CARACAS (Reuters) – Venezuelan President Hugo Chavez was due to leave for a trade summit in Uruguay yesterday hopeful he dispelled public panic at home and gained political ground in an ongoing purge of the nation’s financial sector.
Chavez sacrificed one of his closest political allies — Science Minister Jesse Chacon — over the weekend after his brother was implicated in mismanagement at one of seven banks the government has closed in the last eight days.
The resignation of Chacon, a fellow retired military officer who took part in failed 1992 coup aimed at bringing Chavez to power, was the biggest political casualty in a cleanup of banks that initially spooked investors and panicked depositors.
But while the opposition says socialist Chavez is to blame for allowing a new class of mega-rich businessmen with close ties to government to buy and abuse banks, the president is trying to present the cleanup as a political plus.
He faces a national assembly vote next September and a presidential election in 2012.
“The bank scandal has turned Chavez into an anti-corruption hero,” pro-opposition newspaper El Universal noted wryly, arguing Chavez was successfully but deceitfully exploiting the mini-crisis in the bank system for personal political gain.
“In a nation where not even a leaf can move without the president’s approval, and given there is proof the culprits were known to intelligence services from the start of the year, any attempt to wash his hands, alleging he knows nothing, is a false argument with no credibility.”
At the weekend, Chavez promised to brook no illicit enrichment and urged people to inform him if ministers or others were seen gallivanting on yachts or otherwise flaunting wealth.
In a speech before he was due to fly to Montevideo for a summit of the Mercosur trade bloc Venezuela is seeing to join, Chavez said yesterday his offensive on banks was aimed only at a group of “conmen” mismanaging some institutions.
He has said several times in recent days that his aim is to regulate banks better, not nationalize the whole sector.
Chavez has expropriated large swathes of Venezuela’s economy during his decade in office, including parts of the OPEC member nation’s lucrative oil industry. But analysts say full-scale bank nationalization may be out of reach for him as it would cause panic and a probable run on funds.
While the full political impact of the cleanup is not yet clear, investors and depositors appear to be agreeing with Chavez that Venezuela is not on the verge of a big crisis.
“The conclusion among investors seems to be that this will not spread in the short term,” said IDEAglobal analyst Enrique Alvarez in New York. Venezuela’s benchmark global bond soared nearly 4 percent yesterday in a sign of easing investor anxiety. Local markets were closed for a Roman Catholic holy day.
The seven banks closed last week represent 8 percent of Venezuela’s total deposits, and the government has promised to return almost all savers’ money before Christmas. It plans to rehabilitate and join some of the banks in a state firm.
Analysts say some smaller banks, mainly in the hands of government-linked businessmen, may face similar intervention but that big banks have healthy capitalization and profits.
“There are a number of zombie banks still around at the lower end of the sector, but systemic financial risk is unlikely,” said Russell Dallen, of BBO Financial Services in Caracas.
He said internal feuds within government circles, rather than a major privatization push, were the driving force behind the bank cleanup. “The socialist mafia are pushing out the capitalist mafia among the Chavistas,” he said.
On the street, Venezuelans, who remember bitterly a 1994 crisis that wiped out half the nation’s banks, were worried but not panicking. Longer-than-usual queues formed last week as some depositors switched money to bigger banks.
There are sharp divisions, however, along Venezuela’s polarized political lines over who is to blame.
“As usual, you talk to one person about this and Chavez is the savior riding in to tackle the nasty corrupt bankers, then you talk to another and he’s the devil incarnate who’s allowed all his acolytes to get out of control,” a diplomat said.
Venezuela has now jailed eight bankers, including Arne Chacon, brother of the minister who quit. Several dozen arrest warrants have been issued, and some bankers have fled abroad.
