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Capital flight amounts to USD 8.11 billion in six months

The public sector facilitates the outflow with the issue of bonds in foreign currency

The bonds issued by Pdvsa in the first half of 2009 enable the private sector to deposit money abroad (Photo: Jorge Santos)

"Exchange control came to remain. We will not let the oligarchy to keep on taking all the people's dollars away," blankly said President Hugo Chávez in April 2008.
Nonetheless, no matter the bar on the free purchase of US dollars since 2003, the balance of payments at the end of the first half of 2009, assets and liabilities of the private sector, and the item recorded by the Central Bank of Venezuela (BCV) as "default," put capital flight at USD 8.11 billion.

How can this huge capital flight be explained amidst exchange control? The government and state-run oil holding Petróleos de Venezuela, in their need for funding, issue US dollar-denominated bonds. These notes are bought by individuals and corporations in Venezuelan bolivars and then sold abroad to get foreign exchange.

"The non-financial private sector recorded in the second quarter a hike of its foreign deposits, mostly because of the funds in foreign currency following the settlement of notes in foreign currency place in the secondary market by the National Treasury, Pdvsa and private financial institutions," stated a report prepared by the BCV.

This is not news. "Over the last two years, outgoing foreign capital was higher than USD 40 billion. In a country where the private sector barely exports USD 4 billion, understandably, this amount has been provided by the public sector. How? Through the issue of foreign public debt, sale of Argentine bonds, structured notes and otherwise," found a report released the first week of August by think-tank Econanalítica.

"This, regrettably, is another feature which will remain effective in the Venezuelan economy. We have a private sector which does not trust in its country. This year, we estimate the capital flight at USD 14 billion, mostly facilitated by public debt notes," the report added.

Upon meeting with BCV President Nelson Merentes, Pdvsa senior executive officers and the team of the Public Credit National Office, Alejandro Grisanti, an analyst with Barclays Capital, drafted a report on the government debt plan for the second half of 2009.

The Ministry of Finance will sell notes in Venezuelan bolivars accounting for approximately USD 9.84 billion. The planning also includes USD 8 billion in US dollar-denominated notes.

Barclays Capital thinks that if the issue of bonds in Venezuelan bolivars is estimated in US dollars, based on the official exchange rate, and realized debt in the first half is added, the total debt of the Republic, including the amount owed by state-owned companies, will heighten 52.7 percent.


Translated by Conchita Delgado

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