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 10, 2011

May 10th, 2011

Economics & Finance

Venezuelan accountant held in US pleads guilty in PDVSA U$D 500 million Ponzi fraud
Juan Carlos Guillen Zerpa, 44, the Venezuelan head of the Venezuelan affiliate of BDO, the world's fifth largest accounting and consulting firm, pled guilty in a plea bargain to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission (SEC), over a fake U$D 275 million asset verification letter he was paid U$D1 million to execute by Francisco Illaremandi, a Venezuelan investment adviser who ran Michael Kenwood Asset Management.
According to the SEC, a large part of the USD $500 million managed by Illarramendi has apparently been lost. llarramendi lived in New Canaan, Connecticut and ran several hedge funds that handled money for Venezuelan state oil company Petroleos de Venezuela (PDVSA) worker retirement funds. (Latin American Herald Tribune, 05-06-2011;

Price controls rely on high oil revenues
Although price controls implemented by President Hugo Chávez have failed to curb prices and accumulated inflation stands at 431% for the past eight years, the total collapse of price controls has not arrived, as it did during the administrations of Rafael Caldera and Jaime Lusinchi.  During those governments, price controls discouraged the production and supply of regulated items, thus leading to a shortage of products led to increased imports until international reserves fell and authorities were forced to remove price caps, which translated into a high cost for people.
Efraín Velásquez, the President of Venezuela's National Economic Council, does not hesitate to point out that increasing oil prices and a policy where the private sector has been sacrificed have prevented a final crisis from happening so far. (El Universal, 05-09-2011;

Real minimum wages have dropped 37.1% since 1980
Recurrent economic crises, currency devaluations and inflationary spirals have hit the Venezuelan economy over the past three decades and have prevented minimum wage from growing enough to improve Venezuelans' income. Its improvement, in real terms, has not been consistent over time and, although the purchasing power of the base salary increased by 14.8% over the past decade, the overall balance is negative. The Central Bank of Venezuela (BCV) and the National Statistics Institute (INE) estimate that the purchasing power of the minimum wage has fallen 37.1´% since 1980, even though the nominal wage has been increased by more than 20% on a yearly basis. Official data show a 0.6% drop in the purchasing power of minimum wage between 2009 and 2010, which is consistent with a fall that has not stopped since 2006. (El Universal, 05-09-2011;

Government must raise food prices
A report by BANCARIBE’s Management for Research and Economic Strategy indicates that if the Government may incur losses if it does not raise controlled food prices. As the public sector is a major food importer, would have to absorb losses encouraged not only for adjustment of 65% in the official exchange rate for priority items in place since January 2011, but also because of an increase of raw materials in the international market. This all adds on to shortages of goods in the domestic market. "In this sense, it is expected that the Executive will gradually increase food prices over the coming months, the prices will encourage re-register an acceleration to locate the annualized inflation levels of 30%." (El Nacional; 05-10-2011;

Food shortages at 20.22%
The level of general shortage of basic food basket increased by 0.16% last week in connection and is now at 20.22%.That is the highest shortage level reported this, above all records for the last quarter of 2010. This study shows weekly supply basic food basket estimated by polling firm DATANÁLISIS, which states that milk powder is the only product in the range of severe shortage (over 40%). More information in Spanish. (Ultimas Noticias, 05-09-2011;,22-.aspx)

Venezuela official April inflation rises by 1.4%
The Venezuela Central Bank reported April inflation increased by 1.4%, the same as that of March, which is a total increase of 7.5% to date in 2011. For the last twelve months inflation has increased by a total of 22.9%.Alcoholic Beverages and tobacco was up 3%, Home Equipment was up 2%; Diverse Services up 2%, Transportation 1.8% and Food and Beverages was up 1%. (Latin American Herald Tribune, 05-09-2011;

Venezuela Stock Market index up by 17.58%
The Caracas Stock Index soared the week ending May 6, as its main financial components all moved up, while no issues fell. The Caracas Stock Index was up 8.5% closing at 76,823 on Friday. (Latin American Herald Tribune, 05-09-2011;

Few believe
The Venezuelan daily El Universal, quoting Consultores 21 reports Great Housing Mission has been launched with a rather negative perception: over 52% reject the claim by President Chávez that he can build the two million housing units over the next seven years or fulfill the promises made to the rain victims. However, 72,454 people families registered during the first stage of the official housing census. (Veneconomy, 05-09-2011;


Venezuela's oil basket down U$D 2.40 to U$D 108.01
The price of the Venezuela oil basket shed U$D 2.40 in the week from May 2 to 6, according to the weekly report of the Ministry of Energy and Petroleum. Domestic crude oil ended the week at U$D 108.01, lower than U$D 110.41 the previous week. "Average prices of main crude oil markers in the week closed lower, due to high volume of sales of crude oil contracts and concerns over global economic recovery, larger inventories in the United States, and a stronger US dollar versus other currencies," stated the press release issued by the Ministry of Energy and Petroleum. (El Universal, 05-06-2011;

Selling off assets: ROSNEFT has purchased 50% equity in Ruhr Oel refinery From PDVSA
Russia's state-controlled oil major OAO ROSNEFT said Thursday it has completed the purchase of a 50% stake in German refinery Ruhr Oel from Venezuelan state oil company Petróleos de Venezuela, S.A. The company said the deal was approved by the European Union antitrust watchdog March 11, and came in force May 1. The deal, signed October, has ROSNEFT paying U$D1.6 billion for the stake and makes ROSNEFT a partner with BP PLC (BP), as Ruhr Oel is a 50-50 joint venture between PDVSA and the U.K. oil company. (Fox Business, 05-06-2011;

And spending income from sales: PDVSA to invest $1 billion in Gran Misión Vivienda Venezuela
According to Enery and Oil Minister Rafael Ramírez, the Venezuelan Government, after receiving U$D 1.6 billion for the sale of 50% of shares of the Ruhr Oel refinery in Germany, through the state-run oil company Petróleos de Venezuela (PDVSA), will apply at least U$D 1 billion for development of the housing program Gran Mision Vivienda Venezuela. (AVN, 05-09-2011;

PDVSA restarts Amuay units after steam supply problems
Venezuelan state oil company Petróleos de Venezuela (PDVSA) on Friday said it was restarting some units of its Amuay refinery that were paralyzed earlier in the day due to steam supply problems. The problems occurred at 1000 local time, forcing several units to suspend operation, but the steam supplies were restored the same day, PDVSA said. The accident did not cause injuries and damages. The company said the fuel supply to the national and international markets was guaranteed. (ADP News, 05-09-2011;

Chavez authorized aluminum imports from Canada
The scandal over ALCASA’s importing 5,000 tons of aluminum, part of a lot more than 32,000 tons that were bought from the same "trader", plus another lot of 112,000 tons took another turn yesterday as President Company, Elio Sayago, confirmed everything and said that permission for the entire operation was given by President Hugo Chavez on June 4, 2010. Sayago, has been facing stiff opposition from other pro Government groups over his handling the company. (Tal Cual, 05-10-2011;

Venezuelan government ponders choices to bolster the national grid
The Venezuelan government is weighing alternative schemes to upgrade the transmission networks of the National Electricity System (SEN) which suffer shortcomings in power energy supply from the Guri dam to distribution centers in central and western Venezuela.  The system operates under risk in those areas, given the consequences of such restrictions. According to unofficial sources, transmission lines in these areas are daily overloaded. The Ministry of Electric Energy received a proposal that is intended to return "stability to the national grid." (El Universal, 05-06-2011;


Colombia extradites reputed drug kingpin to Venezuela, where he has implicated officials
Colombia has extradited to Venezuela a man the White House has called an important drug kingpin. Walid Makled faces drug smuggling and murder charges in Venezuela. He was handed over to Venezuelan officials by Colombian police at a Bogota air base, and arrived in Caracas aboard a Venezuelan Learjet. His extradition by Colombia has generated a great deal of attention because Makled says some close associates of Venezuelan President Hugo Chavez were his business partners. Officials named by Makled have denied the accusations. (The Washington Post, 05-09-2011;

Chavez suspends trip to Brazil, Ecuador and Cuba
Venezuelan President Hugo Chavez suspended planned trips to Brazil, Ecuador and Cuba because of a knee injury. (Agencia Venezolana de Noticias, 05-10-2011;

Venezuela parliament authorizes new satellite program with China
Venezuela's National Assembly on Thursday endorsed a new satellite contract program with China, the second such bilateral project between the two countries. The parliament published authorization for the new project, also known as "VRSS-1," in Venezuela's official gazette, at which point the project legally takes effect. The notification in the gazette said this program is developed jointly between Venezuela's Ministry for Science, Technology and Intermediate Industries and China Great Wall Industry Corporation. (Space Daily, 05-09-2011;

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.

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