Venezuela authorities raid two financial brokerages

* Government clamps down on “parallel market”

* Authorities want to check rapid bolivar fall

* Analysts say reforms could worsen inflation

By Enrique Andres Pretel

CARACAS, May 17 (BestGrowthStock) – Venezuelan authorities raided
two brokerages on Monday in the latest example of efforts by
President Hugo Chavez’s government to increase its control over
an unofficial foreign exchange market (Read more about international currency trading. ).

The OPEC member nation’s leftist leader signed a law on
Sunday that put the central bank in sole control of foreign
exchange in the country, whether in currencies or securities,
after the bolivar plunged on the parallel, unofficial market.

Analysts say the move could worsen inflation and erode
confidence in the economy. The finance minister and central bank
president were due to hold a news conference on Tuesday, but
officials said it would only be open to state media.

In a statement, the official prosecutor said the raids took
place following a complaint by the National Securities
Commission “about alleged irregularities by the operators, which
apparently ran contrary to the existing legal system.”

The two targeted brokerages were Sociedad de Corretaje de
Valores Heptagon and Casa de Bolsa Finalca — both smaller firms
based in the capital Caracas.

Last week, the authorities raided four brokerages and
arrested one person as part of the operation to fight against
“speculation.” The latest raids took place even though the
amended law has yet to come into force by being published in the
Official Gazette. Monday was a bank holiday in Venezuela.

Brokerages operating in the unofficial market have been
virtually paralyzed since last week when the national assembly
voted to reform the law and put the central bank in charge.

Chavez has threatened to close down all finance trading
houses and brokerages if they do not play by the rules.

Under the new regulations, the central bank will decide
which brokerages can participate in the foreign exchange market (Read more about international currency trading. )
where the bolivar has until now been freely floated.

It is called the parallel market because it operates
alongside two fixed rates for the bolivar of 2.6 and 4.3 per
dollar — set by the government in a devaluation in January.

The 2.6 rate is for importing food and medicine and the 4.3
rate is for turning oil dollars into bolivars and for importing
items deemed non-essential.

Officials have said the central bank could be aiming to
create a floor and ceiling price for the bolivar in the parallel
market. Analysts say it could be between 5-7 bolivars.

Analysts have warned this strategy may backfire and create a
fourth, illegal market for dollars and possibly hasten another
devaluation by the government early next year. The bolivar was
devalued from an official rate of 2.15 in January.
Investment Research

(Editing by Daniel Wallis)

Venezuela authorities raid two financial brokerages