Text 27257, 129 rader
Skriven 2007-02-16 20:22:00 av Jeff Binkley (1:226/600)
Ärende: Hugo
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This genius doesn't have a clue.  Price controls, stopping foreign 
investment, the government taking over businesses, currency 
manipulation, out of control government socialism spending and more.  
Yep, he's a democrat poster child.  


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http://www.bloomberg.com/apps/news?pid=20670001&refer=&sid=aP0vG6d9rOAk

Chavez Anti-Inflation Plan May Backfire, Analysts Say (Update2) 

By Guillermo Parra-Bernal and Alex Kennedy

Feb. 16 (Bloomberg) -- Venezuela President Hugo Chavez's plan to curb 
inflation by lopping three zeros from the currency may backfire because 
the move fails to address production bottlenecks that are pushing prices 
higher, economists said. 

The government will cut three zeros from the bolivar's exchange rate by 
February 2008, Chavez said last night in a televised speech, citing 
rising consumer prices. He also will cut the value-added tax rate and 
clamp down on ``speculators'' to halt last month's 4 percent increase in 
the cost of food. 

The steps aimed at slowing inflation and boosting local output miss the 
root causes exacerbating imbalances in South America's third-biggest 
economy, according to economists at Goldman Sachs Group Inc. and Bear 
Stearns & Co. Flush with oil money and government spending, which jumped 
about 50 percent last year, economic growth and inflation are both 
surging. 

``He has a funny understanding of the problem,'' Alberto Bernal, a Latin 
America economist with Bear Stearns & Co., said in an interview. 
``Cutting a number of zeros from the bolivar is irrelevant in the end.'' 

Chavez, who won a third term in December, was granted decree powers last 
month by Congress in his drive to seize key industries and put the 
country on the path of socialism. The president said he plans in 
``coming hours'' to decree a law that allows the government to 
expropriate any business that sells food products higher than government-
set prices. 

The annual inflation rate rose to 18.4 percent last month, the highest 
in Latin America, from 10.4 percent in May. 

`Hello President' 

Price regulations and other controls, including a crackdown on 
businesses buying currencies outside official government channels, have 
helped to make food production unprofitable, leading to a decline in 
supply and spurring inflation. 

``Inflation isn't a problem that you solve with a few detentions,'' 
Carlos Caicedo, head of the Latin American office at London-based 
political risk advisers Exclusive Analysis, said in a telephone 
interview ``Speculation is a symptom of the disease, not its real 
cause.'' 

Chavez, speaking during his daily ``Hello President'' show, said he 
would lower value-added taxes 3 percentage points on March 1 and by an 
additional 2 points in July. The highest current value-added tax rate is 
14 percent. 

``The only economic indicator that has me a bit worried is inflation,'' 
Chavez said. ``Cutting three zeros will have a positive psychological 
effect and lower inflation expectations.'' 

Unregulated Markets 

Government officials blame private businesses and citizens who buy 
dollars outside government channels for accelerating inflation. Chavez 
said those found guilty of ``hoarding'' and ``speculating'' may receive 
prison terms of two-to-six years. 

Venezuela's currency, set by the government at an official exchange rate 
of 2,150 bolivars per U.S. dollar, was little changed today at around 
4,025 per dollar in unofficial parallel markets at 11:45 a.m. New York 
time. It weakened to a record low 4,700 last month after Chavez 
announced his plans to nationalize several companies in the phone and 
energy industries. 

Government bonds that offer currency-risk protection fell today. The 
yield on the 6.25 percent dollar-denominated bond due April 2017, known 
as TICC, rose to 4.07 percent, compared with 4.06 percent yesterday, 
according to Mercantil Servicios Financieros SA. The price, which moves 
inversely to the yield, fell to 118.2 centavos from 118.3. 

Policy Mix 

Under foreign-exchange rules imposed by Chavez in February 2003, only 
the government can sell dollars to the public. Tax Chief Jose Vielma 
Mora on Jan. 26 vowed that traders caught buying and selling dollars out 
of the legal government channel will be ``severely'' punished. 

The success of the plan to slow inflation hinges on the government's 
ability to restrain spending and to help increase the supply of goods 
and services, said Goldman Sachs economist Alberto Ramos. With or 
without the plan, Ramos said, inflation may accelerate to about 20 
percent by year's end. 

Congress discussed the plan to cut zeros off the exchange rate under the 
guidance of Cabezas, then head of the National Assembly's finance 
committee. The plan, which economists and government officials dubbed as 
``monetary reform'' in previous months, has been the matter of intense 
debate since June. 

Central bank directors Domingo Maza Zavala, who retired this month, and 
Armando Leon were at odds over the plan most of last year. Maza said it 
would trigger, not help contain, inflation. 

Government spending and the nation's dependence on oil revenue may lead 
the plan to collapse, said Asdrubal Oliveros, an economist with Caracas-
based research firm Ecoanalitica. 

The plan is unlikely to ``solve the problem of Venezuelan consumers 
perceive inflation unless the government trims spending,'' he said. 

Chavez also said the tax cuts will cost the government as much as 8 
trillion bolivars ($3.7 billion) a year in lost revenue. The government 
will make up for such loss by creating new taxes on luxury goods, he 
said. 

To contact the reporter on this story: Guillermo Parra-Bernal in Sao 
Paulo at gparra@bloomberg.net Alex Kennedy in Caracas at


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