Venezuela authorities raid two financial brokerages

By Enrique Andres Pretel

CARACAS, May 17 (Reuters) - Venezuelan authorities raided two brokerages on Monday in the latest example of efforts by President Hugo Chavez's government to increase its control over an unofficial foreign exchange market.

The OPEC member nation's leftist leader signed a law on Sunday that put the central bank in sole control of foreign exchange in the country, whether in currencies or securities, after the bolivar plunged on the parallel, unofficial market.

Analysts say the move could worsen inflation and erode confidence in the economy. The finance minister and central bank president were due to hold a news conference on Tuesday, but officials said it would only be open to state media.

In a statement, the official prosecutor said the raids took place following a complaint by the National Securities Commission "about alleged irregularities by the operators, which apparently ran contrary to the existing legal system."

The two targeted brokerages were Sociedad de Corretaje de Valores Heptagon and Casa de Bolsa Finalca -- both smaller firms based in the capital Caracas.

Last week, the authorities raided four brokerages and arrested one person as part of the operation to fight against "speculation." The latest raids took place even though the amended law has yet to come into force by being published in the Official Gazette. Monday was a bank holiday in Venezuela.

Brokerages operating in the unofficial market have been virtually paralyzed since last week when the national assembly voted to reform the law and put the central bank in charge. [ID:nN17260162]

Chavez has threatened to close down all finance trading houses and brokerages if they do not play by the rules.

Under the new regulations, the central bank will decide which brokerages can participate in the foreign exchange market where the bolivar has until now been freely floated.

It is called the parallel market because it operates alongside two fixed rates for the bolivar of 2.6 and 4.3 per dollar -- set by the government in a devaluation in January.

The 2.6 rate is for importing food and medicine and the 4.3 rate is for turning oil dollars into bolivars and for importing items deemed non-essential.

Officials have said the central bank could be aiming to create a floor and ceiling price for the bolivar in the parallel market. Analysts say it could be between 5-7 bolivars.

Analysts have warned this strategy may backfire and create a fourth, illegal market for dollars and possibly hasten another devaluation by the government early next year. The bolivar was devalued from an official rate of 2.15 in January. (Editing by Daniel Wallis)