Venezuela Central Bank Sends $3 Billion to State Fund

[ChangoLoa]

By Daniel Cancel
Jan. 22 (Bloomberg) -- Venezuela’s central bank transferred $3 billion of a total $7 billion to the government’s off-budget development fund, known as Fonden, said a bank official, who declined to be identified because he’s not authorized to speak publicly.
The central bank may transfer the remaining $4 billion next month, the official said in a phone interview. Central bank President Nelson Merentes said that the bank would transfer $7 billion of “excess” reserves on Jan. 8 to be used for infrastructure and development projects.
President Hugo Chavez has taken about $25 billion of international reserves for the development fund since 2005 when the central bank law was revised to determine an “optimal amount” of reserves needed for the South American nation. Fonden, which also receives dollars from state oil company Petroleos de Venezuela SA, has managed about $60 billion since being created in 2005, according to the finance ministry.
The government’s transfer of reserves comes after the country’s first devaluation since 2005 at a time when Chavez has vowed to strengthen the bolivar in the unregulated parallel currency market. The drop in reserves may complicate his plan to strengthen the currency to 4.3 per dollar, from 6.1 today, Jose Guerra, former chief of economic research at the central bank, said in a phone interview.

‘Without Dollars’

“The central bank won’t be able to strengthen the parallel rate if it continues to transfer reserves to Fonden because they’re left without dollars to inject in the market,” Guerra said.
The central bank shifted $12 billion to Fonden last year after international reserves reached a record $42 billion at the end of 2008. Reserves totaled $31.3 billion as of Jan. 20, according to central bank data.
Chavez approved $300 million on Jan. 20 from Fonden to rehabilitate part of the Caracas metro system and said he’ll use funds from the development fund for cable car transport systems into shanty towns of the capital.
Following a reform of the central bank law last year, the bank will now transfer “excess” reserves twice a year. The optimal level of reserves at present is $28 billion, Merentes said. Fonden had $2 billion to be allocated for spending in August, Chavez said then

Link:
http://www.businessweek.com/news/2010-01-22/venezuela-central-bank-sends-3-billion-to-state-fund-update1-.html