December 21th, 2010

Economics & Finance

Venezuelan bonds drop on report government may owe $8 billion

Venezuelan dollar bonds fell the most in three weeks after the New York Post said the country may have to pay as much as $8 billion to holders of securities issued by a state-run bank. The yield on Venezuela’s benchmark 9.25 percent bonds maturing in 2027 rose 19 basis points, or 0.19 percentage point, to 13.12 percent at 1:06 p.m. in New York, according to JPMorgan Chase & Co. Yields surged as much as 50 basis points earlier today. The bond’s price fell 1 cent on the dollar to 74 cents. (Bloomberg, 12-20-2010; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aktML6dYwko8)

Barclays expects Venezuela to devalue the Bolivar against the US$ in 2011

Although President Hugo Chavez announced a devaluation of Venezuela's official exchange rate last January to strengthen the national economy, curb unnecessary imports and stimulate exports, the situation 11 months later shows that non-oil exports are still down and dependence on imports has increased to the extent that investment banks and economic researchers see a new devaluation of the bolívar in early 2011 as the only solution. (VHeadline, 12-16-2010; http://www.vheadline.com/readnews.asp?id=99533)

Fall in tax collection requires the executive to reform laws

The difficulties in the collection of Income Tax and Value Added Tax reflect the behavior of the country's economic activity between 2009 and 2010. The latest data on tax revenues provided by Seniat indicates a total of 23.634 million bolivars in revenue between January and October 2010, an increase of 6.15% in nominal terms. However, the revenue from the profits of companies in the country recorded a fall in real terms of 17.2% before the ravages of inflation. Likewise, the economic downturn has prevented an increase of the profits of the various economic sectors and therefore a fall of tax income for the Treasury. (El Mundo, 12-20-2010; www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=19&Id_Noticia=40947)

Towards state socialismOwners of property, large or small, sleep uneasily in Venezuela these days. After the opposition narrowly won a majority of the vote in a legislative election in September, Hugo Chávez, the country’s leftist president, has been on a nationalization spree, seizing everything from steel companies and bottle makers to housing schemes. By the government’s own reckoning, it has confiscated some 3m hectares (7.4m acres) of farmland, and plans to seize another 450,000 hectares next year. Although the 1999 constitution guarantees property rights, successive changes to the land law have given the government the right to seize any farm it takes a fancy to, in most cases with little or no compensation. Industrial and commercial firms have fared no better. According to the employers’ organization, Fedecamaras, since Mr. Chávez became president in 1999 almost 400 companies have been nationalized, the vast majority in the past two years. The Venezuelan-American Chamber of Commerce says that compensation was paid to the owners of only nine out of the 44 of its member-firms that have been taken over this year. The constitution states that no expropriation can take place without a final verdict from the courts and fair compensation. In practice, a stroke of the president’s pen is all that is required. (The Economist, http://www.economist.com/node/17527250/print)

Chavez orders takeover of two construction suppliers

President Hugo Chavez on Sunday ordered the expropriation of two Venezuelan companies that produce construction materials. Appearing on his weekly television and radio program, Chavez signed decrees for the "forced acquisition" of Sanitarios Maracay and Aluminio de Venezuela, or Alven. Chavez said both companies had been paralyzed and the government will now use them to boost production of materials from aluminum sheeting to bathroom supplies. Chavez has seized a growing list of private companies while pledging to turn Venezuela into a socialist state. (AP, 12-19-2010; http://finance.yahoo.com/news/Chavez-orders-takeover-of-2-apf-1589638101.html?x=0&.v=1)

Commodities

Venezuela oil exports fell 9.8% in November from month earlier

Venezuela’s net exports of crude and refined oil products in November fell 9.8 percent from the previous month to 2.03 million barrels a day, according to Inspectorate Venezuela SCS, a contractor to Venezuela’s Energy and Petroleum Ministry. Net shipments declined from 2.25 million barrels a day in October, according to shipping records sent to Bloomberg by e- mail. In November 2009, exports were 2.31 million barrels. Venezuela’s production of crude rose 2.2 percent to 2.8 million barrels a day in October from 2.74 million barrels a day in September, Inspectorate said. (Bloomberg, 12-20-2010; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a5NoDAdwfpPA)

Falling domestic aluminum output

The arrival of a vessel with raw materials such as fluoride and cryolite has extended the operations of the Venezuelan aluminum company CVG Alcasa at least until February, but disinvestment remains a latent threat to its operation. The state-run industry is operating above (200 cells) the minimum nominal molten steel capacity of 150 cells, but union representatives have warned that sinking production in 2010 is significant. Venezuela's aluminum output hit 114,000 tons in 2009. However, it could reach 90,000 tons this year, a 21 percent drop compared to 2009. (El Universal, 12-20-2010; http://english.eluniversal.com/2010/12/20/en_eco_esp_falling-domestic-alu_20A4878053.shtml)

Matesi restarts operations

Matesi, producer of briquettes in Ciudad Guayana, resumed operations last Friday after almost a year and a half. The company was part of the assets held in the country by the Argentine-Italian group Techint until May last year when President Hugo Chavez announced its nationalization. In the framework of the Socialist Guyana 2009-2019 Plan, the National Development Fund (Fonden) is to invest approximately $ 14 million in services, maintenance of equipment and supplies. The recovery plan at the plant includes two phases: the first, recovery and auxiliary systems of reactor number one. The second will consist of the rehabilitation of reactor number two. (El Mundo, 12-20-2010; www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=18&Id_Noticia=40969)

Logistics & Transport

No opening date of scales in the port

Bulk sector activities have developed normally despite the lack of a date to commission the new weighing scales at the port of Puerto Cabello. This was announced by Julio Abreu, President of the Bulk Federation (Fetragransic) who emphasized that the failure of the Internet service last Friday affected work in the maritime terminal. Abreu said that so far he has not received any notice of Bolipuertos on the operation of the scales to complement the activities of loading and unloading in the primary zone. (Notitarde, 12-19-2010; www.notitarde.com/notitarde/plantillas/nota.aspx?idart=1209947&idcat=9849&tipo=2)

Politics

U.S. warns of ‘consequences’ to Venezuela’s rejection of Palmer

U.S. State Department spokesman Philip J. Crowley today said “there will be consequences” to Venezuela’s decision to formally protest President Barack Obama’s nomination of diplomat Larry Palmer as the U.S. ambassador in Caracas. Without elaborating on steps the administration may take, Crowley told reporters today that an official letter of protest sent by Venezuela would have an impact on relations with the Latin American country. “We have cautioned them,” Crowley said in a briefing in Washington. “They have made their decision. In light of what has happened, we will evaluate” our next move. (Bloomberg Businessweek, 12-20-2010; www.businessweek.com/news/2010-12-20/u-s-warns-of-consequences-to-venezuela-s-rejection-of-palmer.html)

Showing his true colours                                                                                                                                                   When the opposition to Hugo Chávez’s radical leftist government won a majority of votes in a legislative election this September, its leaders hoped the result would slow Venezuela’s slide towards dictatorship. But the message Mr Chávez seems to have received is that he will have to become even more authoritarian to hold power. In recent days, the president’s allies in the outgoing congress have rushed to approve a package of laws that virtually eliminate the country’s last vestiges of checks and balances and protection for civil liberties.(The Economist, 12-21-2010, http://www.economist.com/blogs/americasview/2010/12/hugo_ch%C3%A1vezs_venezuela)

Venezuela, Ukraine set legal basis on energy, commercial cooperation

The meeting held between Venezuela´s Foreign Minister Nicolas Maduro and his Ukrainian counterpart, Kostantyn Gryschenko, will set the legal basis for cooperation in commercial and energy matters between the governments of Caracas and Kiev. The information was given by Minister Maduro during an event to install the high-level meeting, which takes place in the Venezuelan Foreign Ministry, with the attendance of ministerial delegations from the two countries. (AVN, 12-20-2010; http://www.avn.info.ve/node/34825)

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.