Senior Venezuelan minister resigns in bank scandal

In a move likely to win him support, Chavez said he had accepted the resignation of Science and Technology Minister Jesse Chacon, whose brother was arrested on Saturday following the closure of the bank he headed.

"I'm really sorry he's the brother of a minister, but we are demonstrating that there are no untouchables here," Chavez said on a talk show he dedicated to the risks of corruption.

Venezuela last week closed the seven small banks for breaches including capitalization problems and unexplained funds. Investors dumped Venezuela bonds and bolivar currency as Chavez threatened to nationalize the financial system.

Moody's Investor Services on Sunday downgraded two major Venezuelan banks, one private and one state-owned, citing heightened political and business uncertainties.

Markets recovered on Friday after Chavez stepped back from nationalization threats and made overtures to the owners of the oil exporting nation's top private banks. Monday is a bank holiday in Venezuela, South America's top oil exporter.

Chavez on Sunday accused his critics of trying to spark a bank run. He said he had no plans to nationalize big, healthy banks, but would not hesitate to do so if they broke the law or entered into problems.

"What I have said is that he who slips up, loses. Banker, I don't care if you are the biggest," Chavez said.

A retired military officer like the president, Chacon took part in a 1992 coup that sought to bring Chavez to power and both men were jailed for their actions. He has held numerous posts under Chavez. His brother Arne Chacon was also a soldier who took part in the coup, but Chavez said he barely knew him.

Eight bankers are now in custody. Pedro Torres, a banker from the same group, fled to Miami, Chavez said.

He said the government had seized businesses belonging to Torres and Arne Chacon, including insurance and food firms.

Those detained include a businessman who made more than one billion dollars partly by selling corn to government markets.

Most analysts agree that Chavez is unlikely to risk instability through a widespread nationalization of the country's best-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 to be corrupt is likely to be popular with Chavez's supporters before legislative elections in September.

More detentions are expected because authorities have issued 27 warrants including nine requests to Interpol for international arrests.

Private Help

Chavez told supporters to smoke out corrupt members of his socialist party at the first sign of graft.

"You can't wait until he has 20 trucks, four planes. No, this party has to tighten the moral belt," he said, facing an audience that included Public Works Minister Diosdado Cabello, who critics accuse of corruption. He denies the charges.

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

"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.

Moody's downgraded one of the country's leading banks, Banco Mercantil, and state-owned Banco Venezuela to a B1 baseline credit assessment and local currency deposit rating.

It cited a "heightened degree of uncertainty for credit and business conditions that the Venezuelan banking system now faces in light of recent events."

This year the government paid $1 billion to buy Banco de Venezuela, one of the country's top banks, from Spain's Santander. Some of the closed banks will join the public sector.

While further closures could be on the horizon, 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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