May 31th, 2011

Economics & Finance

International reserves rose to U$D 27.626 million

Venezuela's international reserves increased by U$D 751 million last week, to U$D 27.626 million, according to the Central Bank (BCV). U$D 3 million from that total are still held in the Macroeconomic Stabilization Fund (FEM), created to offset high risks in the economy. More information in Spanish: (El Mundo, 05-30-2011; http://www.elmundo.com.ve/Noticias/Economia/Politicas-Publicas/Reservas-internacionales-de-Venezuela-suben-a-$27-.aspx)

Opposition Congressman estimates U$D 60 billion lost to corruption under Chavez

Congressman Ismael García, a former Chavez ally, says corruption scandals during the rule of President Hugo Chavez translate into losses of over U$D 60 billion to Venezuela. He clays damages to the National Treasury and to citizens over the past few years is unprecedented, and mentioned a few cases: The Antonini Wilson briefcases to Argentina in 2007, bond issues in 2008, the finantial microcrisis in 2009; 130,000 tons of damaged food imported by PDVAL in 2010; and the U$D 540 million fraud on the PDVSA pension fund uncovered this year. More information in Spanish: (El Nacional, 05-31-2011; http://www.el-nacional.com/www/site/p_contenido.php?q=nodo/211081/Naci%C3%B3n/Ismael-Garc%C3%ADa:-La-corrupci%C3%B3n-se-ha-tragado-60-millardos-de-d%C3%B3lares)

Venezuela ranks 129 out of 140 countries surveyed on the ability to protect private property

Venezuela ranks 129 of 140 countries surveyed on the ability to protect private property, through an index that evaluates the legal and political environment, physical property rights and intellectual property rights. Within a global context, incendiary official speeches, the systematic expropriation, confiscation and occupation of companies, farms and urban areas through armed gangs known as militias, are setting up a scenario where the international community could declare Venezuela as a outlaw nation outside international law. This leads to economic and financial sanctions. The government faces over 16 lawsuits in the U.S., Europe and Asia, for breach of contract in oil exploration and production, nationalization of private foreign capital and confiscation of assets of individuals or persons. Infringement of property rights tends to isolate Venezuela and increase the level of borrowing costs to 12% in loans and debt on a global average of 3 to 4%, even with an added value of domestic crude to U$D 96s. More information in Spanish: (Enfoque 365, 05-29-2011; http://www.enfoques365.net/N23275-mundo-burstil--derecho-a-la-propiedad.html)

Under 5% of farms expropriated have received Government compensation

Manuel Cipriano Heredia, president of the National Cattle Federation (FEDENAGA), says the Government has only paid compensation for under 5% of all farms expropriated recently. He reports these farms now remain idle, which translates into the importation of over 51% of beef products consumed by Venezuelans. "Today we see with great concern that our farmers activity is impaired and cover only 49% of domestic production, figures that have been certified by the National Statistics Institute (INE), who indicates that meat consumption has declined in the country, while this is denied outright by the Ministers of Agriculture and Land, Food and Bolivarian associations, "he said. He added that the statement made by the Executive, that 70% of the meat consumed in the country is domestically produced, is false. More information in Spanish: (Ultima Hora, 05-30-2011; http://ultimahoradigital.com/ultimahora/detalles_noticias.php?id=12526)

Economic policies curb industrial growth

Manufacturing climbed by 7.6% in the first quarter of 2011, according to the Central Bank of Venezuela (BCV). However, industrial leaders are certain that unscheduled power cuts, insecurity, fitful supply and legal uncertainty continue making an impact on growth. Abelardo Riera, an alternate director of the Industrial Chamber of the city of Barquisimeto, agrees with analysts that have said that the BCV data are due to a technical recovery. "We do not believe any improvement in the manufacturing sector," he said. (El Universal, 05-30-2011; http://english.eluniversal.com/2011/05/30/economic-policies-curb-the-industrial-sector.shtml)

Commodities

Oil basket rises to USD 100.70

Venezuela's crude oil and products averaged U$D 100.70 per barrel during the week of May 23- 27, with a slight increase of U$D 1.58, after three weeks of decline. Crude oil prices remain volatile but ended the week with an upward trend mainly due to the drop of the US dollar against the Euro and concerns about oil supply from North African countries and the Middle East. The Venezuelan oil basket now averages U$D 96.39 per barrel for 2011. (El Universal, 05-27-2011; http://english.eluniversal.com/2011/05/27/venezuelan-oil-basket-rises-to-usd-10070.shtml)

Venezuela deliberately reduces US oil sales

Sanctions imposed by the US Department of State on state-run oil holding Petróleos de Venezuela (Pdvsa) for trade with Iran are not fully clear, nor is the response of the Venezuelan government, which exports an average of 1.2 million bpd of oil to the United States, according to data from Venezuelan Minister of Energy and Petroleum Rafael Ramírez. Despite symbolic gestures and high-flown statements, Venezuela-US oil ties have loosened due to "sovereign diversification of markets," with a clearly geopolitical outlook and oil diplomacy on the part of Venezuela; and US attempts at ensuring supplier' trustworthiness and reliability. The decline in volume of crude oil and byproducts shipments is the first indicator: In 2005, Venezuela shipped to the United States 1.52 million bpd on average. In 2010, it fell down to 987,000 bpd, or 35% less, according to Washington's numbers. During that five-year period of time, Venezuela, formerly among the three largest oil suppliers in the world, came down to the fifth place. (El Universal, 05-28-2011; http://english.eluniversal.com/2011/05/28/ramirez-venezuelan-oil-supply-to-the-us-is-compromised.shtml)

Cuban refinery financed by Venezuela is forging ahead

A Venezuelan project to build a refinery in the Cuban port of Matanzas is ongoing, Cuba Standard reported, citing Rafael Tenreyro, head of exploration at CubaPetroleo. The construction of the 150,000 barrel-a-day refinery will cost more than U$D 4 billion, according to Cuba Standard. (Bloomberg, 05-29-2011; http://www.bloomberg.com/news/2011-05-29/venezuela-built-cuba-refinery-going-ahead-cuba-standard-says.html)

Ferrominera to receive U$D 900 million from China

State-owned iron ore producer Ferrominera Orinoco (FMO), will receive about U$D 900 million in credit from China to modernize facilities and increase production, which suffered a sharp fall in 2009,according to  its chairman. The head of FMO, Radwan Sabbagh, said that funding will be earmarked for the implementation of a line of pellets with a capacity of 3 million tons, and various projects to improve production capacity and delivery of iron ore. Sabbagh said that U$D426 million will go towards construction of a second line of pellets and another U$D 460 million for recovery operations and increased sales capacity. More information in Spanish: (Ultimas Noticias; 05-31-2011; http://www.ultimasnoticias.com.ve/Noticias/Actualidad/Ferrominera-recibira-$900-millones-de-China.aspx)

Politics

US oil sanctions against Venezuela may end up helping Chavez

U.S. sanctions against Venezuela's state oil company may benefit rather than hurt President Hugo Chavez's government by providing fuel for anti-U.S. rhetoric as the leftist leader rallies supporters ahead of next year's presidential elections. "Chavez is using [the sanctions] as a weapon to consolidate his base, to put the opposition in an uncomfortable situation and to rally support for his election campaign," said Anibal Romero, a Caracas-based retired professor of political science. The Chavez government has portrayed the U.S. penalties as an encroachment on Venezuela's sovereignty. The head of PDVSA, Rafael Ramirez, told a cheering crowd that in delivering the sanctions, U.S. authorities "hit us with everything they had." "I think the response from [Chavez] is fairly typical, very anti-American and very tough. I think there's more bark than bite," said Terry Hallmark, director of political risk and policy assessment at the Houston office of IHS, an energy industry research firm. "I'm pretty sure Chavez is trying to make the most of it politically." Venezuela's political opposition also denounced the U.S. sanctions. (The Wall Street Journal, 05-30-2011; http://online.wsj.com/article/BT-CO-20110530-704865.html)

Former OPEC Sec. Gen. says US sanctions violate international law

Alvaro Silva Calderon, Secretary General of the Organization of Petroleum Exporting Countries (OPEC) during 2001-2003 claims sanctions unilaterally imposed by the United States on the national oil company Petróleos de Venezuela (PDVSA) are an aggression against sovereignty and violate the international law. (AVN, 05-30-2011; http://www.avn.info.ve/node/60129)

Santos holds Colombian interests first and foremost

According to Colombian President Juan Manuel Santos, in renewed Colombia-Venezuela relations, Colombian interests have taken precedence over confrontation with his Venezuelan counterpart Hugo Chávez. During an interview, President Santos answered critics who consider that the change of discourse was too hasty. The Colombian president is certain that neither he nor Chávez have changed their mind over power and governance. They just opted to be pragmatic, based on common respect. (El Universal, 05-28-2011; http://english.eluniversal.com/2011/05/28/for-santos-colombian-interests-first-and-foremost.shtml)

Venezuela's opposition seeks assurances against ballot blackmail

A meeting between leaders of Venezuela's political parties and members of the National Electoral Council (CNE) to talk about the implementation of the Comprehensive Authentication System (SAI), on changing voting system, turned into a debate on the public "perception" of the use of the fingerprint reading machines in all polling stations. The opposition political parties consider changes approved by the CNE can cause fear and people do not vote freely if they are afraid.

According to opposition deputy Tomás Guanipa (Primero Justicia), directors of the National Electoral Council (CNE) were asked to make sure that biometric authentication devices are not used by the Executive to "blackmail and intimidate" voters, especially public employees and beneficiaries of social projects (missions.) (El Universal, 05-27-2011; http://english.eluniversal.com/2011/05/27/venezuelas-opposition-asks-for-assurances-against-blackmail.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.

May 24th, 2011

Economics & Finance

United States to sanction Pdvsa on Iran trade

The United States will sanction Venezuela's state-run oil holding Petróleos de Venezuela (Pdvsa) on Tuesday for dealing with Iran in violation of a Washington ban, sources familiar with the situation told Reuters.

Deputy Secretary of State James Steinberg was expected to announce the sanctions, which could include stiff penalties such as being banned from the US financial system or being denied US contracts, the sources said. (El Universal, 05-24-2011; http://english.eluniversal.com/2011/05/24/united-states-to-sanction-pdvsa-on-iran-trade.shtml)

 
Venezuelan financial authorities expect inflation under 20% in 2012

The president of the Venezuelan Central Bank Nelson Merentes estimates an inflation rate below 20% for the next year, if demand for massive consumption products, such as food, is satisfied. “We can besure that this is the first time that the country has a technical team analyzing weekly the behavior of goods and services. We know that we have to produce more, most of all in the food sector to satisfy domestic demand and prevent market distortions,” he explained. (AVN, 05-23-2011; http://www.avn.info.ve/secciones/english/venezuelan-financial-authorities-expect-inflation-under-20-in-2012)

Central Bank chief says the private sector grew more strongly than the public sector

Central Bank President Nelson Merentes has said that the private sector grew significantly within the economy “with more strength than even the public sector”, in the First Quarter of this year. He said that all productive areas related to industry grew by 7.6%. More information in Spanish. (Agencia Venezolana de Noticias; 05-24-2011; http://www.avn.info.ve/secciones/economia/nelson-merentes-sector-privado-economia-crecio-manera-importante)

Eight industrial sectors in Venezuela produce less than in 1997

After two years of a steady decline in industrial production, Venezuela's industrial output rebounded during the first quarter of this year and grew by 7.5% over the same period in 2010. However, a thorough analysis shows that this economic sector needs much more to move from stagnation to real growth. Data from the Central Bank of Venezuela (BCV) shows that the industrial sector grew compared to a quarter in which electric power shortage led to production stoppages in many plants. A comparison of the first quarter of 2011 with periods prior to 2010 found insignificant progress. For instance, industrial production in the first quarter of 2011 remained 2.5% beneath industrial output in the same quarter of 2009 and was 3.1% less than in the first quarter of 2008. (El Universal, 05-23-2011; http://english.eluniversal.com/2011/05/23/eight-industrial-sectors-in-venezuela-produce-less-than-in-1997.shtml)

Sagging oil GDP mirrors drop in drilling

As the Venezuelan economy grows at 4.5% in goods and services, the outlook is not as encouraging for the oil sector. According to data supplied by the Central Bank of Venezuela (BCV), in the first quarter of 2011, oil operations recovered 1.8% compared with the same period last year. But it is the poorest result since the first quarter of 2003, in the middle of a nationwide oil strike. Drilling volume has gradually dwindled up to 2.76 million barrels per day (BPD), based on the latest audit of the industry. Oil drilling had already diminished in 2010, on average, as low as 2.78 bpd. Nevertheless, PDVSA’s official report put the output volume at 3.1 million bpd. (El Universal, 05-21-2011; http://english.eluniversal.com/2011/05/21/sagging-oil-gdp-mirrors-drilling-drop.shtml)

Brokerage firms may “eventually” return to the bond market

In a first stage they will only be allowed to trade instruments in bolivars to later trade financial instruments in dollars, a government source told daily El Mundo. (Veneconomy, 05-23-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26077&idc=2)

National Academy of Economics views communal system as confiscatory

Following a review of the communal economic system, the Venezuelan National Academy of Economic Sciences concludes that the new model institutionalizes seizure and expropriation of private property. “In this system, the State is responsible for allocating ownership, never grants ownership to anybody. It is almost similar to what they are doing with housing, the State grants the right of use," explained Pedro Palma, the president of the Academy. (El Universal, 05-21-2011; http://english.eluniversal.com/2011/05/21/communal-system-is-viewed-as-confiscating.shtml)

Investment in public works slows despite Government spending increase of 10,4% 

Construction dropped 7.7% in the first quarter of 2011. This was not only due to by a decline in private sector's activity, but also because of a decrease in public sector's construction for lack of resources. In the first quarter of the year, government's spending surged by 10.4%, according to data from the Central Bank of Venezuela (BCV). However, those funds were mainly allocated to current spending instead of infrastructure investments. The number of completed housing units dropped 35% compared to 2010 and the road infrastructure construction fell 16%. (El Universal, 05-23-2011;  http://english.eluniversal.com/2011/05/23/despite-high-spending-investment-on-public-works-has-slowed.shtml;  Veneconomy, 05-23-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26076&idc=2)

PDVSA bonds decline as Central Bank announces plan to sell securities

Petroleos de Venezuela SA bonds maturing in 2022 had their biggest fall in two weeks after a central bank director said more of the securities will be offered to investors in a state-run currency trading system. Yields on the PDVSA bond that matures in 2022 rose 14 basis points, or 0.14 percentage points, to 16.42% after central bank director Armando Leon said they would be sold on the SITME market for the first time. The yield on PDVSA bonds maturing in 2017, currently offered in Sitme, fell 5 basis points to 15.26% percent after Barclays Capital recommended buying following Leon’s comments. (Bloomberg, 05-20-2011; http://www.bloomberg.com/news/2011-05-20/venezuela-may-weaken-currency-rate-to-discourage-import-surge.html)

Commodities

Venezuelan oil Falls to $99.12

Venezuela's weekly oil basket fell just under a dollar as oil prices continued to soften in international markets. According to figures released by the Venezuelan Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petróleos de Venezuela, S.A. (PDVSA) during the week ending May 20 fell to U$D99.12 from the previous week's U$D100.00. (Latin American Herald Tribune, 05-20-2011; http://www.laht.com/article.asp?ArticleId=394462&CategoryId=10717)

Minister says Venezuela plans to ration energy for another year

Venezuela will ration energy again this year, planning steps similar to those taken in 2010 amid an energy crisis, Electricity Minister Ali Rodriguez said. “We’re going to reapply the measures we applied in Caracas last year nationwide, which punishes the wasting of electricity and encourages energy savings,” Rodriguez said in an interview on state television today. Any rationing measures require President Hugo Chavez’s approval, Rodriguez said.  Venezuela has struggled to boost energy-generating capacity to keep pace with an estimated 6% increase in demand this year. The consumption jump, if it persists, would require an additional 2,000 megawatts of new capacity a year, which is “unsustainable,” Rodriguez said. Rodriguez said that the Government is ready to install 7,747 MW adding the units that have been purchased from China. (Bloomberg, 05-23-2011; http://www.bloomberg.com/news/2011-05-23/venezuela-plans-to-ration-power-for-second-year-minister-says.html; AVN, 05-23-2011; http://www.avn.info.ve/secciones/english/venezuelan-electric-system-to-be-stable-by-the-end-of-2011)

PDVSA’s Cardon refinery rocked by explosion

Petróleos de Venezuela, S.A.’s Cardon refinery in western Venezuela had an explosion today at its catalytic cracking unit, news agency NOTIFALCON reported on its website, without saying where it got the information. The explosion damaged the unit, without specifying the amount of damage or how production was affected. Plant workers were evacuated, and the situation has been controlled, Notifalcon, based in Punto Fijo, Venezuela, reported. (Bloomberg, 05-23-2011; http://www.bloomberg.com/news/2011-05-23/pdvsa-s-cardon-refinery-rocked-by-explosion-notifalcon-says.html)

Politics

President Chavez nominated his vice-president for governor

President Hugo Chavez has nominated his vice-president Elias Jaua as a candidate for Governor of Miranda State, in the next regional elections. (AVN, 05-22-2011; http://www.avn.info.ve/secciones/english/president-chavez-proposes-his-vice-president-for-governor)

Paraguayan Senator claims Venezuela offers up to U$D 200,000 for votes on MERCOSUR entry

Paraguayan Senator Juan Carlos Galaverna, of the Colorado Party, says the Venezuelan Government offers “incentives” of up to U$D 200,000 to Paraguayan senators for a positive vote on Venezuela’s entry into MERCOSUR. “The amounts fluctuate between 100,000 and 200,000 per head”, he said and added “the briefcases” come “from Buenos Aires” and are paid out by “a retired military officer along with a foreigner and other compatriots”, he told Agence France Presse. The Paraguayan Senate is the last hurdle to Venezuela’s entry into the regional group. More information in Spanish. (El Universal; 05-24-2011; http://www.eluniversal.com/2011/05/24/denuncian-que-gobierno-ofrece-hasta-$200-mil-para-ingresar-al-mercosur.shtml)

May 20th, 2011

Economics & Finance

Venezuela’s recovery from Latin America’s longest slump gaining momentum

Venezuela’s gross domestic product expanded at the quickest pace in almost three years in the first quarter as government spending backed by higher oil prices helped the economy emerge from Latin America’s longest recession faster than expected. The country’s GDP rose 4.5% in the first three months of the year from the same period in 2010, the central bank said today in an e-mailed statement. Growth was more than twice as fast as the 1.7% median estimate of eight economists surveyed by Bloomberg. The rise in the price of oil to the highest level since 2008 has increased Venezuela’s revenue even as its oil sector contracted. First-quarter growth was the fastest since the 7.2% expansion posted in the second quarter of 2008 and should bolster President Hugo Chavez’s popularity ahead of next year’s elections, said Finance Minister Jorge Giordani. “Venezuela is turning the page and is in recovery,” Giordani said today during a press conference in Caracas. “Growth will contribute to President Chavez’s leadership in the 2012 elections.” Venezuela will grow more slowly this year than any other major economy in Latin America, according to the International Monetary Fund. Venezuela’s economy will expand 1.8% in 2011 compared with an average of 4.8% in South America, the IMF said in its World Economic Output report. (Bloomberg, 05-17-2011; http://www.bloomberg.com/news/2011-05-17/venezuela-s-recovery-from-latin-america-s-longest-slump-gaining-momentum.html)

Domestic demand rises; oil falls and construction plunges

Imports rose 22% in the first three months of the year, boosting internal demand as more foreign currency was made available to businesses through the Foreign Exchange Board, known as Cadivi, and the central bank administered currency market, known as Sitme, according to a central bank report released today.

Leading the first-quarter jump in growth, commerce expanded 10.4% in the January-through-March period from a year earlier while manufacturing rose 7.6%. However, the construction sector shank 7.7% even as Chavez launched a campaign to eradicate Venezuela’s housing deficit of 2 million homes. Oil, the main driver of Venezuela’s economy, declined 1.8%. Venezuela posted a current account surplus of U$D7.5 billion in the first quarter, the central bank said. The capital account posted a deficit of U$D10.5 billion in the first three months of the year, according to the central bank. (Bloomberg, 05-17-2011; http://www.bloomberg.com/news/2011-05-17/venezuela-s-recovery-from-latin-america-s-longest-slump-gaining-momentum.html)

The government now controls 32% of imports

Direct public sector imports increased 24% to settle at U$D 3.045 billion in order to meet a 3.7% rise in consumption in the first quarter. The State has also increased its control over foreign purchases. Government share of total imports has grown to 32% all imports, from 19% during the first quarter of 2007. Central Bank President has said: "It is important to underline the gradual changes in the composition of Venezuelan imports toward the public sector, as they have increased for each of five consecutive years". More information in Spanish. More information in Spanish. (El Universal, 05-20-2011; http://www.eluniversal.com/2011/05/20/el-gobierno-pasa-a-controlar-32-de-las-importaciones.shtml)

Public spending loses ability to boost Venezuelan economy

Determined to promote economic growth, the Venezuelan government has used windfall oil prices to boost spending. While successfully implemented in the recent past, this formula no longer yields the same results.

In the first quarter, Venezuela's public spending -after inflation- rose 10.4% and hit the highest level for any first quarter since 1998. However, the Venezuelan economy grew only 4.5%, far below the substantial growth rates of 8% and 9% recorded in 2005-2007. Alejandro Grisanti, an analyst at Barclays Capital, a British investment firm, said that "clearly, as the private sector has been cornered, public spending is generating less economic growth." (El Universal, 05-19-2011; http://english.eluniversal.com/2011/05/19/public-spending-loses-ability-to-boost-venezuelan-economy.shtml)

Venezuela offers the worst business climate in Latin America

Business climate in Latin America fell 5.6% in April 2011, the same level as April 2010, according to the index prepared by the Brazilian Center for Economic Studies Getulio Vargas Foundation (FGV). The so-called Economic Climate Index (ECI) in Latin America -which in July 2010 reached 6.0, its highest level ever- had declined to 5.8 in January 2011 and maintained a downward trend in April, according to a study prepared by the FGV and the Institute for Economic Studies (IFO) of the University of Munich (Germany). The deterioration of the business climate in Latin America in April is due to lower economic expectations for the next few months. Chile leads the ranking, followed by Ecuador, Bolivia and Venezuela as the countries with the worst economic climate in Latin America. (El Universal, 05-19-2011; http://english.eluniversal.com/2011/05/19/venezuela-with-the-worst-business-climate-in-latin-america.shtml)

INE: Venezuela's unemployment remains at 8.1% in April

Venezuela's unemployment rate in April 2011 (8.1%) remained virtually the same as the same period last year (8.2%), according to the National Statistics Institute (INE). The number of people unsuccessfully looking for a job in Venezuela was 1,070,128 in April. The joblessness rate remains much higher among young people. In the age group of 15-24, the unemployment rate stands at 16.8%. People employed in the formal sector of the economy have increased, according to the official data disclosed by INE. (El Universal, 05-18-2011; http://english.eluniversal.com/2011/05/18/ine-venezuelas-unemployment-remains-at-81-percent-in-april.shtml)

Venezuelan government guarantees supply of basic food items

Iván Gil, the Vice-Minister of Agro-productive and Agrifood Circuits, Ministry of Agriculture and Lands, said that the Venezuelan government’s supply of basic food items is enough to meet domestic demand. "We can assure the country that production and supply indexes show that we are able to meet (Venezuelan) people's food demand," he said. (El Universal, 05-17-2011; http://english.eluniversal.com/2011/05/17/venezuelan-govnt-guarantees-supply-of-basic-food-items.shtml)

Venezuela checks Cargill warehouse amid shortages

Venezuelan officials and soldiers inspected a warehouse of U.S. agribusiness giant Cargill Inc on Wednesday as part of a crackdown on alleged hoarding and price-gouging with foodstuffs. During his 12 years in power, President Hugo Chavez's socialist government has had fractious ties with private business, nationalizing swathes of the economy and in the last two years increasingly eyeing the food and agriculture sectors. With Venezuelans complaining of oil, flour, meat and other shortages in recent days, Chavez over the weekend urged ministers to hunt speculators and said he would have no hesitation in expropriating any companies found guilty. (Reuters, 05-18-2011; http://www.reuters.com/article/2011/05/18/venezuela-cargill-idUSN1827990720110518)

Commodities

MINERVEN sinks

Gold production at Venezuela’s state-owned CVG-MINERVEN dropped to 1.7 tons in 2010, from 4 tons estimated, due to financing difficulties in repowering its plants; according to the company president. The gold producing company, and other basic industries, have been hit by a series of labor disputes and problems with technological adaptation. MINERVEN president Luis Herrera, said that in the short term Bs 300 million (U$D 70 million) are required to again reach production levels of 4 tons of gold. "We are in talks with the Central Bank of Venezuela to activate operations because it has been difficult to get financing from private and public banks ", said Herrera. More information in Spanish. (Ultimas Noticias; http://www.ultimasnoticias.com.ve/Noticias/Actualidad/Reuters--Minerven-se-hunde.aspx)

 Politics

Government penalty policies fail to curb rising prices

As inflation in Venezuela continues to gain ground, authorities blame higher prices on speculation and have resorted to laws and penalties to deal with skyrocketing prices. However, this strategy has failed to curb inflation.

Venezuelan authorities optimistically estimated this year’s inflation in 2011 at 23%, the highest in Latin America.

Last weekend, President Hugo Chávez threatened major private food distribution channels involved in speculation and hoarding with a partial takeover by workers and community councils. (El Universal, 05-17-2011; http://english.eluniversal.com/2011/05/17/governments-policy-of-penalties-and-laws-fails-to-curb-rising-prices.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.

May 16th, 2011

Economics & Finance

Venezuelan bond markets raise concerns

Investment experts note that the drop in oil prices and the dollar's recovery in the international market set to "Venezuelan bonds on the verge of suffering a major technical correction." BANCTRUST analysts, indicated in a report that "there are technical reasons to think the Venezuelan bonds may experience a correction close to 7%," so they recommend buying protection. It suggests that a financial instrument (Credit Default Swap, CDS) that qualifies as an insurance contract that pays an investor to the risk of default on a loan. The firm notes that there are problems with Venezuelan risk. More information in Spanish. (El Mundo, 05-16-2011;

http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=19&Id_Noticia=56359)

Chavez threatens taking over food distribution chains

President Hugo Chávez Frías has charged that those major food distribution private channels who speculate and hoard and should be operated with the participation of workers and community councils. "And possibly seized. It would increase the social networks of food distribution to ensure good quality and fair prices," he said Sunday. He referred particularly to the Central Madeirense supermarket chain, which was closed due to internal problems with its workers. More information in Spanish. (AVN, 05-16-2011; http://www.avn.info.ve/node/57714)

Bilateral trade with Colombia plunges as Venezuelan gas imports increase by 428%

Trade relations with Colombia have not been completely reactivated, and despite agreements reached by the presidents of both countries, trade still shows a negative trend. According to Colombia's National Administrative Department of Statistics (DANE), Colombian exports to Venezuela decreased by 8.6% in March. Sales of vehicles and auto parts, particularly "wheels and wheels parts" tumbled 70.9%. "On the contrary, exports of fuel, oil and products increased by 298.1%, from U$D 6.6 million to U$D 26.4 million. This was due to higher sales of natural gas (428.5%)," DANE added. (El Universal, 05-16-2011; http://english.eluniversal.com/2011/05/16/venezuela-increases-by-428-percent-gas-imports-from-colombia.shtml)

Food prices rise to the sky

According to major domestic pollsters, the issue of food prices is among the biggest challenges faced by Venezuelans, yet Finance Minister Jorge Giordani is optimistic that the 1.4% inflation rate recorded last April is going downhill. He says this, in addition to recent wage increase, is one of the most important achievements for the working class. He expects that the inflation top will remain around 25% in 2011. Nonetheless, what is viewed as an accomplishment in Venezuela looks outrageous elsewhere. (El Universal, 05-13-2011; http://english.eluniversal.com/2011/05/13/food-in-the-sky.shtml)

Venezuela BANDAGRO bond case draws U.S. Supreme Court inquiry

The U.S. Supreme Court sought the Obama administration’s views on an Ohio investor group’s effort to sue Venezuela over potentially $900 million in bank notes that the South American country says are forgeries. The justices asked acting Solicitor General Neal Katyal for his advice on whether the high court should hear the case. A lower court barred Venezuela from invoking a U.S. law that immunizes foreign sovereigns from some lawsuits in American courts. In seeking Supreme Court review, Hugo Chavez’s Venezuelan government told the justices that the suit by DRFP LLC, which does business under the name Skye Ventures, may be the first of several claims over the disputed bearer bonds. (Bloomberg, 05-16-2011; http://www.bloomberg.com/news/2011-05-16/venezuela-bandagro-bond-case-draws-u-s-supreme-court-inquiry.html)

US SEC charges Highview Point Partners in Venezuela's PDVSA Ponzi scam

The Securities and Exchange Commission charged Highview Point Partners, LLC, a Connecticut-based investment adviser, with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. Highview was added as a defendant to a case the SEC previously filed in January 2011, and three hedge funds managed by Highview were named as relief defendants because, according to the SEC’s charges, they are in possession of funds tainted by the Ponzi scheme. After a hearing, the U.S. District Judge for the District of Connecticut, entered a consented-to order temporarily freezing the assets of Highview and the three hedge funds it advises. A hearing on the SEC’s motion for a preliminary injunction is set for May 23, 2011. (Latin American Herald Tribune, 05-16-2011;

http://www.laht.com/article.asp?ArticleId=394049&CategoryId=10717)

FITCH Ratings has affirmed Venezuela-based Banco Provincial's ratings as follows: Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B+'; Short-term foreign and local currency ratings at 'B'; Individual at 'D'; Support at 5. The Rating Outlooks for the long-term IDRs are Stable. Additional government intervention resulting in pressures on Provincial's financial performance could negatively affect its ratings. (Veneconomy, 05-16-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25974&idc=2)

Expert dismisses official claims of wasted electricity in Venezuela

According to José Aguilar, an international consultant on electricity grids, the maximum energy demand this year has been lower than the system peak reported in 2009 and 2010. (El Universal, 05-16-2011;

http://english.eluniversal.com/2011/05/16/expert-dismisses-waste-of-electricity-in-venezuela.shtml)

Commodities

Venezuelan exports dropped U$D 8.01 to close at U$D100/bbl. this week, according to data from the Ministry of Oil and Energy. It stated the drop is due to concerns over oil demand in industrialized countries. The average for May is $104.01/bbl. and the year-to-date average is U$D96.01/bbl. (Veneconomy, 05-16-2011;

http://www.veneconomy.com/site/index.asp?ids=44&idt=25977&idc=4)

Chalmette refinery files unit malfunction

Exxon Mobil Corp's joint-venture 192,500 barrel per day (bpd) Chalmette, Louisiana, refinery reported a unit malfunction late on Friday, according a notice filed with the U.S. National Response Center. The filing did not identify the unit, but said hydrogen sulfide, compressed flammable gas and nitrogen dioxide were released in the malfunction. The Chalmette refinery is a joint-venture between Exxon and Venezuela's national oil company PDVSA. (Reuters, 05-15-2011; http://af.reuters.com/article/energyOilNews/idAFWEN322420110515)

Sale of assets

M&P plans to sell its Venezuelan assets, including a 26.35% stake in the LAGOPETROl JV, to Integra (Argentina). The Lagopetrol JV is held by CVP 69%, Hocol (M&P) 26.35%, Ehcopek 3.10% and Cartera de Inversiones Petroleras II 1.55%, and operates the 41.91-sq km B2X-70/80 field area in Zulia. (M&P in Venezuela, 05-13-2011)

ALBA Petroleo in El Salvador ready to start operations

The Board of Directors of ALBA Petróleo in El Salvador says all is set to start operations in that company’s fuel storage plant. Luz Estrella Rodriguez, vice-president of the society, says that the large-scale project, built jointly with Venezuela, will be inaugurated next Thursday 19. This modern facility required an investment of U$D 120 million, it has the capacity to storage 350,000 barrels of diverse kind of fuel, diesel and liquefied gas (5,000 barrels). (AVN, 05-13-2011; http://www.avn.info.ve/node/57433)

Venezuelan government will maintain terms of the PETROCARIBE agreement even if oil prices rally, according to Energy and Oil Minister Rafael Ramírez. He added eight joint ventures have been created with the governments of the member countries. (Veneconomy, 05-13-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25968&idc=4)

Latin American and the Caribbean Energy Ministers’ Regional Summit opened in Caracas with only four ministers in attendance (Cuba, Bolivia, Dominican Republic and Venezuela). They will draft a joint document on energy potential for the region and on common strategies to follow as the presidential summit approaches next July. (Veneconomy, 05-16-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25976&idc=4)

Politics

Venezuela will add fingerprint verification for voting by 2012

Venezuela’s electoral board approved a device for fingerprint verification to be added to computerized voting machines in time for regional and presidential elections to be held in 2012.  The move aims to confirm voter identity and limit fraud, according to a statement dated May 12 and posted on the electoral board’s website. Venezuela’s opposition has accused President Hugo Chavez of manipulating the country’s electronic voting machines even as international groups have endorsed election results. (Bloomberg, 05-14-2011; http://www.bloomberg.com/news/2011-05-14/venezuela-to-add-finger-print-verification-for-voting-by-2012.html)

Peru and Venezuela to negotiate trade agreement

Peru and Venezuela will open negotiations on May 18 on a Complementation Agreement on Production and Trade, according to the Peruvian Ministry of Foreign Trade and Tourism (MINCETUR). According to official reports, the first round of talks will be held in Caracas from Wednesday, May 18 to Friday 20 with the goal of opening a six-month negotiation process on general coordination, preferential tariff treatment, sanitary and phytosanitary measures, technical standards, among others. (El Universal, 05-16-2011; http://english.eluniversal.com/2011/05/16/peru-and-venezuela-to-negotiate-trade-agreement.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.

May 12th, 2011

Economics & Finance

Electricity rationing to start

Venezuelan officials will implement electricity rationing throughout much of the country after a major power failure cut nearly 3,000 megawatts of the national grid supply. Authorities have said that 90% of the power supply has been restored after roughly a dozen states were affected by the interruption. (Wall Street Journal, http://online.wsj.com/article/BT-CO-20110510-715490.html)

Brazil safest, Venezuela worst according to the Latin Security Index

The safest and most dangerous countries in Latin America for foreign multinational executives: Brazil and Panama have become safer for foreign multinationals and executives, while Venezuela has worsened further, according to the fifth annual Latin Security Index developed by FTI Consulting Ibero America for Latin Business Chronicle. Overall, however, Latin America remains unchanged from a year ago. The Latin Security Index takes into account how each country in the region is doing related to public insecurity, with a special focus on the business community. Apart from polling its business contacts in the region related to issues affecting their security, FTI analyzes government statistics at the federal, state or province and municipal levels in areas such as homicides, serious crime, cargo theft, home invasions, kidnapping, political and labor unrest, riots and violent demonstrations and drug trafficking, as well as the efficacy of government programs put into place to combat these problems. (More information available for subscribers at http://www.latinbusinesschronicle.com/app/article.aspx?id=4824)

Venezuelan exports to the US up 27.7% during the first quarter

Venezuelan exports to the United States amounted to U$D 10.34 billion in the first quarter of 2011, a 27.76% increase compared with the same period last year, when the South American country sold the US goods amounting to US$D 8.09 billion, according to data reported by Venezuelan-American Chamber of Commerce and Industry (VENAMCHAM). Venezuelan exports to the US totaled U$D 3.83 billion in March 2011, thus climbing 34.49% over February 2011 and up 21.31% compared to March 2010. Meanwhile, Venezuelan oil exports to the US surged 28.79% in the first quarter compared to 2010. This represents an additional income amounting to some U$D 2.25 billion. (El Universal, 05-12-2011; http://english.eluniversal.com/2011/05/12/venezuelan-exports-to-the-us-up-277-percent-in-the-first-quarter.shtml)

Former BCV chief analyst says inflation for the last 12 months was 40%

Economist Victor Olivo, who for over 20 years managed figures at the Economic Research Department of the Central Bank says it is not the institution it once was after the law was reformed in 2005. He says their numbers are suspect. He is not optimistic about the good omens coming from the Bank about growth acceleration lowered inflation "Fight against inflation? What? If everything here is becoming more expensive." More information in Spanish. (El Nacional; 05-11-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Analysts market decline in Venezuelan bonds

Investment experts note that the drop in oil prices and the dollar's recovery in the international market set to "Venezuelan bonds on the verge of suffering a major technical correction."

Banctrust analysts suggest that "there are technical reasons to think the Venezuelan bonds may experience a correction close to 7%," so they recommend buying protection. No problems with the risk of Venezuela. "However, the more we identify in the short term price is derived by a negative external shock". (El Mundo, 05-13-2011; http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=19&Id_Noticia=56098)

Brokerage firms disappearing

Almost one year has passed since the destruction of the Venezuelan stock market upon claims that some brokerage firms conducted illegal exchange operations without backup securities. Based on that, public prosecutors of the Attorney General Office raided companies and captured more than 10 people. Now, over 50 brokerage firms have been requisitioned or are in liquidation. Some others are returning their operation licenses. (El Universal, 05-11-2011; http://english.eluniversal.com/2011/05/10/the-peculiar-case-of-brokerage-firms.shtml)

Commodities

Power outage hits Paraguaná refining complex

A power failure, presumably in the GENEVAPCA power plant, caused a power outage in the Paraguaná Refining Complex located in the state of Falcón, northwestern Venezuela. A source within the state-run oil company Petróleos de Venezuela (PDVSA) told Reuters that 310,000 bpd Cardón oil refinery was completely out of service, while some units of the 645,000 bpd Amuay oil refinery were also shut down due to the power failure. GENEVAPCA is a power plant aimed at providing power supply to PDVSA facilities in the city of Punto Fijo, Falcón state. However, prior to the the commissioning of the Josefa Camejo thermal power plant, GENEVAPCA supplied energy to the National Interconnected System (SIN). (El Universal,05-12-2011; http://english.eluniversal.com/2011/05/12/power-outage-hits-paraguana-refining-complex.shtml)

Venezuelan Energy and Oil Ministry guarantee fuel shipments from the Bajo Grande plant to supply most of the city of Maracaibo, are normal despite the power interruptions. Internal Market General Director Gladys Parada said the long lines in gas stations in Maracaibo are due to ill-intentioned comments in some social networks that have produced nervousness among consumers. (Veneconomy, 05-11-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25919&idc=4)

Politics

Chávez ponders cabinet reshuffle

President Hugo Chávez could be studying the possibility of a new cabinet reshuffle, "but he is waiting for the electoral outlook to become more clear in order to make some decisions," a source close to the Venezuelan Head of State said.

General Henry Rangel Silva, the Head of the Strategic Operational Command (SOC), would become new minister of Defense, while Vice President Elías Jaua and Minister of the Interior Tarek El Aissami would be candidates for governor or mayor. (El Universal, 05-11-2011; http://english.eluniversal.com/2011/05/11/chavez-ponders-cabinet-reshuffle.shtml)

US: Opposition gains popularity due to economic problems

Outgoing Assistant Secretary of State for Western Hemisphere Affairs (WHA) Arturo Valenzuela said on Wednesday that Hugo Chávez's administration faces economic troubles that have deteriorated the Venezuelan president's leading role in the Latin American region and increased popularity of the Venezuelan opposition. In a speech to businessmen and scholars, Valenzuela commented that "the situation is changing in Venezuela." According to the diplomat, "the government is facing serious problems; the economy is not doing well and the opposition ... is gaining new spaces. I think it is an important trend". (El Universal, 05-11-2011; http://english.eluniversal.com/2011/05/11/us-opposition-wins-popularity-due-to-economic-problems.shtml)

Cuba, Belarus, Brazil, Russia, and China maintain broadest cooperation with Venezuela

Cuba remained in 2010 as the main strategic partner of Venezuela, judging by the number of agreements signed by both countries, representing 38.7% of the Republic sealed the last year, according to the memory and the Foreign Ministry has handed National Assembly. The text said the government signed 733 agreements with 41 countries, of that total, 284 were with the President Raul Castro. The second country was Belarus, with 59 -8% of the total. Followed by Brazil with 7.6% 56 agreements. Russia is fourth with 52 7%. China closes the top five countries with more bilateral treaties signed in 2010, with 48 6.5% - in sectors such as energy, finance, electricity, mining, science and technology, industry, commerce, housing, agriculture and culture. Not signed any agreement with the United States. More information in Spanish. (El Nacional; 05-11-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Energy ministers to debate integration and development in Caracas

Over 30 delegations will meet this Thursday in Caracas to hold the first encounter of energy ministers within the framework of the Latin American and Caribbean Summit on Integration and Development (CALC).

A press release from the Venezuelan Energy and Oil Ministry says the goal of the meeting is to consolidate the energy integration and the general development in the region. The meeting is part of the preparatory activities for the upcoming the CALC, which will take place in Venezuela next July 5-6, specifically in Margarita Island, reported a press release from Venezuela"s Foreign Ministry. (AVN, 05-12-2011; http://www.avn.info.ve/node/57224;  http://www.avn.info.ve/node/57286)

Venezuela, Colombia parliaments to strengthen relations

The parliaments of Venezuela and Colombia will create groups of friends made by deputies of each legislative body since next week, with the aim to strengthen relations, informed this Wednesday the chairman of Venezuela´s National Assembly, Deputy Fernando Soto Rojas. Soto Rojas said the creation of these group of friends to strengthen relations between the parliaments of the two countries was arranged during an encounter he held with Colombian Ambassador to Venezuela, Jose Fernando Bautista. (AVN, 05-11-2011; http://www.avn.info.ve/node/57097)

Brazilian president to visit Caracas in July

Brazilian Foreign Minister Antonio Patriota has confirmed that President Dilma Rousseff is scheduled to visit Caracas on July 5 for the summit of the Community of Latin American and Caribbean States (Celac). The top Brazilian diplomat said that Rousseff confirmed attendance during a telephone conversation with her Venezuelan counterpart Hugo Chávez. The summit is to be held in Caracas on July 5 and 6, within the framework of the bicentennial of Venezuela's declaration of independence, according to a statement released by Venezuela's Foreign Ministry. (El Universal, 05-11-2011; http://english.eluniversal.com/2011/05/11/brazilian-president-to-visit-caracas-in-july.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.