Venezuela’s Maduro Names Merentes as Finance Head in Cabinet

Venezuelan President Nicolas Maduro named his Cabinet yesterday after this month’s election victory, appointing Nelson Merentes finance minister of the South American country.

Previous finance chief Jorge Giordani, the longest-serving minister under former President Hugo Chavez, was named planning minister, Maduro said in a television address, adding that he had re-appointed Rafael Ramirez as oil minister.

Merentes, who served as finance minister twice under Chavez, was president of the central bank before the announcement. Giordani presided over a 32 percent devaluation of the bolivar in February, closed a central bank-administered foreign exchange market known as Sitme and saw inflation reach 25.1 percent in March, the second-highest rate in 102 economies tracked by Bloomberg.

“It’s a positive sign for the market,” said Asdrubal Oliveros, director of Caracas-based research group Ecoanalitica. “It looks like the government will be more pragmatic in economic matters, but we’re not talking about changing the economic model.”

‘Single Digits’

Maduro said Merentes told him he could “get inflation down to single digits in three years.”

Merentes will also serve as economy vice president, a post previously held by Giordani, according to Maduro. Maduro today proposed former Commerce Minister Edmee Betancourt to replace Merentes as central bank president. The National Assembly has to approve Mduro’s nomination.

Betancourt, an industrial engineer by training, previously served as head of Venezuela’s Bank of Social and Economic Development, known as BANDES. As head of the bank and as Commerce Minister, Betancourt has worked on Chinese financing agreements that are part of a joint development fund.

“I don’t think the minister has the profile for the office of central bank president,” Oliveros said today by phone. “She has worked very closely with Minister Giordani, so I think her appointment strengthens Giordani’s control over the central bank.”

‘Some Pragmatism’

Maduro was sworn in April 19 after a week of tension with the opposition over a disputed result that undermined investor confidence. Venezuela’s national electoral council said April 20 that an expanded vote audit would not change the result of the election.

“True, the fact that Merentes is now in charge of the finance office might bring some pragmatism to the table as far as new measures to tackle with current macro distortions are concerned,” Caracas-based BancTrust & Co. said in a note to clients today. “Yet, curb your enthusiasm as Mr. Giordani will continue to be there to check and balance Merentes’ ideas.”

Venezuela, which is seeking to arrest the decline of its currency on the black market after the February devaluation, plans to hold a second dollar auction on a complementary currency system known as Sicad created last month, Ramirez said in an April 7 interview. The country sold $200 million to importers in a March 27 dollar auction without revealing the exchange rate.

‘First Priority’

The bolivar has declined about 28 percent on the black market this year, according to Dolar Today, a website that tracks the exchange rate on the Venezuelan border with Colombia. The currency currently trades at about 24 per dollar on the black market, compared with 6.3 on the Cadivi system reserved for importers of essential items, such as medicine.

In Merentes’ last tenure as finance minister from 2004 to 2007, he kept five-year credit-default swaps on Venezuelan dollar debt at an average of 230 basis points and was able to maintain the gap between the official and black market exchange rates at an average of 27 percent compared to the current gap of 297 percent, Barclays Plc analysts Alejandro Arreaza and Alejandro Grisanti said in a note to clients today.

The cost of protecting Venezuela’s debt against default for five years with credit-default swaps fell to 781 basis points on April 19.

“Merentes’s first priority will be to reevaluate the non-official exchange rate through the implementation of Sicad, which also implies the possibility of new issuance, which we think could be announced soon,” Arreaza and Grisanti wrote. “We maintain our expectation of $6 billion, $3 billion from the republic and $3 billion from PDVSA, of issuance in 2013.”

‘Steady Hand’

Maduro said on April 15 that the country would “defeat the black market dollar.”

“There will be positive changes in terms of foreign exchange policy including better coordination in distributing dollars and more flexible exchange auctions,” Oliveros said yesterday in a telephone interview. “Merentes and Ramirez are more open to issuing new dollar debt than Giordani was. It’s probable that they’ll issue this year.”

Among other appointments yesterday, Maduro re-appointed Ernesto Villegas as information minister, named Jesse Chacon as electricity minister, and kept Jorge Arreaza as vice president. Maria Elisa Dominguez Velasco was appointed as Venezuela’s treasurer, according to a resolution published in the Official Gazette today.

‘Clear Plan’

“Giordani was one of the most loyal men to Chavez,” Maduro said. “We’re putting him as a planning vice president because he has a clear plan on how to build Chavista socialism. He’s going to dedicate himself to that task.”

Venezuela’s benchmark dollar bond due in 2027 rose for a fourth day, with the price increasing 0.73 cent on the dollar to 97.82 cents at 3:52 p.m. in Caracas. The yield fell 10 basis points to 9.53 percent. Venezuelan bonds fell the most in 15 years on April 16 after post-election violence and a Maduro comment that he was willing to “radicalize the revolution.”

“I don’t think they are breaking any new ground with Merentes, but Maduro is moving out one of the impediments to a better economy,” Russ Dallen, head bond trader at Caracas Capital Markets, said in an e-mailed response to questions yesterday. “He is a steady hand and does not have the Marxist orthodox rigidity of Giordani.”

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