Finance

Venezuela to an brokerages from Bolivar debt sales

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. The central bank will 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.

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.

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

"Venezuela's markets don't go up or down, because their intervened," Chavez said. "Why do we need brokerages in socialism? They know all the speculative tricks."

(Published by Bloomberg – May 28, 2010)