Venezuela price control legislation could backfire

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 labour. 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 on Saturday at a news conference. Datanalisis regularly tracks the availability of basic goods and consumer prices. Article continues below Bankruptcy risk 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 on Saturday 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. Annualised inflation reached 27 per cent 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 per cent for Latin America, according to the UN Food and Agriculture Organisation. 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 imports of foods and other basic goods.