lunedì, maggio 17, 2010

Hugo hurls Venezuela into the void - Caracas Gringo

Hugo hurls Venezuela into the void

President Hugo Chavez signed the reformed Ley de Ilicitos Cambiarios on 16 May. The “permuta” swap market is dead, anyone who trades foreign currencies is now a criminal, and Venezuela has been pushed over a precipice with no bottom in sight.
*The legal definition of foreign currency now includes all dollar-denominated securities issued in Venezuela or internationally. Apparently, the new definition of foreign currency also extends to all securities denominated in foreign currency that may be held by Venezuelan citizens including Venezuelans who live abroad, and foreign nationals living in Venezuela, according to some analysts.
*It is now illegal for anyone in Venezuela to buy/sell any securities denominated in foreign currency (dollars, euros, etc.) except through the Central Bank, based on new official procedures which have not been defined precisely yet.
It also appears that Venezuelan nationals outside the country who trade any securities denominated in foreign currency technically are breaking the reformed law even if the securities in question were not issued by Venezuelan entities. Also, it appears that any foreign entity or individual that trades Venezuelan-issued securities outside the country is breaking the law.
*The Central Bank now has a total monopoly on all transactions in foreign currencies and bonds.
Cadivi’s future is unclear, and this could bring Chavez some unexpected problems with the military-controlled gangs that operate Cadivi’s parallel networks through which bribes are paid to ensure that foreign currency applications are officially approved.
Also unclear is what happens now to the billions of dollars that Cadivi has approved over the past 12-18 months which as yet have not been disbursed to the companies and individuals that applied for this foreign currency legally through Cadivi.
*Government entities authorized to enforce the reformed law now include Indebapis (consumer protection), Onidex (immigration and customs); Seniat (tax authority), CNV (National securities Commission), the superintendent of banks, and the insurance superintendent, among others.
The reformed law is a windfall for the corrupt activities that flourish at all Venezuelan ports of international departure/entry.
Caracas Gringo predicts that as of today all Venezuelans and foreign nationals traveling out of Venezuela will be at permanent risk of arbitrary searches of their luggage and persons by National Guard and other law enforcement authorities at the country’s airports, seaports and land border crossings who will be looking for illegal hoards of cash.
Of course, not everyone will be searched, but the reformed law implicitly empowers any security official at any international point of departure/entry to conduct searches of travelers at the official’s discretion. Now that trading foreign currency is illegal excepot through the Central Bank, these officials have a new mission that will line their pockets: the interdiction of illicit dollars and euros held by travelers.
*Anyone who is caught illegally buying or selling foreign currencies (including any securities) will be fined up to $10,000 if the amount is between $10,000 and $20,000, and jailed for 2-6 years for trading any amount over $20,000.
*It appears that the trading of bonds held by Venezuelan companies (i.e. banks) is now prohibited, except through the Central Bank. This is very bad news for private banks that are heavily exposed in government-issued secuties.
With the exception of less than a half-dozen banks, ALL private Venezuelan banks carry substantial portfolios of government-issued securities including Pdvsa bonds. Since the banks now can only trade these securities through the Central Bank under rules (and exchange rates) set by the Central Bank, these securities essentially are now even less valuable than junk bonds.
What happens now?
First, all of Venezuela’s traditional, legitimate brokers shut down their foreign currency operations on 12 May. However, all government-related brokers continued to buy and sell foreign dollars that they received directly from the Venezuelan Treasury. Today is a bank holiday in Venezuela, so we must wait until 18 May to see if government-related brokers will continue trading foreign currency this week.
Second, the regime sent “inspectors” to the offices of all of the traditional currency brokers starting two weeks ago with orders to find anything that looks like “proof” of illicit activities. Caracas Gringo also hears from several financial sources that the owners of at least three brokerage firms – Italcambio, Banvalor and Positiva – could be arrested as soon as this week. But we stress that these reports have not been confirmed yet.
Third, an informal black market has already sprung into existence. Before end-June 2010, the BsF likely will be trading between BsF 10-12 per dollar in this market, which likely will operate in Venezuela and abroad.
Fourth, a formal black market also will appear outside Venezuela, though more slowly because companies, individuals and brokers in Venezuela still have to figure out how to justify, with the compliance departments of foreign banks, large sums of cash changing hands outside Venezuela.
Fifth, Devil’s Excrement thinks that a five-tier exchange market has been created: 2.6, 4.3, BCV, informal black and formal black.
The regime’s idiotic scheme is completely unsustainable. Two things will happen: either the regime’s new scheme will unravel quickly, or Venezuela’s economy will unravel first.
The Chavez regime does not have the slightest clue with respect to the tsunami that is about to strike the Central Bank in terms of demand for foreign currencies. Just to function normally, the economy needs between $60 million and $80 million per day – or roughly $15 billion to $20 billion per year.
The ONLY way that Central Bank can meet this demand is to stop giving dollars to Cadivi, but that would constitute a de facto devaluation.
Serious shortages of everything already exist, but they’re about to worsen much faster than anyone anticipates.
There won’t be a Central Bank forex market for at least another week, if not longer, and that alone could be sufficient to hurl the black market FX rate over BsF 10 per dollar before the end of May.