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THE WORLD

Inflation, food scarcity roil Venezuela

Economists say the government is overreaching in controlling prices, fueling a black market.

February 11, 2007|Chris Kraul | Times Staff Writer

CARACAS, VENEZUELA — Police swooped down last week on a grimy central market district, forced open a warehouse and seized 7 tons of a white substance. It wasn't cocaine. The contraband was sugar, and the seizure of at least 184 tons nationwide showed how President Hugo Chavez's efforts to remake the economy are fraying at the edges.

The bust near the Quinta Crespo market came as double-digit inflation and scarcity have hit Venezuela's markets. The seizures were efforts to strike at what one Chavez supporter, Carabobo Gov. Luis Felipe Acosta, said was hoarding by "terrorist capitalists who want to destroy the country."

But economists and industry officials describe the raids as the latest in a sequence of hamhanded, politically motivated attempts to rein in market forces beyond Chavez's control. Inflation and the development of a huge underground market in goods including sugar were simply symptoms of mismanagement, they say.

Venezuela is rolling in oil wealth with about $46 billion in energy sales last year, and there is little risk of a financial crisis in the near term. Chavez in recent years has tried to transfer much of the wealth to the poor via welfare programs including cheap or free housing, the donation of cash and government assets to worker cooperatives and free education.

For The Record
Los Angeles Times Saturday March 17, 2007 Home Edition Main News Part A Page 2 National Desk 1 inches; 48 words Type of Material: Correction
Venezuela: A Feb. 11 article in Section A on scarcities and the black market in Venezuela gave the country's annual inflation rate as more than 25%. The 2% monthly rate for January 2007 reported by Venezuela's central bank is equivalent to a seasonally adjusted annual rate of 18.4%.

Among the most ambitious and popular programs has been the establishment of the Mercal retail chain. Since early 2003, the network of about 14,000 retail outlets mainly in poor barrios, has sold basic foodstuffs and household goods at discounts of 35% off standard supermarket prices.

Chavez has imposed price controls on a variety of goods, such as 29 basic food items produced in Venezuela including beans, cooking oil, meat and chicken. He also has imported such goods as Uruguayan pasta and Brazilian pork that are resold to the poor at greatly reduced costs, thanks to government subsidies.

But mismanagement, rampant corruption and scarcities have cut into Mercal's operations. At the same time, low prices set by the government have caused manufacturers and other suppliers either to cut production or divert output to an enormous black market.

A recent government report found that Mercal sales in November fell in volume to half that of a year earlier and that customers were increasingly unhappy with how the stores were run and what they sold. In January, Chavez shuffled Mercal's management, expressing dismay that huge quantities of goods were unaccounted for.

"This can't be. We should be going forward, not backward," Chavez said in a Jan. 21 broadcast to the nation.

The suspicion is that much of the inventory is siphoned off before the products reach the shelves, sold either to the domestic underground market or exported as contraband to Brazil, Colombia or Caribbean countries.

At the same time, the flood of cash washing over Venezuela from oil sales has caused demand for all goods -- watches and whiskey, detergent and SUVs -- to climb, adding inflationary pressure. In the last week, Venezuela's central bank released figures showing that inflation rose in January to an annual rate of more than 25%, twice the national target.

A survey by researchers at the National Federation of Teachers found that basic food prices increased in the 12-month period that ended Jan. 31.

Food prices are rising faster than the increases in minimum wages that the government pushed through last year. The reigniting of inflation threatens the poor constituency Chavez is trying to help, economists say.

Scarcity of items such as sugar, beans and meat and empty supermarket shelves dominated the headlines here last week. Meat disappeared for several days after slaughterhouses shut down, saying they couldn't afford to process meat at the prices set by the government.

A sugar industry source said production had fallen because prices the industry received were lower than farmers' cost of production and because the government-sponsored takeover of sugar cane plantations had cut productivity.

In Yaracuy, a prime sugar-producing state west of Caracas, the capital, 80% of plantations have been taken over by farmer cooperatives, the source said.

In the poor Caracas suburb of Catia on Saturday, sugar and chicken were being rationed at a Mercal shop for the first time in a week. "I came in the morning and waited two hours for milk. Now I'm back in line waiting for chicken, one to a family," said Marietta Abreu, as she stood with 100 other customers.

"It's the fault of the street vendors," she said, referring to the informal merchants who sell the black-market goods. "They're always ahead of the game."

The government is trying to retain its grip by taking measures that at times seem highly improvisational. Justifying the seizure of the sugar Thursday, officials declared it was illegal for sugar to remain in storage for more than three days.

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