Tough Times Ahead in Post-Chavez Venezuela

Tough Times Ahead in Post-Chavez Venezuela
By FABIOLA SANCHEZ Associated Press
CARACAS, Venezuela April 1, 2013 (AP)

Doing business in post-Hugo Chavez Venezuela is not for the faint of heart.

Thousands of companies suffer under currency controls that all but deny
them the U.S. dollars they need to import vital items into this oil-rich
country, from food to cars to spare parts — even gasoline. Venezuelan
firms must sell their wares at state-controlled prices that don't
reflect the 22 percent inflation rate, the highest in Latin America.
Even Venezuela's socialist government admits the controls don't work —
but its attention is focused on the April 14 election to replace the
late President Hugo Chavez.

It's a largely improvised economic policy that, despite oil earnings,
has turned people's lives upside down and produced shortages of flour,
coffee, butter and medicines. It's also a mess that will immediately
challenge whoever becomes the president of this 28 million-person country.

Jeni Suarez, a 51-year-old Caracas homemaker, experienced the crisis
first hand after waiting three months for a colonoscopy at a public
hospital. When she got there, doctors told her they needed new parts
from abroad to perform the procedure, and the deliveries weren't coming
any time soon because the hospital didn't get dollars from Venezuela's
government to buy them.

"I have an intense pain, and I don't know what to do," Suarez said after
the appointment at Jose Maria Vargas Hospital.

Such economic headaches have, in fact, defined much of the late
president's legacy here.

Chavez imposed draconian currency controls a decade ago to punish
business leaders who had mounted a crippling opposition strike. He was
also trying to stem the flight of dollars abroad as political
instability spooked investors.

"The policy of currency controls is very negative for the country and
hasn't met any of its objectives," said Alejandro Grisanti, an analyst
at investment bank Barclays Capital. "It hasn't stopped capital flight.
It hasn't stopped inflation, (and) it has been very costly for the
treasury."

Neither Chavez successor Nicolas Maduro nor opposition candidate Gov.
Henrique Capriles has delivered specific proposals to address the
crisis, said Alejandro Gutierrez, an economics professor at the
University of the Andes. The most effective solution would likely
involve unpopular measures such as a mass devaluation of the currency to
spur exports, or an end to price controls.

Capriles has spent much of the campaign trying to assure Chavistas he
will not take away their government-funded social programs, while Maduro
vows to continue the late leader's legacy, which would include the controls.

"We are facing a transition situation, and they are going to wait until
this situation is cleared up," Gutierrez said Monday.

Only Capriles has suggested a possible way of injecting more dollars
into the economy: Ending subsidized oil exports to Cuba that began under
Chavez.

The late leader had aided his allies by providing oil at preferential
terms to more than a dozen countries in Latin America and the Caribbean.
Cuba receives Venezuelan oil worth around $3.2 billion a year, estimates
Jorge Pinon, a University of Texas energy analyst. Nicaragua gets about
$1.2 billion worth of oil, according to economist Nestor Avendano.

Yet whoever wins the vote won't be able to put off action indefinitely.
The wave of national mourning for Chavez and the heated campaign have so
far masked the plight of dollar-poor food makers, dairy farmers,
ranchers and auto manufacturers. But consumers are feeling the shortages
of appliances, automobiles and staples such as flour, coffee, butter and
medicines.

Venezuela's automakers are operating at 50 percent capacity because they
don't have dollars needed for auto parts made abroad, according to Omar
Bautista, president of a national carmakers group that includes Ford,
General Motors and Mitsubishi. And foreign suppliers are hesitant to
sell to Venezuela because they don't know when or if they'll be paid,
Bautista said in remarks reported by Caracas' El Universal newspaper.

"New (parts) shipments are being held back as long as we cannot honor
these contracts," Bautista said.

Even as Venezuelans fight for dollars, the country sits atop the world's
largest proven oil reserves, with those exports delivering nearly $1
trillion in revenues to the country since Chavez was elected in 1999.

Thanks to oil, Chavez's government had invested $500 billion on social
programs since 1999, according to Planning Minister Jorge Giordani.
Venezuela's poverty rate fell from 50 percent in 1999 to 32 percent in
2011 while unemployment dropped from 13 to 8 percent.

After the 2002-03 strike, Chavez began using the enormous influx of
dollars as a political weapon, with the government selling businesses
limited quantities of dollars at a rate that didn't reflect the
bolivar's real black market value. The official rate is now about a
quarter of what the dollar sells for on the black market.

At the same time, the government's own dollar supply may be diminishing.
Oil income trailed off from $5.6 billion in 2008 to $3.8 billion in
2012, partly because of slumps in production and refining. The
government also spent heavily to re-elect Chavez in October and help
Maduro's candidacy after the president's March 5 death, further
squeezing the dollar supply to private businesses.

As long as government dollar sales are frozen, "foreign exporters are
not going to start selling to us," said Carlos Larrazabal, president of
one of Venezuela's largest business chambers. "We cannot understand how
it can be that we have a country with an oil price of more than 100
dollars per barrel and we have this scarcity of currency."

In a bid to inject some liquidity into the economy — and a tacit
admission that the currency controls aren't working — Maduro's interim
government held a one-day auction of $200 million last week.

Jorge Roig, vice president of the Fedecamaras business chamber, said the
rules for bidders were late in coming, overly complicated and
discouraged small and medium-size firms from participating. At least $1
billion more is needed to keep companies rolling, Roig told Caracas'
Union Radio on Wednesday.

The Venezuelan Association of Medical, Dental and Laboratory Equipment
says its members collectively owe $300 million for past imports, which
were suspended in November because they couldn't pay.

"There are no test tubes to collect blood samples. There are no
colostomy bags. No electrocardiogram paper. No X-ray plates," said
Anerlin Garcia, the group's executive director.

Simon Nobile, president of the Venezuelan Association of Pasta Foods,
says more dollars alone won't help. The government also must raise its
official prices on hundreds of products because they don't reflect the
effects of inflation, he said.

Eleven manufacturers in Nobile's association employ 5,000 people but are
close to shutting down because the price of pasta has been frozen for
two years. The official selling price of 68 U.S. cents per kilogram (2.2
pounds) makes up only half the production cost, Nobile said. He said
firings could happen at his company as early as April.

"If the government doesn't make a decision," he said, "this is the end."

———

AP writers James Anderson and Christopher Toothaker contributed to this
report.

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