Aug. 22 (Bloomberg) -- Venezuelan inflation may accelerate to 27 percent in 2008, above the government's 19.5 percent target, as rising consumer demand continues to outpace supply in the oil exporting economy, Finance Minister Ali Rodriguez said.

The government is working to curb inflation, the fastest among the 79 economies tracked by Bloomberg, with policies aimed at boosting productivity, especially in agriculture, Rodriguez said today in an interview at his office in Caracas.

``Venezuela has an income that's several times larger than its productive capacity,'' Rodriguez said. ``At the levels we're at now, we could get to 27 percent inflation, but we're applying measures so we don't get to that level.''

President Hugo Chavez has tapped surging revenue from oil exports to boost government spending on infrastructure and social programs, add workers at state companies and ministries, and nationalize private businesses. Rising liquidity helped push up consumer prices 33.7 percent in July from a year earlier. Inflation was 22.5 percent in 2007.

Food and drink prices led inflation in July, rising 49.9 percent from a year earlier, according to the central bank.

Rodriguez, 70, said the government won't resort to ``neoliberal'' measures designed to tame consumer demand. His inflation forecast for 2008 is slightly lower than the 28.7 percent median forecast by four analysts in a Bloomberg survey.

Windfall

Chavez is using a windfall from oil exports to take control of more ``strategic'' industries this year, scaring off investors even as record crude prices fuel a fifth year of economic growth in the South American country.

The economy will probably expand about 6.7 percent this year, down from 8.4 percent last year, Rodriguez said.

``If you compare the first half of the year with last year, there was clearly a slowdown,'' said Miguel Carpio, an economist at Banco Federal CA in Caracas. ``One problem is inflation, and the other is that investment is slowing down.''

Businesses in the non-oil sector have shied away from investing any more than they have to this year after the government started nationalizing companies. Since the beginning of 2007, Chavez has unveiled plans to take over oil ventures, the electricity industry, the telecommunications sector, cement and steel companies and the country's third-biggest bank.

Investment Growth

Investment grew 3.7 percent in the second quarter, down from 25 percent in the same quarter a year earlier, Goldman Sachs Group Inc. economist Alberto Ramos wrote in a note to investors this week.

Venezuela is close to reaching an agreement with Spain's Banco Santander SA for the takeover of Banco de Venezuela, and with Luxembourg-based Ternium SA for the nationalization of its stake in Siderurgica del Orinoco, Venezuela's biggest steelmaker, Rodriguez said today.

The government expropriated the local unit of Mexico's Cemex SA this week after the company declined to accept the government's compensation offer. Cemex will send a new team of negotiators to Venezuela to restart talks with the government on August 25, Vice President Ramon Carrizales said today in comments broadcast by state television.

Venezuela will compensate minority shareholders in both Cemex and Banco de Venezuela through public offerings to buy back their shares, Rodriguez said.

The finance minister said the government doesn't have any plans to nationalize more companies.

``It will all depend on the demands of the economy,'' he said. ``I think there's enough strength now to go in the right direction. We've already recuperated the sovereignty of Venezuela's natural resources.''

Bond Buyback

Rodriguez also said the government is still interested in buying back some of its international bonds. The finance minister said there aren't any immediate plans to carry out a buyback or to sell more international bonds.

Venezuela will continue to sell dollar-denominated securities from its investment portfolio to provide access to foreign currency and stabilize the bolivar in the parallel, unregulated market. Venezuelans turn to the parallel market when they can't get permission from the government to buy dollars at the official exchange rate of 2.15 per dollar.

Government dollar bond sales to local investors have helped the bolivar rally 37 percent this year to 3.6 per dollar, traders said.

``We have an important amount of investment in paper, and of course you need to have an amount of paper that's not exaggerated, because they carry risks, too,'' Rodriguez said. ``We've been carrying out operations and we're going to continue to do that.''

Venezuela, the biggest oil exporter in the Western Hemisphere, doesn't see a need for an increase in oil production. Rodriguez said the spike in crude prices has been caused by speculative investors.

``The prices we're suffering aren't a product of an imbalance in supply and demand,'' the finance minister said.

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net; Jose Enrique Arrioja in New York at jarrioja@bloomberg.net.

Last Updated: August 22, 2008 18:29 EDT