Venezuela Currency Markets Remain Closed

sg.biz.yahoo.com Wednesday February 5, 9:38 PM

CARACAS (Dow Jones)--Venezuela's currency markets remained closed Wednesday, the day the government said it would lift a two-week halt on foreign-exchange sales, a trader at a foreign bank with local offices said.

"There are no forms you're supposed to fill out according to the new rules that haven't yet been announced," the trader told Dow Jones Newswires.

"Maybe if they get the whole thing done and print the forms tonight, maybe, we'll be up Thursday," the trader said.

ADVERTISEMENT But, given the volume of work involved to implement new foreign-exchange trading rules President Hugo Chavez said would be implemented Thursday, trading may remain halted well into next week, the trader said.

Various government officials have said the new rules will likely set the bolivar ($1=VEB1853) at a fixed rate, which will apply to imports of critical goods like food and medicine, as well as to transactions by government firms. A second rate may later be established in a parallel market in which the central bank may participate.

The first fixed rate will likely be between VEB1600 and VEB1750 per dollar, analysts have said.

Chavez has said government agencies will handle more imports, and those who haven't backed opposition efforts to oust him will be given preferential access to foreign currency.

The government said last week it will announce the new exchange-control measures on Feb. 5, ending a halt on foreign currency sales to preserve international reserves and stabilize the bolivar.

In the 13 business days of this year before the government called the sales to a halt, Venezuela's international reserves had dropped an average $59.3 million a day, according to Finance Minister Tobias Nobrega.

Foreign reserves stood at $11.24 billion Friday, down from $11.93 billion at the beginning of the year, according to central bank statistics.

Traders have said the central bank has been pumping in upwards of $70 million a day over the last weeks in an unsuccessful attempt to stop a steep slide in the bolivar, which has lost more than 25% of its value against the dollar since the beginning of the year. The currency lost 46% against the dollar last year.

Despite the sales halt, the bolivar is still trading in an informal secondary market - as weak as VEB2500 per dollar - amid soaring demand for dollars as Venezuelans flee to safe haven on fears the government may be forced to impose even tougher measures given a two-month general strike that began Dec. 2 has had a devastating effect on the economy.

Some analysts have predicted gross domestic product will shrink up to 40% in the first quarter, and the government is quickly running out of money, given the work stoppage has virtually shut the country's vital oil industry, which accounts for about half of government income.

Tax collections, too, have been badly affected as thousands of businesses closed due to the strike.

Although many businesses have reopened, opposition leaders have said they won't call off an oil-sector walkout unless Chavez agrees to early elections.

Chavez's critics blame his left-leaning policies for the country's deepening economic crisis, as the economy likely contracted about 8% last year amid unemployment of 17% and inflation of 31%.

Chavez, first elected in 1998 on promises to eradicate corruption and inequality, has blamed the recession on an "economic coup" by his opponents.

Central bank Web site: www.bcv.org.ve

-By Jehan Senaratna, Dow Jones Newswires; 58212 564 1339; jehan.senaratna@dowjones.com