UPDATE 2-Venezuela’s Chavez vows more financial crackdown

* State has taken control of forex trading

* 15 brokerages raided, 4 directors arrested

* Chavez promises to fight capitalist “mafia”
(Recasts with Chavez speech; adds details)

By Andrew Cawthorne

CARACAS, May 20 (BestGrowthStock) – President Hugo Chavez vowed on
Thursday to deepen a financial crackdown after raids on 15
brokerages and the arrest of four directors in the wake of the
state’s takeover of foreign exchange trading.

The socialist leader said this week’s move to exclude
private money-changers and transfer the so-called “parallel”
currency business to the Central Bank, had brought a typically
ferocious reaction from Venezuela’s traditional elite.

“We’re going to keep hitting them hard,” Chavez said in a
speech on state TV. “We will become more radical, the more
imperialism and its allies attack us.”

With Venezuela’s “parallel” market paralyzed, until the
central bank sets up its new system, economists and business
leaders have accused Chavez of bringing chaos to the OPEC
member nation’s already recession-hit economy.

Given restricted access to dollars at the official rates of
2.6 and 4.3 bolivars, more than half of imports had been
depending on the “parallel” market, where the local currency
had dived this year to more than 8.0 to the dollar.

By taking over that “parallel” market, South America’s
biggest oil exporter is now effectively setting up a third
controlled exchange rate, albeit within a band. Chavez said the
band would be near the 4.3 rate, though analysts and traders
had forecast around 5.0-7.0 bolivars. [ID:nN20267658]

Angrily waving the front page of local business daily El
Mundo and quoting business leaders’ criticism of him, Chavez
said the “savage Venezuelan bourgeoise” had launched a
concerted attack since Tuesday’s currency announcements.

Analysts say a new black market will inevitably spring up,
creating a fourth and much higher rate for the dollar, and
another devaluation may come next year.

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For story on possible SCENARIOS: [ID:nN17260162]

For a FACTBOX on the bolivar currency: [ID:nN18160466]

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Since Tuesday’s measures were announced, financial
officials have searched 15 institutions in Caracas, studying
documents, examining computers and quizzing staff.

Four brokerage directors have been arrested.

Chavez said the government was bringing down an old system
of “fraud houses” run by a “mafia”. “Nothing and nobody is
going to stop me, I guarantee you, Mr. Oligarchs,” he said.

Chavez accuses capitalist speculators of undermining the
bolivar and fueling one of the highest inflation rates in the
world. Critics blame him, however, for the country’s economic
woes, saying a complex currency system distorted the market,
while socialist policies hobbled investment and production.

Chavez rejected criticism of state currency board CADIVI,
saying it had released $11.8 billion to businesses so far this
year, compared to $10.3 billion in the same period of 2009.

Analysts say the government must act swiftly during a
period of uncertainty until the new system is operating.

“Delays will only choke imports, with the corresponding
results of higher inflation, lower private demand, more severe
shortages and deeper contraction of economic activity,” the
Royal Bank of Scotland said in a research note on Thursday.

“The erratic policy response and the authorities’ track
record does not augur well for a fast resumption of a working
permuta (swap) FX market.”

Venezuela’s more than 90 brokerages had increasingly relied
on the exchange business — via complex debt-swaps — because
trade on the local stock exchange was minimal, sometimes less
in a day than the cost of a middle-class Caracas apartment.

“There is panic. Many firms have already started laying off
people. There is a witch-hunt taking place against the
brokerage houses, as if they are the only ones who are
responsible for what is happening,” said one trader.

Despite its oil, analysts predict Venezuela will be the
only Latin American nation with economic contraction in 2010.

Stock Market Trading
(Additional reporting by Daniel Wallis and Ana Isabel
Martinez, editing by Anthony Boadle)

UPDATE 2-Venezuela’s Chavez vows more financial crackdown