MercoPress. South Atlantic News Agency

Inflation and shortages expose Chavez jittery economics

Faced with accelerated inflation and shortages of basic foods Venezuela's president Hugo Chavez signed decrees against speculation and hoarding which enables authorities to take over businesses that produce or retail food, if they refuse to sell or are in violation of regulated prices.

The "popular interest defence" bill declares all food production and distribution organizations of national interest and authorizes the "preventive temporary occupation" of those businesses that "hoard, speculate, boycott and/or practice any other conduct which affects the consumption of food or other products under the price control's system". For reasons of "food security and sovereignty", the persistence in crimes of speculation, hoarding, refusal to sell or closing the business will entitle the government to the immediate seizure of all goods and products, plus fines and temporary closures when "the quality and price of goods has been altered". However food producers and economists say the measures, which include removing three zeroes from Venezuela's currency, are likely to backfire and generate even more acute shortages and higher prices for consumers. Inflation climbed to an annual rate of 18.4 % in January, the highest in Latin America and far above the official target of 10 to 12%. Chávez called for the creation of "committees of social control," essentially groups of his political supporters whose purpose would be to report on farmers, ranchers, supermarket owners and street vendors who circumvent the state's effort to control food prices. Venezuela has the largest conventional oil reserves outside the Middle East and is still enjoying a revenue windfall from historically high oil prices, resulting in a surge in consumer spending and lavish government financing for an array of social welfare and infrastructure programs. Dollar reserves at the central bank total more than 35 billion. The economy grew by more than 10% last year helping Chavez glide to a re-election victory in December with 63% of the vote. But economists who have worked with Chavez's administration say that soaring public spending is overheating Venezuela's economy, generating imbalances in the distribution of products from sugar to basic construction materials like wallboard. Public spending grew last year by more than 50% and has more than doubled since the start of 2004, as Chavez channelled oil revenues into social programs and projects like bridges, highways, trains, subways, museums and, in a departure for a country where baseball reigns supreme, soccer stadiums. In an indicator of concern with Chavez's economic policies, which included nationalizing companies in the telephone and electricity industries, foreign direct investment was negative in the first nine months of 2006. The last year Venezuela had a net investment outflow was in 1986. Venezuela's currency the Bolivar plunged in black market trading in recent weeks falling more than 30% to 4.400 to the US dollar following Chavez's nationalization of Venezuela's main telephone company, CANTV, and its largest electric utility, Electricidad de Caracas. Officially the Bolivar is quoted at about 2,150 to the dollar. Fears that more private companies could be nationalized have put further pressure on the currency as rich Venezuelans try to take money out of the country. Concern over capital flight has made the government jittery, with vague threats issued to newspapers that publish unofficial currency rates.