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Chavez changes currency { February 7 2003 }

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Chavez Changes Currency System
Controls Aimed at Punishing Strikers

By Scott Wilson
Washington Post Foreign Service
Friday, February 7, 2003; Page A23

CARACAS, Venezuela, Feb. 6 -- Emboldened after outlasting a long general strike, President Hugo Chavez today established a new foreign exchange mechanism and warned that the system would punish those who used the strike in an effort to drive him from power.

The new currency system was one of a series of legal and economic retaliatory moves threatened by Chavez following the collapse of the two-month general strike. The new monetary system is intended to protect Venezuela's foreign reserves by setting a fixed rate for the dollar.

Chavez also established a new currency control board that will decide who can receive dollars in exchange for Venezuela's weakened currency, the bolivar, and set maximum prices for basic food products, medicine, transportation, tuitions and rent. The government suspended trading of the bolivar on Jan. 22 as it plummeted in value against the dollar in the midst of the crippling general strike.

During a speech earlier this week, Chavez pledged that there would not be "a single dollar more for coup plotters," prompting business leaders to warn today that the new system would be used to punish them for their political opposition. The president named a retired army captain, Edgar Hernandez Behrens, who participated with Chavez in a failed coup against the government 11 years ago, to head the currency board.

Carlos Fernandez, the chief opposition leader who heads Fedecamaras, the country's largest business association, said Chavez's threat to withhold dollars from companies that participated in the strike would affect 80 percent to 90 percent of the private sector.

"The most serious part of this is the discretion the government will have over who gets dollars and who does not," Fernandez said. "These businesses will have no way to maintain stable prices for the products they import. This completely violates the state of law and will represent a huge disruption of the market."

Chavez said the moves were necessary to protect the nation's battered economy.

"We have taken steps in time to avoid capital flight," Chavez said in a triumphant national address that began Wednesday night and lasted into this morning. "We have arrived at the ideal solution to defend Venezuela's economy."

A self-styled revolutionary, Chavez has emerged from the general strike invigorated by his opponents' failure to force him from office or submit to early elections. But in surviving the broad-based move against him, Chavez now faces the more challenging task of governing a country in dire financial straits. Some economists here predict that Venezuela's economy could shrink by as much as 25 percent this year, and the government has been forced to reduce its budget by 10 percent, or $2.5 billion, for the year ahead.

Much of the resistance to Chavez since he was first elected in 1998 on a pledge to bring about a "social revolution" on behalf of the country's poor majority has come from the private sector and the state oil company, Petroleos de Venezuela. But he is using the strike and its aftermath to weaken those pockets of opposition. So far, Chavez has fired 5,100 dissident oil-company employees, some of whom participated in a walkout in April that ended with his brief ouster in a military-led coup, while moving today to impose currency controls that could greatly strengthen the government's influence over private industry.

At the same time, Chavez has hardened his position in negotiations being mediated by the secretary general of the Organization of American States, Cesar Gaviria, to end the standoff. Chavez ruled out a proposed constitutional amendment this week that would cut his current six-year term to four years, leading to new elections next year. In contrast to the conciliatory tone he adopted after returning to office in April, Chavez has also embarked on a round of score-settling with his political opponents.

On Wednesday, the government began investigating a national television station owned by Gustavo Cisneros, a media magnate and Chavez opponent. The inquiry will focus on the truthfulness of the station's broadcasts during the strike. Government investigators were joined at Venevision by 1,000 Chavez supporters, who rallied outside the station for hours. A day earlier mobs attacked City Hall in Caracas, run by opposition Mayor Alfredo Peña, with stones and scattered gunfire. Chavez has not condemned either attack.

"This is a chain reaction," said Felipe Mujica, a congressman from the Movement Toward Socialism party and a member of the opposition umbrella organization known as the Democratic Coordinator. "It's clear that his goal right now is to intimidate and harass the opposition. He knows the cost to the country has been high, but he is trying to use it now to deepen the conflict and carry out the rest of his project."

In his address this morning, Chavez warned that the opposition would now resort to "economic terrorism" in its bid to remove him from power. He acknowledged that the government has already spent $507 million to import unleaded gasoline and diesel fuel since the strike began.

But he said his efforts to restart the state oil company, many of whose workers are still striking, have brought production to 1.9 million barrels a day, or almost two-thirds of its capacity before the strike started. The company provides the government with nearly half its revenue, and the United States with 15 percent of its oil imports.

Since the strike began, Venezuela has used roughly $2 billion of its foreign currency reserves -- or about 25 percent of its pre-strike holdings -- to prop up the bolivar and finance a makeshift supply system that has kept the country in food and gasoline. Chavez said the country still has enough foreign exchange to finance imports for 10 months if necessary.

© 2003 The Washington Post Company

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