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President’s Departure Won’t Hurt Oil Industry, But May Stall Reforms

May 21, 1993

CARACAS, Venezuela (AP) _ Venezuela’s strategic oil industry is likely to weather the departure of President Carlos Perez, expected today, but economic reform could be stalled.

The opposition-controlled Senate, virtually certain to ratify Thursday’s Supreme court decision to try Perez on embezzlement charges, went into session just before noon today.

Outside the heavily guarded National Congress Building, hundreds of Venezuelans chanted anti-Perez slogans.

The Supreme Court ruled there are sufficient grounds to try Perez on charges of embezzling the equivalent of $17.2 million in 1989, and Perez faces from six months to three years in jail if convicted.

No sitting president has been tried in Venezuela since the country became a democracy 35 years ago.

In an emotional, sometimes defiant speech to the nation televised Thursday night, Perez maintained his innocence.

The 70-year-old president, his voice sometimes breaking, dedicated much of his 30-minute talk to outlining the gains Venezuela had made under his presidency and blaming his problems on political conspiracy.

He expressed fear political and economic progress made under his stewardship would be reversed.

There also was concern the crisis could turn violent. Thursday night, National Guard troops fired tear gas to disperse an unruly crowd of about 1,000 outside the National Congress Building. The mob was made up mainly of students and young workers shouting anti-Perez slogans.

Witnesses said two people suffered apparently minor injuries. The capital was calm shortly after dark.

Perez has repeatedly said that he will not resign. But if he is impeached, the law requires that the president of the Congress, Octavio Lepage, take over for up to 30 days while Congress picks an interim president to govern until Perez’ case is resolved or until his term expires Feb. 2.

Financial markets were likely to react negatively at first, but should rebound quickly if Perez’s replacement takes over smoothly.

Crucial foreign investment likely wouldn’t dry up as long as Venezuela remains under democratic rule. Military leaders ruled Venezuela for most of this century until 1958.

″That has to be the big worry,″ Tim Duhan, director of the British- Venezuelan Chamber of Commerce, said. ″Not the fact that the president is going, but the possibility that the army might use this as an excuse to move again.″

Two military coup attempts last year, while bloody, didn’t interfere with the operations of Venezuela’s oil industry, the No. 2 foreign supplier of oil to the United States.

″We have gone through coups, dictatorships, social unrest and we have come out unscathed,″ said Raul Antoni, spokesman for the state oil company. ″We’re confident we can come out OK.″

As long as production continues, Perez’s departure won’t impact world oil prices, said Alirio A. Parra, president of the Organization of Petroleum Exporting Countries and until Thursday, Venezuela’s energy and mines minister. The president’s entire Cabinet resigned after the Supreme Court ruling was announced.

Venezuela’s oil industry should continue to attract foreign investment, Parra said.

But Antoni said the political turmoil could distract Congress from considering two major projects that require its approval: a $4 billion partnership to develop natural gas reserves and a $1.7 billion venture to exploit massive reserves of heavy crudes.

Perhaps the greatest damage inflicted by Perez’s departure will be to the controversial program of free-market reforms he launched in 1989.

The program, which includes lifting of price controls and trade liberalization, has boosted the country’s economy, which grew by a healthy 7.3 percent last year. But it’s not popular with most Venezuelans, who have seen their standard of living decrease since 1989 because wage hikes haven’t kept pace with inflation.

Despite the oil riches, one-quarter of the 20 million people here live in dire poverty,

″We don’t have a guarantee that (the reform program) will continue,″ said Nelson Mazzei, former director of economic issues for the Planning Ministry.

Mazzei said an end to the economic reforms could mean the death of two proposed taxes designed to cut the government’s budget deficit, estimated at as high as 5 percent of gross domestic product this year.

Also, if it returns to a protectionist policy, the government could impose controls on currency exchanges; increase the minimum wage, which would drive up inflation; and freeze prices, which would bankrupt some businesses and lead to scarcities, Mazzei said.

Likewise threatened will be a program to sell or liquidate more than 350 state-owned enterprises, Mazzei said. The government’s 1993 budget is counting on $2 billion from privatizations. Without the money, the deficit would grow, eventually pushing up inflation, which independent economists say could reach 40 percent this year.

On the other hand, some investors may be relieved to see Perez depart.

″Everybody is frustrated with a lame-duck president who is perceived as being corrupt. Everyone wants to move on,″ said Duhan of the British- Venezuelan Chamber of Commerce.

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