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  HOME | Venezuela (Click here for more Venezuela news)

Chavez Government Fends Off Criticism in Wake of Venezuela Devaluation

By Jeremy Morgan
Latin American Herald Tribune staff

CARACAS -- The government went on to the defensive as officials announced a program of emergency power cuts in and around the capital while economists picked over President Hugo Chávez's new three-tier exchange rate system and the Opposition stepped up the ante by calling a protest march for next week.

At the same time, Javier Alvarado, head of the nationalized state power corporation, Electricidad de Caracas, said the capital and its environs would be divided into six areas which would be subject to rotating four-hour cuts in power supplies starting at midnight Wednesday. Schools and hospitals would not be excluded from the rationing system because of technical difficulties in isolating them from the network, officials said.

Calling on the people to show patriotism by voluntarily cutting their electricity consumption, Alvarado said there was a shortfall in power supply in the region of 1700 MegaWatts, the equivalent of 12 percent of overall supply. "We're asking for solidarity, with our neighbors turning off the lights," he pleaded. Caracas would save 4.8 MW a month with the measures, officials added.

Alvarado said power shortages stemmed from the fact that 70% of the energy generated in the country came from the Caroni Basin, in particular a hydroelectric complex called El Guri. Managers at El Guri, which accounts for an estimated 73 percent of installed generation capacity in the country, recently warned that water levels had fallen so much that the three-dam complex might have to be shut down and the power grid could on the verge of collapse.

Thermal power stations have been ordered to run at maximum capacity, but provide only a small proportion of overall power supply in the country. Distribution of energy-saving lightbulbs has been boosted, and the state bureaucracy has been reminded that it's expected to cut consumption by a fifth.

Meanwhile, the economic cabinet met to discuss the likely fall-out from the devaluation package, which split the old official rate of BsF2.15 to the dollar into two levels. The lower rate of BsF2.60 applies to food and other goods the government deems essential, while a second higher rate of BsF4.60 -- double the old official rate -- has been been put into effect on imported goods and services deemed non-essential. A third rate, the Voldemort rate -- named after the Harry Potter villain who must never be mentioned -- remains in effect for the black market at around 6 bolivars to the dollar. The new higher 4.6 rate has been in force since last Monday, according to Planning and Development Minister Jorge Giordani in an interview with state television.

Giordani threw a little light on the government's motives by saying the aim was to reduce imports by up to 40%, and this would be good for domestic producers. "The private sector has a golden opportunity to grow and have a stronger internal economy," he said.

The government has depicted the two-tier system as a measure designed to protect poorer people from the impact of the devaluation, implying that the higher rate would be levied on luxury items largely bought by the better-off. But Opposition Governor Morel Rodríguez of Nueva Esparta state claimed that 55 percent of purchases made by the average person in the country would be subject to the higher of the two new exchange rates.

Apart from this, there's argument about the likely impact of the measure on inflation, which in Venezuela is already at the highest level of any country in South America -- even with skewed government statistics that use food prices from government-run stores.

As Venezuelans digested the impact of the measure last weekend, Economy and Finance Minister Alí Rodríguez Araque estimated that it would add between three and five percent to consumer prices.

The minister's forecast appears to have met with short shrift from public and pundits alike. The citizenry continued to vote with what was left of their purses and wallets, with retailers reporting queues forming as rumors of renewed or imminent shortages or massive price rises swept parts of the city.

Venezuelans are unofficially estimated to depend on imports for at least half and perhaps as much as 60% of the food they eat. They are also renowned as avidly materialistic consumers.

Foodstore managers vowed they wouldn't put up prices until their old stocks were gone. But in some cases at least, it was claimed they already had even before opening their doors for business last Saturday.

Consumer durables were also in demand, even though these are subject to the higher exchange rate. Evidently fearfull that there might be disorder in a literal free-for-all if they didn't, some electrical downtown goods shops didn't raise their shutters and let in only one customer at a time.

Richard Obuchi, an economist, was quoted as having said that in overall terms the new exchange rates would in effect lead to a 62.3% drop in the purchasing power of the minimum legal wage. At present, this stands at a little under BsF1,000 a month and is paid to not far short of half the people in jobs. Giordani denied that the inflationary outlook for food prices was anything like the media and economist were predicting.

There was a particularly nasty kick in the pants for people intending to travel by air. The head of the Venezuelan Airlines Association announced Monday that passengers who had already bought tickets in advance of international flights that had yet to take place would now have to pay the same amount all over again to compensate for the devaluation.

The rationale for this was that because of devaluation airlines were now having to pay "100 percent" more for fuel and services they paid for in hard currency at the new higher exchange rate of BsF4.30 to the dollar. This was permissable under existing agreements because the devaluation as applied to them had been above 15%, the association claimed.

Representatives of the airlines and officials from the Venezuelan Central Bank (BCV) met Tuesday for talks to discuss this particular aspect of post-devaluation policy. When customers with paid-up tickets in their hands inquired what was going on at airline offices they were told to "come back or call tomorrow" in order to find out.

In the background, speculation continued over what was likely to happen to inflation and the great unmentionable -- the illegal "parallel" exchange rate outside official controls. Mention of the going rate in the black market is illegal under the Foreign Exchange Crimes Law, but that didn't prevent people from making barely disguised references to what now amounts to the third exchange rate operating in the country.

National Assembly Deputy Iroshima Bravo, a legislature from Chávez' ruling United Socialist Party of Venezuela (PSUV) who sits on the finance committee, said that a reform of the Foreign Exchange Crimes Law would make it possible for the BCV to "intervene" in the parallel currency market. The BCV is widely suspected of already doing so, albeit discreetly, and Chávez and Rodríguez Araque have said it will do so in the near future.

Bravo's colleague, Deputy Ricardo Sanguino, also spoke of changing the Foreign Exchange Crimes Law, explaining that while 90% of hard currency for imports was authorized the rest wasn't because it was funded through the black market. Bravo said that if there was anything in this law that prevented the central bank from taking action "we must supress it or reform it."

But it was by no means clear just what bit of this law Sanguino and Bravo might have been talking about, or exactly what they had in mind. Confusing the picture further, Bravo noted that the president had ordered the Foreign Exchange Administration Commission (Cadivi), which adjudicates applications for access to hard currency, to make the controls more "agile". With this, she pronounced, "we will guarantee that a different market is not utilized."

Commerce Minister Eduardio Samán was in no mood to apply the kid gloves to retailers who jumped the gun on raising prices. Ordering officials into a swarm of raids, he said price gougers would be treated as "usurers" and promptly closed down 70 premises after officials claimed they'd been breaking price controls.

Samán warned that the government would "respond with direct imports" to any "speculative wave" by vendors. The president could "easily take control" of 10 to 20% of the school materials market and use 60,000 trucks in order to enforce the government's will, he claimed.

María León, Minister for Women and Gender Equality, announced that an "army" of 200,000 men and women were to be "mobilized" in "brigades" to back up the government's crackdown on errant shopkeepers. "We can't accept speculation any more," she declared.

An official with the government's consumer protection agency, Indepabis, accused price-gougers of "conspiring against the economy" and vowed that they would be expropriated if necessary. However, inquiries to her office from intending air passengers worried about getting stranded elicited no clear response with respect to what action might be taken on that one.

National Assembly Deputy Rodrigo Cabezas, a former finance minister, took critics of the devaluation to task. "Sectors of the counter-revolution" had been pressing the government for years to devalue and now that it had they were being bone-headed by complaining, he said.

Cabezas claimed that all this was part of a plot leading up to political action "so that nobody discusses the measure from an economic perspective."

As if on cue, the Opposition announced its plan for a march on January 23. Caracas Metropolitan Mayor Antonio Ledezma insisted the protest would be made in the interests of national unity unity because devaluation would hit the poorest hardest, and this was what the government was doing.

Deputy Ismael García of Pedomos, the social democratic party which once backed Chávez but is now in Opposition, claimed that devaluation had been prompted by a bout of capital flight which he attributed to senior officials and high-placed supporters of the government using recent issues of state debt bonds to circumvent currency controls. As it is, this practice has been going for years, with the authorities turning a blind eye.

Conindustria, which represents small and medium-sized manufacturers, warned that the country faced a very complicated year in the wake of the devaluation package. Consecomercio, the retailers' organization, urged the government to cut state spending -- the last thing it's expected to do in the run up to the parliamentary elections next September.


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