Chavez shuts down car makers by withholding $'s

Washington Times:

General Motors Corp. is halting production in Venezuela for three months starting Friday. Ford Motor Co.'s subsidiary announced 10 percent cutbacks last week. Other automakers also are shrinking their business, but not because Venezuelans don't want to buy cars.

They are closing down because the government won't give them enough dollars to import parts.

It's a crisis entirely brought on by the currency controls imposed by President Hugo Chavez, Gabriel Lopez, president of Ford Motors for Venezuela and the Andean region, told the Associated Press. "Year after year, we're shrinking by about 10 percent compared to the year before," he said.

Mr. Chavez began regulating access to dollars and making it harder for businesses and people to transfer money in 2003 after confidence in his government was shaken by a failed coup and a subsequent strike. Venezuelans must now apply to the currency agency Cadivi for dollars at the official rate of 2.15 bolivars to import goods or take vacations.

These controls have backfired with a vengeance - businessmen, companies and private citizens transferred about $72.7 billion out of Venezuela over the past six years - nearly double the outflow of the six years before that, according to the Central Bank of Venezuela - distorting the economy, fueling inflation and discouraging private investment.

But the controls themselves haven't led to a political backlash, perhaps because Venezuelans with means tend to be opposed to Mr. Chavez's socialist policies already. Low-income Venezuelans haven't been as affected, partly because the government subsidizes food and free health care.

That could change now that oil income has plunged from last year's record highs. Oil represents 93 percent of Venezuela's exports, and with crude prices at 52 percent below their July peak, the inflow of dollars is expected to drop by half this year to about $42 billion, said Alejandro Grisanti, an economist at Barclays Capital in New York.

The oil price drop has roughly cut in half the amount of goods Venezuela can afford to import, so the government has had to tighten currency controls even more and ration the dollars it supplies to travelers and importers in response, Finance Minister Ali Rodriguez said.

...

Nearly all private businesses are feeling the pinch - from automakers to hairdressers. Textile manufacturers are waiting for currency to import cloth. Dairies are complaining that they can't buy imported powdered milk.

The closure of GM's two plants in central Carabobo state could be a tough blow to the local economy. GM is Venezuela's largest automaker, employing 4,000 people and generating 70,000 indirect jobs.

...

This highlights one of the problems with a command economy. Control freak government can't make the rational decisions that markets make. They always get it wrong. No one is as smart as the market.