Venezuela widens purge of bankers with new arrest

Venezuela on Sunday widened a police sweep against executives from seven troubled banks shut down despite their links with top government officials -- a move likely to win support for leftist President Hugo Chavez.

Police arrested the director of the Banco Real, Giuzel Mileira, bringing to six the number of bankers in custody.

The detainees include the brother of a senior minister close to Chavez and a businessman who made more than a billion dollars partly by selling corn to government-subsidized supermarkets.

"These bankers should be shown for what they really are to the public: vulgar robbers, thieves in ties, pickpockets and obstinate kleptomaniacs," Chavez said in a newspaper column published on Sunday.

Venezuela last week closed the seven small banks for diverse regulatory breaches including capitalization problems and unexplained funds, causing market turmoil as Chavez threatened to nationalize the financial system.

Most analysts agree Chavez is unlikely to risk instability via a widespread nationalization of the country's mostly well-capitalized and profitable banks.

The rise of a new mega-rich elite during his decade in office has been a liability for Chavez, who wants to build a socialist society in Venezuela and took office in 1999 promising to end corruption.

The arrest of executives widely considered corrupt because of rapid increases in wealth and government ties is likely to be popular with Chavez's supporters ahead of key legislative elections in September. More detentions can be expected -- authorities have issued 27 warrants including 9 requests to Interpol for international arrests.

Opponents say the sweep is merely a sign of infighting within the government and will not touch any top officials.

'Whoever Falls, Falls'

On his weekly TV show on Sunday, Chavez told supporters to smoke out corrupt members of his Socialist Party.

"At the first sign you have to do something, you can't wait until he has 20 trucks, four planes. No, this party has to tighten the moral belt," he said to applause from the audience, which included Public Works Minister Diosdado Cabello.

"Whoever falls, falls. Those are the president's instructions, to get to the bottom of these problems," said Jorge Giordani, minister of economic planning, adding that Venezuelan had narrowly avoided a financial "tsunami."

Shocked by volatile speeches in which Chavez warned he could nationalize the financial system, investors dumped Venezuelan bonds and its bolivar currency last week.

In 1994, a major crisis wiped out half the country's banks and people's savings, and cost the government $11 billion.

Markets recovered on Friday after the former army lieutenant cooled the rhetoric and made overtures to the owners of the oil exporting nation's top private banks.

"The decision of the executive to ask for help from private banks demonstrated that the government is making an effort to avoid systemic contagion. There is no reason for that to happen," Juan Carlos Escotet, head of Venezuela's largest bank Banesco, told the El Nacional newspaper.

He said Venezuela's private banks could exist side by side with those owned by the government. Venezuela's banking system is tightly regulated, and is obliged to make low interest loans to farming, small businesses and tourism.

This year the government paid $1 billion to buy one of the country's top banks, Banco de Venezuela, from Spain's Santander (SAN.MC). Some of the recently closed banks will join the public sector and further closures could be on the cards if authorities uncover problems.

However, most analysts agree the system as a whole is solid and will remain so unless the situation is badly handled, triggering a serious bank run.

[Source: By Frank Jack Daniel, Reuters, Caracas, 06Dec09]

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