Venezuela said it would fix the bolivar's exchange rate and extend a ban on trading to bolster foreign reserves drained by government efforts to defend the currency during a two-month-old nationwide strike.
The measures were announced by Finance Minister Tobias Nobrega on the country's Televen television network. He didn't specify at what rate the bolivar will be fixed.
PHOTO: REUTERS
Venezuela, the No. 4 exporter of oil to the US, needs to stem an exodus of foreign cash that has resulted in a 14 percent plunge in foreign reserves since the strike began. The stoppage, aimed at ousting President Hugo Chavez, is in its 57th day. Blocking access to foreign currency will make it harder to move money overseas and promote an underground economy.
"They have to do something to keep their reserves but a fixed exchange rate isn't the best solution," said Sandra Ebner, who helps manage 4 billion euros (US$4.3 billion) of emerging market debt for Deka Kapitalanlagegesellschaft in Frankfurt. "It's going to cause a run on the currency and they will have to give up the fixed rate."
The central bank spent as much as US$70 million a day earlier this month to bolster the currency, raising concern of a default on US$22.4 billion of foreign debt. The nation's international reserves declined to US$13.6 billion Friday. About US$35 billion left the country since Chavez was elected in February 1999, the president said recently.
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