By Juan Forero
Wednesday, January 13, 2010; A08
Venezuelans mobbed stores this week to buy imported electronic goods after the government's sharp devaluation of the currency heightened fears that prices would soon skyrocket.
President Hugo Chávez's decision, announced Friday, comes as Venezuela's sputtering economy grapples with energy and water shortages. Now in his 12th year in power, Chávez has the support of half of the country's 28 million people, polls show, but rising inflation would most hurt the lower classes that are the pillar of his movement.
The first devaluation of the bolivar since the introduction of currency controls in 2003 quickly spurred a shopping frenzy, as Venezuelans rushed out to buy televisions, computers and other goods that would hold their value.
"The typical Venezuelan is saying, 'My savings are going to be worthless,' " said Robert Bottome, editor of the business newsletter Veneconomia in Caracas, the capital. "The store shelves are pretty much empty right now."
The energy shortage has affected industrial hubs and far-flung hamlets. On Tuesday, the government announced rolling blackouts in big cities to prevent what Electricity Minister Angel Rodríguez called "a total shutdown of the country."
With a prolonged drought lowering water levels in the country's mammoth Guri dam, Chávez has already restricted the hours of operation for malls and casinos and instructed Venezuelans to limit showers to three minutes.
At the same time, Venezuela's relationship with the Obama administration has worsened in recent weeks as Chávez has warned that the United States might be planning an invasion from military bases in Colombia and Dutch-held islands in the Caribbean. The Obama administration has denied the accusations, which Chávez's critics say are part of a ploy to deflect attention from problems at home.
In announcing a measure he said would spur the economy, Chávez said the exchange rate, which had been 2.15 bolivars to the dollar, would rise to 2.6 bolivars for essential items such as food and medicines. The exchange rate for non-essential items, including airplane tickets and cars, would rise to 4.3 bolivars to the dollar.
Among those who quickly went shopping was Rafael Rodríguez of Caracas, an architect who snagged a television set Saturday and a Nintendo game system for his kids Tuesday.
"People always feel that prices are going to rise, and that is what happened here before, so everyone went to the stores," Rodríguez said by phone from Caracas. "In theory, prices should go down. But that never happens."
Chávez responded angrily this weekend to predictions that merchants would soon raise prices, warning that businesses that did so would be closed. By Tuesday, the Venezuelan Institute for the Defense of People in Their Access to Goods and Services had inspected and closed dozens of stores.
"There is no reason for anybody to be raising prices," Chávez said Sunday on his national television show. He explained to listeners that the "bourgeois" in Caracas society would plan price increases but that they would fail.
"People, do not let them rob you," he said. "Denounce it."
The government's measures were met with market approval. Bonds rose Monday as investors determined that Venezuela had immediately improved its ability to meet its financial needs. Many economists had long contended that Venezuela's currency had been heavily overvalued, hurting the country's finances and crippling exports outside the vaunted oil industry.
Ricardo Sanguino, a pro-government deputy in Venezuela's Congress, told state television Tuesday that the measures would spur domestic industry. "We are in a new phase, a phase to increase national production," he said.
But the devaluation, which permits Chávez to ramp up spending ahead of congressional elections in September, is expected to lead to an inflation rate of as much as 60 percent this year, according to some economists. Last year, inflation stood at 25 percent, among the highest in the world.
A former director of Venezuela's central bank, Domingo Maza Zavala, said in a phone interview from Caracas that he predicts inflation will hit nearly 50 percent.
In a healthy economy, he said, a devaluation could be beneficial. But he said that Chávez's management of the economy, which includes widespread nationalizations and other regulations, has sapped investor confidence.
The economy contracted 2.9 percent last year, and Maza Zavala said he expects it to shrink at nearly the same rate in 2010, even as other economies in the region are expected to post healthy growth.
"This year, with the devaluation, the economy will not recover," Maza Zavala said. "The recession that began in the third quarter last year will continue."
Antonio Ledezma, the mayor of Caracas, said at a news conference that he expects Venezuelans to put their money in durable goods and dollars.
"What can a citizen do but conclude that his money is best invested in a toaster he really doesn't need?" Ledezma said.