Venezuelan Central Bank Says It Will Sell Foreign Reserves to Fight Capital Flight

The Associated Press Published: Aug 2, 2001

CARACAS, Venezuela (AP) - The head of the central bank said Venezuela would spend its foreign reserves to defend the local currency against capital flight. Central Bank Director Domingo Maza Zavala told state news agency Venpres on Thursday he was concerned about money pouring out of the country and said some Venezuelans may be "trying to destabilize the country." The remarks came a day after President Hugo Chavez made similar criticisms.

Still, some economists shrugged off Zavala's comments as rhetoric.

"Obviously it needs to be understood as a rhetorical statement," said former planning minister Teodoro Petkoff, the editor of Caracas daily Tal Cual. "It can't be taken literally, but it does demonstrate the bank's determination to defend the bolivar."

The Central Bank estimates capital flight to be around $1 billion a month; private economists estimate the figure to be much less.

Venezuela's foreign reserves in the Central Bank have declined from $16.1 billion to $13.6 billion this year. The country also has $6.6 billion in a rainy-day fund from windfall oil revenue - which was not to be touched in Zavala's plan.

The Venezuelan bolivar closed weaker Thursday at 727.5 to the dollar - 1 bolivar weaker than Wednesday.

Business leaders complain that Chavez's leftist rhetoric alienates investment and encourages capital flight. Capital flight surged in May after Chavez threatened to declare a state of emergency to combat corruption and crime, prompting speculation he would impose exchange controls.

Chavez had made maintaining a stable currency a cornerstone of his economic policy. Some economists estimate that the bolivar is almost 50 percent overvalued.

Confidence in oil-rich Venezuela improved last year after the economy began to emerge from a three-year recession. But economists predict hard times for the impoverished country next year as a global economic slowdown weakens demand for crude oil.

AP-ES-08-02-01 2111EDT

-- Anonymous, August 02, 2001