September 30, 2007
Venezuelan Bond of the South sale is a 'total success'

(Venezuelanalysis.com) - "Finance Minister Rodrigo Cabezas announced the results of Venezuela 's third Bond of the South sale, valued at US$1.2 billion, which he described as a 'total success.' The sale is meant to help hold down annual inflation.

The bond sale showed a demand for US$3 billion - far outstripping supply. The first two issues of the Bond of the South took place in November 2006 and in February this year, worth $1 billion and $1.5 billion respectively. The third sale of the Bond of the South, which began on August 16 was suspended until September 24 due to turbulence affecting international markets as a result of the high-risk credit crisis in the US.

According to estimates from various brokerage houses, through the latest Bond of the South offer, buyers could obtain U.S. currency at a rate of roughly 3,700 bolivars per dollar. Richard La Rosa, a trader with Activalores said the sale of the bonds was an opportunity to buy dollars at a good rate and was very attractive (.)

Dollars at the official exchange rate of 2,150 bolivars per dollar can only be obtained under special circumstances.

Alejandro Uzcátegui, president of Businesses for Venezuela, (Empreven) said the bond sale would impact positively on the economy. 'The Bond of the South III, in which prices are set at 108%, according the announcement made by the Ministry of Finance, becomes a measure that will work to diminish the demand of foreign currency, at the time it is a harsh blow to the speculator people who sell dollars at a non official price,' Uzcátegui added.

However, Nelson Corrie, head trader at Caracas-based brokerage Interacciones Mercado de Capitales told Bloomberg, that the bond sale was too small to meet the demand for foreign currency (.)

Due to increased restrictions on foreign exchange introduced by the government in early 2003 in order to prevent capital flight, demand for US dollars has surged (.)

In other finance news, inflation eased slightly for September to 15.3%, down from 15.9% in September last year. The accumulated rate of inflation for the first three quarters of this year was also down from 12.5% last year to 10.9%.

According to the Central Bank of Venezuela , inflation for September was largely driven by the increase of prices on products outside of government price controls, which rose by 2 per cent, whereas products under government price controls rose only 0.5% (.)

Minister for Planning and Development, Jorge Giordani, said the government is still aiming to close the year with a target of 12% inflation.

Giordani also said that economic growth remained high and estimated that Venezuela would close the year with a growth rate of between 8% and 9%, signifying Venezuela's sixteenth consecutive quarter of economic expansion".