Jan. 11 (Bloomberg) -- President Hugo Chavez, struggling to stem an outflow of dollars and rein in a budget deficit, has adopted a multiple-tiered exchange-rate system that fueled corruption, food shortages and inflation in the 1980s.

Shoppers in Caracas lined up over the weekend to buy imported televisions, DVDs and refrigerators on concern prices will soar after Chavez on Jan. 8 devalued the 2.15-per dollar exchange rate by as much as 50 percent. He set a rate of 2.6 for imports of items such as food and medicine, a rate of 4.3 for “non-essential” products and committed to defend the bolivar in the unregulated market, where it traded last week at 6.25.

The three-tiered rate system mirrors the failed policy the South American country implemented after a collapse in its biggest export, oil, led to a devaluation in 1983 that Venezuelans call “Black Friday.” Chavez, who said the weaker currency will stimulate economic growth, runs the risk of creating an inflation surge and swelling corruption, said Harvard University’s Ricardo Hausmann.

“Latin America learned in the 1980s that policies like this do not work,” Hausmann, who runs Harvard’s Center for International Development, said in a phone interview. Hausmann served as planning minister in the 1990s under Carlos Andres Perez, the president who dismantled the multi-tiered rate system of the 1980s. “It’s too easy a game to steal money through a multi-tiered exchange rate. You make a bundle just on the exchange differential.”

‘Famously Corrupt’

On the 25th anniversary of Black Friday in 2008, Chavez’s Information Ministry called the 1980s currency system “famously corrupt” and said it was the cause of “countless irregularities.” The system helped spark $60 billion of capital outflows from the country, according to the ministry’s Web site.

Chavez, whose government sets retail prices on hundreds of products and determines maximum interest rates, said comparisons between his currency policy and the 1980s system were unfounded.

Venezuela’s 27 percent annual inflation rate is already the highest among the 78 economies tracked by Bloomberg. Finance Minister Ali Rodriguez, who has been forecasting 2010 inflation of between 20 and 22 percent, said the devaluation may add as much as 5 percentage points to the rate while Chavez, 55, threatened yesterday to seize any stores that raise prices.

“The bourgeois are already talking about how all prices are going to double,” he said on state television during his weekly “Alo Presidente” program. “People, don’t let them rob you. Denounce it and I’m capable of taking over that business.”

Boost to Bonds

Venezuela’s benchmark dollar bonds rose to the highest level since September 2008 as investors speculated the devaluation will help narrow the budget deficit, reducing the government’s financing needs.

The 9.25 percent bonds due in 2027 climbed to 81.5 cents on the dollar as of 12:57 p.m. in London, the highest level since Sept. 24, 2008, from 79.2 cents on Jan. 8, according to bid prices on Bloomberg. The yield on the securities fell 38 basis points, or 0.38 percentage point, to 11.75 percentage points.

The devaluation will cut the budget deficit in half by giving the government more bolivars for each dollar of export tax revenue from state oil monopoly Petroleos de Venezuela SA, said Boris Segura, an analyst with RBS Securities Inc.

The deficit will equal 3.2 percent of gross domestic product this year, rather than the 7.4 percent of GDP it would have equaled without a devaluation, according to RBS forecasts. The revenue windfall will help Chavez boost spending 30 percent ahead of congressional elections in September, Segura said.

The 9.25 percent bonds may rally to as high as 84 cents on the dollar today, said Miguel Octavio, head of research at BBO Financial Services Inc. in Caracas.

Coup Attempt

Since the last devaluation in March 2005, accumulated inflation has totaled 165 percent, according to Goldman Sachs Group Inc.

Chavez said the new 4.3-per-dollar exchange will curb imports and reduce the economy’s dependence on oil, whose prices have fallen 43 percent from a record $147 a barrel in 2008. Venezuela, South America’s biggest oil producer, imported $11 billion of food last year, equal to about 25 percent of all imports, said Planning and Development Minister Jorge Giordani.

Chavez -- who first won office in 1998, six years after trying to topple Perez’s government in a failed coup -- imposed currency restrictions in 2003 as a nationwide oil workers strike throttled exports. An unregulated, parallel currency market emerged to meet demand from Venezuelans unable to get government authorization to buy dollars at the official exchange rate.

‘Failed Everywhere’

The bolivar fell 1.6 percent to a four-month low of 6.25 in the unregulated market on Jan. 8. It will likely continue weakening today unless the central bank fulfills Chavez’s pledge to “heavily intervene” in the market, said Alberto Cardenas, strategy manager at BancTrust & Co. in Caracas.

“There will definitely be volatility,” Cardenas said in an e-mail message. “Everything depends on how quickly the central bank begins to supply dollars directly to the market.”

While the devaluation will ease the government’s financing needs, stagflation may worsen, said Segura. He raised his inflation forecast for this year to 40 percent from 28 percent. He predicts the economy will shrink 6 percent in the first quarter after contracting an estimated 2.9 percent last year.

“We’ve tried this in the past and it failed everywhere,” Segura said in a telephone interview from Stamford, Connecticut.

‘Caracazo’ Riots

In 1983, President Luis Herrera Campins devalued the bolivar and established a multi-tiered exchange system, known as Recadi, after oil prices plunged. Inflation soared to 40 percent in 1987 from 7 percent in 1983 as capital flight led Herrera Campins’s successor, Jaime Lusinchi, to devalue the currency further.

By the time Perez replaced Lusinchi in early 1989, the system had collapsed -- the country was running out of foreign reserves and food shortages were mounting. Perez eliminated the multi-tiered system, unifying the currency at the free-market rate, and lifted price controls. Consumer prices soared 21 percent in one month alone, leading to the “Caracazo” riots that killed hundreds and spurred Chavez, then an Army officer, to accelerate his coup plans.

Segura said Latin America’s debt defaults and recessions in the “Lost Decade” of the 1980s were caused in part by these government controls over markets.

The risk “is corruption and bureaucracy,” Segura said. “You’re going to have exporters under-invoicing exports, importers over-invoicing imports. I’m thinking about Latin America in the 1980s and it was a mess.”

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net.