Troubled Venezuela Suspends Free Market

TURNING back the clock?

Faced with hyperinflation, a recession, a collapsing banking industry, and growing public unrest, Venezuelan President Rafael Caldera is apparently jettisoning the free-market model for the old-style interventionist economic system.

On June 27, Mr. Caldera declared price and currency controls and temporarily suspended individual constitutional rights, including property ownership, freedom to travel, and privacy. On July 6, he set up an emergency financial oversight board to govern all banks.

During the six weeks before the declaration, international reserves and confidence in the Venezuelan bolivar plummeted. ``It was getting crazy. As soon as people were paid, they went straight to the exchange house to get dollars,'' says Maritza Anez, a Venezuelan businesswoman.

Today, for the first time since the declaration, citizens will be able to exchange bolivars for United States dollars at a fixed rate of 170 bolivars. The rate, 30 bolivars less than the exchange rate two weeks ago, is ``ridiculous,'' says Rita Funaro, director of VenEconomia, a Caracas-based consulting firm. She and other economic analysts say the low rate is a sign that the economic recovery plan is poorly thought out. A black market now flourishes, with the bolivar trading for as much as 230 to the dollar.

Ms. Funaro says she agrees that steps were necessary to restore confidence in the economy and that Caldera's price freeze is popular among Venezuela's working class. The controls are supposed to be lifted ``in three or four months, at the latest by December,'' according Foreign Minister Miguel Angel Burelli.

But Funaro says she fears the worst. ``The free-market program was delegitimatized in the public eye under [former President Carlos Andres] Perez. He became tainted by corruption and everything to do with Perez became bad,'' she says. ``Now the interventionist model will have to be delegitimatized. Venezuela is going through what most of Latin America went through in the 1970s and '80s. We will see hyperinflation, shortages, and street violence before this model is discarded.''

She predicts that Caldera will not change course: ``I don't see him waking up tomorrow and saying he's wrong. If this doesn't work in two months, he'll get stricter and more repressive.''