May 06th, 2011

Economics & Finance

ECLAC report: Foreign direct investment plunges U$D 1.4 billion in Venezuela, as Government investment abroad rises 30%

The annual report of the Economic Commission for Latin America and the Caribbean on foreign investment in 2010 not only notes that Venezuela, for the second consecutive year, recorded a negative balance in the flow of foreign capital of U$D1.4 billion, but also investments abroad, mainly those of the government, rose 30% last year.

ECLAC notes that the disbursements made by companies in the country, among which Petróleos de Venezuela, were U$D 2.3 billion against U$D 1.8 billion in 2009. It also mentions that a portion corresponding to the National Development Fund, although the report does not disclose the amount but presents the overall amount. In the case of the fund indicates that it acquired an equity stake in the Bank of Russia Mosnarbank Yevrofinans AKB, while PDVSA reports that expenditures were mainly for oil projects in countries of Central America, the Caribbean and South America. The report points out that Venezuela's strategy "focuses on the nationalization of foreign assets rather than on foreign direct investment as a core development objective." The nationalization of companies owned by multinationals determines that there is a negative investment flow despite the fact that "several major investment projects were also made, totaling U$D 668 million, mainly in the form of reinvested earnings," the ECLAC said. (El Universal, 05-05-2011; http://english.eluniversal.com/2011/05/05/foreign-direct-investment-plunges-usd-14-billion-in-venezuela.shtml) More information in Spanish. (El Nacional; http://www.el-nacional.com/www/site/p_contenido.php)

Latin America Business: Chile Best - Venezuela is worst

Chile has the best business climate in Latin America, followed by Panama and Peru, according to the sixth annual Latin Business Index from Latin Business Chronicle. Venezuela ranks worst by a far, scoring less than 2 points when every other country tallied at least 13 points, the latest calculation shows. The 2011 index broadly measures the climate for business in 18 countries in Latin America. It focuses on five categories using a methodology revised from 2010. (Latin Business Chronicle, 05-05-2011; http://www.latinbusinesschronicle.com/app/article.aspx?id=4884)

Venezuela’s Central Bank will become custodian of bonds held by private banks after June 30

Venezuela’s Central Bank is stepping up oversight of local banks’ bond trading in an effort to slow capital flight, according to bank president Nelson Merentes. On March 30 the central bank ordered private banks to register their securities within 10 working days and to transfer bonds, whether they’re held abroad or locally, to the Caracas-based institution, which will act as their custodian. “We’re holding the securities under custody at the central bank to avoid capital flight and financial engineering that allowed banks to register the value of the bonds below market price,” Merentes told reporters today in Caracas. “We aren’t going to regulate the sale of these bonds, but the Central Bank will monitor the operations to avoid losses.” Eudomar Tovar, First Vice President of the Central Bank, explains that banks continue to carry out transactions without limitations, only to be reported to the Central Bank. "The issuing entity does not become owner of the securities and can use them," said Tovar. (Bloomberg, 05-03-2011; http://www.bloomberg.com/news/2011-05-03/venezuela-s-central-bank-acting-as-custodian-of-bonds-1-.html) More information in Spanish. (El Mundo, 05-06-2011; http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=19&Id_Noticia=55228)

IMF raises Latin America economic growth forecast amid signs of overheating; Venezuela inflation rises

Economies in Latin American are showing signs of overheating as growth this year is poised to be faster than previously estimated, the International Monetary Fund said in a report today. Driven by high commodity prices and abundant global liquidity, Latin America and Caribbean economies should expand 4.7% this year, up from the 4% forecast made by IMF in October. Venezuela will lead the region in consumer price increases this year with an inflation rate of 32%, compared with an estimated 27% in 2010, the IMF said. (Bloomberg, 05-03-2011; http://www.bloomberg.com/news/2011-05-03/imf-raises-latin-america-growth-forecast-to-4-7-amid-overheating-signs.html)

Giordani claims wage increase exceeds annualized inflation rate

The Venezuelan Planning and Finances minister Jorge Giordani claims that the increase of 26.5% in the minimum wage, decreed by the President Hugo Chavez to take into effect since May 1, exceeds the annualized inflation rate until April (22.9%), which is also below the inflation estimated by the Executive branch in the budget for this year (23%). “We are evidencing a significant deceleration in the inflation rates,” said the minister. According to these results, Giordani claimed that inflation will not reach the levels estimated by the IMF and most economists. (AVN, 05-04-2011; http://www.avn.info.ve/node/55989)

Wage protection law to be in force by the end of 2011

The Law on Costs, Prices and Wage Protection is slated to become effective by the last quarter of 2011. Vice President Elias Jaua says a Superintendent Office will be created in order to guarantee compliance. It will have the responsibility of supervising, regulating, controlling and sanctioning those who fail to meet the law, which basically aims at attacking “the speculative heart if the national economy.” “This is not about attacking productivity nor the private company, but just to end with that chronic disease which is speculation and which is an evil mechanism to enable speculators to have a double profit. They have an economic profit because they take possession of Venezuelans purchasing power and they also earn by trying to accuse the Government of high prices,” said Jaua. (AVN, 05-04-2011; http://www.avn.info.ve/node/55990)

Venezuela to Form National Pricing Commission

President Chavez is scheduled to announce the creation of a government commission that will set maximum prices to be implemented across all sectors of the national economy. Officials will set up a central office that will monitor production costs and set maximum profit rates that will be adjusted every three months. The measure will allow companies that manufacture goods in Venezuela to earn higher profits than import companies, citing Nicmer Evans, a government official working on the law to form the commission. (Bloomberg, 05-03-2011; http://www.bloomberg.com/news/2011-05-03/venezuela-to-form-national-pricing-commission-el-nacional-says.html)

Barclays: PDVSA may pay Central Bank U$D 1 billion

Barclay’s says the state-owned oil company Petróleos de Venezuela (PDVSA) has outstanding obligations to the Central Bank of Venezuela (BCV), and the industry is currently identifying options to pay the debt. The British investment bank said in a report on debt amortizations that PDVSA will pay U$D 1 billion to the Central Bank. The investment firm estimated that obligations would total U$D 3 billion. Between 2010 and 2011, the Venezuelan oil industry reissued its 2014 and 2017 bonds in order to meet commitments to the Central Bank. (El Universal, 05-04-2011; http://english.eluniversal.com/2011/05/04/barclays-pdvsa-may-pay-usd-1-billion-to-the-central-bank.shtml)

Government says Venezuela's oil extra income to be used in social projects

The resources obtained the new Law on “Extraordinary and Exorbitant Oil Prices” will be invested in social projects conducted by the Bolivarian Revolution, says Rafael Ramirez, Energy and Oil minister and president of the state-run oil company Petroleos de Venezuela (PDVSA). “The goal is to transform those resources that belong to Venezuelans as a result of a sovereign exploitation of natural resources into households, agriculture, jobs, health, education, railroads, in conclusion: in social inclusion,” says Ramirez. (AVN, 05-05-2011;http://www.avn.info.ve/node/56189)

State food distribution network will feed over 13 million Venezuelans this year, almost half the population

Minister for Food, Carlos Osorio is announcing an expansion of the government food distribution network to over 13 million Venezuelans.Osorio explained that organizations such as Mercal, Abastos PDVAL and Bicentennial reach approximately 11 million Venezuelans. "As we have advanced this year, over 13 million people are supplied with the State food distribution" said Osorio. More information in Spanish. (AVN; http://www.avn.info.ve/node/56264)

Commodities

CITGO reportedly will shut Corpus Christi refinery coker unit nriefly for repairs -Source

CITGO Corp. will briefly shut a coker unit Thursday at its oil refinery in Corpus Christi, Texas, to repair a leak in a feed line, a person familiar with operations at the plant said on Wednesday. "The repair is expected to take about six hours during which time the coker unit will be off line," the person said. A CITGO representative wasn't immediately available for comment. The Corpus Christi refinery is able to process up to 165,000 barrels of crude oil a day. (Fox Business, 05-05-2011; http://www.foxbusiness.com/industries/2011/05/05/citgo-shut-corpus-christi-refinery-coker-unit-briefly-repair-source/)

PDVSA assembled the first oil rig platform on Venezuelan soil

The rig is currently located within the metal-mechanics firm Venezuelan Heavy Industries, C.A. (VHICOA) facilities and it will be moved via the Orinoco River towards the Paria Gulf in the next few months to be finally set up in Güiria where the FCP Platform will be operational. (Veneconomy, 05-03-2011; http://www.veneconomy.com/site/index.asp?idt=25810&idc=4&NPag=2&Start=15&aaD=2011&ids=44&Var_Send=1&mmD=05&ddD=03&mmH=05&ddH=05&aaH=2011&Send=Find)

Chavez claims new law will encourage gold production

Venezuela's President Hugo Chavez said he plans to create a new law to encourage investment in gold production in the country, which currently has an official output of about 11 tons/year. Chavez will pass the law by decree under special powers the country's national assembly granted him in January, after major flooding in the country. Chavez said that in addition to official production, another 11 tons of gold may leave the country every year as contraband. (Platts, 05-05-2011; http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Metals/6058304)

Politics

Poll: 56% of respondents say that Chavez is not capable of solving problems

Hugo Chávez has not yet regained the trust of Venezuelans. According to pollster Consultores 21, people' perception of the president's ability to solve the problems faced by Venezuela is still below the historical average, to the extent that 56% of respondents consider that he is not capable of solving them. The current Venezuelans' perception is similar to the view reported between the third quarter of 2002 and the first quarter of 2004, a period during which up to 60% of respondents came to believe that Chávez was not capable of solving the country's problems. (El Universal, 05-05-2011; http://english.eluniversal.com/2011/05/05/poll-281-of-respondents-say-that-chavezs-government-is-bad.shtml)

Governor Capriles set to challenge Chavez in 2012

The governor of Venezuela's Miranda state says he plans to run for the presidency next year, challenging President Hugo Chavez. Governor Henrique Capriles made the announcement Tuesday, saying he wants to be "president of all Venezuelans." Capriles also said he would run in opposition primaries in order to challenge President Chavez, who has been in office since 1999 and is seeking a new six-year term. An opposition primary is scheduled for February 2012, with the presidential election set for later in the year. (VOA News, 05-03-2011; http://www.voanews.com/english/news/americas/Governor-to-Challenge-Venezuelas-Chavez-in-2012----121195219.html)

Michael Rowan / Election Strategy

The opportunity is there. The country has long been split 30% for Chávez, 30% for the opposition and 40% ni-ni. So the opposition could achieve a 70/30 win at the polls if they did everything right. The two tasks for the Venezuelan people in 2012 are first, to win the election with 70% of the vote, and second, to get that result ratified without violence by an autocratic government that won't recognize it. Both tasks are close to impossible but very much worth the effort because failing in 2012 almost certainly condemns Venezuela to total collapse for many decades more. (El Universal, 05-04-2011; http://english.eluniversal.com/2011/05/04/michael-rowan-election-strategy.shtml)

US to examine possible sanctions against Venezuela

The US House of Representative's Committee on Foreign Affairs will hold a hearing to examine the Venezuelan government activity and determine whether it must be subject to sanctions. The hearing, which will be attended by senior US administration officials, was scheduled to be held on Tuesday, but was postponed due to the death of Saudi terrorist Osama Bin Laden, which forced the Congress to change the agenda. (El Universal, 05-04-2011; http://english.eluniversal.com/2011/05/04/us-to-examine-possible-sanctions-against-venezuela.shtml)

UN Mediator begins good offices on border dispute with Guyana

Norman Girvan, appointed s the new UN Mediator to advance negotiations in the border dispute between Venezuela and Guyana, held his first official meeting with Nicolás Maduro, "to identify options and advance the negotiation process to address a territorial dispute between Guyana and Venezuela in the Essequibo territory," said a press release reported by AFP. (El Universal, 05-05-2011; http://english.eluniversal.com/2011/05/05/un-mediator-begins-good-officer-efforts-on-border-dispute-with-guyana.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.