Perez Vows to Press Economic Reforms

But failed coup may scare off needed foreign investment

VENEZUELAN President Carlos Andres Perez has pledged to push forward with his economic austerity program despite extreme popular discontent over the measures that may have encouraged military rebels to carry out last week's coup attempt.

"These [economic measures] will continue, and what's more, they are already producing results," Mr. Perez told reporters over the weekend.

The president pointed out that Venezuela's international reserves have risen to $13 billion from a low of $300 million when he took office in 1989. Last year's growth of 9.2 percent was the highest in Latin America, and unemployment has fallen in recent months from 10 percent to 8.8 percent, according to the government.

Those numbers did not impress military rebels who tried to seize power a week ago. Nearly all the rebels, including scores of officers, were arrested hours after they attacked the presidential palace late Feb. 3.

A rebel statement at the time said the group was acting to "rescue the Venezuelan people hurt so much by politicians, demagoguery, and bureaucracy."

Perez's critics are likely to keep hammering away at the president's stubborn commitment to his program of slashing state subsidies, allowing more imports, eliminating exchange controls, and privatizing state enterprises.

The program has had a harsh effect on the middle and lower classes. Real per capita income fell 55 percent between 1988 and 1991, nearly double the fall from 1980 to 1988, according to a report by a Venezuelan presidential commission.

The report said Venezuelans living in critical poverty, defined as the inability to meet at least one half of basic nutritional requirements, nearly tripled to 33 percent in 1991 from 11 percent in 1984.

Perez used last week's suspension of constitutional guarantees to suppress the rebel communique and send official censors to opposition newspapers, many of whom tried in vain to publish advertisements and other commentaries linking the coup attempt to popular discontent over official corruption and Venezuela's widening gap between the rich and poor.

Perez's campaign against the press culminated in a raid early Feb. 10 on El Nacional, one of Venezuela's most respected newspapers. Scores of intelligence police agents finally left the paper later in the day after Perez, facing domestic and international criticism, agreed to call off press censorship.

Although the coup failed, foreign investors' fears of political instability here are likely to harm the economy, at least in the short term, economists say.

"The one thing that Venezuela had going for it all these years was the perception that it was a stable democracy," says Rita Funaro, the editor of a Caracas economic journal, Veneconomy. "There is no question that the coup attempt damaged that image in the eyes of foreign investors."

Ms. Funaro adds, however, that continued growth and other positive economic developments would do a lot to calm such fears. "I think that if Perez stays with his program, foreign investment will not suffer in the long run," she says.

More damaging to foreign investment than fears of military uprisings are concerns over corruption. "Corruption is still rampant down the government ladder," Funaro says. "But Perez's decision to expose it makes it seem worse than it is."

The country's attorney general, Ramon Escovar, has prosecuted some 600 cases, some of them involving millions of dollars of stolen public funds, since Perez took office. But there have been few convictions, he says, because the president has refused to clean up a politicized judicial system, fire corrupt advisors, and go after financial speculators.

"International financial institutions should encourage Venezuela to apply minimum ethical standards along with the economic adjustments," Mr. Escovar says. "Only then would the country be truly secure for foreign investors."

Others say that much of Venezuela's new wealth has poured into financial speculation schemes rather than new investment in industry. In 1991 money made in real estate and financial services almost equaled the profits from manufacturing, which accounted for only 5 percent of Venezuela's gross domestic product.

"Perez has opened the economy wide up, but he hasn't adopted any of the measures needed to deal with the corruption caused by deregulation," says Guido Zuleta, an economics professor at Simon Bolivar University in Caracas.

Investment soared last year to over $2 billion from several hundred million the year before. Much of the increase is due to Perez's privatization program that sold 40 percent of the state phone company to an international consortium led by GTE.

Venezuela's 60 billion barrels in oil reserves make it the most petroleum-rich country outside of the Middle East. But recent drop in the price of oil is likely to cut into the country's spending plans.

The current budget of $14 billion is based on earnings expected from crude exports at the former price of $19 a barrel. With the current price of crude down to as low as $13.50, the country must readjust its budget downward by $1 billion.