August 6, 2008 / 3:43 PM / 11 years ago

Venezuela's Chavez imposes new controls on economy

CARACAS, Aug 6 (Reuters) - Venezuelan President Hugo Chavez has tightened his grip on the economy with a package of decrees bolstering government power to take over businesses and control prices in the run-up to tight regional elections.

The measures, decreed through special powers allowing him to bypass Congress, resume his aggressive 2007 drive to forge a socialist state and closely resemble proposals included in a constitutional reform voters rejected in December referendum.

The laws give the leftist leader new short-term inflation-fighting mechanisms at a time when supporters are increasingly complaining about South America’s fastest-rising consumer prices, which jumped 22.5 percent in 2007.

Opposition leaders accused Chavez of trying to push force through his failed constitutional reform and slammed him for not publicly discussing the package of laws.

“The government on a whim put out these 26 laws, smuggling in the night a group of measures that the Venezuelan people clearly said no to,” said opposition leader Julio Borges.

The new legislation lets Chavez name regional political authorities and provide them funding from government coffers, possibly allowing him to retain control of key states if his supporters lose the upcoming regional elections.

The decrees fit Chavez’s vision of a centralized economy, giving the government broad powers to intervene at any step in the supply chain and even creating committees to decide how much food should be consumed in certain regions.

“Basically the state is defining what the Venezuelan consumer should eat, how much to eat (and) where to acquire the brand of their preference,” said Pablo Baraybar, president of Venezuela’s food industry business group.

The self-styled socialist revolutionary last year launched a wave of nationalizations in the telecom and energy sectors, leading oil giants Exxon Mobil (XOM.N) and ConocoPhillips (COP.N) to quit Venezuela’s prolific oil fields.

His December loss in the constitutional reform referendum slowed his drive but he renewed it this year with takeovers in the steel and cement sectors and the recently announced the takeover of a bank owned by Spain’s Grupo Santander (SAN.MC).

ELECTORAL HORIZON

Chavez enjoys broad popular support thanks to heavy social spending financed by booming oil revenues but runaway inflation has started eating away at the economic benefits he has offered the poor.

Polls show Chavez’ candidates could lose in key states and cities in November’s local elections.

Analysts say his supporters are fed up with Chavez’s proteges’ mismanagement of basic services such as trash collection, although they still back him as a leader.

Chavez in June called on business leaders to create an alliance with the government to boost economic growth, offering soft loans and debt write-downs as incentives — a conciliatory stance that sharply contrasts the aggressive decree package.

One of the laws lets the government forcibly acquire food production assets and enact special measures to prevent hoarding or “undue price increases,” following shortages of groceries that plagued the Chavez government for much of 2007.

Another allows for the expansion of existing price controls to cover any products the president deems essential and makes it easier for the executive branch to nationalize the businesses that make these products.

The government also has the power to annul contracts between private parties the government determines are abusive.

“These laws are a frontal attack on a decentralized economy. They promote intervention and centralized planning by the state,” said Jose Vicente Haro, a constitutional lawyer at the Universidad Catolica Andres Bello in Caracas. (Reporting by Brian Ellsworth; Editing by Bill Trott)

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