April 14, 2008 / 12:47 AM / 11 years ago

Venezuela could make exchange rate more flexible

CARACAS (Reuters) - Venezuela could make its fixed exchange rate more flexible but will not eliminate currency controls completely, President Hugo Chavez said on Sunday.

Venezuelan President Hugo Chavez speaks during a gathering with supporters to celebrate the sixth anniversary of his return to power after a failed coup d'etat against him in Caracas April 13, 2008. REUTERS/Jorge Silva

Left wing president Chavez, who nationalized steel and cement companies in recent weeks, said the rules about the flow of dollars were needed to prevent capital flight.

“We could make the exchange rate controls more flexible, but the controls are here to stay,” Chavez said during a speech to mark six years since a coup against him collapsed and he was swept back to power.

Venezuela introduced currency controls after the coup, when Chavez’s opponents tried to overthrow him by shutting down the oil industry, the backbone of the South American nation’s economy.

“They were looting the country, we were headed for economic catastrophe,” Chavez said.

This year the government has sold billions of dollars of debt to bring the black market price for the bolivar currency in line with the overvalued official exchange rate of 2.15 per dollar.

Venezuela has so far denied reports of a planned dual rate that might mean essential imports like food and medicine are bought at the current price, while luxury goods are bought with a devalued bolivar.

By selling dollar-denominated debt the government sops up excess bolivars from the economy, helping to assuage high inflation in the OPEC nation, which is flush with cash from record oil prices.

Many retailers peg their goods to the black market rate, which reached over 5 bolivars a dollar last year and helped consumer prices rise 22.5 percent, the fastest in Latin America.

Chavez also implied he had influence over the central bank, which is officially autonomous from the government in Venezuela.

“The central bank is autonomous, but I am the head of state, and the boss is the boss,” he said.

Chavez was defeated in a referendum last year that would have allowed him to run for reelection and giving him direct control over the bank.

Reporting by Frank Jack Daniel; Editing by Sanjeev Miglani

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