the talks, which are addressing possible early elections on Chavez's term or a revocatory referendum in August, as allowed by the constitution.

Chavez critics accuse him of mismanaging the economy, seeking to grab authoritarian powers and splitting the nation along class lines. Chavez counters that he is democratically elected and his foes want to spark a coup.