Venezuela: making the economy scream

Michael Keaney michael.keaney at
Fri Dec 13 06:09:58 MST 2002

Venezuelans in rush to draw bank savings
By Andy Webb-Vidal in Caracas
Financial Times: December 13 2002

Venezuelan banks faced a cash run on their deposits on Wednesday, as fears
about shortages of goods caused by a national strike were stoked by what
appeared to be impending chaos at the central bank.

Queues formed outside the few private banks that remained open, as
depositors rushed to withdraw savings. They fear they will no longer have
access to them if an opposition-led strike against President Hugo Chávez,
now in its 10th day, deepens.

The run on deposits is also prompted by worries that the strike, which has
cut fuel supplies and is threatening to curtail basic food supplies, will
stoke inflation if a black market develops.

Four tankers meanwhile began loading oil for export on Wednesday at a
terminal in the east of the country, Rafael Ramrez, the energy minister
said, suggesting that the government was making inroads into breaking the
strike, which shut down oil exports earlier this week.

Although the run on bank deposits has not yet led to concern about the
near-term solvency of the banking sector's balance sheet, especially at the
largest financial institutions in the $100bn (?99bn) economy, bankers warned
that they might have to impose daily limits on cash withdrawals.

"There has been a brutal surge in withdrawals and people are hoarding. That
is causing a run on the banks," said Oscar García Mendoza, president of
Banco Venezolano de Crédito. "People are taking out all they can in cash
fearing the worst."

No figures on the scale of the run were immediately available, but it is
understood that the central bank injected the equivalent of $100m in
bolívares into the financial system on Tuesday, five times the normal

Irving Ochoa, the banking superintendent, was reportedly under intense
pressure from private banks to "do something" about the cash crunch and was
in meetings with Tobías Nóbrega, the finance minister. The minister was not
available to comment.

The cash run was apparently aggravated on Wednesday by disruption at the
central bank, where some employees threatened to join the strike against the

And, in a bizarre turn of events, it appears that the influence of voodoo is
also conspiring against the supply of notes from the central bank.

The bank is having to recirculate old 50,000 bolívar notes due for
incineration because it has been told that freshly-printed notes cannot be
delivered for at least five months.

Diego Castellanos, central bank president, and Mr Chávez, both said to be
practitioners of a local variant of voodoo, had originally ordered the notes
to be destroyed in 2000, fearing they were jinxed.

The notes carry the head of José María Vargas, an independence hero, after
whom is named the state adjacent to Caracas where at least 30,000 people
were killed in mudslides in late 1999.

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