Venezuela businesses brace for more price controls

November 21, 2011 - 8:10 PM

CARACAS, Venezuela (AP) — New rules aimed at curbing Venezuela's high inflation by broadening government price controls will scare off investors and hurt consumers, the president of the country's largest business chamber predicted Monday.

Jorge Botti, president of Fedecamaras, said the Law for Fair Costs and Prices will spook investors looking for wider profit margins and cause shortages of basic goods because makers of numerous products will likely scale back production.

"It's going to create more doubts and uncertainty," Botti said.

He said sweeping price regulations applied to goods and services in every area of Venezuela's economy will inevitably hurt businesses already struggling with socialist-orientated policies established by President Hugo Chavez.

While price controls already exist for some basic foods such as cooking oil and rice, the law taking effect Tuesday will extend them to a wider range of goods and give the government more enforcement authority.

Government officials argue the law will help reduce Latin America's highest rate of inflation by forcing businesses to set retail prices at rates established by authorities.

Among the factors that officials will consider are production costs such as prices for raw materials and wages of workers.

Venezuela's Central Bank announced last month that the annual inflation rate had edged back up to 26.9 percent in October. It was 27 percent last year.

Government officials have set a goal of holding inflation to between 23 percent and 25 percent by year's end, but many analysts predict the rate could be higher.

The opening paragraphs of the new law state that unscrupulous businesses must be stopped from raising prices. It calls for government controls to limit the profits, giving that task to a panel of government authorities to be called the "Superintendence of Costs and Prices."

"The flagrant abuses by monopolies within many sectors of the economy have sprung up through the accumulation of capital from elevated profit margins, which prompt constant increases in prices without any other objective than the direct exploitation of the people," the legislation states.

Karlin Granadillo, a government official responsible for establishing and applying new price regulations, defended the law Monday, denying it would hurt businesses and expressing optimism consumers will see benefits.

"Economic and price stability is going to benefit everybody, including the people who receive the goods and services and the business sector," Granadillo said during an interview broadcast on Union Radio.

Granadillo said officials are not ready to immediately apply new regulations.

Officials will initially focus on setting price controls for food, personal hygiene and home cleaning products, construction materials, automobile parts, medicines and health care services before moving on to other areas of the economy, Granadillo said.

Luis Vicente Leon, director of the Venezuelan polling firm Datanalisis, which tracks the availability of basic goods and consumer prices, predicted the law won't tame inflation and cause shortages of some goods.

"All the experiences with unilateral prices controls have totally failed. There are no exceptions," Leon said Monday on Twitter.

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Christopher Toothaker on Twitter: http://twitter.com/ctoothaker