Really working for them -- huge inflation, shortages in an imploding economy, doh!

By Matthew Walter and Steven Bodzin

June 16 (Bloomberg) -- Venezuela's new Finance Minister Ali Rodriguez pledged to maintain foreign exchange and price controls and said he won't cut social spending amid accelerating inflation.

President Hugo Chavez appointed Rodriguez yesterday. He is the ninth finance minister since Chavez took office in 1999 and set about implementing ``21st-century socialism.'' He is tasked with reigning in the fastest inflation in Latin America and stemming a slowdown in growth in the oil-exporting economy.

``Ali embodies a series of attributes: He's experienced, he's a revolutionary, he's studious and honest,'' Chavez said after announcing Rodriguez's appointment on his weekly television show yesterday.

The president said June 11 he would cut a tax on financial transactions, deepen agricultural subsidies and offer $1 billion in loans to companies to boost manufacturing and food output after investment contracted in the first quarter. The economy expanded 4.8 percent in the January through March period, the slowest pace in more than four years.

``There are no changes of any kind planned'' in Venezuela's foreign-exchange policy, Rodriguez said yesterday in a telephone interview. He said he supports Chavez's current efforts to reduce inflation without cutting social spending. While the finance ministry is still considering a planned debt buyback, Rodriguez said he'll have to study the situation before commenting.

The Bolivar

Rodriguez, 70, replaces Rafael Isea, who served as finance minister for six months and is leaving to run for governor of Aragua state in November elections.

The new finance minister fought in Venezuela's Marxist insurgency from the 1960s until he came out of hiding in 1980. Along with serving in the oil and energy ministry, he has been foreign minister, president of state oil company Petroleos de Venezuela SA and ambassador to Cuba.

``He demonstrated intellectual, technical and managerial skills, on top of considerable pragmatism, in all those posts,'' Barclays Capital Inc. economist Alejandro Grisanti wrote in a note to investors today. ``We regard the development as a positive, although we expect few changes in the economic policy front.''

Upcoming regional elections in hundreds of cities and states will probably prompt Chavez to maintain ``pragmatic'' economic policies until the end of the year, he said.

Rodriguez is also a member of the president's United Socialist Party of Venezuela, which was formed earlier this year.

Currency's Strength

Policies put in place under outgoing minister Isea led to a 40.7 percent gain in the bolivar in the parallel, unregulated currency market to 3.35 per dollar. Venezuelans turn to the parallel currency market when they can't get permission from the government to buy dollars at the official rate of 2.15 per dollar.

Government price and currency controls and a series of nationalizations have discouraged investment and restricted the supply of consumer goods and foods, stoking inflationary pressures. Consumer prices in Caracas rose 31.4 percent in May from a year earlier.

``It's clear by now that what is causing this slower growth and higher inflation in Venezuela is the supply response of the economy,'' said Boris Segura, an economist at Morgan Stanley in New York, in an interview before the new finance minister was announced. ``You can only deal with that via an improvement in the business environment.''

To contact the reporter on this story: Steven Bodzin in Caracas at sbodzin@bloomberg.net; Matthew Walter in Caracas at mwalter4@bloomberg.net

Bloomberg 6-16-08