[A-List] Venezuela: West's alarm at "Cubanisation"

["Michael Keaney" <michael.keaney@xxxxxx>]

Chávez feeds the poor as economy starves
By Andy Webb-Vidal
Financial Times; May 14, 2003

At the Mercal food store in Caricuao, a poor district on the dust-blown
outskirtsof Caracas, therange of goods is limited. Shelves are half- empty.
An army sergeant loiters at the end of the checkout, ready to bag your
ration of beans, flour and sugar.

Unpromising as it may seem, the government store in the capital is the model
to be replicated across Venezuela under a plan fathered by populist
President Hugo Chávez and overseen by the military. The plan's goal: to feed
Venezuela's growing number of poor and to counter shortages from the private
sector.

"Prices are cheaper than elsewhere, and for those of us with low incomes,
any difference is important," says Viviana Trillo, a Caricuao housewife. "I
thank President Chávez for this."

Paradoxically, the food security programme is being prioritised just as the
Chávez government is blocking dollar sales to businesses, including soft
commodity importers and food processors, curtailing supplies.

Currency trading was suspended in January during the strike at Petróleos de
Venezuela, the state oil company that is the government's main source of
export revenue. Four months later, international reserves have recovered and
oil exports have resumed.

But Cadivi, the foreign exchange control agency, has yet to disburse any
dollars and business leaders are convinced that Mr Chávez intends to bring
the business sector - which fiercely opposes his government - to its knees.

"This a specific retaliation against all those seen as not being in favour
of the regime," says Rafael Alfonzo, president of Cavidea, the food industry
chamber.

The non-functional currency controls are not only affecting domestic
companies, many of which are closing and laying off employees.
Multinationals with subsidiaries in Venezuela, such as Cargill, the US
agricultural conglomerate, say they will be forced to shut down operations
within the next few weeks unless hard currency is made available.

"A lot of US companies thought that this would be a temporary situation and
they got money from their home offices to maintain market share," says
Antonio Herrera, vice-president of the Venezuelan-American Chamber of
Commerce.

"But now they are being told: 'no longer', so they are exhausting
inventories," Mr Herrera says. "This is an economic atrocity against the
Venezuelan people."

Venezuela's economy appears to be spiralling downwards. Central bank figures
due this week are expected to show that the economy shrank 15-25 per cent in
the first quarter after a9per cent contraction last year. Inflation is
forecast to top 50 per cent this year.

The official unemployment rate has surged to 21 per cent - 5 percentage
points higher than at the end of 2002 - and many of the jobless are elbowing
into the precarious informal sector, itself dependent on imports and
contraband.

Meanwhile, formal trade links are being severed because of the exchange
controls. The US Export-Import Bank last month stopped offering credit to
buyers in Venezuela, and the Andean Community could impose punitive tariffs
on the country. Venezuela's ports are at a standstill.

Mr Chávez's strict enforcement of currency controls and the introduction of
military-run food distribution is fuelling renewed fears among some
opposition groups that he is bent on emulating a Cuban-style command
economy. Dozens of Cuban officials are advising Venezuela's agriculture
ministry, and the government is using Cuban trading companies to import food
for the network of Mercal stores.

Officials insist that food imports are not being subsidised and that the
price of foodstuffs at private sector outlets is inflated because of
excessive profit margins and hoarding.

The government's food plan is hugely ambitious. Colonel Gerardo Liscano,
head of Mercal, says Mr Chávez has ordered him to guarantee that 4m people
are supplied with food by the end of the year, and 8m by the end of 2004 - a
third of the population.

"The idea is to deliver food at prices that are in solidarity with the
common people," says Col Liscano.

But opposition critics suspect that Mr Chávez, through Cadivi, is funneling
dollars at a discount to government frontmen, who import basic foods and
thus can shore up the political loyalty of the poor ahead of a possible
referendum this year.

Either way, economists warn that unless the government begins releasing
dollars soon, its nascent but inefficient distribution system will not be
able to fill the yawning food supply gap that will result from a crippled
private sector.

"The government cannot substitute all of the most efficient traditional
producers," says Francisco Vivancos, economics professor at the Central
University of Venezuela. "But the implicit logic is to cater for that
section of the population that is politically most important to Chávez."