April 8th

Economics & Finance

Central Bank President says Venezuela should cut debt cost, denies exchange rate adjustment

The Venezuelan government should reduce borrowing costs by communicating better with the market, Central Bank President Nelson Merentes said.  “It makes no sense that Venezuela should be considered so risky when it has always paid its debts”. The government will not devalue the bolivar by adjusting the exchange rate on the central bank-administered bond trading system known as the SITME because “all of the exchange rate adjustments that needed to be done have already been made”. (Bloomberg, 04-05-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aL8eGHyT7lv4)

Venezuela has an 5.8% inflation rate for the first three months of the year, after posting a 1.4% inflation rate in March, one percent point below the rate in March 2010, informed the National Institute of Statistics (INE, in Spanish) on Tuesday. (Veneconomy, 04-05-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25540&idc=2)

According to trade sector estimates

Economic growth in the first quarter ruled out

President of the Venezuelan Council of Trade and Services (Consecomercio) Fernando Morgado said that trade failed to grow during the first quarter of the year. "We are going to discuss a detailed study of the latest poll conducted in the first quarter and we will release the results at the annual meeting of Consecomercio," which will be held at the end of this week, Morgado said. The businessman said that in the last few days the trade association has urged the Executive Office to take steps to revive the waning domestic economy. (El Universal, 04-06-2011; http://english.eluniversal.com/2011/04/05/economic-growth-in-the-first-quarter-ruled-out.shtml)

Chavez expects GDP growth to double estimations for 2011

Although the estimated GRP growth of 2%, some economic indicators lead to thinking that it could reach a 4%, according to President Hugo Chavez. The head of State pointed out that, according to data provided by the Venezuelan Central Bank, the reduction of unemployment rates and an increase in the electricity consumption make believe that the GDP will be above estimations this year. (AVN, 04-07-2011; http://www.avn.info.ve/node/51995)

Blackout hits most Venezuelan states, Caracas

Blackouts hit most of Venezuela on Thursday, affecting an oil refinery and the Caracas metro in a growing headache for President Hugo Chavez months after electricity rationing dented his popularity.

The 146,000 barrel-per-day El Palito refinery had to be restarted after the failure and the capital's metro transit system ground to a halt at the beginning of the evening rush hour, forcing thousands of commuters onto the streets.

Electricity Minister Ali Rodriguez said power was restored quickly in most of the 17 states and the capital but warned many regions would be cut off again for brief periods during the evening to ration energy as the system stabilized.

Rodriguez did not specify if the new programmed cuts would affect Caracas, one of the world's most lawless cities. He blamed the problems on forest fires that caused the failure of an 800-kilowatt cable and affected 6,000 megawatts of capacity. (Reuters, 04-07-2011; http://www.reuters.com/article/2011/04/07/us-venezuela-blackout-idUSTRE7367LH20110407)

Power failures hit Venezuelan companies

Noel Álvarez, the President of the Venezuelan Federation of Trade and Industry Chambers (FEDECÁMARAS), said that unscheduled power cuts are hitting all economic sectors throughout the country. He added that energy problems, far from being solved, are worsening in Venezuela. "Venezuela should have made large investments rather than taking half measures. We consider that the government did not make the necessary investment, but only temporary and isolated investments," he said. (El Universal, 04-06-2011; http://english.eluniversal.com/2011/04/06/power-failures-hit-venezuelan-companies.shtml)

CASA returns imports to private industry

After the national government announced it would centralize wheat imports through the Corporation for Agricultural Supply and Services (CASA), this week it called on private industry to resume imports of cereal. Industry sources acknowledged that CASA has logistical capability to import the grain industry requires for the preparation of pasta and related products. However, in an attempt to buy raw materials in the international market, CASA managed to bargain to reach only 200,000 tons for two months. More information in Spanish. (El Universal, 04-06-2011; http://www.eluniversal.com/2011/04/06/casa-devuelve-importaciones-de-trigo-a-la-industria-privada.shtml)

Commodities

Venezuelan oil exports to the United States continue with ups and downs, but decline compared to 2010.

According to figures provided by the US Department of Energy, during the last four weeks Venezuelan exports to the US averaged 828,000 barrels per day (BPD).  Although average exports remained unchanged or increased compared to the previous three weeks of March (796,000 BPD; 830,000 BPD and 749,000 BPD, respectively), sales have not recovered to the levels recorded in 2010 (967,000 BPD). Venezuela remains the fifth largest supplier of crude oil to the United States, with an average of 1.2 million barrels per day of crude oil and products. However, tense political and economic relations between Washington and Caracas have prompted state-run oil company Petróleos de Venezuela (PDVSA) to change its priorities and reduce crude oil exports to the US. This move has favored PDVSA's new trade and political partners and allies, such as China or the members of Venezuelan oil initiative PETROCARIBE. In 2010, oil exports to Asia increased by 154 percent to 341,000 barrels per day. Most of the crude oil and byproducts were exported to China. (El Universal, 04-05-2011; http://english.eluniversal.com/2011/04/05/venezuelas-crude-oil-exports-to-the-us-average-1-million-bpd.shtml)

Key political risks to watch in Venezuela

Venezuela's PDVSA remains one of the world's largest oil companies, but exports and production are falling, partly because of the heavy load Chavez puts on the company as the main economic motor of his revolution. PDVSA is required to hand over so much of its revenue to the government that it has neglected investments in its older oil fields. A wave of nationalizations in 2009 has also hit production, with PDVSA struggling to take on oil wells and drilling services previously carried out by private companies. Output fell around 200,000 barrels per day (bpd) in 2010. Just 50,000 bpd of new output is likely to come online in the Orinoco heavy crude region by the end of 2011. (Reuters, 04-04-2011; http://www.reuters.com/article/2011/04/04/venezuela-risks-idUSRISKVE20110404)

Politics

An Air of Desperation: Venezuela is losing almost half of the oil revenue that was being generated to service its external debt obligations.

With one of his closest international allies in the midst of a bloody civil war, Venezuelan Hugo Chavez has lost some of the bounce in his step. It’s true that the problems in the Middle East sent oil prices soaring, which produced an immediate windfall for Caracas. However, years of mismanagement and an endless borrowing binge are taking their toll. (Latin Business Chronicle, 04-05-2011; http://www.latinbusinesschronicle.com/app/article.aspx?id=4843)

Venezuela and Colombia prepare interim trade agreement

Venezuelan and Colombian technical teams produced a transitory bilateral trade agreement, which provides Venezuela with extended tariff benefits offered by the Andean Community after it leaves the economic block on 22 April. Government spokesmen, who preferred anonymity, reported that the document is under evaluation by the Government. It is a provisional agreement that will last between six months to one year, in order to make time to develop and implement a firm bilateral commercial agreement. "There's no time to sign a definitive pact. Businessmen from both countries want to establish some rules, but they will wait for the agreement to be signed to start investments," said one source. More information in Spanish. (El Nacional, 08-04-2011; http://impresodigital.el-nacional.com/ediciones/2011/04/08/default.asp?cfg=736FCCB322&iu=4626)

Mercosur should include the entire region to take advantage from Latin America's potential

Former Brazilian President Luiz Inacio Lula da Silva said he is convinced that the Common Market of the South (MERCOSUR) would be more successful if the entire region were included “to take advantage of Latin America’s exceptional potential.” In the forum “Leaders of the Public Sector in Latin America and the Caribbean” held in Washington, Lula said that it would be more advantageous to have “a MERCOSUR with Colombia, Venezuela, Ecuador, the entire region”. (AVN, 04-07-2011; http://www.avn.info.ve/node/51985)

Chávez to visit Rouseff next May 10

Venezuela's President Hugo Chávez has plans to visit Brasilia for his first working meeting with his Brazilian counterpart Dilma Rousseff next May 10, according to official sources. The date was agreed to by both governments after some problems with their agendas and contingencies that had hindered a meeting, spokespersons of the Brazilian President's Office told Efe. (El Universal, 04-06-2011; http://english.eluniversal.com/2011/04/06/chavez-to-visit-rouseff-next-may-10.shtml)

Negative perception of the government increasing

Priority problems in public opinion have changed: the rising cost of living now takes second place, right after crime, according to an opinion study projecting data from the decade 2000-2010, by expert Alie Charr, who indicated that approximately 50% of respondents felt that the country's situation is bad, while another 50% consider it good. These are the same proportions as in 2000, but it does not mean they are the same people. The study also reflects the perception of government mismanagement has worsened over the past five years. More information in Spanish. (El Universal, 08-04-2011; http://www.eluniversal.com/2011/04/08/aumenta-percepcion-negativa-sobre-el-gobierno.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.