Global credit crunch batters Venezuela - MarketWatch


Global credit crunch batters Venezuela

Overnight lending rate climbs as high as 90% after central bank suspends open market operations

By Polya Lesova, MarketWatch

NEW YORK (MarketWatch) -- In a fresh example of how the global credit crunch is hitting emerging markets, Venezuela's overnight lending rate climbed to as high as 90% Thursday after the central bank said it has suspended open market operations meant for pumping liquidity into the market.

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"This story is not an isolated Venezuela story, but rather a developing trend," he said, adding that money markets in both developed and emerging markets aren't functioning well at the moment.

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Russia is another example of an emerging market that's suffering from the global credit crunch, Christensen said. "There's no or very little liquidity in the market. That has led smaller banks to halt their lending activity."

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More trouble ahead for Venezuela

Venezuela, a founding member of the Organization of Petroleum Exporting Countries, was the world's eighth-largest oil exporter in 2005. The huge oil revenues have fueled the country's rapid economic growth.

Venezuelan President Hugo Chavez, a vocal critic of the U.S., has pledged to nationalize assets in important industries such as electricity, oil and mining. Chavez has consolidated his power over the country, controlling Congress, the judiciary and the army.

"The squeeze in the Venezuelan money market also has to be seen in the light of investors reducing exposure to high-risk markets," Christensen said. "Despite increasing political and economic problems in Venezuela, money has been pouring into the Venezuelan markets. This might very well be coming to an end."

Christensen said he has a bearish view of the Venezuelan economy and markets for several reasons, including Chavez's authoritarian regime, reckless and pro-cyclical fiscal policies, very high inflationary pressures and a rapidly shrinking current account surplus.

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The US is going to stop importing oil from Venezuela?