Venezuelan Bond of the South Sale a “Total Success”

Caracas,
October 3, 2007 (venezuelanalysis.com) – Finance Minister Rodrigo Cabezas announced
the results of Venezuela's
third Bond of the South sale, valued at US$1.2 billion, which he described as a
"total success." The sale is meant to help hold down annual inflation, which
registered at 15.3% in September, slightly down from the previous month.

The bond sale closed last
Friday and showed a demand for US$3 billion – far outstripping supply.  Cabezas said the results, which were due to be
announced on Monday, were delayed until Tuesday to deal with the huge demand
and ensure "democratic distribution of the bonds."

The first two issues of the
Bond of the South took place in November 2006 and in February this year, worth
$1 billion and $1.5 billion respectively. The third sale of the Bond of the
South, which began on August 16 was suspended until September 24 due to
turbulence affecting international markets as a result of the high-risk credit
crisis in the US.
Another factor in the suspension, according to Dow Jones, was that the initial
offer, 66% of which was made up of bolivar-denominated debt and only one third
in dollar-denominated Argentine bonds, made the offer less attractive.

According to estimates from
various brokerage houses, through the latest Bond of the South offer, buyers
could obtain U.S.
currency at a rate of roughly 3,700 bolivars per dollar. Richard La Rosa, a
trader with Activalores said the sale of the bonds was an opportunity to buy
dollars at a good rate and was very attractive because the current black market
rate is between 4,600 and 5,000 bolivars per dollar.

Dollars at the official
exchange rate of 2,150 bolivars per dollar can only be obtained under special
circumstances.

Alejandro Uzcátegui, president
of Businesses for Venezuela,
(Empreven) said the bond sale would impact positively on the economy. ''The
Bond of the South III, in which prices are set
at 108%, according the announcement made by the Ministry of Finance, becomes a
measure that will work to diminish the demand of foreign currency, at the time
it is a harsh blow to the speculator people who sell dollars at a non official
price,'' Uzcátegui added.

However, Nelson Corrie, head
trader at Caracas-based brokerage Interacciones Mercado de Capitales told
Bloomberg, that the bond sale was too small to meet the demand for foreign
currency.

"We understand the demand for
the bond was at least three times what was offered," Corrie said. "That means a
lot of banks and investors seeking dollars will only get a very small part of
the bond."

Due to increased restrictions
on foreign exchange introduced by the government in early 2003 in order to
prevent capital flight, demand for US dollars has surged.

According to Bloomberg, Venezuelan
President Hugo Chavez's announcement on Sunday to further increase restrictions
on foreign exchange trading saw the bolivar fall 2 percent to 5,100 bolivars
per U.S. dollar this week in unregulated currency exchange, from 5,000 on Sept.
28.

In other finance news,
inflation eased slightly for September to 15.3%, down from 15.9% in September
last year. The accumulated rate of inflation for the first three quarters of
this year was also down from 12.5% last year to 10.9%.

According to the Central Bank
of Venezuela,
inflation for September was largely driven by the increase of prices on
products outside of government price controls, which rose by 2 per cent, whereas
products under government price controls rose only 0.5%

Some analysts have argued that Venezuela's
currency change to the Strong Bolivar (Bolivars Fuerte), could possibly add to
inflationary pressures as retailers and suppliers might simply round prices up.
However, the government has said it would continue with the anti-inflationary
measure of enforcing price controls.

Meanwhile, Minister for
Planning and Development, Jorge Giordani, said the government is still aiming
to close the year with a target of 12% inflation.

Giordani also said that economic growth remained high
and estimated that Venezuela would close the year with a growth rate of between
8% and 9%, signifying Venezuela's sixteenth consecutive quarter of economic
expansion.