Under threat, Venezuela central bank frees farm funds
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CARACAS, Venezuela, Jan 27 (Reuters) - With threats from President Hugo Chavez hanging over their heads, Venezuela's Central Bank directors are moving to channel funds towards the depressed farming sector, but without so far touching foreign reserves as Chavez has demanded.The central bank this week cut its reserve requirement for commercial banks extending loans to farmers by two points to 13 percent. The temporary measure would free up $325 million for commercial banks to use to finance agriculture.
So far this is not really any different than the Federal Reserve in the USA lowering the reserve requirement. It's a standard monetary policy device that Econ 101 students learn. However, the unusual aspect is that Chavez has been bullying the central bank to allow him this political objective.
Central bankers have been "feeling their oats" since the 1970s, and this unhealthy state of affairs cannot continue.
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"It's political. What the government wants is to simply lay its hands on the central bank and use it as a money machine, so it can keep on spending huge, irresponsible quantities," Oscar Garcia Mendoza, president of the private Banco Venezolano de Credito, said. He is a fierce critic of government policies.
This is a classic example of right-wing out-and-out lying about what politicians want to do. Anybody who's lived in Latin America knows what inflation can do to people, and I think Chavez is not an exception here. He is not going to just print money without limit.
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"The government's real objective here is not to increase the money supply but to actually get financing for discretionary purposes; it is to get cash," said Jan Dehn, an emerging market analyst at Credit Suisse First Boston.
John F. Kennedy attempted programs like this, by using the US Department of the Treasury to end-run the Federal Reserve and inject money into the US economy, as well as other innovative methods of steadying economic changes by expanding the discretionary financial authority that the executive branch has.