To judge by initial reactions, President Hugo Chávez will find little support for his suggestion that member countries of the Bolivarian Alternative Alliance of the Americas (ALBA) – his answer to the Bush Administration's free trade treaties with countries in the region, and before that, the Free Trade Area of the Americas (FTAA).
Economists noted that the Southern Cone bloc, Mercosur, was making slow progress towards economic union, which they deemed had to be a crucial first step towards any idea of monetary union.
"They're not even talking about that, and right now would most definitely not be the right time," said an analyst at the Venezuelan Central Bank (BCV), asking not to be named as he wasn't authorized to speak to reporters. "And anyway, ALBA's more a political organization rather than an economic one," that source added. "Chávez founded it as a counter-measure against Washington. ALBA doesn't have much weight, be it political or economic."
The Unión Radio website reported that Ricardo Hausmann, director of the International Development Center at Harvard University, was anything but enthusiastic about Chávez' plan. Hausmann, a frequent commentator on developments and trends in Venezuela, said there were "technical reasons" which meant the idea of a common currency for ALBA didn't make much "economic common sense." And he appeared to think this was all the more so in Venezuela's case.
Chávez has proposed that the currency would be named the Sucre after an independence hero and would be backed by Venezuela's hydrocarbons reserves, the largest in the Americas. But for a country to adopt a currency supported by petroleum would be "to say bread today and hunger tomorrow," Hausmann was reported to have remarked. Furthermore, he argued, Venezuela had had the most unstable currency in Latin America during the last 15 years. For another country to attach itself to a currency backed by Venezuela would be to attach itself to "a currency that's at the door of a maxi-devaluation."
Government officials insist that there will be no change in the official exchange rate of BsF2.15 to the dollar throughout this year, and that foreign exchange controls are here to stay. In the wake of the global financial crisis, there's been talk in government circles of tightening up the controls, which were eased earlier this year. The controls were imposed in the wake of a two-month opposition-led national strike in early February 2003 and have been in force ever since. But the official rate is constantly under pressure from the illegal "parallel" rate on black markets, which is over twice the government rate.
As far as Housmann was concerned, Venezuela wasn't the only problem when it came to a common currency. He pointed to Ecuador's decision to rescind on repayment of interest on some of its foreign debt were this to be found to be based on "illegal" terms. ALBA countries have announced they will support Ecuador in this decision, and Chavez even said that Venezuela will also analyze its debt to see if any of it was illegal.
Meanwhile, traders on Wall Street who specialize in trading Venezuelan, Ecuadorian and Latin American debt took the statements with a grain of salt. "The feeling that we have," said one trader at Venezuela's leading investment bank BBO, "is that the Government of Ecuador might have been buying back bonds at extremely low prices, thanks to the possible default scenario that they keep painting.
Yesterday and late last week we saw buying from accounts that normally don't even know where ecuador is located on the map -- a sure sign of insider and abnormal trading. Unusual accounts came in buying blocks of 10 million at a time and, of course, moved the market. Bonds yesterday were 25.00 and ended the 29.00. This morning they are offered at 36. Our feeling is that Ecuador will pay and the country has been profiting handsomely from the chaos caused by their statements."
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