UPDATE 1-Venezuela dropped from FTSE All-World Index

Mon May 5, 2003 04:11 PM ET (Releads, adds details and background)

NEW YORK, May 5 (<a href=reuters.com>Reuters) - Venezuela's recession-bound economy got more bad news on Monday, when the country was dropped from the FTSE All-World Index as tight foreign exchange controls hampered international investors.

The FTSE Group, which manages the global index of 49 developed and emerging countries, said that, since foreign exchange is not available to international investors wishing to sell on the Caracas stock exchange .IBC , Venezuela is in breach of ground rules written for the management of the index.

Venezuela, the No. 5 oil exporter, will be removed at the close of business on June 20 and the change will be effective Monday, June 23. The Latin American country will be removed at nil value.

"Many fund managers have marked the value of Caracas-listed shares held to zero," said Peter Leahy, Co-Chairman of of the FTSE Americas Regional Committee, in a release.

The FTSE Group, which is co-owned by the London Stock Exchange and the Financial Times, is a leading index manager -- most notably of the FTSE 100 at the London Stock Exchange.

Venezuela, which will attract fewer investors as a result of the FTSE action, is struggling with one of the worst downturns in its history after a two-month opposition strike in December and January slashed its vital crude production and shipments.

The government in February introduced strict currency and price controls to halt capital flight and stem inflation. But the curbs have left the private sector starved of essential hard currency for more than three months.

Business leaders have warned the controls will further curtail economic growth, batter the private sector and prevent importers paying debts with external suppliers.

"These exchange controls make Venezuela effectively uninvestable," Leahy said.

The Caracas stock market's leading player, No. 1 telephone firm CANTV VNT.N TDVd.CR , an affiliate of Verizon Communications VZ.N , is traded in the United States in ADR form. But the Venezuelan firm recently issued an investor warning saying it might not be able to pay its dividends in dollars due to the forex controls. (Additional reporting by Patrick Markey)