By Patrick Markey
CARACAS, Venezuela, Jan 28 (Reuters) - Prices soared at Alberto Martin's Caracas electronics store over the last year as a sharp tumble in Venezuela's bolivar currency against the dollar pumped up the cost of his imported stereos.
Now they could go through the roof.
As the government prepares to introduce tight currency controls to offset the impact of an eight-week strike, many Venezuelans are fretting over how the changes may cut into their already depleted buying power.
"If we hardly sold anything before, now we're going to sell less. People will be earning the same, salaries won't go up. People are just going to buy the basics," Martin said.
To counter the strike against leftist President Hugo Chavez, the government last week suspended foreign exchange trading while it studied currency curbs to halt the bolivar's slide and shore up its international reserves.
Trading will be suspended until Feb. 5 while officials fine tune the controls they plan to implement. Finance Minister Tobias Nobrega said late Monday the government was considering a fixed exchange rate, but he did not specify where the rate would be set. The currency closed a week ago at 1,853 bolivars to the dollar.
Prices in Caracas are already climbing as merchants bet that tighter controls over access to dollars will translate into higher costs for them in a nation where the bulk of consumer goods are imported.
FLIGHT TO DOLLARS
Costs of electronic goods -- an imported consumer item sensitive to price changes -- at some Caracas stores have shot up as much as 40 percent recently, business owners said.
The opposition strike, started on Dec. 2 to force populist ex-paratrooper Chavez into elections, has pushed Venezuela's fragile economy deeper into recession, battering the bolivar as investors fled for the safety of the dollar.
Buffeted by economic uncertainty, the Venezuelan currency has shed more than 28 percent of its value since the strike began. It plummeted 46 percent last year as inflation topped more than 31 percent in 2002.
Economists said that a fixed exchange rate in the short term could preserve Venezuela's international reserves, which have slipped 7.3 percent to $11.05 billion this year alone as the Central Bank intervened to shore up the bolivar.
But long-term currency restrictions will complicate private sector transactions by limiting dollar access and analysts said the government may find it difficult to sustain a fixed rate.
"Some of the reasons they are doing this is to stop capital flight and save their reserves. But they could find the opposite is true if they have to shore up the fixed rate," said Fitch Ratings director of sovereign ratings Theresa Paiz.
Venezuela last introduced temporary currency controls in 1994 to 1996 during a severe banking crisis.
But that created not only a thriving black market, which ended up becoming the de facto reference rate for the bolivar, but also a parallel market with currency trading conducted through the selling of Venezuela's Brady bonds.
PARALLEL CURRENCY MARKET EMERGING
Banking sources said last week that a fledgling parallel market had reappeared though trading in private accounts overseas with the Venezuelan currency valued at about 2,200 bolivars to 2,300 bolivars to the dollar. Black market rates have been pushed as high as 3,000 bolivars to the dollar.
Citing their nation's 1994-1996 curbs, Venezuelan opposition leaders quickly dismissed the government's plans to introduce new controls.
They said restricted access to the dollar would drive up prices as some imported goods became scarcer. Curbs would also drive importers to the black market for greenbacks, which would tack on costs to prices on the domestic market, they said.
"The fundamental problem is that some people are going to be able to get access to the dollars at one price and others will not," said Rafael Alfonzo, an anti-Chavez business leader. "The consumer will be the one who pays for this."
Finance Minister Nobrega said that the government's plan would provide enough dollar access to ensure that prices of essential food and medicine did not rise sharply.
But for Caracas car salesman Jose Antonio Torres the wait for a final decision on where the exchange rate would settle was just another chapter in a disastrous economic year.
"We can't fix a price for cars because we don't know where the dollar is going to go," Torres said as he turned away two customers from his showroom of foreign cars. "When we buy new cars from the plant now, we know we are not going to be able to sell them at the exorbitant prices they'll cost."