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VenEconomy :The last door closes

 

 

 

One of the many dark sides of the government takeovers of banks and brokerage firms is that the investors and institutions that were taken over have been denied access to their dollar-denominated instruments.

So far, instead of being able to sell their dollar-denominated bonds in return for dollars, banks, brokerage firms and their clients have been forced to sell them for bolivars at the official rate of exchange, resulting in serious losses for both the financial institutions and their clients.

It now seems that the government intends to continue this pernicious practice of forcing institutions and individuals to sell their dollar-denominated bonds, both those issued by the government and by PDVSA, for bolivars at less than market price.

On March 29, the Central Bank of Venezuela, following guidelines (article 53) included in the Banking Sector Institutions Act to which analysts paid next to no attention, sent a circular to the financial institutions instructing them that they must place “all bonds, whether in bolivars or dollars, issued or endorsed by the Republic or state-owned corporations, held in their own portfolios of those of third parties, in trust funds or as security” in the custody of the Central Bank by no later than June 30.

The alleged purpose of this transfer of custody is to “safeguard and protect the money saved and deposited by people in the banking system.” This argument has set off alarm bells because, in every society, the financial institutions have been considered the natural custodians of instruments of this kind, both theirs and their customers.

This recent order has prompted even further misgivings following a statement made by the first vice president and manager of the Central Bank, Eudomar Tovar, that discloses the darker side of this mandatory transfer of dollar-denominated bonds, namely that the custody of these instruments by the Central Bank will “prevent capital flight.”

The concern is that, with this measure, bondholders will be at the mercy of the Central Bank, in other words at the mercy of any order issued by Hugo Chávez. After the deadline, nobody will be able to withdraw or sell his bonds without the consent of the Central Bank.

To make matters even worse, thanks to the government's restrictive policies, government and PDVSA bonds had become virtually the only investment opportunity left for Venezuelans that offered both a reasonable rate of return and a means of safeguarding the real value of savings.

Now, the last door left open for Venezuelans who wished to save has been slammed shut. .

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VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Veneconomy , on May 06, 2011. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 05/09/2011

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