March 25th, 2011

Economics & Finance

China to extend Venezuela another USD$4 billion loan in joint fund

China will inject $4 billion next month into a joint development fund with Venezuela, according to a Venezuela government official, stepping up its lending to the South American country while securing a steady flow of oil. With the latest loan, China will have extended Venezuela$28 billion in financing since August, all to be serviced with oil. Two previous Chinese installments into the bilateral fund, totaling $8 billion, have been mostly repaid by Venezuela. Venezuela will be adding $2 billion to the fund, which was set up between BANDES, the Venezuelan development bank, and the China Development Bank. Many analysts and economists include the Chinese loans with Venezuela's sovereign debt, but the government doesn't, because they will be serviced with petrodollars. China is Venezuela's second-most important trade partner. (By Ezequiel Minaya, Dow Jones Newswires, 03-24-2011; http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201103241643dowjonesdjonline000520&title=china-to-extend-venezuela-another-4-billion-loan-in-joint-fund)

Venezuela's debt payments at USD$ 19.4 billion in 2011-2012

The decision of the Venezuelan Executive Office to cover the revenue gap by increasing indebtedness has a strong impact on fiscal accounts and public debt service for 2011 and 2012, when total indebtedness amounts to USD$ 19.4 billion. Domestic debt represents the biggest burden on future payments. The domestic debt service in 2011 and 2012 will reach USD$ 10.7 billion, according to data released by the Ministry of Finance. (El Universal, 03-22-2011; http://english.eluniversal.com/2011/03/22/venezuelas-debt-payments-at-usd-194-billion-in-2011-2012.shtml)

Government import policy expected to weaken production in Venezuela

Venezuelan government's attempts to centralize imports of commodities will curb domestic production, said Ismael Pérez Vigil, the executive president of the Venezuelan Confederation of Industries (CONINDUSTRIA). "Regulations are always a nuisance (...) The government has misread the economic situation and is trying to fix economic problems through regulations and monopolizing certain activities. This will eventually end up worsening the economy," Pérez Vigil said.

The business leader added that the plan announced by the Executive Office will further delay imports of inputs and, consequently, will undermine production in private companies. (El Universal, 03-23-2011; http://english.eluniversal.com/2011/03/23/governments-imports-expected-to-hit-production-in-venezuela.shtml)

Venezuela raises bread, pasta prices as much as 33%

Venezuela raised price caps on bread and pasta in order to bring costs in line with rising international prices, Food Minister Carlos Osorio said, threatening to accelerate the hemisphere’s fastest inflation. The cost of baguette-style bread was increased about 24 percent to 5.52 bolivars (USD$1.29) per kilo and pasta was raised 33 percent to 4.33 bolivars per kilo, Osorio said. Venezuelan President Hugo Chavez’s government regulates the price of basic foods. (Bloomberg, 03-22-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a_pE0JBoJRlg)

Commodities

Venezuela's oil obligations to China may go unfulfilled

Venezuelan President Hugo Chavez says he hopes to send one million barrels of oil per day to China within the next three years, but industry data suggests odds are against that happening. The plan would require a drastic increase in production at a time when the South American country faces a lack of investment in the petroleum sector and declining output. (The Wall Street Journal, 03-22-2011; http://online.wsj.com/article/SB10001424052748703921204576217073681492388.html?mod=WSJ_World_LEFTSecondNews)

Pdvsa's oil exports down 11.6 percent in 2010

Exports by state-run oil company Petróleos de Venezuela (PDVSA) lost ground in 2010, according to the preliminary results shown in PDVSA's 2010 Annual Report and Accounts submitted to the National Assembly. The document claims PDVSA exported 2.41 million barrels per day of crude oil and byproducts. According to PDVSA's figures, 1.93 million barrels were crude and upgraded oil while the remaining 485,000 barrels were oil byproducts. (El Universal, 03-23-2011; http://english.eluniversal.com/2011/03/22/pdvsas-oil-exports-down-116-percent-in-2010.shtml)

PDVSA puts pressure on partners to find funding-sources

Venezuela's state oil company PDVSA has told its foreign partners to secure funding of hundreds of millions of dollars by July to boost production at joint ventures in line with a government demand, according to sources involved in the ventures. PDVSA is the financial motor of President Hugo Chavez's socialist "revolution" in the South American OPEC member, but it has been suffering from falling crude output levels. Seeking to pump more and reap the rewards of high oil prices, the government gave foreign companies a one-month deadline late last year to present higher production targets for more than 20 joint venture projects. Among the companies involved were CHEVRON, REPSOL, BP and SHELL. In January, Energy Minister Rafael Ramirez said the foreign oil companies must hike production or possibly face a review of their rights to operate in the country. (Reuters, By Marianna Parraga, 03-25-2011; http://af.reuters.com/article/energyOilNews/idAFN2418833820110325)

Concomitant shutdowns in oil upgraders

This week, there will be simultaneous shutdowns in PETROPIAR and PETROMONAGAS, two oil upgraders at the Orinoco Oil Belt, according to Eudis Girot, a union leader of the Federation of Venezuelan Oil Workers (FUTPV). The spokesperson for the Federation said that the shutdowns will be "partial." Girot explained that the upgraders will not be totally halted, but there will be a drop in crude oil processing. He did not provide further details about the decline in production. (El Universal, 03-23-2011; http://english.eluniversal.com/2011/03/23/concomitant-shutdowns-in-oil-upgraders.shtml)

Venezuela’s Guri Dam reduces capacity

Two turbines at Venezuela’s Guri dam, the country’s largest hydroelectric plant, were shut down this week, which may reduce generation by more than 1,000 megawatts. A 730-megawatt unit was shut because of vibration problems and a 375-megawatt turbine was taken offline for tests, the Caracas-based newspaper reported today, without identifying where it got the information. (Bloomberg, 03-23-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=an0y1.pwIhtM)

Politics

Hugo Chavez decries capitalism....on Mars

Venezuelan President Hugo Chavez, who routinely blames capitalism for many of this world's troubles, pointed elsewhere in the galaxy for his latest critique, saying Tuesday that the economic system may have destroyed life on Mars. (The Wall Street Journal, 03-22-2011; http://online.wsj.com/article/SB10001424052748704461304576217060217916894.html?mod=WSJ_World_LEFTSecondNews)

Chavez decree strengthens pro-government militias

New rules authorizing Venezuela's military to distribute weapons to pro-government militias took effect Tuesday, raising concern among critics who say the armed groups could be used by President Hugo Chavez to cement his hold on power.

Rocio San Miguel, an anti-Chavez activist who heads Citizen Control for Security, a non-governmental group that studies military-related issues, said the decree could allow Chavez to turn the militias into "the armed branch of the revolution."

Militiamen had previously been trained to use firearms, but were not issued weapons. They used firearms only in training exercises and military parades under the strict supervision of military officers. (Miami Herald, 03-22-2011; http://www.miamiherald.com/2011/03/22/2129201/chavez-decree-strengthens-pro.html)

Chavez, Fernandez resume quarterly meetings next week

Venezuelan President Hugo Chavez and Argentina’s Cristina Fernandez will meet in Buenos Aires next Tuesday to review the progress of bilateral accords, reported Venezuelan television channel VTV. Argentina’s Foreign Ministry confirmed that Fernandez will welcome her Venezuelan counterpart at the Casa Rosada presidential palace, where they would hold a closed door meeting with their cabinet of ministers. Foreign ministers of Argentina and Venezuela, Hector Timmerman and Nicolas Maduro, are expected to present to their presidents the achievements of the third High Level Binational Commission Argentina-Venezuela, which will be hold next Monday at the seat of the Argentinean foreign ministry. (AVN, 03-24-2011; http://www.avn.info.ve/node/49790)

H1N1 outbreak in Venezuelan state, official says

An outbreak of the H1N1 virus, known commonly as the swine flu, has hit the Venezuelan Andean state of Merida, the country's health minister said, the state-run AVN news agency reported. More than 100 cases of H1N1 have been recorded in Venezuela as of Tuesday, according to Health Minister Eugenia Sader. (CNN, 03-23-2011; http://edition.cnn.com/2011/WORLD/americas/03/23/venezuela.swine.flu/index.html)

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.