June 21th, 2011

Economics & Finance

  

Investors avoid PDVSA bonds for fear of arbitration

According to Credit Suisse the key reason investors are cautious and leery of PDVSA bonds is that a ruling is due shortly which may favor the EXXON MOBIL suit begun four years ago against PDVSA. "Venezuela and PDVSA assets remain subject to negative risk mainly due to expectations about a pending arbitration decision on the EXXON case”. PDVSA has set aside a U$D 1.5 billion reserve for this case, but the final amount may rise to U$D 4-5 billon. “Financial markets will probably take the news negatively, whatever the final indemnization is”, according to the investment bank. More information in Spanish. (El Nacional; 06-21-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Country risk increases

An increase of 45 billion bolivars in public debt has raised concerns internationally on Venezuela’s ability to meet obligations, despite the fact that oil is the guarantee to foreign indebtedness. As a consequence, country risk in early June was 1.130 points to Treasury bonds and closed last week at 1.192 points. More information in Spanish. (Tal Cual; 06-21-2011; http://www.talcualdigital.com/index.html)

Venezuela, China replenish development fund with U$D4 billion loan

Venezuela and China signed an accord to replenish a bilateral development fund with a $4 billion loan from the China Development Bank, according to an e-mailed statement from state oil company Petróleos de Venezuela SA.

The $32 billion fund, which was established in 2008, finances Venezuelan industrial, housing and transportation projects, the statement said. Venezuela, in turn, provides China with oil for its investment. (Bloomberg, 06-18-2011; http://www.bloomberg.com/news/2011-06-18/venezuela-china-replenish-development-fund-with-4-billion-loan.html; AVN, 06-19-2011; http://www.avn.info.ve/node/63450)

State-run banks' loans to gov't up 73%

The Ministry of Finance announced on June 13 that the network of state-run financial institutions, including Banco de Venezuela, Banco Bicentenario, Banco Industrial and Banco del Tesoro, will buy U$D 2.32 billion in sovereign bonds.

The Chávez administration is deepening its strategy of using state-run banks as a funding source. In fact, including this latest bond purchase of U$D 2.32 billion, total funds received by the Executive Office through the sale of bonds and Treasury bills increases by 73% in the first six months of the year. The portfolio of the state-run banks will now rise to bonds and Treasury bills amounting to U$D 9.88 billion and the core of their activity is lending to government rather than granting loans to consumers. (El Universal, 06-18-2011;  http://english.eluniversal.com/2011/06/18/state-run-banks-loans-to-govnt-up-73-percent.shtml)

Electricity crisis is considered an obstacle by 70% of industrialists

According to a poll by the National Industry Federation (CONINDUSTRIA), 70% of the nation’s industrialists believe electricity rationing will become a hindrance to production in 2011. The problem has emerged as a key factor. In the last quarter 2010 58% of respondents cited electricity rationing as a key problem, and the number rose to 70% in the first quarter 2011. (El Universal; 06-21-2011; http://www.eluniversal.com/2011/06/21/crisis-energetica-es-obstaculo-para-70-de-los-industriales.shtml)

Instability keeps Colombian exporters away

Trade between Venezuela and Colombia has become unstable. Despite improved relations between governments, Colombian products are disappearing from Venezuelan markets, and vice versa. According to a study quoted by Bogotá’s El Tiempo daily, out of U$D 30.746 billion Venezuelan imports in 2010, only 5% went to Colombian products. This is down from 13% in 2008 and 11% in 2009. More information in Spanish. (El Universal; 06-21-2011; http://www.eluniversal.com/2011/06/21/inestabilidad-de-venezuela-alejo-a-los-exportadores-colombianos.shtml)

The IMF slightly trimmed its growth outlook for Latin America and the Caribbean to 4.6% in 2011 from 4.7% in April and warned the increase of domestic demand can result in economic overheating, especially in South America. Venezuela posts the next to lowest growth at 3.3%, after the Caribbean area which is projected with a 2.7% growth. (VENECONOMY, 06-18-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26420&idc=2)

Commodities

Venezuela’s export barrel average U$D104.29/bbl., up U$D 0.31 due to the positive effects in the market of favorable indicators in the reports on the American and Chinese economies, according to the Venezuelan Energy and Oil Ministry in its weekly report. The average for the month is U$D103.96/bbl. and the average for the year-to-date is U$D97/bbl. (Veneconomy, 06-18-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26417&idc=4)

PDVSA says it will raise output by 300,000 BPD this year

Minister of Energy and Petroleum Rafael Ramirez, aims to increase production later this year by some 300,000 barrels per day (BPD) in order to meet OPEC increase outputs if required. He says the plan is to grow production capacity in at least 10%, which means he estimates current production around 3.2 million BDP. More information in Spanish. (Ultimas Noticias; 06-20-2011;  http://www.ultimasnoticias.com.ve/Noticias/Actualidad/Economia/PDVSA-subira-produccion-en-300-000-b-d-este-ano.aspx)

Cisneros to team with Chinese banks in Latin America oil, gold

Venezuelan billionaire Gustavo Cisneros is setting up joint ventures with Chinese banks to carry out investment in Latin American commodities industries. The chairman of Cisneros Group of Companies, who is relinquishing operations of the firm to his youngest daughter Adriana, said he aims to push through projects delayed by state inefficiencies through partnerships in energy, agriculture and metals. Deals may take place in countries including Brazil, Colombia, Mexico and Panama, Cisneros said. “You’ll probably see in the next year or two a lot of Cisneros China or China Cisneros in Latin America and it’s going to be whatever comes, whether it’s oil, gold or big cattle operations,” Cisneros, 66, said yesterday in an interview at Bloomberg’s headquarters in New York. (Bloomberg, 06-17-2011; http://www.bloomberg.com/news/2011-06-17/billionaire-cisneros-to-team-with-china-banks-in-latin-america.html)

Politics

After surgery, Chavez faces troubles in Venezuela

While President Hugo Chavez has been recovering from pelvic surgery in Cuba, his troubles at home in Venezuela have been accumulating. On top of 23% inflation and growing government debt, worsening blackouts have emerged as a serious dilemma, forcing Chavez's government to announce rationing measures including rolling power outages in some parts of the country. Chavez is increasingly focused on shoring up support ahead of his 2012 re-election bid, and some analysts say his domestic woes seem to be limiting his international reach in Latin America. Its unclear how soon Chavez could return from Cuba, where he underwent surgery June 10 to have a pelvic abscess removed. (Associated Press, 06-19-2011; http://www.google.com/hostednews/ap/article/ALeqM5gUQqF6f0-AYnh3vZmfGEogAUq14g?docId=5c1862a0fac548eb97cd462bf6966802)

A former Chavez VP claims sustained popularity evidences success of social policies

Former Chavez Vice President Jose Vicente Rangel claims that after 12 years rule, “the popularity of President Hugo Chavez does not drop from 60%,” he says that conservative administrations such as Chile’s Sebastian Piñera, who after one year in office has 56% rejection. Piñera “has just one year in government and the latest poll showed that rejection of his administration went from 49% to 56%, while his support dropped from 41% to 36%,” said Rangel. (AVN, 06-19-2011; http://www.avn.info.ve/node/63482)

Social level E is still 44.1% of Venezuela’s population

The social map in Venezuela remains unchanged since 1999, despite government claims that the number of poor has dropped sharply. According to research firm DATANÁLISIS, the proportion of social levels is quite similar to what it was twelve years ago and the only difference is that now the poor receive more state subsidies than before. Luis Vicente León, the managing partner of the consulting firm, said that levels AB  are 2.31% of the population; 17.6% are in the C level; 35.9% are in D level and the E status -which includes the poorest- comprises 44.15% of the population. (El Universal, 06-18-2011; http://english.eluniversal.com/2011/06/18/social-stratum-e-comprises-441-percent-of-the-venezuelan-population.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.