Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Tuesday, May 31, 2011

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.

Friday, May 27, 2011

May 27th, 2011

Economics & Finance

Venezuela: US sanctions to hurt US businesses most
U.S. sanctions against Venezuela's state oil company will primarily affect American businesses, the country's foreign minister said Thursday: "These illegal, abusive measures taken by this weak government of the United States ... those most affected are businesspeople of the United States." Referring to oil-industry technology previously obtained from U.S. companies, Maduro said: "We can substitute them in a process of adjustment and produce them in Venezuela or begin to acquire them from our strategic allies in the rest of the world." Oil Minister Rafael Ramirez said previously that while shipments of heavy crude to PDVSA's U.S.-based subsidiaries will continue, the company cannot guarantee shipments to nonaffiliated private oil companies. "Our industry has the capability to face and overcome this attempt at sanctions," Maduro said. "What they're trying to do with the sanctions is hit us from an economic point of view." Asked whether Venezuela might consider suspending oil shipments to the United States, Maduro said such actions could only be considered in "extreme moments," though he didn't give details. (AP, 05-26-2011; http://www.google.com/hostednews/ap/article/ALeqM5gEojwiAZVudpbGCaUaF_6MnlWkiA?docId=801b8312a7f4424a9158fbc9c4b2fce3)

PDVSA received over U$D 265 billion oil in royalties and taxes since 2002
Since the enactment of the Hydrocarbons Law in 2002 to date Venezuela has received over U$D 265 billion dollars in royalties and taxes paid by oil companies operating in the country, according to Energy and Petroleum Minister Rafael Ramírez. He said before this law went into force transnational corporations, "were expropriating 'oil resources and dividends, as a result of their operations”. More information in Spanish at: (Enfoque 365; 05-26-2011; http://www.enfoques365.net/N23102-mas-de-265-mil-millones-de-dolares-en-regalias-e-impuestos-ha-percibido-pdvsa-por-la-ley-de-hidrocarburos-de-2002.html)

PDVSA bonds slide after U.S. imposes sanctions on company for Iran links
Petroleos de Venezuela SA bonds plunged, pushing yields up the most in three months, after the U.S. announced sanctions on the state-owned oil company for supporting Iran’s energy industry in ways that might aid the country’s alleged “illicit” nuclear activities. The yield on 8.5% dollar-denominated bonds due 2017 jumped 39 basis points, or 0.39 percentage point, to 15.65% at 2:29 p.m. in New York, according to prices compiled by Bloomberg. The price fell 1.31 cents on the dollar to 71.58 cents. The price sank as much as 1.72 cents earlier in the day. (Bloomberg, 05-24-2011; http://www.bloomberg.com/news/2011-05-24/pdvsa-bonds-sink-after-u-s-imposes-sanctions-on-company-for-links-to-iran.html)

Plunging bonds raise cost of financing Venezuela
Plunging bond value is raising interest rates on financing to Venezuela. Investment banks such as JP Morgan believe that this year both PDVSA and the National Government will issue new bonds for about U$D 5 billion to meet financing needs, even after the increase in oil prices. (El Universal; 05-27-2011; http://www.eluniversal.com/2011/05/27/la-caida-de-los-bonos-le-eleva-al-pais-el-costo-del-credito.shtml)

Venezuela's power generation up 17.3$ as population doubles
The Economic Commission for Latin America and the Caribbean (ECLAC), in its 2010 report, details the region's economic and social situation. In the item related to development of the electricity industry, Venezuela shows a slow growth. According to a ranking of 27 countries, Venezuela ranks 19th, above Dominican Republic and Haiti, which reported a decline, and Suriname, Guyana, Trinidad and Tobago, which reported slight expansions, as well as Colombia and Uruguay. (El Universal, 05-25-2011; http://english.eluniversal.com/2011/05/25/venezuelas-power-generation-up-173-percent-population-doubles.shtml)



Commodities

Despite official anti-American rhetoric, the United States remains Venezuela’s largest trading partner
Data from the National Institute of Statistics show that one third of Venezuela's imports from the United States. Purchases from the US in 2010 totaled U$D 9.5 billion, and the rest of the world U$D 21.2 billion to Venezuela. Other countries after the United States are China, with U$D 3.3 billion, Brazil, with U$D 2.9 billion, Colombia, with U$D 1.4 billion, and Mexico, with U$D 1.3 billion. The U.S. also is among the first suppliers of foodstuff. Last year Venezuela bought U$D 198 million in corn, USD 166.6 million worth of wheat, U$D 128.3 million worth of rice and U$D 66.7 million in edible oils, among others. More information in Spanish at: (El Nacional; 05-26-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Food imports rose 442% since 2003
In 2003 the food industry imported U$D 2.4 billion dollars, whereas in 2010 imports rose to U$D 13 billion dollars, an increase of 442% in imports in the industry, according to Pablo Baraybar, Chairman of the Board of Venezuela’s Food Industry Chamber. "The food policy the Government has implemented in recent years has not been successful. They have only created more shortages, more inflation and a sustained increase in imports," he said.
The rains in recent weeks will fuel increased purchases abroad, said Baraybar. More information in Spanish at: (El Nacional; 05-26-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Venezuela's petrochemical imports skyrocket
The petrochemical sector reported a slight growth in sales during 2010. However, the figures also show that the chemical and petrochemical industries are undergoing an ordeal and have a somewhat bleak outlook. Juan Pablo Olalquiaga, president of the Venezuelan Chemical and Petrochemical Industry Association (ASOQUIM), reported that last year the value of the petrochemical sector's gross sales rose by 10.3%, thanks to a 37.7% hike in exports. In the meantime, the domestic market only grew 1%. Total sales reached USD 3.63 billion in 2010.  However, the trade balance shows a deficit, as imports totaled U$D 3.24 billion and exports amounted to U$D 1.16 billion in 2010. (El Universal, 05-25-2011; http://english.eluniversal.com/2011/05/25/venezuelas-imports-of-petrochemicals-skyrocket.shtml)



Politics

Venezuela shakes up PDVSA’s Board of Directors after pension fund losses
Petroleos de Venezuela SA ousted half its board of directors today after the state-owned oil company’s pension fund lost about $500 million in a Ponzi scheme linked to a Connecticut-based investor. PDVSA ejected the head of finance Eudomario Carruyo, internal director of production Luis Pulido, planning director Fadi Kabboul, head of gas Carlos Vallejo and research director Hercilio Rivas. According to Patrick Esteruelas, senior analyst at Moody’s Investor Service. “It could be construed as a response to the Ponzi scheme, which has certainly attracted a lot of criticism of PDVSA’s finances and a lack of proper supervision.” Finance Minister Jorge Giordani and Foreign Minister Nicolas Maduro were added to the board as external directors as well as the head of a pro-Chavez union named Will Rangel. Giordani will bring “additional pressure” on the company to invest more in Chavez’s social programs rather than in the oil sector, Esteruelas said. “Giordani has been shifting the burden over to PDVSA and has been extremely reluctant to use resources to emit external bond issuances that fund capital flight,” Esteruelas said. “This is something that could become firmly entrenched now that Giordani has a seat on the board.” (Bloomberg, 05-26-2011; http://www.bloomberg.com/news/2011-05-26/venezuela-shakes-up-pdvsa-s-board-of-directors-ratifies-oil-minister.html

Opposition members of the National Assembly partially support censure of PDVSA sanctions
Pro government assembly members voted to reject sanctions the US has placed on PDVSA for its support of the Iranian oil industry; while opposition parliamentarians abstained, but agreed on some of the points in the resolution. Opposition spokesman Omar Barboza, said sanctions could negatively impact the oil industry:"We support defending principles, and also national sovereignty, and therefore reject those sanctions on PDVSA, which we believe are disproportionately contrary to the national interest; and because they are a unilateral move by the US against Venezuela, not the product of a United Nations decision ". He added, "this does not mean we support PDVSA or Government policies”. More information in Spanish at: (Unión Radio, 05-24-2011; http://www.unionradio.net/ActualidadUR/Nota/visornota.aspx?id=76266&tpCont=1&idsec=3&idprog=0

Venezuela to launch 2nd Chinese-made satellite
Venezuela formalized plans on Thursday to launch its second satellite from China next year to help the government improve mapping and more accurately estimate agricultural harvests. Science and Technology Minister Ricardo Menendez said the Chinese-made satellite, to be launched in October 2012, will also be used for monitoring weather patterns so authorities can prepare for potential dangers like floods. "We are going to have a satellite that will facilitate monitoring national territory 24 hours a day, which gives us enormous potential for assistance in extreme situations such as torrents of rainfall", according to Menendez. (The Sydney Morning Herald, 05-27-2011; http://news.smh.com.au/breaking-news-technology/venezuela-to-launch-2nd-chinesemade-satellite-20110527-1f78r.html)

Spain investigates estimated EU 42 million commission on sale of patrol boats to Venezuela
According to a report in “El Confidencial”, a middleman made EU 42 million on the sale of 8 patrol boats by the Spanish Government to Venezuela. La sale was agreed upon in a meeting May 2005 between Venezuelan President Hugo Chavez and Spanish Government chief José Luis Rodríguez Zapatero. The government shipbuilding firm Navantia is building the vessels and had delivered four. Days before signing the contract, 28 November 2005, Navantia accepted the Rebazve Holding Ltd as a middleman with a 3, 5% commission. In light of the public uproar over the commission in a government to government purchase, Navantia sources simply say. “Rebazve has historically been involved in sales operations toward Venezuela”. More information in Spanish at: (Noticiero Venevisión, 05-26-2011; http://www.noticierovenevision.net/index_not.asp?id_noticia=20110526002103&id_seccion=03)

Spain arrests 8 on charges of negotiating military equipment between Venezuela and Iran
Spanish policy arrested 8 men who were negotiating the sale of 9 combat helicopters and other military goods from Venezuela to Iran. Five Spanish businessmen and 3 Iranians were negotiating the sale of combat aircraft parts from Venezuela to Iran, according to Spanish authorities. The shipment of nine BELL-112 helicopters, parts and other military equipment valued at U$D 140 million was hidden in warehouses in Madrid and Barcelona. More information in Spanish at: (Enfoques 365; 05-26-2011; http://www.enfoques365.net/N23143-espaa--detienen-a-ocho-sujetos-que-negociaban-material-de-guerra-para-venezuela-e-iran.html)

Trade with Iran grew 131% in the first quarter
Despite sanctions, business with Iran continues. Although no explosive or gasoline sales were registered during the first quarter this year, trade doubled and was pegged at U$D 4, 13 million, an increase of 131% over last year, according to the National Statistics Institute. The jump in bilateral trade is due to a 134% increase in imports, while exports fell by 98% from U$D 18.921 to 350. More information in Spanish at: (El Nacional; 05-27-2011;  http://www.el-nacional.com/www/site/p_contenido.php)

Colombia and Venezuela will sign trade agreement
Presidents Hugo Chavez and Juan Manuel Santos are scheduled to sign a Bilateral Production and Economic Complementation agreement between Colombia and Venezuela, which will definitely replace the Andean Community. More information in Spanish at: (El Nacional; 05-26-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Chavez to meet with Rousseff in Brasilia on June 6
Presidents of Hugo Chavez of Venezuela and Dilma Rousseff of Brazil are expected to meet in Brasilia on June 6, a source of the Brazilian president's office told AFP on Wednesday. Chavez and Rousseff had a telephone conversation on Tuesday and they agreed on the date for the visit of the Venezuelan Head of State, who would visit Brazil on June 6, a source of the Brazilian president's office told AFP. (El Universal, 05-25-2011; http://english.eluniversal.com/2011/05/25/chavez-to-meet-with-rousseff-in-brasilia-on-june-6.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.

Tuesday, May 24, 2011

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)

Friday, May 20, 2011

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.

Tuesday, May 17, 2011

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;

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;

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;



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;

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.