Venezuelan businesses say Chávez's price controls create shortages

CARACAS: Alfredo Cohen, who built and owns Venezuela's largest shopping center, is trying to complete a big office complex here. The trouble is, he keeps running out of bricks, pipe and shingles.

"In my 25 years in this business, I've never seen shortages like this," Cohen said of the project, which is to cost 323 billion bolivars, or $150 million. "There's a scramble for materials that's jacking up prices and adding at least 10 percent to my costs."

The experience of Cohen's family company is being repeated throughout Venezuela, which has South America's fastest-growing economy. Scarce supplies of building materials, cars, food and other goods are imposing costly delays and pushing up inflation. The central bank said the annual inflation rate was 17 percent in December.

People who run businesses here say some of the shortages are the result of the price controls that President Hugo Chávez has imposed to combat inflation. "All price controls, after a few years, become perverse for production," said Gustavo Moreno, president of Fedeagro, a federation of farmer associations. "If there isn't a periodic price increase to take inflation into account, controls create more problems than they solve."

Chávez has used controls to combat inflation since 2003, when he froze prices of basic foods like rice and meat after a two-month national strike.

Since then, he has capped telephone and electricity rates. Irwin Perret, president of a construction association, said that Chávez recently set prices for 45 construction materials after the cost of some products doubled in 2006.

Government-controlled prices account for about half of the country's consumer price index. Venezuela's consumer prices climbed 1.8 percent in December from the previous month after a 1.3 percent gain in November.

Alberto Ramos, a senior Latin American economist with Goldman Sachs Group, said: "Chávez favors price and capital controls to keep a lid on prices rather than spend less or raise interest rates. We expect Chávez to persist with, and possibly deepen, these controls."

At 17 percent, Venezuela's annual inflation rate was the highest one in Latin America last month. The annual rate was 15.8 percent in November; in May, it was 10.4 percent.

The acceleration of inflation means the government is not likely to meet its target of 10 percent to 12 percent inflation this year, said Andreas Faust, an analyst at Banco Mercantil in Caracas.

Chávez increased government spending 51 percent during the first nine months of 2006 as oil sales jumped to a record for Venezuela, one of the world's largest exporters of crude oil.

The government's price curbs are helping to contain the inflation "demons," Chávez said in November in a speech in a Caracas slum.

Venezuela has allowed farmers to raise prices of some foods, like sugar, only once in the past four years. During that period, there has been a 103 percent increase in consumer prices.

That means farmers' incomes are not keeping up with the rising costs of machinery, fertilizers and worker salaries.

To escape the controls and supplement their income, some farmers sell their crops at unregulated street markets for a higher price, Moreno said.

Manufacturers, concerned that Chávez will deepen state involvement in the economy, have reduced spending on new plant and equipment to the point that central bank figures show that nongovernment investment equals no more than 4 percent of gross domestic product, the lowest among the 10 biggest economies in Latin America.

Faust said that many businesses were reluctant to expand production because of a lack of guarantees from the government on the protection of private property. Chávez has seized rural estates and factories that the government deems to be unproductive, including some assets of Lorenzo Mendoza, one of the wealthiest men in Venezuela, and of the food maker H.J. Heinz.

Foreign investors sold $778 million more in Venezuelan assets than they bought in the first nine months of 2006, according to the central bank. A decade ago, in the same period, they added $5.9 billion more than they disposed of.

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