VICTOR SALMERON
EL UNIVERSAL

Venezuelan Finance minister Nelson Merentes has kept his promise to buy any debt bonds Argentina may issue. Venezuela has injected new petro-dollars into Néstor Kirchner's administration through a debt purchase transaction that has become known to Venezuelans in an official Argentine bulletin.

In a joint resolution of the departments of Finance and Treasury last February 9th, Venezuela undertook to purchase in full an Argentine debt bond issuance for around USD 308 million, Argentina daily newspaper El Clarín reported.
 
Once this transaction is completed, Hugo Chávez' administration will have bought USD 2.1 billion in Argentine debt bonds, thus becoming a major investor for Buenos Aires.

In February, Kirchner's administration is due to repay debt obligations to the World Bank and to the Inter-American Development Bank. So far, however, the Argentine Finance department has made no moves to issue debt bonds, with the exception of those it has sold to Venezuela, to face such payments.

The blessed
Venezuelan purchase of Argentine debt has led to a series of events that ultimately favor a few Venezuelan private banks the Venezuelan government handpicks without any bidding.

Once Chávez government purchases Argentine bonds, it sells a part of these certificates to a few financial institutions in Venezuela that purchase such titles in Venezuelan bolivars at the official exchange rate.

Banks then resell the bonds with a surcharge of 20-25 percent, according to financial sources, making a profitable operation.

Finally, both individuals and legal persons that have bought these bonds sell them in the international markets in order to get US dollars amid stringent exchange controls in force in Venezuela for the last three years.

According to Merentes, the Venezuelan government has sold the banks it has handpicked some USD 600 million in Argentine debt bonds. In November 2005, Merentes said "the sale of Argentine bonds is a private operation. Conditions are not favorable for any bidding, as this may undermine the debt. Besides, you cannot sell these bonds at the Bolívar Square (downtown Caracas.)"

Nobody knows
Where does Venezuela get money to buy debt from Buenos Aires? Financial sources claim that Chávez administration has been using such purchases to change into bolivars a part of US dollars both state oil holding Pdvsa and the Central Bank of Venezuela (BCV) deposit in a so-called fund for development (Fonden.)

Once the Argentine bonds are sold to local banks, the Finance Ministry gets Venezuelan bolivars and it does not have to inject new liquidity, as those bolivars are already circulating in the economy.

Chávez has vowed to use a part of funds in Fonden to grant scholarships and afford other expenses in bolivars.

Another possibility -yet not confirmed by the Central Bank- is that the Finance Ministry is getting US dollars from the Central Bank. This may be the reason why official reserves have plummeted USD 1 billion so far this year.

Translated by Maryflor Suárez R.