CARACAS, Venezuela (AP) -- Political turmoil in Venezuela is threatening
                  to inflict more pain on an economy that is already suffering its worst
                  recession in decades.

                  After the de facto dissolution of Congress this week by an assembly
                  controlled by President Hugo Chavez, the Caracas stock market fell five
                  percent. And Venezuelan bonds are fast losing their value.

                  Chavez says a new Congress will be established in the coming months, but
                  for now all power in Venezuela appears to be concentrated in the president,
                  his generals and a constitutional assembly packed with his supporters.

                  The political upheaval is scaring off investors, economists say, further
                  dimming Venezuela's economic prospects.

                  Venezuela's benchmark stock index rose 1.9 percent Wednesday, but
                  analysts said that was largely due to bargain-hunting after five straight
                  sessions of losses. Also, trading volume was extremely low.

                  Investors are nervous "that there is no rule of law, that they're dissolving
                  Congress against Congress's will," said Pedro Palma, a private economist in
                  Caracas. "This is something the government must measure with great care
                  because the consequences for Venezuela can be tremendously adverse."

                  Chavez, a former coup leader carrying out what he calls a "peaceful, social
                  revolution," has gained some economic breathing room with a recent
                  rebound in oil prices, Venezuela's main export product.

                  But unlike past years, when a higher oil prices meant automatic recovery, the
                  economy is showing few signs of coming back to life.

                  Economists project the economy will contract as much as 8 percent this year
                  after shrinking 9.8 percent in the first quarter from the same period last year.

                  Since Chavez came to office in February, 600,000 people have lost their
                  jobs, sending the unemployment rate to close to 20 percent. And for those
                  with jobs, monthly income is dropping steadily.

                  The confrontation between forces for and against Chavez came to a head
                  last week with violent street clashes. Television cameras transmitted images
                  worldwide of legislators climbing over a fence around the Congress building
                  in a futile attempt to retake their chambers from the assembly, which was
                  elected to write a new constitution.

                  Finance Minister Jose Rojas told reporters Tuesday that it was "natural" for
                  investors to be cautious during times of historic transformations.

                  There are some positive signs. Higher oil prices, which have doubled since
                  March after hitting at a 12-year low last year, will enable Venezuela to
                  reduce its fiscal deficit to around 6 percent of gross domestic product by
                  year-end, down from 8 percent now.

                  Inflation is also falling. The Central Bank also announced Wednesday that
                  prices rose an average 13.5 percent in the first eight months of the year,
                  down from 20.6 percent in the same period the previous year. Still,
                  economists say that's due to the collapse in demand and investment.

                  Investors are also concerned about what the new constitution will mean for
                  business. Chavez, despite his background as a former leftist officer, insists
                  the new writ will guarantee respect for private property.

                  Chavez, who tried to overthrow the government seven years ago, has
                  exercised strict fiscal discipline since taking office, but shown little willingness
                  to trim the country's bloated bureaucracy or send confidence-building signals
                  to corporations.

                  On Tuesday, Chavez named a new head of the huge state oil monopoly,
                  PDVSA, a day after the old one resigned. The new chief, Hector Ciavaldini,
                  is a trained chemical engineer with a doctorate from the University of
                  London. He is also considered one of Chavez's close allies.

                  "This is a mistake because Ciavaldini is there for strictly political reasons, not
                  because of his capacity as an oil manager," said Palma, the economist.

                    Copyright 1999 The Associated Press.