Venezuela’s Central Bank relaunches bond market, prices set near official rate

Venezuela relaunches market for currency exchange

CARACAS, Venezuela — Venezuelan officials launched a new bond-trading system Wednesday that is meant to clamp down on speculation in the country’s controlled currency, setting a range of prices that makes dollars far cheaper than they were before trading was halted last month.

The Central Bank set a band of permitted prices for bond trades that private bank officials said translated into exchange rates of between 4.3 bolivars and 5.3 bolivars to the dollar. The rate had soared above 8 to the dollar under the old system last month.

Most of the transactions were near 5.3 bolivars to the dollar, Central Bank president Nelson Merentes said.

The first day of trading involved about $17 million in transactions and there were plenty of bonds available to meet demand, Merentes told Union Radio. Demand is likely to grow in coming days as Venezuelans and businesses become familiar with the system, he said.

Economists projected a rush of demand because the three-week halt in trading left many businesses starved for dollars.

President Hugo Chavez has accused speculative trading of undermining the currency’s value under the earlier system, which was close to a free-market rate for the bolivar.

Chavez’s government maintains currency-exchange controls and sets official exchange rates. It makes available only a limited amount of dollars at the official rates of 2.6 bolivars per dollar for high-priority goods, and 4.3 to the greenback for nonessential goods — forcing many businesses to trade in dollar-denominated bonds to pay for imports.

The Central Bank said its band of permitted prices for bond trades is to be updated daily and posted on its website. Private bank officials said the range of rates could vary in the coming days.

Fourteen banks were involved in trading Wednesday, and 26 others are expected to join Thursday, said Jose Grasso, who heads the country’s banking association.

Banks received draft instructions laying out tentative limits for the monthly amounts that may be traded per individual or company, Grasso told TV station Globovision, without giving details.

Private bank officials involved in the trading, who spoke on condition of anonymity because they weren’t authorized to comment publicly, said the rules limit companies to $300,000 a month, and individuals to $5,000 a year — with some exceptions for students and payments for health care or professional services.

That limit for companies, which translates to $3.6 million per year, is a minimal amount for large corporations that have until now done transactions in the hundreds of millions of dollars, said economist Asdrubal Oliveros, director of Caracas-based consulting firm Ecoanalitica.

He said if that limit is kept in place, it’s likely to worsen shortages of some imported goods and exacerbate the recession.

The new system puts stringent limits on the amount of capital flowing out of the country, which last year totaled $22.4 billion, Oliveros said.

Analysts also have predicted there could be a significant shortage of bonds because demand may outstrip supply.

Ecoanalitica estimates $15 billion to $17 billion in bonds will be needed to meet demand this year.

But Merentes said Tuesday that officials estimate the economy will require roughly $5 billion to $6 billion in bonds for needed transactions this year.

Some economists expect the new restrictions on the bond market could contribute to inflation, which at 31.2 percent is by far the highest in Latin America.

Venezuela imports much of its consumer goods as well as parts and machinery for its factories, and in the past, 30 to 40 percent of imports were being purchased through trading in government bonds.

The bond market was temporarily closed by the government on May 19 while the rules of a new trading system were developed.

Private brokerage firms that largely handled trading in the bond market were shut out, and exclusive control given to the Central Bank.

Under the new system, commercial banks take requests for trades from individuals and companies and process the transactions through the Central Bank.

Since last month, securities regulators have taken over management of 36 brokerage firms while investigating alleged violations of currency controls or other irregularities. At least nine executives have been arrested.

The Attorney General’s Office announced new raids Wednesday on two other brokerages, Linux Valores and Efincorp.