* Price controls slow inflation to lowest in 4 years
* Was highest in Latin America in 2011 at 27.6 pct
* Election spending expected to stoke price rises again
By Eyanir Chinea
CARACAS, April 16 (Reuters) – Venezuelan President Hugo
Chavez is so determined to contain one of the world’s highest
inflation rates in an election year that his price control
officials are sticking signs outside stores to enforce
compliance.
The red-yellow-green traffic light notices tell shoppers
whether a store is obeying new price caps.
Businesses that don’t comply face fines, temporary closure
or outright expropriation by his socialist government.
The initial freezing of prices of 19 key goods in December
has begun to kick in: Consumer prices rose 3.5 percent in the
first three months of 2012, the lowest quarterly rate since the
oil exporting country introduced a new index four years ago.
But most economists believe Chavez’s efforts to contain
inflation will have only short-term results because increased
public spending in the runup to the Oct. 7 presidential election
is bound to stoke prices again in the oil-producing OPEC nation.
The analysts say price controls will only distort a highly
regulated economy further and speed up inflation in the long run
as the cheaper regulated goods become scarce and producers
compensate their losses by raising prices on unregulated goods.
“What’s happening is they are containing inflation but not
really attacking the causes of inflation. In fact, many of the
causes are being deepened,” said economist Pedro Palma of the
Caracas-based consultancy Ecoanalitica.
Chavez, who has nationalized great swathes of the Venezuelan
economy, maintains that speculators and hoarders are fueling
inflation, and he accuses his political opponents of trying to
disrupt the economy to undermine his government.
“We will continue monitoring clothing, cars, food above all,
medicine … to reduce speculation to zero because it is one of
the main factors causing inflation,” he vowed recently. “This is
just the start.”
Despite suffering from an unspecified cancer, for which he
is having radiation treatment in Cuba, Chavez is seeking another
six-year term in October in the toughest election battle he has
faced in 13 years in office.
Amid doubts over his health, Chavez’s opposition is taking
him to task for the high cost of living, a major gripe with
voters, as well as over a rising crime rate that has made
Venezuelan cities unsafe.
CASH INJECTION
Chavez has made clear that his election strategy is to put
more money in the pockets of Venezuelans by stepping up an array
of social programs that have redistributed income to the poor as
part of his so-called socialist revolution.
The cash flow is expected to begin in the second quarter,
and includes a 30 percent increase in the minimum wage that will
be seen in paychecks in two stages, May and September.
His government plans to spend $26 billion on social programs
for 2011-2012 and has expanded this year’s national budget by 45
percent. Additional funding will come from new bond issues after
the government eliminated the debt ceiling by decree in March.
Last year, Venezuela issued more sovereign paper than any
other Latin American state – more than $17 billion – to fund
housing projects, the import of food and medicine as well as
non-essential consumer goods.
Financial analysts expect Venezuela to place at least
another $15 billion in bonds on the capital markets this year.
The massive injection of funds is expected to heat up the
economy and speed up inflation, putting further stress on a
weakened private sector.
Venezuelan business leaders criticize the government for
suffocating the economy with regulations like price controls
that reduce productivity and increase the country’s dependence
on imported goods.
“Some producers are operating almost at a loss,” complained
Moises Bittan of Fedecamaras, Venezuela’s main business lobby.
Venezuela has the most regulated economy in Latin America
after communist Cuba and inflation rates that are four or five
times higher than the region’s average, according to Jose Manuel
Puentes of the IESA business school in Caracas.
The official inflation target for this year is in the 22-25
percent range, but market players expect it to be closer to last
year’s 27.2 percent.
The government’s dilemma is that the more it regulates the
economy, the worse inflation will get, said Puentes.
