Venezuela and Argentina Sell First “Bond of the South”

In what the Chavez government hailed as a further step in Latin American integration, Venezuela and Argentina yesterday successfully sold their first $1 billion worth of “Bonds of the South.”

By Venezuelanalysis.com
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Caracas, November 14, 2006 (venezuelanalysis.com)— In what the Chavez government hailed as a further step in Latin American integration, Venezuela and Argentina yesterday successfully sold their first $1 billion worth of “Bonds of the South.” Demand for the bond was so strong, according to Venezuela’s finance ministry, it outstripped supply by a ratio of 9 to 1.

Venezuela and Argentina each sold $500 million worth of the bond and plan to offer more later this week. A press statement from the Venezuelan finance ministry said that the demand both in terms of the number of buy requests and the number of different financial institutions involved represented a historical high.

According to the ministry, the market’s support for the sale of these bonds showed support “for the financial development of the economies of the region.”

The Venezuelan bonds were sold in Bolivars, the local currency, which essentially allowed investors to exchange Bolivars for Dollar-denominated bonds, giving them access to dollars at the official exchange rate. Venezuela currently has currency exchange controls in place, which makes it difficult for investors to access dollars at the official exchange rate. The black market exchange rate is about 30% higher than the official exchange rate.

According to many analysts, the high demand for these bonds showed that there is a tremendous amount of liquidity in the economy. The cash in the Venezuelan economy, according Bloomberg, has increased by 50% since March of this year.

Draining some of the liquidity through the sale of bonds will lower pressures on inflation, which was 15.5% last month.

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