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Chavez uses currency to tighten grip

By Times staff writer
© St. Petersburg Times
published February 7, 2003

CARACAS, Venezuela -- President Hugo Chavez, emboldened as a prolonged general strike against him fades, has put his political opponents on notice in recent days by threatening legal and economic retaliation against those seeking to force him from power.

The most potentially far-reaching step came Thursday when Chavez established a new currency-control system to protect Venezuela's foreign reserves at a time of deep economic uncertainty in the oil-rich country. The government suspended trading of Venezuela's national currency, the bolivar, on Jan. 21 as it plummeted in value against the dollar in the midst of an economically devastating general strike.

In lifting the suspension Thursday, Chavez imposed a fixed exchange rate and created a new currency-control board that will decide who receives dollars through an application process. During a speech earlier this week, Chavez pledged that there would not be "a single dollar more for coup plotters," prompting business leaders to warn Thursday that the new system would be used to punish them for their political opposition.

"We have taken steps in time to avoid capital flight," Chavez said in a triumphant national address that began Wednesday night and lasted into Thursday morning. "We have arrived at the ideal solution to defend Venezuela's economy."

Business leaders warned that the currency controls will breed corruption, fuel inflation and push the nation's economy toward collapse.

The controls fix the bolivar's value at 1,596 per dollar for sales and 1,600 for purchases, but the government can adjust those rates as it sees fit. The bolivar closed at 1,853 on Jan. 21, the last day of trading, but on the black market it traded at 2,500.

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