Venezuela: Businessmen fear that restricted swap market will halt production

[ChangoLoa]

Industrial sector leaders fear that the regulations to the foreign exchange swap market implemented by the Central Bank of Venezuela (BCV) will boil down to a halt in domestic manufacturing activity.

"We expect this (the new BCV platform for trading US dollar-denominated bonds) starts working as soon as possible; otherwise, the industrial sector will stop operations," said an industrialist in central Carabobo state who asked to remain anonymous.

Before the recent amendment to the Law against Exchange Offenses and following the delays of the Foreign Exchange Administration Commission (Cadivi) to authorize the supply of US dollars, some companies resorted to the swap market to obtain foreign exchange rapidly, in order to buy raw materials, inputs or machinery.

According to data from the Venezuelan Confederation of Industries (Conindustria), 40 percent of the industrial sector imports last year were paid with foreign exchange traded in the swap market. Therefore, an eventual closure of this "safety valve" will put into checkmate most of the domestic production apparatus, which is already seriously hit.

"Had this safety not existed, many companies would have closed operations," the industrial leader added. At the same time, he stressed that the new system under which the Central Bank of Venezuela (BCV) is to centralize trading of US dollar-denominated bonds in the swap market should work more efficiently than Cadivi.

According to information provided by financial authorities, the BCV will act as a foreign exchange broker between buyers and bondholders through a technological platform and a band system that will set a lower and an upper limit to the price of the foreign currencies.

Porfirio Tamayo, President of the Chamber of Manufacturers of the state of Miranda, said that if the new system does not provide "quick" results, there may be shortage of products in the second half of the year.

Although he said that it will depend on the level of stocks of each industry, he added that the restrictions currently imposed to the swap market will have effects and will cause delays in the delivery of goods to the local market.

"Foreign currency transactions have stopped," Tamayo said.

The business leader suggested financial authorities to define as soon as possible the rules that will govern the swap market and give people the opportunity to buy foreign exchange in a timely and smooth manner.

Carlos Larrazábal, the president of the Venezuelan Confederation of Industries (Conindustria) also warned on Wednesday that if the new system becomes a "second-tier Cadivi", there will be supply problems in different areas.


http://english.eluniversal.com/2010/05/21/en_eco_esp_businessmen-fear-tha_21A3897339.shtml

[ChangoLoa]

1. Venezuela Bolivar Should Be Nearer Official Rate, Chavez Says

Venezuelan President Hugo Chavez said the nation’s foreign-exchange rate should be much closer to the official rate of 4.3 bolivars per dollar and that he will proceed with a new government-run currency-trading system.

Venezuela suspended trading of dollar-denominated assets in the local market on May 18 and the government said it plans to create a trading range for the currency. The central bank will oversee transactions in a bid to control inflation and speculation in the market, bank President Nelson Merentes said.

Chavez said May 19 that brokerages had committed “fraud” in currency transactions and were trying to weaken the bolivar to 10 per dollar or more. Until May 18, Venezuelans used the parallel currency market to obtain dollars through the swap of bolivar and dollar bonds via brokerages.

All holders of Venezuelan bonds should declare their ownership as the country wants to “recover” some of its bonds, Chavez said late yesterday on state television, without elaborating. He also said that currency controls implemented in 2003 have been “excellent.”

Venezuela’s free-floating currency rate, known as the parallel rate, has declined 26 percent this year to 8.1 per dollar, more than 45 percent weaker than the official rate, as Chavez’s seizure of private companies prompts investors to withdraw capital from the country.

http://www.bloomberg.com/apps/news?sid=amhnKwLuIS4U&pid=20601087