Cracking Down on Brokers in Caracas

Jofmar Heredia, a 31-year-old bond trader, was dismissed in May and is worried she may not be able to land another job anytime soon. "I'm unemployed and leaving my résumé in banks, but no one is calling," she says.

Heredia is not a victim of the global financial crisis. She's one of an estimated 2,500 Venezuelans whose livelihoods are at risk as a result of a government crackdown on the unregulated currency market. President Hugo Chávez has accused bond and currency traders of undermining the country's currency, the bolivar, as well as aiding capital flight and money laundering. "We're going to respond strongly against these thieves that are trying to wash their hands now," said Chávez in a May 23 speech to supporters. "There's no economic reason for the weakening of the bolivar. It's a huge fraud against the republic."

Since November, Venezuela's securities regulator, known as CNV, has taken control of about 40 brokerage firms and closed down four. The largest, Econoinvest Casa de Bolsa, had its offices raided on May 24 and four of its directors arrested. More than a quarter of the firm's 420 workers have resigned. The directors are still in detention and have not yet been charged. A spokeswoman at Econoinvest declined to comment.

Venezuela's brokerage industry boomed between 2005 and 2010, growing 42 percent to more than 100 firms, according to CNV. The explosion was an inadvertent consequence of currency controls imposed by Chávez. Companies and individuals must apply for government authorization to buy even limited quantities of dollars or other currencies, and transactions are allowed only at the official exchange rate. To skirt the restrictions, wealthy Venezuelans and corporations hired traders to perform bond swaps in which securities denominated in bolivars were traded for dollar-denominated assets abroad. The transactions effectively established a parallel exchange rate. That rate plunged to an all-time low of 8.2 bolivars per dollar on May 11, while the official rate has been fixed at 4.3 bolivars since the start of the year. (Importers of so-called essential goods are granted a preferential rate of 2.6.)

The number of brokerages will eventually be winnowed down to fewer than 20, according to Tomás Sánchez, president of CNV. While the Chávez government has made job creation a priority, Sánchez does not profess much sympathy for out-of-work brokers. "We know some workers will be affected by this situation," he says, "but they enjoyed exorbitant benefits and have savings."

The bottom line: The government aims to cut the number of brokerages to fewer than 20 in a bid to keep the bolivar from depreciating.

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