Venezuelan Currency Weakens as Demand for U.S. Dollars Jumps

By Guillermo Parra-Bernal

June 4 (Bloomberg) -- Venezuela's currency weakened in unregulated markets as investors and companies bought dollars to protect their money from quickening inflation.

The bolivar weakened in the parallel market to 4,110 bolivars to the U.S. dollar at 4:30 p.m. New York time from 4,080 bolivars on June 1, traders said. The decline widened the bolivar's losses this year to 21 percent, the biggest drop among 72 currencies tracked by Bloomberg.

Venezuelans are pulling money out of the country as a two- fold increase in government spending over the past two years flooded the economy with bolivars and fueled the highest inflation rate in Latin America. Annual inflation accelerated in May to 19.5 percent, the fastest in three months.

Opponents to President Hugo Chavez and supporters of Radio Caracas Television, Venezuela's most-watched channel that Chavez closed on May 27, peacefully protested in Caracas and other cities today, the ninth day of demonstrations, adding to investors' concerns. The closure triggered criticism that Chavez was curbing free speech. Investors will be attentive to the marches, said Henry Travieso, a trader with Global Capital Valores in Caracas.

``You could call the situation a tense calm,'' said Giorgio Milani, a trader with Caracas-based Sequoian Sociedad de Corretaje de Valores CA, said. ``There are several reasons why demand for dollars should remain high for some time: the politics, the excess liquidity, consumer prices.''

Venezuela pegs the bolivar at an official exchange rate of 2,150 bolivars per dollar under restrictions Chavez imposed in February 2004. Venezuelans turn to unregulated markets when they can't get approval from the government's Foreign Exchange Administration Commission to buy dollars at the official exchange rate.

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