Debt issue chops excessive liquidity in banks

To increase spending and start the consumption car, the Venezuelan government gets in debt by selling banks bonds and Treasury bills, to such an extent that in the first four months of 2012 the issue of notes amounted to USD 11.85 billion.

For financial entities, purchasing bonds and bills has been the main practice thus far this year to minimize idle bolivars.

In January 2012, banks counted on USD 11.68 billion for the compulsory reserve fund at the Central Bank; in April, such an amount downsized to USD 6.36 billion.

The plunge has its consequences. Treasurers explain that in lowering the excessive liquidity, demand of public bonds also loses strength. Therefore, the government will have to place notes at lower prices or higher interest rates if it is to get into more debt at the same pace.

Making room

The Central Bank of Venezuela also plays the game, setting a strategy that enables the Ministry of Finance to sell easily its bonds and bills.

Basically, the Central Bank prevents the bonds used to absorb market money and curb inflation, known as deposit certificates and repos, from competing with the notes issued by the Ministry of Finance.

In the first four months of 2012, deposit certificates and repos placed by the Central Bank summed up USD 8.11 billion; this means a 14% drop below the same term in 2011.

As a result, the balance of deposit certificates and repos accounts for 2% only of the liquidity, the lowest ratio since 2002.

In buying a large amount of the bonds issued by the Ministry of Finance, banks take up higher risks concerning the government repayment capacity.

On the good side, the yield from the bonds of the Ministry of Finance is tax-free.

Translated by Conchita Delgado