• by IPS Correspondents (caracas)
• Monday, November 07, 1994
• Inter Press Service

CARACAS, Nov 07 (IPS) - Venezuelan economist Francisco Vivancos warned of a possible "fourth wave" of the financial crisis as six major banks face difficulties because of government control of interest rate differentials.

"The recent official measure to regulate passive interest rates (on savings accounts) has caused difficulties for 59 percent of the country's banks," said Vivancos.

The state has had to take over 11 banks this year - including three of the six largest in the country - at a cost of 6 billion dollars. Of the 38 still in private hands, six receive aid from the Deposit Insurance Fund and are in danger of going under.

A month ago, the Central Bank fixed a margin of 25 points between active rates (charged to loans) and passive rates, with a ceiling of 15 points above zero coupon bonds on active rates and a minimum of ten points below them for passive rates.

Vivancos argued that margins of intermediation are not high in Venezuela compared to the United States where, with three percent inflation, passive rates are four points and active rates eight.

Venezuela's annual inflation is estimated at 71 percent, making the net margin in the United States double the local one despite the high efficiency of U.S. banks.

According to Vivancos, if the government does not want to have to rescue more banks with massive losses, it should remove interest rate controls that limit bank profits, prevent profit distribution in order to broaden the system's base and implement anti-inflationary policies on a macroeconomic scale.

Oscar Garcia of the Venezuelan Credit Bank, which has best ridden the storm, sees the "fourth wave" as an imminent danger as "insolvent banks are still floating" on enormous injections of liquid assets, though they are not viable and could collapse at any moment.

© Inter Press Service (2014) — All Rights Reserved. Original source: Inter Press Service

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