Strike-hit Venezuela suspends forex trading

www.forbes.com Reuters, 01.22.03, 9:21 AM ET By Patrick Markey

CARACAS, Venezuela (Reuters) - Venezuela's central bank said Wednesday it was closing the foreign exchange market for five trading days as the government moved to stem capital flight during a crippling seven-week-old opposition strike against President Hugo Chavez.

Venezuela's international reserves have fallen and the local bolivar currency has tumbled 28.5 percent since the strike against Chavez began Dec. 2 in the world's fifth largest petroleum exporter.

"Foreign exchange trading is suspended in the country for five market days," Finance Minister Tobias Nobrega and central bank President Diego Castellanos said in a statement.

The central bank said that during the five-day closure the government would maintain the necessary operations to make public external debt payments.

A government source told Reuters late Tuesday that the cabinet planned to temporarily shut down the exchange market as it studied currency restrictions to stem the sharp decline of the bolivar against the dollar.

But the source, who asked not to be identified, said the government was still not clear on what measures it would introduce. The government said Wednesday that it would establish temporary currency exchange and transfer restrictions, but did not give further details.

"The Finance Ministry is authorized to establish with the central bank temporary measures setting limits and restrictions on the convertibility of the national currency and the transfer of funds abroad," said a government decree published in the official gazette.

The source said Tuesday that the government was not considering a devaluation of the bolivar for the moment.

ECONOMIC "TERRORISTS" The opposition strike, aimed at pressuring leftist former paratrooper Chavez to resign and call elections, has battered Venezuela's vital oil exports, which account for about half of the government's revenues. The oil-reliant economy had already contracted sharply amid growing political conflict.

Opposition leaders say that rather than deliver on his promises to ease poverty, Chavez has wielded power like a dictator and driven Venezuela toward economic ruin.

Chavez, who was elected in 1998 and survived a coup in April, has branded his foes as "terrorists" who are trying to topple his government in an economic coup. He has refused to step down and vows to defeat the strike.

Trade and Production Minister Ramon Rosales said the exchange market measure was introduced to halt what he called "the coup-mongers' attack against our international reserves."

"The aim of this measure is to preserve our reserves which are the only guarantee of Venezuela's recovery after this oil sabotage," Rosales told Reuters.

Venezuela's international reserves have fallen to $11.05 billion, a drop of 7.5 percent so far this year. The government also holds $2.85 billion in its FIEM rainy-day savings fund.

The central bank had been burning through about $70 million to $80 million a day to cover demand in the exchange market, traders say. Officials say that figure has at times surpassed $100 million a day.

The central bank reference rate for the bolivar closed Tuesday down 5.1 percent at 1,849.50/1,853 bolivars to the dollar amid nervous demand for the U.S. currency.

Rattled by political uncertainty, the bolivar has lost more than 24 percent of its value this year alone. Traders had predicted the Venezuelan currency could fall below 2,000 bolivars to the dollar this week as the strike grinds on.

Several ministers and central bank officials had repeatedly denied the government planned to introduce currency exchange controls, citing Venezuela's solid international reserves. (Reporting by Patrick Markey, additional reporting by Ana Isabel Martinez and Silene Ramirez; editing by Phil Berlowitz; Reuters Messaging: pat.markey.reuters.com@reuters.net; 58-212-277-2656; email: pat.markey@reuters.com) (Xtra clients: Click on topnews.session.rservices.com to see Top News pages in multimedia Web format. If you cannot access the pages, ask your IT department to check your Internet firewall settings. For a technical advisory, click on .)