IT Financing

Overview

Information technology firms in Venezuela are not finance as the firms in the United States. There is a very small local stock exchange, with only two telecommunications companies trading. The venture capital community in Venezuela is virtually non-existent. However, many Latin American firms are getting capital from the US and other developed countries' venture capital firms. Receiving capital through the country's financial institutions in Venezuela can be quite expensive. Therefore, many US and other Latin American financial institutions are now offering commercial services to Venezuela through their domestic operations.

The Banking System

The Venezuelan banking industry is characterized by the dominance of financial groups. There is a trend toward consolidation and concentration, which is expected to continue, due to several intervened banks being sold off to foreign and domestic banking groups. U.S. Banks are primarily represented in Venezuela through representative offices, with the exception of Citibank, which has offered full-service banking for over 80 years. The number of U.S. financial institutions with offices in Venezuela has diminished from 11 in 1993 to 7 today. This reduction is due to consolidation in the U.S. banking sector and decisions to service commercial customers through domestic operations in the United States, or through a regional Latin American office located in another Latin American country. U.S. banks in Venezuela offer trade financing, project financing, and securities underwriting and depository services. Citibank offers full services to the retail market.

The difficulties of the banking sector have led to the creation of a new Banking Council and a Financial Emergency Board, with significant powers (for example, over disposition of reserves) which affect the autonomy of all banks, including those in which the Government has not intervened. Recent legislation has given the President and the Council of Ministers significant powers over monetary matters in cases of emergency and thus impinged the autonomy of the Central Bank. This legislation was the foundation for the imposition of exchange controls and fixed exchange rates. It is not clear whether this law will withstand constitutional challenge in the Supreme Court, and Congress has initiated proceedings to overturn the law.

Venezuelan banking legislation has provided for full national treatment for U.S. banks since January 1, 1994, and allow foreign investors to take controlling interests in local banks, or to establish new banks or branches (1).

Continue