March 11th, 2011

Economics & Finance

Venezuela Roils Multinationals

Venezuela's currency devaluation wreaked havoc on the balance sheets of multinational companies last year and remains a challenge for companies operating in the country this year. It's the latest in a series of issues—ranging from price fixing to the nationalization of certain industries—that multinationals are contending with in the Latin American country as they chase growth markets outside the U.S. and Europe and set their sights on Latin America's burgeoning middle class.

Doing business overseas can bring with it challenges such as unstable currencies and political turmoil, but Venezuela has proven to have an inordinate number of pitfalls. (The Wall Street Journal, 03-07-2011; http://online.wsj.com/article/SB10001424052748704076804576180772710245068.html)

Decline in investment limits Venezuelan economic recovery

After two years of decline, skyrocketing oil prices are a key factor bolstering Venezuela's economy. However, some serious imbalances -such as the collapse of investment- have become an almost insurmountable barrier.
Petrodollars allow both the government to encourage consumption and companies to increase sales, just as in previous periods when crude oil prices sharply increased. However, when machinery and equipment available are used to a maximum level, economic growth goes to a standstill due to the investment deficit.
The Central Bank of Venezuela (BCV) data show that after a period of recovery, following a lockout in 2002, investments in machinery and equipment that help to increase production have fallen in the past three years, for an accumulated decline of 15.4% between 2007 and 2010. (El Universal, 03-09-2011; http://english.eluniversal.com/2011/03/09/decline-in-investment-limits-venezuelan-economic-recovery.shtml)

Supply of US dollars through SITME falls by 28.5% percent

In March 2010, the Venezuelan Ministry of Finance closed down the Forex parallel market that allowed individuals and businesses to buy US dollars through brokerage firms. Since then, the Venezuelan market has faced a severe shortage of foreign currency. The Executive Office created the Transaction System for Foreign Currency Denominated Securities (SITME), so that individuals and corporations could purchase US dollars at a higher price that the official exchange rate but at a lower price than the unofficial market. There is an underlying problem in this: the supply of foreign currency is very small. Data from SITME’s administrator, the Central Bank of Venezuela (BCV), shows that between September and December 2010, the daily supply of US dollars averaged USD 42 million, but it fell further to USD 26 million in January and slightly increased to USD 30 million in February. (El Universal, 03-08-2011; http://english.eluniversal.com/2011/03/08/supply-of-us-dollars-through-sitme-falls-down-to-285-percent.shtml)

Venezuelan private sector GDP plummets; public sector's soars

On May 27, 2010 Venezuela's President Hugo Chávez admitted that he aims at "burying Venezuelan capitalism." He vowed that his government would take control of key economic areas. In fact, the process had begun earlier when Venezuelan authorities launched a frantic nationalization process in 2007. Data from the Central Bank of Venezuela (BCV) show that private sector's production has not grown since 2007 and it has instead accumulated a 6.6 percent fall in the last three years. In the same period, the State has increased its control of the economy. In fact, public sector's GDP advanced by 18 percent throughout the period. (El Universal, 03-08-2011; http://english.eluniversal.com/2011/03/08/venezuelan-private-sectors-gdp-plummets-public-sectors-soars.shtml)

Colombia sales to Venezuela fell 74.5% in the last 2 years

None of the 13 agreements signed by the authorities last week provide an incentive for Venezuelan exports. The 13 agreements signed last week between officials of Colombia and Venezuela concentrated on purchases from the neighboring country. Bilateral trade, which peaked at USD 7.29 billion dollars in 2008, collapsed over the following years because of political differences between Presidents Chavez and Uribe and economic problems due to falling oil prices. The Colombian National Bureau of Statistics reports that trade with Venezuela fell to USD 4.61 billion dollars in 2009 (36.8% less than in 2008) and USD 1.73 billion in 2010 (62.5% by below the previous year), for a cumulative decline of 76.3%. More information in Spanish. (Canal de Noticias, 03-10-2011; http://www.canaldenoticia.com/index.php?option=com_content&view=article&id=45245:ventas-a-colombia-retrocedieron-745-en-los-ultimos-2-anos&catid=48:america&Itemid=67)

Venezuela, Bolivia and Argentina with the highest inflation rates

Venezuela, Bolivia and Argentina are the Latin American countries where food prices have increased the most over the last year, according to official data from Latin American governments that were compiled by Spanish news agency EFE. Between January 2010 and January 2011, the price of foodstuffs was up 37.2% in Venezuela, well above general inflation rate in (28.5%). Food prices shot up 14% in Bolivia whereas general inflation rate rose 8.4%. Finally, the price of foodstuffs in Argentina edged 13.1% and the inflation rate climbed to 10.6%. The upward inflationary trend persists in Paraguay, Venezuela and Bolivia. (El Universal, 03-07-2011; http://english.eluniversal.com/2011/03/07/venezuela-bolivia-and-argentina-with-the-higher-inflation-rates.shtml)

Venezuela shuts down five more brokerage firms, Gazette Says

Venezuela’s securities regulator ordered four brokerage firms closed after spotting irregularities in their operations and granted another brokerage permission to close permanently, according to a resolution published in today’s Official Gazette. The government shut down Strategos Sociedad de Corretaje, SFC Investment Venezuela Sociedad de Corretaje, Fidevalores Sociedad de Corretaje and La Primera brokerages. The regulator granted the Banexpress firm permission to cease operations, the resolution said. (Bloomberg, 03-09-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aOHRyVMcM9LM)

Government decrees animal protein customs waivers for imports related to bovine production as well as to those necessary elements for the provision of animal protein to the population (Friday, March 4 Gaceta Oficial, circulating today). The waiver depends on the issuance of the Non-Production or Insufficient Production Certificate which must accompany the information on the products to be imported. (Veneconomy, 03-09-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25179&idc=3)

Commodities

China May Approve PetroChina-Venezuela Refinery This Year

China may approve a 57 billion-yuan (USD 8.7 billion) refining venture between PetroChina Co. and Petróleos de Venezuela SA this year, according to the economic planning agency in Guangdong, where the plant will be built. The southern province will also develop emergency oil reserves, Li Miaojuan, director of the Guangdong Development and Reform Commission, told reporters at the National People’s Congress in Beijing today, without giving details. Guangdong, the nation’s manufacturing hub, is adding oil- processing capacity to meet rising demand for industrial fuels including diesel. Construction of the 400,000 barrel-a-day refining venture in Jieyang may begin this year, the provincial government said on March 5. The plant’s capacity will almost match PetroChina’s 410,000 barrel-a-day Dalian refinery, the company’s biggest. The planned Jieyang venture highlights the expanding energy ties between Venezuela and China. (Bloomberg, 03-10-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aR37FuVxmG8s)

Strike ends at CVG VENALUM

After lengthy meetings, workers of state-run aluminum smelter CVG VENALUM Decided to end the strike that began March 1. However, workers expect to register the agreement with the Labor Inspectorate of the Bolívar state on Wednesday afternoon to authenticate the agreement related to the payment of Sunday's salary as a holiday on-duty, and wage adjustments, among other benefits. (El Universal, 03-09-2011; http://english.eluniversal.com/2011/03/09/strike-at-cvg-venalum-ends.shtml)

Venezuela closes 360 MW unit in Tacoa TPP after fire

Venezuela's state power corporation CORPOELEC shut down a 360 MW unit in its Tacoa thermoelectric power plant (TPP) yesterday due to a fire, which was immediately brought under control, CORPOELEC said. The accident will not affect the power supply to the metropolitan area of Caracas city, as the 360 MW were replaced by other power units. (ADP News, 03-10-2011; http://adpnews.info/?nid=b6a9a216987b5088)

PDVSA's Curazao (Isla) refinery halts four units temporarily

Four units of the Isla refinery, operated by Venezuelan state oil company Petróleos de Venezuela (PDVSA), suspended operations on Saturday due to steam supply problems, Reuters reported. Among the halted facilities are one distillation and two hydro treatment units, according to union leader Angelo Meir. The units are expected to remain closed for a week. Isla is a 335,000-barrel-per-day refinery on the Caribbean island of Curacao. PDVSA uses the refinery and the nearby Bullenbaai terminal to refine, store and ship Venezuelan oil to Asia. (ADP News, 03-10-2011; http://adpnews.info/?nid=2bfa98b1498c065e)

Logistics & Transport

Puerto Cabello may close down

According to Alexis Polanco, president of the National Workers Union, Carabobo section, "There will be a conflict here in the next months due to the terrible state the port of Puerto Cabello. If nothing is done to solve problems, the port will shut down". He pointed out that the situation within is not the same as two years ago. Destacó que el panorama dentro de las instalaciones no es el mismo de hace dos años. In his view the port started to decay drastically since the Government took over its management. Polanco said that when the port was taken over 30 loading and unloading cranes were operational, as opposed to just 8 at this time. The situation is not encouraging in the port which receives 70% of imported foodstuffs. Polanco says port authorities are military and have no experience managing ports. "What is happening is disastrous. There are no bathroooms or dining areas. Road conditions are terrible. Perimeter fences that separate the city from the port are have fallen down". More in Spanish. (Tal Cual, 03-11-2011; http://www.talcualdigital.com/ediciones/2011/03/11/default.asp)

Politics

Congress passes no laws and has no agenda two months after two months in session

Zero laws, zero agenda. This is the count two months after the swearing-in of the new National Assembly (AN). The brand-new Assembly incorporated opposition representatives after five years of voluntary absence and brought a new regulation on the interior and debate. The legal instrument, drafted by pro-government representatives, halved the number of monthly ordinary sessions. While congress standing committees have held some meetings to prepare a tentative agenda, thus far the meeting of the Advisory Committee, which sets the items in the agenda, has been postponed several times. Ending February was the last time when committees' chairs met with the heads of the parliament. No final work plan was released. (El Universal, 03-08-2011;

http://english.eluniversal.com/2011/03/08/congress-without-laws-or-agenda-two-months-after-the-beginning-of-sessions.shtml)

Venezuela and Brazil discuss strategic alliances

Brazil's ambassador in Venezuela, José Antonio Marcondes, said Wednesday that Venezuela and Brazil discussed further strategic alliances. "It is clear that between Venezuela and Brazil there is still much room to grow, to explore new opportunities for cooperation. Brazil is willing to share all their experiences of development with Venezuela," after meeting with the president of the National Assembly (AN), Fernando Soto Rojas. He said that Venezuela and Brazil carry out joint projects in housing, agriculture, energy, border development, banking, among others, adding that such agreements may increase. (AVN, 03-09-2011; http://www.avn.info.ve/node/47197)

ALBA aims at mediation in Libya

Member states of the Bolivarian Alliance for the Peoples of Our America (ALBA) began taking steps to create a mediation team to try to end violence in Libya and enable the African country to find a peaceful solution to the political crisis it endures three weeks ago. Ecuadorian deputy foreign minister Kintto Lucas said the statement according to a report from AFP. He also affirmed that the Bolivarian bloc “is proposing some trips and contacts” to start creating the peace commission, initiative raised by Venezuelan President Hugo Chavez. (AVN, 03-10-2011;

http://www.avn.info.ve/node/47310)

At the UN, Venezuela ratifies support for creation of Palestinian State

Venezuela ratified at the United Nations (UN) in Vienna its support for the creation of a Palestine State and the right to self-determination of its people, the Venezuelan government reported on Tuesday. The Venezuelan delegation expressed its position in an international meeting to address the Palestinian issue, particularly the situation of political prisoners and the Israeli detention centers, according to a statement issued by the Venezuelan government, DPA reported. (El Universal, 03-09-2011;

http://english.eluniversal.com/2011/03/09/venezuela-reiterates-at-un-support-to-the-creation-of-palestinian-state.shtml)

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.