MAYELA ARMAS H. EL UNIVERSAL

The directors of the Central Bank of Venezuela (BCV) have shown concern about the country’s indebtedness since this could have an impact on fiscal stability during the next few years.

BCV President, Diego Luis Castellanos, on June 9 sent a letter to the Finance Minister, Tobías Nóbrega, including some remarks made by the bank concerning a public borrowing transaction amounting to VEB 4.8 trillion ($3 billion) provided for in Public Borrowing Law for 2003.

In the letter, the official seriously opposed to the financial conditions surrounding the transactions, stating that the bank “is concerned that such a huge indebtedness -together with the Republic’s current debt- may have an impact on both the fiscal sustainability and the domestic market’s absorption capability, which may compromise the financial system’s stability.”

The BCV board of directors also questioned the three types of bond placements: in US dollars, euros and in the domestic market. Regarding transactions in dollars, it is believed that interest rates are too onerous and do not reflect the actual risk, while bond placements in euros are “also expensive and imply a foreign exchange risk.”

Concerning transactions with sovereign debt bonds (DPN), the bank estimated that titles subject to swap could not be used as a mode of payment, “since this can be considered as a debt refinancing, and that requires a special law. We suggest to suspend the use of dation in payment.”

In response, on June 10, Nóbrega sent a letter to Castellanos explaining the transaction. The Finance Minister shared BCV’s view as to the interest rates to be implemented for bond placements in US dollars, and added that such rates reflect the current conditions in world financial markets. As to the rates for operations in euros, Nóbrega claimed that spreads stemmed from the market values observed during the last few weeks.

The minister stated that internal public debt bonds' swapping is made with unmatured bonds, which do not require a special law. He affirmed that Venezuela’s borrowing is within the limits of the Umbrella Law of 2003.

Jun 12th 2003 | CARACAS From <a href=www.economist.com>The Economist print edition

BY ANY standard, it is a staggering figure: Venezuela's economy contracted by 29% in the first quarter, compared with the same period last year. That spells hardship for millions of Venezuelans. According to Datanálisis, a market-research firm, 72% of households say they have cut back on food; only half now eat three meals a day. Unemployment stands at 20%. Of those officially counted as employed, more than half work in the informal economy.

Much of the GDP shrinkage is the result of a two-month general strike, a failed bid by the opposition to oust President Hugo Chávez. This shut down the vital oil industry in December and January, just when prices were high. Oil output is now almost back to normal. But the economy is not: many forecasters expect a decline of 12% or more for the year.

In early February, Mr Chávez, a populist former army officer, imposed foreign-exchange controls. Since then, the government has approved the sale of just over $100m; in normal times, business would demand that sum every three days. On the black market, dollars now cost 50% more than the official rate. The dollar shortage has also prompted a bizarre stockmarket boom: shares in CANTV, the telephone company, which is also quoted in New York, rose by 68% in May, as investors realised they could swap them for a dollar-denominated American depository receipt, and thus for dollars.

Officials admit that the agency set up to administer the controls was incompetent; it was recently placed in the charge of the Finance Ministry. But opponents see the dollar shortage as a deliberate ploy to strangle what is left of Venezuela's private sector. So far, the dollar drought has not provoked serious shortages of staple goods, though it may yet do so. But what it has done is to continue Venezuela's deindustrialisation—one of Mr Chávez's main gifts to his country. Six out of ten of the manufacturing businesses in existence when the president was first elected in 1998 have since shut down, according to the industrialists' association.

Mr Chávez has blamed the economic catastrophe on the opposition strike. So far, that has worked: one Venezuelan in three still supports the president. But as the strike recedes, three out of four respondents now tell pollsters that the government is primarily to blame for the economy's collapse. The polls also suggest that Mr Chávez would lose a referendum on his presidency, which under the constitution can take place any time after August.

There are also signs that the president may lose his slim majority in the National Assembly. Pro-government legislators held an extraordinary session in a public park last week. They voted to change the parliament's rules, so that the opposition could no longer hold up pending laws which would augment the executive's already wide powers. But in a full session of the assembly this week, they could not muster the votes to ratify the rule changes.

Eventually, his economic mismanagement may catch up with Mr Chávez, eroding the loyalty of all but his most fanatical supporters. That ought to spell the end of his regime. But not necessarily. The opposition has won few friends among the growing number of uncommitted Venezuelans, who show little enthusiasm for politicians of any stripe.

<a href=www.vheadline.com>Venezuela's Electronic news Posted: Monday, June 09, 2003 By: Jose Gregorio Pineda

VenAmCham's (chief economist) Jose Gregorio Pineda writes: The current exchange control system has provoked excess liquidity in the market, providing a large source of credit for the government. The economic agents' inability to legally acquire external assets leaves the system flush with idle funds, and given the deep contraction of the economy and the enormous operating difficulties with which Venezuelan companies are struggling, the only use the financial system can make of those funds is to buy public securities.

Given the serious Treasury problems, the government plans to issue 4.88 trillion bolivares of internal bonds or the equivalent in dollar, yen, or euro-denominated securities. 3.85 trillion bolivares of that amount will be used to cover internal and external debt service, and 1.02 trillion bolivares for spending this year.

• This month the government will have to make large scale public debt service payments, both externally (US$909 million) and internally (Bs.760 billion).

It is important to note the terms on which the external bonds sales are being made; the dollar-denominated bonds may pay extremely high yields, of as much as 17.65%. There is no question that, in the fact of this extremely high cost of overseas bond issues, the domestic market will continue to be the chief option at the government's disposal.

The availability of funds for public financing, generated by the exchange controls, has allowed the Finance Ministry to carry out its internal debt market restructuring through "voluntary" swaps. Naturally, in the absence of exchange controls, and consequently, the "forced" excess of liquidity, many of the scheduled internal debt swaps would become much less "voluntary" than they now seem.

Reuters, 06.09.03, 12:46 PM ET

CARACAS, Venezuela, June 9 (Reuters) - Venezuela's unemployment rate rose to 19.1 percent in April compared with 15.9 percent a year earlier, the government said on Monday.

April's unemployment remained almost steady with 19.8 percent registered in March this year, a spokeswoman for the National Statistics Institute said. Venezuela, the world's No. 5 oil exporter, is mired in its worst recession in recent history after a two-month strike battered its economy.

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Friday, June 06, 2003 By: Patrick J. O'Donoghue

The Venezuela National Statistics Office (INE)  reports that the number of tourists has dropped 60.7% in Q1 2003 compared to the same period in 2002. 

As result of the drop the entry of foreign currency from the tourist trade dipped 66.9%. The INE report says the average of days stayed in Q1 was cut almost 14% while the average night stayed went down 2% which boils down to a 15.6% drop in an average cost of staying. 

In general, the report says accommodation dropped a mighty 69.9% compared to the same period last year. 

• 7 of 10 European tourists dropped off coming to Venezuela more than any other group. 

As for Venezuelans themselves, there was a 35.7% drop in the number of persons traveling abroad causing a 15.8% drop in the exit of foreign currency.