[lbo-talk] Chavez Plans to Slow Consumer Spending, Inflation

Yoshie Furuhashi critical.montages at gmail.com
Wed Feb 7 13:05:52 PST 2007


<http://www.bloomberg.com/apps/news?pid=20601086&sid=azTzkVFveewk&refer=latin_america> Chavez Plans to Slow Consumer Spending, Inflation (Update3)

By Alex Kennedy and Guillermo Parra-Bernal

Feb. 7 (Bloomberg) -- Venezuelan President Hugo Chavez plans to push for higher interest rates on bank deposits in a bid to cool consumer spending and slow Latin America's fastest inflation, the head of the congressional finance committee said.

``We're going to give banks incentives to raise deposit rates,'' Ricardo Sanguino, the committee chairman, said in a phone interview in Caracas, without saying how banks might be persuaded to raise deposit rates from the current minimum of 6.5 percent. ``We want to encourage saving instead of spending.''

The proposal to boost rates on deposits is part of the government's plan to bring down the inflation rate from the two- year high of 18.4 percent recorded in January, above the government's target of 10 percent to 12 percent for the year.

Venezuela has struggled to contain inflation as Chavez drew on record revenue from oil to boost government spending 51 percent in the first 11 months of 2006, led by higher outlays on health, food and education. The economy, which the central bank estimates grew 10.3 percent last year, is increasingly strained by shortages of building supplies, cars, and some food products.

`Stop-Gap'

Sanguino said the state-controlled supermarket chain Mercal will buy more domestically made products and the government will meet workers and businessmen to help set prices for goods.

Venezuela will exempt agricultural producers from paying income tax in order to boost investment and output and lower food costs for consumers, Agriculture Minister Elias Jaua said.

The government also plans to crack down on food ``hoarders and speculators'' it blames for sugar, meat and chicken shortages that have plagued the South American country in recent weeks, Information Minister Willian Lara said today.

``Venezuela is trying stop-gap measures that ultimately won't work,'' said Enrique Alvarez, head of Latin America research at IDEAglobal in New York. ``Controlling social spending will control inflation, but if Chavez does that he threatens his political mandate,'' Alvarez added.

The 21 percent plunge by the country's bolivar against the dollar last month in unregulated trading, triggered by Chavez's pledge to nationalize ``strategic'' industries, helped spur inflation last month to the highest since January 2005.

To help stem the bolivar's slide, Sanguino also said that the state-controlled oil company, Petroleos de Venezuela SA, and the Treasury will sell a combined total of $5 billion of bolivar-denominated bonds that offer currency-risk protection. Timing of the sales may be announced as early as this week, he said.

``The government can't keep issuing paper forever so I guess now it's the banks turn to help the government,'' Alvarez said.

To contact the reporter on this story: Alex Kennedy in Caracas at akennedy1 at bloomberg.net . Last Updated: February 7, 2007 15:11 EST -- Yoshie <http://montages.blogspot.com/> <http://mrzine.org> <http://monthlyreview.org/>



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