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CARACAS — Pending legislation aimed at curbing Venezuela's soaring inflation could backfire by boosting consumer prices, spurring corruption, stemming investment and causing more severe shortages of basic goods, analysts warned on Saturday.
Government officials and lawmakers loyal to President Hugo Chavez claim the Law for Fair Costs and Prices would help reduce Latin America's highest rate of inflation by forcing businesses to set retail prices at rates established by government officials. Among the factors that officials would consider are production costs such as raw materials and labor.
While price controls already exist, the new law would impose such limits on a wider range of goods and give the government more enforcement authority.
"Stringent enforcement of this law will bring consequences including fewer products in markets and less investment," Luis Vicente Leon, director of the Venezuelan polling firm Datanalisis, said Saturday at a news conference. Datanalisis regularly tracks the availability of basic goods and consumer prices.
With the National Assembly expected to approve the bill within weeks, representatives of Venezuela's largest business chamber have voiced concerns that the legislation would further cut into the profits of businesses already subject to broad government oversight while new regulations could put them at risk of bankruptcy.
Vice President Elias Jaua recently rejected claims the law would hurt businesses, saying: "Honest businessmen and merchants will continue to exist and continue their activities along with a population with increased purchasing power."
During a public forum held Saturday at a downtown Caracas plaza to discuss the bill, Adina Bastidas, an economist and member of Chavez's ruling party, defended it as a powerful tool to crack down on perverse business practices.
"This law is going to attack speculation and hoarding, as well as other factors that are detrimental to the country's economic development," Bastidas said.
Annualized inflation reached 27 percent last year, and many economists expect consumer prices to grow by an even higher rate this year. The country's food prices shot up 33.7 percent during the 12 months ending in March, far above the average increase of 7.7 percent for Latin America, according to the U.N. Food and Agriculture Organization.
While Chavez often blames unscrupulous speculators for the price rises, many economists say his government's unrestrained spending is fueling inflation. Other critics blame government policies that have reduced domestic production amid increasing government imports of foods and other basic goods.
Venezuelans have struggled with sporadic shortages of foods such as milk, cooking oil, sugar, beef and chicken as well as other products such as tampons and some medicines. When items disappear in stores, street vendors usually ignore existing price controls and sell them at higher prices.
Leon said a survey of dozens of businesses, including street markets, conducted by Datanalisis last week showed that prices for scarce products sold by vendors were 55 percent higher than goods found at supermarkets and other retail stores.
In a report released on Friday, the Caracas-based Ecoanalitica think tank warned that the legislation could foment corruption among authorities responsible for enforcing new rules aimed at preventing businesses from hoarding goods. The legislation could also spur the creation of a black market in which products are sold at inflated prices, the think tank said.
The proposed legislation would create a government institution dubbed the Superintendence of Costs and Prices that would determine prices for certain products.
Ecoanalitica warned that by doing so, the law "grants too much power to inspectors and superintendents with respect to fixing prices."
