MercoPress. South Atlantic News Agency

Chavez promises less inflation and new currency

Pte. Chavez promised to reduce the inflation

Venezuelan President Hugo Chavez announced Friday plans to reduce the value-added tax and reform the currency, in an effort to curb inflation and product scarcity.

The value-added tax is set to be reduced in two stages in the current year by a total of 5 percentage points in March and June. The tax is set to drop to 9%. In the long run, Venezuela plans to do away altogether with the tax on the amount goods' values increase at each stage of production. Populist Chavez said taxes on wealth and luxury goods are to compensate the treasury for the loss of income from the tax, but did not give further details. Regarding currency reform, the Bolivar is set to lose three zeros in February 2008. While the exchange rate of the Bolivar has been fixed by the government since 2003 at 2.150 bolivares to one US dollar, its black-market value has tumbled, trading recently at about 4.000 bolivares to the dollar. The new currency would simplify transactions, improve efficiency, generate confidence and rein in inflation, he said. "With the new measures, we can push this year's inflation figure down by three percentage points," Chavez said. Last year, despite state-imposed price controls in basic foodstuffs, Venezuela had an inflation rate of 17%. Price controls have contributed to scarcity, with meat, sugar and flour hard to find in shops. Chavez had anticipated Thursday that his government has already prepared a bill to nationalize food production and distribution should producers and distributors violate federal price regulation for meat and other mass products. He said the legislation would allow the nationalization of cattle farmers, slaughterhouses and meat distributors, among others. Chavez has threatened to nationalize businesses that violate prices set by authorities for meat, chicken and eggs. The business community rejects the move, and has requested that legally-prescribed sanctions prevail. Chavez has already begun implementing plans to nationalize the country's telecommunications and energy industries as part of his socialist agenda. Venezuela's parliament, which is controlled by Chavez supporters, last month gave the president the authority to rule by decree for 18 month period.