Venezuelan government examines converting stock into US dollars

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Friday, May 30, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita

VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: The economic agents in search of a way to meet their avid demand for US dollars have resorted to buying telephone company (CANTV) shares as a way to get around the total absence of legal foreign exchange availability. The shares, bought on the Venezuelan capital market, are brought together in a portfolio of 7 and turned into American Depositary Receipts (ADR), CANTV securities listed on Wall Street.

The arrangement is as follows: Once the shares have been converted into an ADR, it is sold in the United States and the value of the transaction deposited in an overseas account belonging to the seller.

This has three important consequences: An effect on the price of CANTV stock, an effect on the Caracas Stock Exchange (BVC), and the reaction of authorities responsible for operating the exchange control system.

First, the price of CANTV stock has risen 54% so far in 2003, according to figures published by El Universal, to 3,785 bolivares.  Second, stock trading in Venezuela has grown and the BVC Index had climbed to a record 11,532.92 points by Wednesday, May 28. But the most controversial of these consequences is the reaction of public officials responsible for regulating the economy.

Finance (Hacienda) Minister Tobias Nobrega announced that an important announcement on these transactions will be made in the next few days, but made it clear that they are in no way illegal. On the contrary, he acknowledged that this procedure is not regulated in the exchange control rules. Members of the CADIVI board, on the other hand, said these transactions are not authorized by the rigorous exchange control system and criticized their speculative nature.

For the time being, the transactions show that the price of a dollar on that market is in the neighborhood of 2,300 Bs./US$ ... but if they came to be regulated, the foreign exchange market's shutdown would be more complete, and hence, the negative effects of the exchange control regime would become even stronger, driving up the black-market exchange rate.