Government-ordered price cuts spawn desperation shopping in Venezuela

CARACAS, Venezuela — The appliance salesman nervously eyed the chaotic scene outside his door.

An unruly line of shoving and jostling shoppers was waiting to enter the store in a Caracas shopping district, where prices had been cut in half — by government decree — on refrigerators, washers, stoves and TVs. Fights broke out as customers tried to force their way to the head of the line.

"I'm afraid they are going to attack the store. There's a lot of aggression, because they think we are hiding products in the warehouse," said the salesman, Rafael Garcia. "People are desperate because they have been in line for five hours, but we're only letting five people in at a time."

Desperation shopping has been common in Venezuela in recent days, since President Nicolas Maduro's move to force shop owners to cut prices on appliances and electronics. Maduro, the handpicked heir to the late leftist leader Hugo Chavez, has become increasingly aggressive — heavy-handed, say many economists — as he struggles to shore up a sinking economy.

Since his election as president in April, the month after Chavez died, Maduro has been forced to confront the fact that his predecessor — popular for socialist initiatives that eased the burdens of the poor — left the Venezuelan economy in shambles.

Things have been worsening rapidly since then. The inflation rate hovers at 54%, and nearly 1 in 4 food items on the government's list of basic goods i considered scarce.

Venezuela may have reaped $750 billion in oil revenue since 1999, but its government is low on cash and has been forced to take on an increasing amount of debt, including more than $35 billion in advances from China secured by oil sales. An official of the International Monetary Fund said recently that Venezuela's current economic path was unsustainable.

Maduro, a former bus driver with little formal education, lacks Chavez's political skills and charisma. He and his supporters blame outside pressures, even sabotage, for the problems. The United States is high on their list of culprits. More-conservative economists and politicians say Chavez and Maduro created the mess themselves.

Meanwhile, the Venezuelan people are left to cope.

Outside Garcia's establishment, butcher and Maduro supporter Ramiro Canizares was loading a freezer onto his truck. He had bought it at a neighboring store, but the discount was disappointingly low, only 5% off the previously listed price. At 17,000 bolivars, the Venezuelan currency, it would have been about $2,800 at the official exchange rate — but was only $290 at the more commonly used black market rate.

"I thought I better buy it now because after this chaos it will be difficult to buy anything at all," Canizares said. Despite his support for the president, he is, like many Venezuelans, angry about the country's economic disarray.

Three miles to the east, salesman Miguel Higuera at the Pablo Electronic store faced a crowd of frenzied buyers by himself. The owner had decided not to come in for fear of being arrested for price gouging.

Just a few days before, Higuera explained, the shop owner had jacked up prices by 150% to reflect the devaluation of the bolivar. Since January, the Venezuelan currency has lost 90% of its value on the unofficial market, the benchmark used by most retailers. "Even though he has since lowered prices, he's afraid the government will now seize all our inventory," the salesman said.

That fear is a reflection of Maduro's increasingly hands-on management of the economy. In a Nov. 8 speech, he said his government would set legal limits on business' profit margins in a bid to, in one observer's phrase, "prohibit inflation." On Thursday, the Chavista-controlled National Assembly voted to give him expanded powers to do that.

He also ordered the military to take over the Daka electronics chain and slash prices by as much as 25%.

"Nothing should be left at Daka," Maduro said.

In addition to appliance stores, Maduro announced that government auditors would soon fan out across the country to examine the books of car dealers and shops selling auto parts, hardware and apparel. The Aldo shoe store chain cut its prices in half, anticipating government intervention.

Spared from the new controls are prices of basic foods, which have been set by the government since shortly after Chavez took office in 1999.

Those price controls, on chicken, rice, cooking oil and other items, won favor with the poor but drove many food companies out of business. As a result, the government now must import 70% of all basic foods, said Alejandro Arreaza, an economist with Barclays in New York. Even so, scarcities persist because of inefficiency and corruption.

The controls, combined with the chilling effect of government takeovers of hundreds of companies, farms and ranches, have made Venezuela's economy among the least productive in the hemisphere, said economist Jose Manuel Puente, now a visiting fellow at Oxford University.