Thursday, April 24, 2003

The New York Times

February 23, 2003
Salons Dabble in Venezuelan Black Market

Filed at 5:58 p.m. ET
CARACAS, Venezuela (Reuters) - At Isabel's beauty salon in downtown
Caracas you can get more than a bikini wax, manicure or a hair cut. You
can now also dabble in the country's burgeoning black market.
Wedged next to a shuttered foreign currency exchange house, Isabel's is
one of the newest additions to Venezuela's not-so-secret underworld of
dollar traders -- looking to make quick cash off newly imposed draconian
currency controls.

Embattled President Hugo Chavez unceremoniously shut currency markets last
month, starving the nation of precious dollars in a bid to shield
government foreign reserves from a swelling economic crisis.
``Hey mister, you looking for dollars?'' one beauty salon worker, clips
and brushes peeking from her uniform pockets, whispers to Jose Dos Santos,
who is just outside.

Breaking his worried gaze from the darkened windows of the currency
exchange next door, Dos Santos blurts out a confused but determined,
``Yes, miss. I am.''

``I'm leaving tomorrow to live in Portugal and what am I going to do with
bolivars over there?'' he said.
Dos Santos, his graying chest hair peeking out of the top of his light
blue dress shirt, might as well be the poster-boy for Venezuela's
disillusioned immigrant population. He arrived here on the eve of the
country's oil boom in the 1960s and opened a small grocery store.
``I've sold everything, my family has sold everything, we're leaving this
country,'' he explained.

The currency controls, which value the crippled bolivar currency at an
artificially strong 1,600 per U.S. greenback, are among the latest
attempts by Chavez to stem fallout from a devastating economic crisis in
the world's No. 5 oil exporter.
Latin America's fourth-largest economy shrank a whopping 8.9 percent last
year, and striking oil workers bent on choking off the government's
financial lifeline -- petroleum revenues -- will likely exacerbate the
contraction this year.

The two-month shutdown was meant to buckle the populist president and
force him to call early elections. But Chavez, who says he has the support
of Venezuela's poor majori tomatoes to kitchen soap at government-set levels.
So, Dos Santos wants out. And there are plenty of places like Isabel's
willing to help him.

About an hour after his chat with the beauty parlor attendant, a casually
dressed gentleman arrived at the salon. After exchanging a few whispers
with the hairdresser, the gentleman asked ``How much you want to buy?''
``I bought about $2,000 at 2,200 bolivars a dollar,'' Dos Santos said
after the transaction. It valued the bolivar nearly 40 percent below the
government's official rate.

The head of the government's new currency control board, retired army
Capt. Edgar Hernandez, recently admitted the black market is ``difficult
to avoid and difficult to control.''

Some officials have said that the government could introduce a dual
control system that would permit a parallel market orientated toward
industry. But Chavez has refused.
``Leave a dollar free, floating around so the conspirators can slip in
there? The dollar's value will rise and undermine the other controls. No,
this must be an integrated system,'' Chavez said during his weekly Sunday
television broadcast.

``Conspirators'' against Chavez's self-styled ``revolution'' are already
at work -- at least in the currency markets. Some are exploring the
Internet as an option, eyeing schemes in countries like Argentina, which
introduced currency controls at the start of 2002 after a devastating debt

One idea would copy the model of an Argentine online music retailer, which
allows paying patrons access to a virtual plaza for buying dollars.
Venezuela has already adopted a lower-tech Argentine invention -- the
so-called ``Arbolito,'' or the currency seller who hawks his wares on
street corners.

``We sell and buy gold,'' shouts out a middle-aged man in a Caracas plaza.
With a sheepish look, he furtively hands over a scrap of paper to a
potential client that offers to trade in dollars.
``How much?'' asks the client who is looking to sell $500.

The question hangs in the air for a second until the seller leads his
customer to a hidden location in the center of Caracas, where gold traders
operate a few meters from the National Assembly.
So begins the trade.
``She wants to sell $500, how much?''
``1,700 bolivars,'' answers the trader.
The client respond quickly: ``So low? The newspapers tout the price at
2,200 to 2,500 (bolivars).''
The customer leaves looking for a better price. She later sold the dollars
to a friend for 2,000 bolivars to the dollar.
She should have gone to Isabel's.