Oil Report

WRAPUP 1-Venezuela's Chavez launches mild economic plan

(Recasts throughout, adds Chavez comment)

CARACAS, June 11 (Reuters) - Venezuela’s President Hugo Chavez on Wednesday eliminated a tax on financial transactions and loosened currency controls in a mild bid to revitalize the economy, which has slowed despite record oil prices.

Inflation soared in the OPEC-country last month, in spite of efforts this year to soak up extra liquidity, and growth slowed to 4.8 percent for the first quarter.

Chavez said inflation, at 12.4 percent in January-May compared with a year earlier, was a worry but that he would not cut spending on social projects to tackle prices.

“We will fight inflation but we will not put the brakes on the economy,” he said at an event attended by the country’s top businessmen.

The left-wing leader has frequently clashed with the private sector but said business could live side-by-side with his socialist plans.

He announced a $1 billion fund over the next two years to promote industry and said he would cancel some debt and raise farm subsidies for some crops.

The scrapped 1.5 percent tax on financial tax put millions of dollars in government coffers since it was introduced in 2007 but was unpopular with companies. On Wednesday, Chavez said the tax was “regressive”.

Chavez said he will speed up the sale of foreign currency, regulated by government controls, for companies seeking up to $50,000 in imported capital goods.

Red tape and foot dragging in the government exchange agency means many companies struggle to buy dollars for imports through official channels, adding to supply bottlenecks as consumer spending outpaces production.

A parallel market sells U.S. dollars at about 50 percent above the official exchange rate of 2.15 per dollar, which adds to inflation in the import dependent country.

Venezuela’s economy has grown rapidly in recent years, fueled by record world oil prices. The government has liberally spent the bonanza on infrastructure and health projects.

Chavez said consumer demand had grown 85.8 percent between 1997 and 2007. Growth in the first quarter of 2007 was 8.8 percent.

Reporting by Frank Jack Daniel and Brian Ellsworth, Editing by Jacqueline Wong