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Tough times ahead in post-Chavez Venezuela

Monday - 4/1/2013, 4:30pm  ET

FILE - In this Oct. 24, 2007 file photo, a woman looks at oversized versions of the new Venezuelan currency, coined the 'Strong Bolivar' in Caracas, Venezuela. Thousands of companies suffer under currency controls that all but deny them the U.S. dollars they need to import vital items into this oil-rich country, from food to cars to spare parts, even gasoline. Venezuelan firms must sell their wares at state-controlled prices that don't reflect the 22 percent inflation rate, the highest in Latin America. (AP Photo/Howard Yanes, File)

FABIOLA SANCHEZ
Associated Press

CARACAS, Venezuela (AP) -- Doing business in post-Hugo Chavez Venezuela is not for the faint of heart.

Thousands of companies suffer under currency controls that all but deny them the U.S. dollars they need to import vital items into this oil-rich country, from food to cars to spare parts -- even gasoline. Venezuelan firms must sell their wares at state-controlled prices that don't reflect the 22 percent inflation rate, the highest in Latin America. Even Venezuela's socialist government admits the controls don't work -- but its attention is focused on the April 14 election to replace the late President Hugo Chavez.

It's a largely improvised economic policy that, despite oil earnings, has turned people's lives upside down and produced shortages of flour, coffee, butter and medicines. It's also a mess that will immediately challenge whoever becomes the president of this 28 million-person country.

Jeni Suarez, a 51-year-old Caracas homemaker, experienced the crisis first hand after waiting three months for a colonoscopy at a public hospital. When she got there, doctors told her they needed new parts from abroad to perform the procedure, and the deliveries weren't coming any time soon because the hospital didn't get dollars from Venezuela's government to buy them.

"I have an intense pain, and I don't know what to do," Suarez said after the appointment at Jose Maria Vargas Hospital.

Such economic headaches have, in fact, defined much of the late president's legacy here.

Chavez imposed draconian currency controls a decade ago to punish business leaders who had mounted a crippling opposition strike. He was also trying to stem the flight of dollars abroad as political instability spooked investors.

"The policy of currency controls is very negative for the country and hasn't met any of its objectives," said Alejandro Grisanti, an analyst at investment bank Barclays Capital. "It hasn't stopped capital flight. It hasn't stopped inflation, (and) it has been very costly for the treasury."

Neither Chavez successor Nicolas Maduro nor opposition candidate Gov. Henrique Capriles has delivered specific proposals to address the crisis, said Alejandro Gutierrez, an economics professor at the University of the Andes. The most effective solution would likely involve unpopular measures such as a mass devaluation of the currency to spur exports, or an end to price controls.

Capriles has spent much of the campaign trying to assure Chavistas he will not take away their government-funded social programs, while Maduro vows to continue the late leader's legacy, which would include the controls.

"We are facing a transition situation, and they are going to wait until this situation is cleared up," Gutierrez said Monday.

Only Capriles has suggested a possible way of injecting more dollars into the economy: Ending subsidized oil exports to Cuba that began under Chavez.

The late leader had aided his allies by providing oil at preferential terms to more than a dozen countries in Latin America and the Caribbean. Cuba receives Venezuelan oil worth around $3.2 billion a year, estimates Jorge Pinon, a University of Texas energy analyst. Nicaragua gets about $1.2 billion worth of oil, according to economist Nestor Avendano.

Yet whoever wins the vote won't be able to put off action indefinitely. The wave of national mourning for Chavez and the heated campaign have so far masked the plight of dollar-poor food makers, dairy farmers, ranchers and auto manufacturers. But consumers are feeling the shortages of appliances, automobiles and staples such as flour, coffee, butter and medicines.

Venezuela's automakers are operating at 50 percent capacity because they don't have dollars needed for auto parts made abroad, according to Omar Bautista, president of a national carmakers group that includes Ford, General Motors and Mitsubishi. And foreign suppliers are hesitant to sell to Venezuela because they don't know when or if they'll be paid, Bautista said in remarks reported by Caracas' El Universal newspaper.

"New (parts) shipments are being held back as long as we cannot honor these contracts," Bautista said.

Even as Venezuelans fight for dollars, the country sits atop the world's largest proven oil reserves, with those exports delivering nearly $1 trillion in revenues to the country since Chavez was elected in 1999.

Thanks to oil, Chavez's government had invested $500 billion on social programs since 1999, according to Planning Minister Jorge Giordani. Venezuela's poverty rate fell from 50 percent in 1999 to 32 percent in 2011 while unemployment dropped from 13 to 8 percent.

After the 2002-03 strike, Chavez began using the enormous influx of dollars as a political weapon, with the government selling businesses limited quantities of dollars at a rate that didn't reflect the bolivar's real black market value. The official rate is now about a quarter of what the dollar sells for on the black market.

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