Last Wednesday afternoon, a judge sent her decision to the Venezuelan Comision Nacional de Valores (the equivalent of the US’s SEC) ordering brokers and all those regulated by the Capital Markets Law (CNV), to cease operations like the conversion of local shares of publicly traded companies into ADR’s and any other operation using instruments that “may lead to obtaining foreign currency at a price different than the official one”.
There were many peculiar things about this decision:
–It has never been clear why the judge issued the order, in the original decision the judge says some lawyer requested it, but it never revealed why or in what context.
–It prohibited things that are not explicitly prohibited in the decree that established currency controls in 2003. That decree explicitly mentions gold and prohibits the trading of Venezuelan Sovereign bonds in local currency. In fact, that decree recognizes the ADR programs already registered. But the judge was saying only what was allowed in that decree was valid, which is contrary to our legal system
–It focused on the conversion of local shares to ADR’s or vice versa, a mechanism by which you buy, for example, seven CANTV shares in the Caracas exchange and convert them to one ADR of CANTV which trades in the NYSE and later sell it and obtain foreign currency. This mechanism is a marginal mechanism as its trading represents an average of US$ 300 thousand per day, all of it not necessarily related to changing currency.
–It ordered brokers to stop doing this, but an order by a Court like that is not the law, it applies only to those that are notified, it did not apply to banks, for example, and it certainly did not apply to Government bonds which are explicitly exempt for the Capital Markets Law.
–The decision by the Court went against the last draft of the bill the Government is promoting to penalize foreign exchange illegalities. That bill explicitly exempts instruments such as stocks and bonds, otherwise the Government could not issue dollar denominated bonds in local currency like it has been doing and wants to do in the future. The decision clearly took the Government by surprise.
All the decision did was cause some confusion on Thursday, which drove the “parallel market” up Bs. 50 (2%), the local shares of CANTV down 5% and gave us a parade of “experts” on TV all day Thursday making superficial and inaccurate statements on TV. I particularly loved one that spoke for ten minutes and at the end was asked a question and said he had not read the judge’s decision.
But on Friday morning the same judge did one of Venezuela’s fastest judicial flip-flops when it reversed all of her decision as if by magic. She did this after lawyers from the CNV and those representing a local broker told the judge that “this could cause a grave financial crisis for the country” (huh?). Curiously, one of the lawyers representing the broker was none other than Esther Bigott de Loaiza, who has defended none other than Hugo Chavez in a number of cases brought against him and is known as the “President’s lawyer”. These arguments is simply silly, the suspension of the conversion of ADR’s was nothing but a temporary nuisance irrelevant to the finances of the country. Temporary because once the new bill is approved in the next couple of weeks, this decision would have been moot; a nuisance because stopping what is already a cumbersome and almost irrelevant exchange mechanism does not impact the finances of this country.
The question left hanging in the air is still why the judge made her original ruling. What prompted it? What was the objective? El Universal seems to suggest someone wanted the parallel rate to go up, but the measure barely made it budge. Who intervened? Why the efficiency? Definitely too many questions in the air to answer, but clearly Government officials intervened to have the flip flop and all of you should know exactly why…In Spanish we say:”Piensa mal y acertaras”, Think badly and you will be right, well, think about last nights article about Father Gazo.