Venezuela Pegs Bolivar to Dollar

Hugo Chavez, the Venezuelan president, today pegged the country's embattled currency to the dollar in an effort to ease the economic damage from a two-month long general strike that failed to oust him.

The fixed exchange rate policy was announced yesterday, alongside a series of new foreign currency and price controls, two weeks after the leftwing president suspended the sale of foreign currencies as the Venezuelan bolivar sank to record lows.

Trading in dollars and other currencies will resume when the fixed exchange rate goes into effect today. The controls fix the bolivar's value at 1,596 a dollar for sales and 1,600 for purchases, but the government can adjust the rates as it sees fit.

Maximum prices will also be set for "essential" goods and services, such as basic foods, medicines and rents.

The bolivar closed at 1,853 on January 21, the last day of trading, but on the black market it traded at 2,500 to the dollar. Sales of local government bonds, which are sold overseas for foreign currency, will also be restricted, President Chavez said.

"We've made the ideal decision for defending the Venezuelan economy and to defend the international reserves," he said in a television address yesterday, adding that exchange controls would help Venezuela to pay its foreign debt.

Business leaders accused Mr Chavez of imposing measures designed to punish them for their support of the strike and warned that restricting access to foreign currency would bury Venezuela's import-dependent economy. The country imports roughly half of its food.

Carlos Fernandez, the leader of the strike and head of the Fedecamaras business federation, said Mr Chavez was trying to impose control over the struggling private sector, which buys 60% of its supplies and raw materials abroad.

Lope Mendoza, president of the Conindustria business chamber, urged citizens to buy Venezuelan products to keep the economy afloat. "The industrial sector isn't going to please the president, who wants to see a cemetery of businesses," he said.

The decision is a consolidating move by the president, who appears to have survived the opposition strike that paralysed much of the country and led to violent street protests. In April 2002 Mr Chavez thwarted a short-lived coup after receiving advanced warning that military leaders advised by the US were attempting to overthrow him.

The national strike, which began on December 2, ended in all sectors but the oil industry this week. It has choked off Venezuela's overseas income by restricting the state oil company, by far the nation's biggest exporter. Roughly half of government income comes from oil exports.

Mr Chavez said oil production was rapidly recovering, claiming yesterday that it had reached 1.9m barrels a day. Pre-strike production was around 3.2m barrels. The president said that Venezuela - the world's fifth largest oil exporter - had been forced to import $504m (£308m) worth of fuel since the strike began.

Foreign reserves dropped by $2bn during the strike, partially because the government was spending $60m a day to prop up the bolivar. The decline in the value of the bolivar, in turn, sent inflation soaring to above 30%.

The president's critics say he has mismanaged the economy, sought to grab authoritarian powers and split the nation along class lines.

But supporters of Mr Chavez say that the democratically elected president is the victim of opposition attempts to cripple the oil-based economy and spark a coup amid national unrest. On Tuesday, Mr Chavez lashed out at business leaders who had led the strike, saying the "coup plotters" were stashing billions of dollars abroad.