The Miami Herald
Thu, May. 28, 2009

Consumers in Venezuela feeling economic squeeze

McClatchy News Service

Prices for home appliances have skyrocketed, pharmacies are reporting shortages of drugs, and General Motors is planning to stop car production here next month, as measures by the Venezuelan government to conserve dollars ripple through the weakening economy.

''Today, there's no milk, no rice, no beans, no chicken, no meat, no butter and no cooking oil,'' Francisco Quintero said as he shopped at a government store that sells subsidized staples for the poor.

President Hugo Chávez, a socialist, blames capitalism for the world's economic problems, but in this case he's partly at fault for Venezuela's troubles.

The global drop in oil prices, which is expected to halve the dollars that Venezuela earns from its oil exports this year from 2008, is beyond his control. However, Chávez spent so heavily on subsidies for the poor during the oil boom years -- and failed to diversify the country beyond oil -- that he doesn't have enough hard currency to maintain spending on imports.

The Central Bank is estimated to have $28 billion in hard currency, a cushion that's big enough to pay for nine months of imports. With reserves dropping, however, the government has begun limiting the dollars it provides to importers at the preferential official exchange rate. The move is likely to fuel inflation, already the highest in Latin America at 30 percent, said Domingo Maza Zavala, a Caracas-based economist. He expects the economy to contract by 1 to 2 percent this year.

Thus far, Chávez hasn't paid a political price for the economic distress, but the first public demonstrations already have erupted.

Several thousand university students marched through the center of Caracas last Wednesday to protest the government's plans to cut spending on higher education by 6 percent.


One of Chávez's costly measures to make life better for the poor has been to establish government stores known as Mercales that sell basic foodstuffs at prices 40 percent below what supermarkets charge.

The government hiked the price of sugar by 35 percent last week, however, and is facing pressure to raise prices for other subsidized goods as well.

A Mercal manager in Catia, a poor working neighborhood in western Caracas, said that this was only the first of the hikes. ''We're expecting the government to raise prices for rice, milk, meat and chicken by 40 percent,'' said Marlon Barragan.

But he said prices ''will still be low.'' The question is whether goods will be available.

The government is three to four months behind in providing dollars to drug producers to pay for their imports of goods and raw materials, said Edgar Salas, who heads a pharmaceutical trade association in Caracas. In all, the companies are owed about $250 million, he said. ''About one-fourth of the products that you would normally find at a pharmacy aren't there now,'' he said, adding that the biggest shortages have been for drugs that treat diabetes, Alzheimer's and Parkinson's.


The government also owes the airline industry $463 million, said Humberto Figuera, the president of its Caracas-based trade association. American Airlines, Panama's Copa Airlines and Air France haven't received their preferential dollars since October, he said, leading some airlines to weigh reducing passenger capacity.

Facing cash shortages, the government is planning to reduce overall spending by about 7 percent this year.