July 26th, 2011

Economics & Finance

Venezuela to issue U$D 4.2 billion of 20-year dollar bonds in local market

In the country’s first offering since August. it will sell the 11.95% bonds at face value and announce the results of the offering on Aug. 1, according Central Bank. It hired Deutsche Bank and EVROFINANCE MOSNARBANK SA to handle the sale. “This is an extremely high amount that represents about 13% of the country’s external bond debt,” says Boris Segura, a Latin America strategist at Nomura Securities International Inc. “The market will have a tough time digesting this new supply.” The debt ceiling was raised this year by 85% in order to finance government projects to build homes and boost agricultural output. Venezuela sells dollar-denominated bonds to locals in bolivars to help meet demand for foreign currency and will allocate at least 40% of the offering to companies registered with the foreign exchange board. Individual investors and companies not registered with the board can also put in orders of a minimum U$D 3,000 calculated at the official exchange rate of 4.3 bolivars per dollar. (Bloomberg, 07-26-2011; http://www.bloomberg.com/news/2011-07-26/venezuela-to-issue-4-2-billion-of-20-year-dollar-bonds-in-local-market.html)

Cost-Price Law erases the role of the market

In the face of persistent inflationary pressures, the Venezuelan Government has chosen – by decree - to replace the market as the only entity engaged in pricing. The broad scope of the new law is set in article 3 which applies to all "Venezuelan or foreign individuals and corporations". Jorge Botti, president of the Venezuelan Federation of Chambers of Commerce and Industry (Fedecámaras) has countered that "if we do not understand how the economy works, what we will do henceforth will further hinder operations in an already battered Venezuelan economy and also hit consumers". (El Universal, 07-25-2011; http://english.eluniversal.com/2011/07/25/costs-law-erases-the-role-of-the-market.shtml)

An analysis by EFE says the new law will be difficult to enforce

The newly approved Cost-Price Law will be difficult to apply as the economy may stall as it attempts to control all goods and services. EFE said analysts foresee potential corruption and a elements that could trigger a black market for some product. The new Law went into effect Tuesday, but Executive Vice President Elías Jaua says it is not intended to attack the private sector, adding that those who do not speculate "should not fear." More information in Spanish. (Ultimas Noticias, 07-25-2011; http://www.ultimasnoticias.com.ve/Noticias/Actualidad/Economia/Analisis-EFE--Una-ley-de-dudosa-aplicacion.aspx)

Minister says the new Cost-Price Law to start with food and health

Commerce Minister Edmee Betancourt is reported as saying the new Costs Law will start operating within the next three months by setting maximum prices on food, medicine, construction materials, textiles, shoes and school materials. The law may set pricing ranges for products and may not be applied to all sectors of the economy, Betancourt said. (Bloomberg, 07-25-2011; http://www.bloomberg.com/news/2011-07-25/venezuela-price-law-to-begin-with-food-health-el-mundo-says.html)

According to ECLAC Venezuela has the lowest social inequality gap in Latin America

Venezuela is the country with the lowest percentage (0.38%) of social inequality in the continent, according to a report issued by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). The president of the National Statistics Institute (INE in Spanish), Elias Eljuri, claims the report shows extreme poverty has dropped in from 21% in 1999, to the current 6.9%. (Veneconomy, 07-26-2011; http://www.avn.info.ve/node/69306)

Russia’s Evrofinance to Operate in Venezuela

Venezuela authorized Moscow-based Evrofinance Mosnarbank SA, in which it has a 49% stake, to operate in Caracas as a commercial bank. Russia and Venezuela signed an agreement in 2008 to create a bilateral bank to fund joint oil and infrastructure projects. Venezuela paid U$D400 million to buy its participation in Evrofinance in February, according to Moscow-based news agency RIA Novosti. Evrofinance will open one office in Caracas. (Bloomberg, 07-25-2011; http://www.bloomberg.com/news/2011-07-25/russia-s-evrofinance-to-operate-in-venezuela-gazette-says.html)

Reserves down USD$ 421 million in one week

International Reserves lost U$D 421 million in the third week of July, according to the Central Bank of Venezuela (BCV). They closed Friday at U4D$ 29.429 million. More information in Spanish. (El Mundo, 07-26-2011; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/reservas-internacionales-perdieron-$421-millones-e.aspx)

Local stock market up 33.47% over Chavez illness

Venezuela's stocks continued moving up last week as investors continued buying the few shares available as a play on the possibility of political change in the country. The Caracas Stock Index was up 1.4% for the week, closing at 87,207. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=410305&CategoryId=10717)

Commodities

Venezuelan’s export barrel average’s price closed Friday at U$D107.01/bbl, up U$D1.26 from last week, according to the Ministry of Oil and Energy. The average for the year-to-date is U$D 98.97/bbl. (Veneconomy, 07-23-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26852&idc=4)

PDVSA claims it will to produce 6 million daily barrels of oil over the next decade

The state oil company Petróleos de Venezuela, S.A. (PDVSA) expects to produce 6 million barrels of crude daily over the next decade, according to Eulogio del Pino, it’s Vice President of Exploration and Production. He claims the country reached an average production of 9.9 billion barrels between 2000 and 2008 by producing over 12 billion barrels in the last decade, and adding approximately 2.2 billion barrels produced in 2009 and 2010 at a level of 3.1 million barrels per day. More information in Spanish. (AVN, 07-26-2011; http://www.avn.info.ve/node/69275)

SIDOR produced 1.4 million tons of liquid steel in first half of 2011

The Venezuelan state-run iron and steel company Siderurgica del Orinoco (SIDOR) is reporting an output of 1,454,799 tons of liquid steel during the first half of this year. The figure is 80% of the total output in 2010 (1.8 million tons). According to figures issued by SIDOR, output in June stood at 227,721 tons of liquid steel, which is 5 million tons less than the output in May. (AVN, 7-25-2011; http://www.avn.info.ve/node/69152)

Politics

Chávez returns to Venezuela 'better'

Venezuelan President Hugo Chavez made a surprise return home on Saturday after completing the first stage of chemotherapy in Cuba. Mr. Chavez's arrival at Maiquetía airport outside Caracas was broadcast live on state television. The Venezuelan leader, who left for Havana a week ago, was greeted by government officials, including Vice President Elias Jaua. "During the course of this week I have not lost focus on Venezuela for an instant," said Mr. Chavez, who has faced questions from critics on the legality of his continuing to govern from abroad while receiving cancer treatment. (The Wall Street Journal, 07-25-2011; http://online.wsj.com/article/SB10001424053111903999904576465263631928584.html?KEYWORDS=Venezuela)

Chavez says he won’t give up re-election bid in Venezuela despite cancer

Venezuelan President Hugo Chavez said he is certain he will pursue his re-election bid next year even though he has cancer. Chavez said in an interview published Monday that he hasn’t “for an instant thought about withdrawing from the presidency.” He said if there were physical reasons to step down he would do so but that he is pursuing his candidacy “with more strength than before.” “I’m resolved to reach 2031,” Chavez said. The leftist president has been in office since 1999 and is seeking another six-year term. (Washington Post, 07-25-2011; http://www.washingtonpost.com/world/americas/chavez-says-he-wont-give-up-re-election-bid-in-venezuela-despite-cancer/2011/07/25/gIQArFvWYI_story.html)

U.S. believes Venezuela offers a "permissive environment" for drug trafficking and terrorism

The U.S. government says it is concerned over the "permissive environment for drug traffickers and terrorist organizations" in Venezuela. In a document released Monday during the launching of a new strategy against transnational criminal organizations it says: "Corruption and a lack of judicial independence impede effective prosecution," says the report, which states it is "unclear to what extent" the government of Hugo Chávez "provides support to foreign terrorist organizations." (El Nacional, 07-26-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Venezuela and Ecuador agreed to further bilateral trade though preferential tariff fees and the use of the Sucre (Unitary Regional Compensation System, after its initials in Spanish) as virtual currency, according to a resolution published in the Gaceta Oficial. The preferential tariff fees will be “applied to all products native to and coming from either country,” according to the resolution. (Veneconomy, 07-25-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26871&idc=3)

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.