RPT-UPDATE 2-Venezuela seeks to tax financial market trades

www.forbes.com Reuters, 01.27.03, 7:20 AM ET (Fixes typographical error in author credit line at end of story)

PORTO ALEGRE, Brazil, Jan 26 (Reuters) - Venezuelan President Hugo Chavez on Sunday said his government would present a bill in two weeks to tax financial market transactions, raising more uncertainties for investors as the country suffers under an 8-week-long strike.

Only last Wednesday, Venezuela, the world's fifth-biggest oil exporter, closed its currency market for five trading days after vital oil output was hit by the work stoppages that aim to force Chavez to resign and make way for elections.

"We are in favor of this proposal and it is very probable that a law in Venezuela establishes a tax on financial transactions in the short term," Chavez told reporters. "The government will present parliament with a law (bill) to discuss in two weeks time."

Later, he suggested other measures might follow.

"We have decided to put in place currency controls to protect the international reserves... so as not to threaten the population, there must also be price controls," Chavez said.

Hundreds of rowdy flag-waving supporters cheered Chavez's at a demonstration of support at the six-day World Social Forum being held in Brazil's southern city of Porto Alegre. The WSF is a meeting of leftist intellectuals and social groups designed to counter the conference of national and business leaders at the World Economic Forum in Switzerland.

The bill to tax financial transactions was apparently inspired by the so-called Tobin Tax on foreign exchange transactions, named after Nobel Prize-winning U.S. economist James Tobin who first floated the idea in the 1970s.

"We are currently protecting our international reserves from speculative attacks," Chavez told reporters earlier. "We are studying a tax like the Tobin one for financial transactions."

The Tobin Tax has been championed by some social groups as a way of reducing damaging currency speculation and raising funds for developing countries, but it has been largely rejected by finance ministers and central bankers in Europe.