Thursday, September 13, 2007

Global credit crunch batters Venezuela

Global credit crunch batters Venezuela
Overnight lending rate climbs as high as 90% after central bank suspends open market operations

By Polya Lesova, MarketWatch
Last Update: 2:28 PM ET Sep 6, 2007

NEW YORK (MarketWatch) -- In a fresh example of how the global credit crunch is hitting emerging markets, Venezuela's overnight lending rate climbed to as high as 90% Thursday after the central bank said it has suspended open market operations meant for pumping liquidity into the market.

The average overnight rate had been at an average of 22% on Wednesday. Venezuela's central bank said it has suspended open market operations, but added it would maintain credit assistance operations, according to a statement published on its Web site Wednesday.

"The squeeze in the Venezuelan money market is yet another example that the global credit crunch is becoming visible in emerging markets, especially in the most imbalanced economies and in countries with a weak financial architecture like Venezuela," said Lars Christensen, senior analyst at Denmark's Danske Bank.
"This story is not an isolated Venezuela story, but rather a developing trend," he said, adding that money markets in both developed and emerging markets aren't functioning well at the moment.

"While the developed economies in general have a strong banking sector, this cannot be said for many emerging markets, and hence the risk of banking and financial distress is much larger in emerging markets than, for example, in euroland and the U.S.," Christensen said.

Deepening trouble in the U.S. subprime-mortgage market has spilled over into global credit and equity markets, causing turmoil and prompting some investors to slash their exposure to risky assets, including those in emerging markets. See Emerging Markets Report.

Russia is another example of an emerging market that's suffering from the global credit crunch, Christensen said. "There's no or very little liquidity in the market. That has led smaller banks to halt their lending activity."
In Latin America, imbalanced economies such as Venezuela and Argentina are the most vulnerable, while Brazil looks much healthier, he said.

More trouble ahead for Venezuela

Venezuela, a founding member of the Organization of Petroleum Exporting Countries, was the world's eighth-largest oil exporter in 2005. The huge oil revenues have fueled the country's rapid economic growth.

Venezuelan President Hugo Chavez, a vocal critic of the U.S., has pledged to nationalize assets in important industries such as electricity, oil and mining. Chavez has consolidated his power over the country, controlling Congress, the judiciary and the army.

"The squeeze in the Venezuelan money market also has to be seen in the light of investors reducing exposure to high-risk markets," Christensen said. "Despite increasing political and economic problems in Venezuela, money has been pouring into the Venezuelan markets. This might very well be coming to an end."

Christensen said he has a bearish view of the Venezuelan economy and markets for several reasons, including Chavez's authoritarian regime, reckless and pro-cyclical fiscal policies, very high inflationary pressures and a rapidly shrinking current account surplus.

Polya Lesova is a MarketWatch reporter based in New York.


Tuesday, June 26, 2007

There is no hiding the obvious

It is nothing new for the Chávez administration to attack and try to discredit nongovernment organizations. It knows that these spokesmen of civil society are independent and do not lend themselves to manipulation, particularly those that work to defend human rights.
In order to discredit these representatives of civil society and prevent them from taking action, they have resorted to every trick in the book, including arbitrary and unconstitutional interpretations of the law.
One such was the decision handed down by the Supreme Tribunal of Justice in 2000 in which Justice Jesús Eduardo Cabrera Infante determined that organizations that received financing from abroad did not form part of civil society. The purpose behind this decision was to restrict the participation of civil society in any sphere of national life. What is more, during these past seven years, this same decision has been used at the discretion of the powers that be and when it suits them to silence complaints about what is happening in Venezuela raised by different NGOs that work to defend citizens’ rights.
The NGO to come under attack today is Transparencia Venezuela, the Venezuelan chapter of Transparency International, a nonprofit organization of renown that seeks to prevent and reduce corruption in all parts of the world. Transparencia Venezuela had planned to submit a follow-up report to the OAS this week on compliance with the Inter-American Convention against Corruption (IACAC), under which it represents Venezuelan society.
At that meeting, at which the Venezuelan government would also be represented, the countries (government and civil society) are under the obligation to submit their respective reports on progress made in the fight against corruption.
However, the Venezuelan government, availing itself of the infamous decision of the TSJ mentioned earlier, is, once again, trying to prevent Transparencia Venezuela from submitting its report on corruption in the country. It fears, and quite rightly so, that the rampant corruption that is undermining the Bolivarian government will be exposed, yet again, for the world to see.
So, in a letter from Venezuela’s official representatives, signed by the General Accountability Office of the Republic and addressed to the Follow-up Mechanism of the Inter-American Convention against Corruption (AICAC) follow-up mechanism, they claim that Transparencia Venezuela is not an organization of Venezuelan civil society because it receives funds from abroad.
The Head of the Accountability Office even chose to forget the fact that the AICAC follow-up mechanism had earlier recommended that this decision be eliminated, while requesting that steps be taken to ensure that there were no provisions in current legislation that restricted the participation of civil organizations in efforts to prevent corruption.
It may well be that the government will, once again, manage to prevent Transparencia Venezuela from submitting its report, thus violating the NGO’s right to take part in the AICAC follow-up mechanism and setting a worrisome precedent so that, in the future, the government and government agencies will have the power to select who may and who may not monitor them.
With all that, the Chávez administration will not be able to prevent the AICAC follow-up mechanism from receiving the different reports from Transparencia Venezuela or the findings from being made public.
In other words, however hard it tries, the government will not be able to hide the obvious, particularly the widespread corruption plaguing its revolution.

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