Venezuela to Ban Brokerages From Bolivar Debt Sales

By Corina Rodriguez Pons and Daniel Cancel

May 28 (Bloomberg) -- Venezuela will prohibit brokerages from buying and selling government debt in bolivars as part of a new capital markets law to be presented next week, Ricardo Sanguino, president of the congressional finance committee said.

Brokerages, which were prohibited from buying and selling dollar-denominated securities on May 18 in a crackdown of the unregulated currency market, will still be allowed to trade in commercial debt and company stock, Sanguino said in a phone interview.

“The bill will try to limit brokerages to operations with commercial paper and stock from the private sector and remove them from debt operations issued by the government,” Sanguino said.

President Hugo Chavez is tightening regulation of the financial industry after blaming currency speculators for weakening the bolivar in the unregulated market this year and a surge in consumer prices. Chavez said yesterday that brokerages are unnecessary in a socialist state and “private capitalists” still control the majority of economic power in the country.

Bolivar Plunged

The government moved to dismantle the parallel currency market after the bolivar plunged 26 percent this year to a record low of 8.2 per dollar on May 11. Chavez devalued the bolivar on Jan. 8 and created a multi-tiered exchange system in a bid to slow capital flight and to close a budget deficit.

Chavez blamed the private sector for accelerating inflation that quickened the most in seven years in April, rising 5.2 percent from March. Venezuela, which has the highest inflation rate of 78 countries tracked by Bloomberg, may see 40 percent inflation this year, according to RBS Securities Inc.

The central bank will now oversee the buying and selling of dollar-denominated securities within a trading band to substitute the previous parallel market operated by brokerages.

Venezuelan companies depended on the parallel market when they couldn’t get government approval to buy dollars at the official rates of 2.6 and 4.3 per dollar. Trading has been closed in the market since May 13 and the central bank may inaugurate the new system next week, bank director Armando Leon told Globovision yesterday.

Chavez said late yesterday that his government will increase pressure on private banks operating in the country and that brokerages aren’t necessary in a socialist country.

Chavez said last night that with volatile international markets, Venezuela is stable after government action.

‘Speculative Tricks’

“Venezuela’s markets don’t go up or down, because they’re intervened,” Chavez said. “Why do we need brokerages in socialism? They know all the speculative tricks.”

Banks will be the main intermediaries between clients and the central bank to buy dollars and will continue to trade bolivar-denominated debt, Sanguino said.

The government raided as many as 16 brokerages since May 13, took control of eight firms and jailed 10 brokerage directors, accusing them of illicit currency transactions.

Finance Minister Jorge Giordani said that brokerages were fueling capital flight, possibly laundering money and establishing artificial exchange rates in the parallel market.

The crackdown on the financial sector may cause a greater number of brokerages to close as their investment opportunities are limited, Richard Obuchi, a professor of public policy at the IESA business school and director of ODH Grupo Consultor, said in a phone interview.

“The market for commercial debt and stock is very small in Venezuela after the main companies on the stock market were nationalized,” Obuchi said. “By eliminating their participation in the public debt markets, it’s inevitable that some will disappear.”