From the Editors of VenEconomy

May 2010 saw the start in Venezuela of a “trial” that has kept 10 directors of stockbrokerage firms behind bars, resulted in the closing down of 67 stockbrokerage firms, and practically destroyed the capital market, an area of economic activity that generated more than 5,000 jobs and provided a service to more than 3.5 million investors.

This all started as a result of a decision by Jorge Giordani, Venezuela’s planning and finance minister, to close down the swap market.

It will be recalled that the Foreign Exchange Crimes Act provided for the possibility of purchasing dollar-denominated securities in Venezuela in exchange for bolivars for their subsequent sale on the international market in exchange for dollars, and vice versa; and the difference between the price in Venezuela and the price abroad determined an “implicit” exchange rate or “swap rate,” as it was also called. Obviously, this mechanism relied on the possibility of trading these papers both in Venezuela and abroad.

There is no doubt that, no matter how mistaken one might consider this measure to be, closing down the “swap” market” did fall within Minister Giordani’s bailiwick; what did not, however, was to bring about the destruction of an entire sector of the economy by making false accusations.

It now turns out that Minister Giordani wants to enforce his highly particular interpretation of the Foreign Exchange Crimes Act retroactively, alleging that the transactions conducted in accordance with this law were illegal and stating that the Venezuelan capital market is “capitalist and highly speculative,” even though this contravenes the opinion issued by the Finance Ministry’s legal counsel, which maintains that the use of securities issued by the Republic in foreign currency operations “would not be illegal or illicit in nature.”

It could be said that the 10 directors of stockbrokerage firms are being put on trial as a result of an “ideological” whim of a minister who has openly stated that he is a communist. These Venezuelans are as much “political prisoners” as the Metropolitan Police captains and officers, Judge María de Lourdes Afiuni, and many more who are being punished for enforcing or acting in accordance with the law.

VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.

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