In Venezuela, Caldera's Shackles Have Business Chafing

A siege mentality is settling over Venezuela's business community. For a full month, merchandise imports and payments by businesses to foreign creditors have been virtually halted by draconian currency controls decreed by President Rafael Caldera on June 27 to curb a huge capital flight. As inventories of components and materials dwindle, factories are shutting down. Parts shortages have forced General Motors de Venezuela to move up its annual two-week August closure to late July. Shortages of food and other basic consumer goods may soon appear. And defying Congress, Caldera on July 22 renewed his earlier suspension of basic constitutional rights such as protections against arbitrary arrests and property seizures, overriding an attempt by legislators to reinstate them.

So far, his tough tactics are popular with voters. The extraordinary powers are necessary, Caldera says, to crack down on activities such as hoarding and bank fraud by Venezuela's wealthy. His populist denunciations of speculators and of a "bankers' mafia," along with price controls on 150 basic consumer items, have boosted his standing in polls to 80%, up from 40% in June.

NEW FEARS. But for business executives, worries about recession and inflation are now being overlaid by fear of missteps that could land them in jail for failure to comply with complex new regulations on currency, prices, and inventories. Instead of taking painful measures to deal with basic problems such as inflation, the government's attitude is "let's find scapegoats, and meanwhile the economic problems are getting worse," says chocolate manufacturer Jorge Redmond, president of the Venezuelan Industrial Assn. Edgard Romero, head of Fedecmaras, the business federation, warns that the tight currency controls will lead to scarcities and unemployment.

Caldera and his advisers say the controls are short-term measures to stanch a $4 billion capital flight triggered by a bank failure last January. But the regulations are so complex that after four weeks, the official currency control board still had not approved any requests by businesses for dollars to service foreign debt and finance imports. The impact is widespread. Imports from Miami worth $2 billion a year have stopped. Chrysler de Venezuela is delaying the start of a $12 million expansion and is shutting down for three weeks of enforced vacations in August. And many Venezuelan businesses may already be in arrears in payments gn foreign obligations, from letters of credit to loans.

In August, says Finance Minister Julio Sosa Rodriguez, the government will unveil a broad economic strategy to narrow the budget deficit. It has ballooned to 18% of gross domestic product because of $6 billion spent to bail out faltering banks. Proposals include increased taxes on consumption and a hike in the subsidized price of gasoline. Sosa also says the government will start easing its massive controls early next year. But skeptics fear they will prove tough to dismantle.

TARGETS. One reason is that Caldera is benefiting politically from his populist interventions, including the fingering of scapegoats through such actions as police seizures of alleged hoarders' inventories. The political payoffs from such moves are tempting. "When the government goes down in the polls, it takes another measure," says Miguel Rodriguez, an economist at Caracas' Institute of Superior Studies of Administration (IESA).

However, Caldera's suspension of guarantees may make it hard to find buyers for $4 billion worth of state-owned companies that the government hopes to sell over the next year, including part of its remaining 49% share in phone utility CANTV, run by GTE Corp. Revenue from the privatizations is badly needed to shrink the budget deficit. But Caldera's assertion of the government's right to seize private property without compensation is "a hard thing to sell to boards of directors," observes IESA Director Janet Kelly.

Rodriguez, who was Planning Minister and an architect of free-market reforms under former President Carlos Andres Perez, takes an even gloomier view. He predicts that a few months hence, as shortages spread, the government will have to expand imports at the risk of straining the country's external finances. In such a new crisis, instead of easing controls on the economy, populist Caldera could be tempted to tighten them even more.

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