Venezuela's central bank is bracing itself for a hostile takeover bid by an unlikely suitor: the government of President Hugo Chávez.
Legislators loyal to Mr Chávez are close to approving a law that will allow the government to withdraw and spend at least $5bn (€4.2bn, £2.9bn) of the bank's international reserves, which currently stand at $29bn.
For more than a year, Mr Chávez has insisted that the level of reserves accumulated by the world's fifth-largest oil exporter is too high, and that the money would be better used for social programmes.
Among Latin American economies, Venezuela has the highest level of reserves as measured by equivalent weeks' worth of imports.
The central bank, says Mr Chávez, should belong to “the people”, and it must come under full control of his radical nationalistic “Bolivarian revolution”.
Government-aligned deputies, who maintain a narrow but effective majority in the National Assembly, began the final debate on the law on Thursday and they predict its passage next week. But the move is leaving some economists aghast at what they see as the demise of the bank's role as guardian of the bolvar, Venezuela's national currency. The bank has tried to resist the law.
Jose Guerra, economic research chief at the bank until earlier this year, says the measure will undermine the value of the currency, as some of the dollars will be converted twice into bolvars.
The move also in effect opens the door to enabling Mr Chávez to finance Venezuela's chronic fiscal deficit with part of the reserves, he added. “The big loser in all of this will be the credibility and the reputation of the central bank as an institution,” said Mr Guerra. “Who's to say that after the first $5bn is withdrawn there won't be another $5bn that's taken out?”
Venezuela's international reserves are invested in a mixture of US Treasuries, Euro-denominated bonds, cash and gold.
Critics say other state entities, such as state oil company Petroleos de Venezuela and Bandes, a state development bank, have about $10bn in overseas accounts, and the government should use some of that money instead of the bank's international reserves.
Gaston Parra, the central bank's president, may resign if the law is passed, sources at the bank say, because of the perceived “illegality” of the government-proposed legislation.
The central bank could challenge the constitutionality of the law in Venezuela's supreme court. But analysts see the court as controlled by the government.
Economists predict that the expenditure of part of the reserves will stoke inflationary pressures, although the impact may be limited in the medium-term because of the existence of price and exchange controls.
“Investors are more concerned with the signal that is sent by the measure, especially given what they see as potential for the seized funds to be used in a non-transparent fashion,” said Vitali Meschoulam, emerging markets strategist at HSBC Securities in New York. “There is a concern that these funds will not be used for productive investments but rather to finance current spending, increasing the risk that inflation may get out of hand.”
Fewer international reserves may harm Venezuela's ability to service its foreign debt if oil prices decline.
Under the draft law, some of the reserves are earmarked for vaguely-worded “strategic situations”.
Mr Chávez, who has been in power for more than six years, faces presidential elections at the end of next year.
