Crackdown on Illegal Currency Market Continues in Venezuela

In the midst of an overhaul of the bond trading regulations meant to stop inflation in the unofficial dollar market, the Venezuelan government stepped up its administrative oversight of brokerage firms.

By James Suggett - Venezuelanalysis.com
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Planning and Finance Minister Jorge Giordani (center) (Henry Tesara/ABN)
Planning and Finance Minister Jorge Giordani (center) (Henry Tesara/ABN)

Mérida, May 21st 2010 (Venezuelanalysis.com) – In the midst of an overhaul of the bond trading regulations meant to stop inflation in the unofficial dollar market, the Venezuelan government stepped up its administrative oversight of brokerage firms, announced a new bond emission, and said it will demand information from U.S. government investigators on international money launderers.

National investigators raided the brokerage firms Positiva Sociedad de Corretaje, Banvalor, Italbursátil, and Premier Valores, along with nine others this week.

Planning and Finance Minister Jorge Giordani said the firms purchase government bonds at the preferred dollar conversion rate and illegally sell them at a profit. This causes inflation in the value of the dollar and, as a result, inflation in the import-dependent Venezuelan economy, in addition to the flight of valuable resources out of the Venezuelan economy.

“The responsibility for setting the exchange rates belongs to the national executive and the Central Bank of Venezuela (BCV), not to these imposters and professional swindlers,” said Giordani in a press conference.

Tomas Sanchez, president of the National Securities Commission, said as much as 80% of Venezuela’s 107 stock and bond brokerage firms participate in the parallel dollar market, and many of these companies were created with the sole purpose of illegal dollar trading.

The price of the dollar on the parallel market soared to 8.5 bolivars to the dollar recently. This is double the rate of government-issued dollars for importers, and more than three times the government’s preferential rate for the productive sector.

Central Bank President Nelson Merentes said the demand for dollars beyond those issued by the government is unnecessary, since the government increased the supply of dollars by more than 10% so far this year, compared to the first four months of last year. Also, with 14 billion bolivars available on the market, “Venezuelan monetary liquidity is sufficient,” said Merentes.

Minister Giordani indicated a large increase in government-issued dollars is unlikely, and that the official policy of supplying dollars only for necessary imports will continue. “We are going to import what we really need,” he said.

According to the Venezuelan daily El Universal, the demand for dollars exceeded the amount issued by the government by 35%, or US $12.1 billion.

The government has currently frozen all international bonds trading and is expected to unveil its new regulatory plan soon.

“We are confronting an attack by the bourgeoisie,” said Chavez, signaling several private business chambers, including the Venezuelan Confederation of Industries, as the culprits. “We are obligated to design a new permanent system and recuperate the bonds... we must take the reins,” he said.

U.S. Information on Money Launderers

To further clamp down on the international parallel dollar trade, President Chavez ordered Foreign Relations Minister Nicolas Maduro to request that the U.S. identify money laundering suspects who profited from the illegal trade of the Venezuelan bolivar.

Chavez also said the U.S. and Venezuela should establish “mechanisms for cooperation” on the matter.

Chavez referred specifically to the arrest of 16 people in Florida, Puerto Rico, and New York this week for using Venezuela’s parallel currency market to launder $7 million in drug trafficking profits.

“I’m sure they knew it for a long time,” Chavez said. “Have them give us their names because for us here there are no untouchables,” said Chavez.

Bonds

Also this week, the government announced it would auction off public bonds that are worth six billion bolivars and will be available only to public institutions such as savings, retirement, and pension funds.

The bonds represent two-thirds of the total bond sales the government has planned for May and June. For 2010, the government plans to emit 40 billion bolivars in bonds to balance its budget and compensate for a drop in oil revenues last year as a result of the world economic downturn.

Private financial institutions, plush with bonds brokered by firms such as the ones raided this week, have not bought up the government’s bond offers as quickly as the state had planned, according to Telesur.

Venezuela’s public debt dropped from 47.5% of GDP in 2003 to 13.8% in 2008, and has increased to about a quarter of the GDP since last year, according to Mark Weisbrot of the Washington DC-based Center for Economic and Policy Research.

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