<a href=www.khilafah.com>khilafah, uploaded 26 Jun 2003

Venezuelan move to replace US$ with the €uro upsetting Washington more than Saddam's €uro conversion last November

VHeadline.com editor & publisher Roy S. Carson writes: A move by Venezuelan President Hugo Chavez Frias to replace the US$ with the €uro is seen as upsetting Washington more than when Iraq's Saddam Hussein started using the €uro for oil transactions last November ... precipitating the US-led action to invade Iraq. Beltway bullies are now said to be angered by Venezuela's decision to barter oil with thirteen other Latin American countries, dealing moves to dollarize South America currencies. Intelligence reports say that while the US was able to pull the wool over the international community and ally with Britain's Blair to bulldoze action against former Iran War ally Hussein, the situation with Venezuela is proving more difficult.

While there has been political pretext to cold-shoulder Chavez Frias and his government for supposed links with Cuba's Castro and Libya's Khadaffi, the United States is loathe to do more than to give subversive support to anti-Chavez elements in Venezuela fighting against the Venezuelan President's domestic war against political and economic corruption which have permeated the South American country for the last half-century.

International finance experts see how the US dollar has been devaluing against the €uro, as important players on the international scene convert to the European currency for more stable transactions ... Russia, China, North Korea and Malaysia have begun holding €uros as important hedgings in their foreign exchange reserves as faith in American greenbacks floats down the river.

CIA and other intel organizations, including Britain's MI5, now fear that the next step is that the Organization of Petroleum Exporting Countries (OPEC) is about to switch to €uros ... the immediate effect would be a massive devaluation, perhaps sparking of domino-effect devaluations worldwide in US$-related foreign reserves and foreign debt calculations.

With a massive budget deficit, the United States is running scared of latest intel that the Kingdom of Saudi Arabia is on the brink of converting to the €uros and the opinion held by many OPEC ministers is that the conversion is an inevitability ... the only question left is WHEN?

Arab sources claim that €uro conversion across the Middle and Far East is a rational step to counteract the United States' capacity to "wage further illegal wars (a.k.a. State-sponsored terrorism)" around the world and that any prolonged occupation of Iraq by US/British forces ... and any move towards withdrawal of Iraq from the OPEC cartel ... will only precipitate "remedial action" by like-minded Arab nations to protect their own best interests over Washington's.

A significant step in this direction is that Iran is contemplating switching to the €uro and, as a result, is the latest object of United States undiplomatic interference ... an intel sources says "they are stimulating opposition forces, making covert threats ... the next step is destabilization and quasi-liberation warfare under the pretext of promoting US-style democracy but essentially aimed at maintaining the US dollar as a global transaction currency."

Reuters, 06.25.03, 6:21 PM ET CARACAS, Venezuela, June 25 (Reuters) - A Venezuelan Central Bank director on Wednesday dismissed the possibility of establishing a dual exchange rate as the government reviews changes to the nation's strict currency control regime. Armando Leon, one of the seven central bank directors, said the government and bank officials are evaluating reforms they would make soon to ease the flow of dollars. But he rejected the option of setting another exchange rate parallel to the current single fixed rate. "The modifications are only operational," said Leon, a frequent critic of the state currency board, Cadivi, for its sluggish release of hard currency since establishing the controls in February. "There is nothing about dual exchange rates," Leon told reporters after an event at Miraflores Presidential Palace. Local news reports have suggested the government is considering an additional exchange rate, as well as a tax on the purchase of foreign currency. Officials are also considering placing the currency board under the direct control of the Finance Ministry. Analysts and private businesses have warned that without a sharply increased flow in dollars the battered Venezuelan economy will slide deeper into recession. The gross domestic product shrank 29 percent during the first quarter of this year after a two-month opposition strike cut into oil output from the world's No. 5 crude exporter and the currency curbs further squeezed the private sector. A scarcity of greenbacks has created a thriving black market where the U.S. dollar trades at 2,600 bolivars compared with the official fixed rate of 1,600 bolivars. Government officials say the currency controls have allowed them to bolster international reserves and brought down interest rates. But opposition leaders say the forex regime is choking economic growth and increasing unemployment. Another Central Bank director Domingo Maza Zavala also criticized the government's fiscal policies for sharply increasing domestic debt to cover a revenue shortfall. "It's worrying that a good part of the local debt is being used to cover budget deficit and not for investment and social development as it should be," he told reporters. Venezuela's state revenues have fallen steadily since 2002 when leftist President Hugo Chavez survived a brief coup and the nation slipped deeper into recession. The government is now forecasting a 10.7 percent economic contraction this year though private analysts expect the gross domestic product to shrink between 12 percent to 17 percent after a record 8.9 percent fall last year. Domestic public debt stood at 15.4 trillion bolivars or $9.6 billion in 2002 up 4.8 trillion bolivars from a year earlier and 13.1 trillion bolivars compared with the end of 1998, when Chavez was first elected. The increase means about 25 percent of the budget now goes toward paying internal debt. Maza said the government needed to reorganize public finances because the accumulation of obligations exceeded the immediate capacity to pay them and forced successive swaps of internal debt.

<a href=quote.bloomberg.com>Bloomberg Columnists

David DeRosa , president of DeRosa Research & Trading, is an adjunct finance professor at the Yale School of Management and the author of "In Defense of Free Capital Markets." The opinions expressed are his own.

Venezuela's Currency Idea Won't Work: David DeRosa (Correct)

(Corrects January to February in fourth paragraph. Commentary. David DeRosa, president of DeRosa Research & Trading, is also an adjunct finance professor at Yale School of Management and author of ``In Defense of Free Capital Markets.'' The opinions expressed are his own.)

June 25 (Bloomberg) -- Venezuela is studying adopting a dual exchange-rate system for the bolivar to relieve dollar shortages. It won't work.

If the government really wants to end dollar shortages there is a simple solution. It can let the bolivar become a floating currency against the dollar.

That may not fit into the larger political strategy of President Hugo Chavez to dominate the economy. In January he restricted sales of dollars after the conclusion of a bruising two- month strike against his administration.

Venezuela's main source of dollars is its state-controlled oil export industry. This gives Chavez a lock on dollars coming into the country. In February he fixed the bolivar at the rate of 1,598 to the dollar -- the rate being trumpeted as necessary to allow Venezuelans to import essential commodities.

The black market value of the bolivar is about 2,500. So Chavez is selling his dollars cheap. The real point isn't the rate at which he is selling dollars, but to whom. Chavez controls the supply of dollars to reward his friends and punish his enemies.

He can decide what goods and services can be imported since imports require payment in dollars. About 60 percent of Venezuela's economy relies on imported raw materials.

How It Might Work

For the lucky few who can buy dollars from the government, the rate is a bargain, making it no surprise that there is a shortage of the U.S. currency. Shortages occur when governments force prices below their market-clearing levels.

One of the central bank's seven directors, Domingo Maza, said Monday that the dual exchange rate system is ``under study and consideration.'' An educated guess can be made at how it might work.

One component would sell the government's dollars at the official rate of 1,598 bolivars to the dollar. Another part of such a system would auction dollars at a market rate. Theoretically, the auction would allow supply and demand to eliminate the dollar shortage, an improvement over the current arrangement.

Some important questions would include: How many dollars would be sold at auction? Would only certain eligible parties, such as friends of Hugo, be allowed to buy them?

Debt Upgraded

You have to wonder if the people who would be allowed to buy at the official rate will be selling all or part of the dollars in the free market.

In other words, wholesale arbitrage of Chavez's foreign- exchange system is going to be very tempting. Friends of Hugo will get very rich very fast buying dollars at 1,598 and selling them for something like 2,500 bolivars.

Chavez, meanwhile, got some good news from Fitch Ratings on Monday. ``We don't think there's going to be a default anytime soon,'' Fitch sovereign analyst Theresa Paiz-Fredel said.

Fitch upgraded Venezuela's debt rating to B-, six levels below investment grade, from CCC+. It also raised Venezuela's long- term bond rating to B- from CCC. Venezuela has $22.4 billion in foreign debt and $7.4 billon in domestic debt.

The problem is that Chavez has made a perfect hash of the economy and the bolivar, in particular. When you mess around with exchange-rate regimes you can get unpredicted outcomes. That's why it is hard to believe anyone can know what will happen next in Venezuela.

<a href=www.vheadline.com>Venezuela's Elecronic NewsPosted: Wednesday, June 25, 2003 By: David Coleman

Venezuelan Federation of Chambers of Commerce & Industry (Fedecamaras) acting president Albis Munoz is quoted as saying that in all probability a massive devaluation of the Venezuelan bolivar will follow hot on the heels of a lifting of foreign exchange controls.  Munoz says she fully expects "a severe adjustment" to US$/Bs. parity to replace restrictions which she says only serve to maintain the "artificiality" of the national bolivar currency in the face of the country's stark reality.

Speaking on regional television in southeastern Venezuela, Munoz -- who holds executive office pending the return (?) of fugitive Fedecamaras president Carlos Fernandez -- says that an increasing black market in US$ could be contributing greatly to money-laundering operations in favor of the Colombian drug cartels.

Munoz is emphatic that there will be no economic resolution agreement with the Chavez Frias government since the majority of business leaders are against the current administration and cannot therefore see any possible short-term recovery for the Venezuelan economy.

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Monday, June 23, 2003 By: VHeadline.com Reporters

Venezuela Today's Washington D.C. Bureau reports that the Venezuelan government has officially announced a target of $44 million in daily foreign disbursement by the end of June. The target announcement comes on the heels of recent comments by Ford Motors that it may have to take the drastic step of shutting down its Venezuelan production for one week in August because of a failure to receive enough foreign currency for payments to suppliers.

Sources in the government say the exchange commission is currently issuing $26.4 million per day for foreign currency transactions and that Ford has already received $36.5 million in 75 separate applications. 

Ford had to halt production June 2-6 due to having receiving far less than its requested amount of disbursements, but government officials stress that the situation is "in the process of being corrected" with the anticipation of an end to any problems relating to foreign disbursements in the near future.