The New York Times
August 01, 2008
CARACAS, Venezuela — The central bank sought on Friday to calm fears of faltering banks a day after President Hugo Chávez unexpectedly announced the nationalization of a large Spanish-owned bank, his latest effort to intensify state control over the economy through takeovers of private companies.
The nationalization of the bank would extend to the financial sector a series of takeovers, which Mr. Chávez initiated last year, in industries including oil, telecommunications, electricity and steel-making.
Mr. Chávez further shook the political establishment and financial markets on Friday when he disclosed that he had used his decree powers to issue 26 laws on Thursday. They included a banking reform, although the government did not provide details on any of the laws the president decreed.
The central bank was similarly vague in its attempt to reassure depositors that the banking system was solid. It said it had enough reserves to guarantee normal financing operations throughout the economy, but did not provide new figures on its reserves, which are thought to exceed $30 billion.
On Thursday, Mr. Chávez announced plans to nationalize the nation’s third-largest bank, Banco de Venezuela, owned by the Spanish financial giant Santander. Compensating Santander could cost the Venezuelan government more than $2 billion, banking analysts here said.
Although Mr. Chávez had earlier threatened to nationalize Spanish-owned enterprises in retaliation for European immigration measures, his move surprised investors. He returned from a trip to Spain last week and assured Venezuelans that he had mended relations with King Juan Carlos, who famously told Mr. Chávez to “shut up” at a summit meeting last year.
Pavel Gómez, an economist with ODH, a financial consulting firm here, said Mr. Chávez’s government could build 500 schools for an estimated 500,000 students with the money needed to pay Santander for the takeover of Banco de Venezuela. “The true cost of this measure to Venezuelan society is open to debate,” Mr. Gómez said.
Mr. Chávez said that a Venezuelan banker had asked for his approval to buy Banco de Venezuela from Santander, a plan that the president overruled. Reports here identified the banker as Victor Vargas, a flamboyant financier whose daughter is married to the great-grandson of Francisco Franco, the deceased Spanish fascist.
“It’s possible that Santander saw the clouds gathering on the Venezuelan economy and is relieved to just get out,” said Orlando Ochoa, a financial analyst here. “But this move also destroys some of the pragmatism recently introduced into policies trying to stave off a crisis among the banks.”
Venezuelan bonds fell Friday for a second day, with the nation’s debt trading at more than 6.5 percentage points above United States Treasury securities. That puts Venezuela behind only Argentina, also struggling with rising inflation, in economic risk measures of large Latin American countries.
Indeed, fears recently arose over the possible collapse of several banks because of rules forcing them to sell $5 billion of complex securities called structured notes. Banks bought the notes last year at values tied to high black-market rates of the dollar, exposing some of them to huge losses after the local currency, the bolívar, strengthened this year.
Faced with a possible banking crisis, Mr. Chávez recently named as finance minister Alí Rodríguez Araque, who had won the grudging respect of some members of Venezuela’s business establishment after serving as the country’s representative to OPEC.
Mr. Rodríguez quietly sought advice from the I.M.F. and from the World Bank, multilateral institutions previously shunned or threatened with expulsion by Mr. Chávez. In recent weeks, banking executives and financial analysts here said, the finance ministry had asked troubled banks to individually negotiate ways out of the crisis.
But nationalizing Banco de Venezuela could cause those plans to unravel. Smaller banks might be hesitant to take difficult steps to strengthen themselves financially if they thought they would be nationalized anyway.
Soaring oil revenues give Mr. Chávez a cushion to carry out the nationalizations, with oil revenues up 70 percent in the first quarter to $20.5 billion. But demands from some sectors for a greater share of the revenues have also intensified, as seen in Mr. Chávez’s decision last month to raise salaries for the armed forces by 30 percent.
Such increases barely offset inflation, the highest in Latin America at 32 percent; food-price inflation has soared even higher, reaching 52 percent.