CARACAS, Venezuela, March 17 ? Of all the startling measures announced by President Hugo Chávez this year, from the nationalization of major utilities to threats of imprisonment for violators of price controls, none have baffled economists quite like his venture into monetary reform.
First, Mr. Chávez said the authorities would remove three zeroes from the denomination of the currency, the bolívar. Then he said the new bolívar, worth 1,000 old bolívars, would be renamed the ?bolívar fuerte,? or strong bolívar.
Finally, at the behest of Mr. Chávez, the central bank said this week that it would reintroduce a 12.5-cent coin, a symbol of Venezuela?s prosperity in the 1960s and 1970s before freewheeling oil booms ended in abrupt devaluations, after three decades out of circulation.
Mr. Chávez champions these ideas, which will take effect in January, as ways to combat inflation, which in recent weeks crept up to 20 percent, the highest in Latin America. Officials blame ?hoarders? for shortages of basic goods and price increases for food on the black market. Mr. Chávez says the renaming and redenominating the currency will instill confidence in it.
Gastón Parra, the president of the central bank, went on television this week to emphasize that the effect of these measures on the value of Venezuela?s currency would be neutral, neither increasing or decreasing salaries, debts nor the price of consumer goods.
Private economists, however, say the changes, combined with inflation, could heighten confusion over prices. Those economists say the inflation is a result of a surge in public spending by Mr. Chávez and increasingly jittery efforts by the wealthy to circumvent tightening controls on prices and foreign exchange.
?We?re witnessing policy in the form of window dressing, all carried out at the whim of one man whose strong point is not economics,? said Hugo Faría, an economist at the Institute of Higher Management Studies, a private business school here. ?Anyone who sees a 12 ½-cent coin as a remedy for this country?s problems isn?t thinking too clearly.?
Inflation has been climbing rapidly since January when a sharp decline in the black-market value of the bolívar pushed up prices of imported goods. Since Mr. Chávez moved to nationalize major telephone and electricity companies in January, Venezuelans have rushed to take money out of the country, currency traders say. That exodus has caused the bolívar to weaken by about 20 percent to a level of 4,000 to the dollar on the black market, placing it among the world?s worst performing currencies this year.
The decisions to rename the currency and reintroduce the unusual coin, known here as the locha, a term thought to derive from an anachronistic practice of dividing monetary units into eighths, have dumbfounded many Venezuelans. More than a third of the country?s population of 26 million is under age 18, with no memory of the coin, which stopped circulating in the 1970s.
?I think that it?s cheap psychology,? said Jhonny Márquez, a manager at a transportation company. ?I don?t believe the inflation will go down.?
In many respects, Venezuela has strong fundamentals, with more than $30 billion in foreign currency reserves and large inflows of revenue from oil exports this year, which are expected to surpass $50 billion. But economists say confidence in the economy has started to erode since the government began to aggressively assert control over the activities of foreign companies in recent months. The de facto devaluation of the bolívar in street trading illustrates the growing concern.
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