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.

Friday, August 19, 2011

August 19th, 2011

Economics & Finance

S&P cuts Venezuela's long-term ratings to 'B+'
Standard & Poor's lowered its long-term foreign and local currency ratings on Venezuela to 'B+' from 'BB-'. This reflects our recently revised sovereign rating methodology's heavier weight on political risk, which is a credit weakness for Venezuela. The stable outlook balances the negative impact of the government's interventionist policies on investment and growth prospects against the country's still modest fiscal and external positions. (TD Waterhouse Market, 08-19-2011;

Venezuela repatriating gold reserves, nationalizing it’s gold mining industry
Venezuelan President Hugo Chavez ordered his government to repatriate U$D 11 billion in gold held in banks abroad to safeguard the country from the economic crisis and said he’ll nationalize the local gold industry. Venezuela has about 211 tons of its 365 tons of gold reserves held abroad at institutions including the Bank of England, JPMorgan Chase & Co. (JPM), Barclays Plc (BARC), Standard Chartered Plc (STAN) and the Bank of Nova Scotia (BNS), according to a government document. “We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home,” Some cash reserves, which total U$D 6.3 billion, will be shifted into currencies from emerging markets including China, Russia, Brazil and India, central bank President Nelson Merentes said today at a news conference. (Bloomberg, 08-17-2011;

Chavez decision to recall overseas gold reserves could reflect sanctions fear
Hugo Chavez' decision to recall Venezuela's gold reserves and nationalize the industry could reflect his paranoia about being hit with financial sanctions, analysts said. George Gero, a financial adviser with RBC Wealth Management, said Chavez is effectively moving the assets out of countries "that he considers could freeze his gold." "That's basically what that's all about," Gero said, calling the announcement somewhat of a "political statement." Gerald O'Driscoll, a Cato Institute fellow and former economic adviser at the Federal Reserve Bank of Dallas speculated that past disputes with private oil companies and other businesses, and concerns about tensions with the U.S., could be making him "paranoid." "He wants to be judgment-proof, so that means you better not have assets outside your country," O'Driscoll said. "Perhaps he feels there’s reverberations’ coming." (Fox News, 08-18-2011;

Central bank avoids Fed control, shuns dollars; shows asset drop of 5.3% and decline in reserves
The Central Bank of Venezuela (BCV) and the Ministry of Finance proposed the move international reserves back to Venezuela and to "spread them out" to diversify Venezuelan assets, which implies the South American country will no longer use US dollars for transactions. Authorities claim they sought this move because they fear the US Federal Reserve may freeze part of the dollars Venezuela holds to support its currency, repay foreign debt and pay imports. The top officials did say why the Fed might "freeze" Venezuela's dollar resources. The document did not indicate what currency might replace the US dollar. Central Bank financial statements for the first semester show net assets in foreign currency at U$D 53.5 billion, a drop of 5.3% over the past 6 months, a result of devaluation of the Bolívar. Its international reserves closed yesterday at $ 28.466 million, down $ 132 million from Tuesday. (El Universal, 08-19-2911;; More in Spanish: El Nacional; 08-17-2011; and El Mundo, 08-19-2011;

About 63% of Venezuelan reserves are held in gold
The balance of the Central Bank of Venezuela (BCV) at the end of the first half shows that the operating portion of international reserves has declined, while the gold reserves have increased. Operating reserves, that is, the foreign currency held in bank accounts or in financial instruments for immediate use to pay for imports and repay debt, are now U$D 4.81 billion, a fall of 71% compared to the second half of 2009. (El Universal, 08-17-2011;

Giordani says UNASUR considers the creation of Latin American Reserve Fund
The Union of South American Nations (UNASUR) is discussing the establishment of a Latin American Reserve Fund to ensure sovereign use of U$D 600 billion in reserves within the bloc, according to Venezuelan Minister of Planning and Finance, Jorge Giordani. He says the fund must be created at the next meeting scheduled for August 24 in Buenos Aires, Argentina. More in Spanish: (AVN, 08-19-2011;

Business calls for a change in economic direction
Jorge Botti, president of the Venezuelan Federation of Trade and Industry Chambers (FEDECAMARAS), said that the South American country needs a change in its economic direction. "Something is not working in the Venezuelan economy...We can’t continue living with such high cost of living. Venezuelans do not need to live another generation with inflation," Botti said. (El Universal, 08-19-2911;

According to UBS: Caracas, is the most expensive Spanish-speaking city
Sao Paulo, Rio de Janeiro and Caracas top the list of expensive cities to live in, in Latin America, according to UBS. Worldwide, the list is headed by Oslo, Zurich and Geneva. The INFOBAE review, which evaluates the cost of 122 goods and services and ranks 73 cities worldwide, shows that the two most expensive Latin American cities in the world are in Brazil: Sao Paulo in 19th place and Rio de Janeiro, 26th. They are followed by Caracas (47 °), Bogota (57 º), Santiago de Chile (59), Mexico City (64 º), Lima (65 °) and Buenos Aires (68 º). More in Spanish: (Ultimas Noticias; 08-17-2011;,-la-mas-cara-de-habla-hispana-segun-ubs.aspx)


RUSORO says gold nationalization will not affect its operations
Russian-Canadian miner RUSORO Mining Ltd. said Thursday it continued to produce gold from two projects and was developing two other projects in Venezuela. It also said that it has received no indications from the government about a change in company operations since President Chávez nationalized the gold industry in order to boost international reserves. (El Universal, 08-19-2911;

China and Venezuela negotiate national steel development
Corporación Venezolana de Guayana (CVG) officials met with representatives of companies from China to develop projects for the rehabilitation of the national steel industry. José Khan, Minister for Basic Industries and Mining, José Khan, says agreements will allow companies in the basic iron-steel sector access disbursements from the Fund China-Venezuela, both in dollars and RMB, in order to expedite implementation of proposed projects. They have also discussed the creation of a joint venture between China and Venezuela to dredge the navigation channel of the Orinoco river. More in Spanish: (AVN, 08-19-2011;

Special report: Pension scandal shakes up Venezuelan oil giant
OPEC said Venezuela is sitting on the biggest reserves of crude oil in the world -- even more than Saudi Arabia.
But the Venezuelan oil industry is also sitting atop a well of trouble as it struggles to take advantage of its bonanza of expanding reserves. A scandal over embezzled pension funds at state oil company PDVSA has renewed concerns about corruption and mismanagement. Retired workers from the oil behemoth have taken to the streets in protest. Their beef: nearly half a billion dollars of pension fund money was lost after it was invested in what turned out to be a Madoff-style Ponzi scheme run by a U.S. financial advisor who was closely linked to President Hugo Chavez's government. (Reuters, 08-17-2011;


NGO warns against political violence in Venezuela in 2012
The International Crisis Group (ICG), an independent non-governmental organization based in Brussels says political violence has so far been a latent threat in Venezuela, but with the 2012 presidential elections, "this fragile equilibrium may not hold," warned its report released on Wednesday and quoted by Efe. The report underscored that polarization and militarization within Venezuelan society is to such an extent that "it is likely to undermine the chances" of either a non-violent continuation of the current regime or a peaceful transition to a post-Hugo Chávez era. (El Universal, 08-17-2011;

Colombian Foreign Minister says relationship with Caracas "not ideal"
Colombian Foreign Minister Maria Angela Holguin, believes the current relationship between her country and Venezuela "is not ideal," but has improved over the last year as compared to the past. She said her works with the Trade Ministry to improve ties, although at present the priority is security. More in Spanish: (El Universal; 08-17-2011;

US says Venezuela does not cooperate with antiterrorist efforts
The United States said again Thursday that Venezuela still fails to "fully" cooperate with counterterrorist efforts and expressed that it "remains concerned" about Hezbollah's fundraising activities in Venezuela and contacts with Iran. The statements were made in the US Country Reports on Terrorism 2010, prepared by the US Department of State. (El Universal, 08-19-2011;

Russian media says Gaddafi may seek asylum in Venezuela
An Internet publication, The Voice of Russia, says an ill Muammar Gaddafi may relinquish power in Libya and travel to Venezuela, leaving power in the hands of Justice Minister Mohammed Al Oamudi. The report says the issue was discussed in the Tunisian city of Djerba, by representatives of both Gaddafi and Hugo Chavez. It further says the Libyan leader would travel to Venezuela with his family and has conditioned his departure to an immediate cease fire and the end of NATO operations in Libya. More in Spanish: (El Nacional, 08-19-2011;

September meeting scheduled between Iran and Venezuela
During a telephone conversation, Venezuelan President Hugo Chavez and his Iranian counterpart, Mahmoud Ahmadinejad, pledged to strengthen political and economic cooperation, to convene a meeting of delegations from both countries in September in Caracas. The information was released by the Venezuelan Foreign Ministry. More in Spanish: (Tal Cual; 08-17-2011;

Special Report: Chavez's socialist medicine dream may become a liability
President Hugo Chavez launched his flagship health program eight years ago, but the socialist leader's biggest social spending experiment fell off the tracks and may become a liability in next year's election. Of 6700 "barrio adentro" neighborhood health centers built in poor neighborhoods since 2003, 2000 had been abandoned by 2009; and hospitals do not have the equipment they need. Frustration is mounting over marathon waits at crumbling hospitals and shortages of basic medicines and supplies. Maternal and child health indicators have deteriorated and health coverage has not improved.

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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