Jan 23, 2003 By Alexandra Olson Associated Press 4 min read

CARACAS, Venezuela (AP) – Venezuela’s central bank suspended its foreign exchange trading for a week starting Wednesday to try to keep the country’s currency, the bolivar, from further plummeting in the fallout of a 52-day-old strike that has crippled oil exports. Finance Minister Tobias Nobrega said a new foreign exchange policy will be revealed in five business days. He said the policy would involve “restrictions” to foreign exchange trade but did not elaborate.

“The government must adopt urgent measures to prevent our international reserves from further deteriorating,” Nobrega said in a television address. The strike has “undoubtedly devastated the economy. The year 2003 begins with a very delicate fiscal and financial situation.”

The announcement led to speculation that the government was planning to impose exchange controls to protect its depleting foreign reserves and halt the bolivar’s slide, which has lost a quarter of its value this month.

“It sounds like exchange controls are on the way,” said Miguel Octavio, executive director of local investment banker BBO Financial Services. The suspension means that Venezuelans cannot buy foreign currencies for five business days. The government said it would continue to pay its foreign debts.

Exchange controls could help strengthen the bolivar by limiting the amount of dollars that individuals and banks can buy. But they could also hurt businesses that depend on dollars to pay for imported goods. Venezuela’s economy is highly dependent on imports – about 50 percent of food is imported.

Business leaders, labor unions and opposition parties launched a strike on Dec. 2 to demand that President Hugo Chavez resign or call early elections.

The strike has slashed Venezuela’s oil production by two-thirds – crippling an industry that provides 70 percent of export revenue and half of government income.

The bolivar currency reached a record low of 1,853 to the dollar Tuesday. It has lost 25 percent of the its value since the beginning of the year, after losing 46 percent of its value in 2002. The depreciation has contributed to 30 percent inflation.

Traders said the Central Bank has been injecting up to $70 million a day to protect the currency. Venezuela’s foreign reserves stood at $11.05 billion Monday, down from about $12.5 billion before the strike began. Venezuela also has about $2.9 billion in a rainy day fund that absorbs excess oil revenue.

Opposition and government negotiators are studying proposals made by former President Jimmy Carter to end the dispute over Chavez’s rule.

The Nobel Peace Prize laureate proposed two plans Tuesday. The first entails general elections and an end to the strike. The second proposal calls for both sides to prepare for a binding referendum on Chavez’s presidency in August, the midpoint of his six-year term. Venezuela’s constitution allows such a vote.

The first plan would amend Venezuela’s constitution to shorten presidential and legislative terms of office and stage early elections.

It calls for the opposition to end the strike and for the government, which has a congressional majority, to move quickly on changing the constitution. Amending the constitution requires the approval of congress and a popular referendum.

A so-called “Group of Friends of Venezuela,” a forum of six countries – the United States, Mexico, Brazil, Chile, Spain and Portugal – has been formed to help end the standoff. Diplomats involved in the initiative will hold their first meeting at the Organization of American States in Washington on Friday.

A key point is the fate of workers at Venezuela’s state owned oil monopoly. Some 30,000 of 40,000 workers are striking. Chavez has fired more than 1,000. Carter said his proposal would have strikers return to work but let the government prosecute anyone accused of sabotaging the industry.

Strike leader Horacio Medina, one of the striking executives who was fired, said such a deal would be acceptable and organizers could prove that no sabotage was done.

“Regarding the sabotage, we are absolutely untroubled. We have all the evidence,” he told local Union Radio. “It would be very difficult to prove any sabotage occurred.”

Chavez was elected in 1998 and re-elected in 2000 on promises to help the country’s poor majority, but he has failed to remedy the nation’s economic ills.

Opponents blame Chavez’s leftist policies for an estimated 8 percent economic contraction in 2002. Chavez blames it on opposition attempts to destabilize the country.