October 21th, 2011

Economics & Finance

Venezuela to raise spending 46% in 2012 budget ahead of vote

The government will boost spending by 46% in 2012 as President Hugo Chavez seeks resources to fund housing, agriculture and job creation plans that are pillars of his re-election bid next October. Expenditures will jump to 297.8 billion bolivars (U$D 69.34 billion) while estimates see the economy expanding 5% and the Western Hemisphere’s highest inflation rate falling to between 20% to 22%, Finance Minister Jorge Giordani said during a presentation of the budget proposal to the National Assembly. Consumer prices rose 26.7% from a year earlier in September. The Bolívar won’t be devalued next year, Giordani said and added that the government will set a ceiling for new debt of 81.7 billion bolivars in 2012, of which 25.8 billion bolivars will be used to service outstanding borrowing. The budget was calculated using an average oil export price of $50 a barrel. Venezuela expects a deficit of 3.6% of GDP in 2012, a wider deficit than the 3.4% posted in 2010. (Business Week, 10-20-2011; http://www.businessweek.com/news/2011-10-20/venezuela-to-raise-spending-46-in-2012-budget-ahead-of-vote.html)

Takes on U$D 3 billion more debt

The Venezuelan government said on Monday it had successfully sold U$D3 billion of bonds maturing in 2026, making the South American OPEC member's debt issuance this year by far the largest in Latin America. The Finance Ministry said 40% of the bonds went to Venezuelan businesses in priority sectors at tranches of between U$D 3,000 and U$D 1.47 million, while the rest went to a mix of private investors and state-run financial institutions. Venezuela surprised markets last week with the new bond issue, intended both to supply dollars to businesses and to provide funds for social projects. (Latin American Herald Tribune, 10-19-2011; http://www.laht.com/article.asp?ArticleId=434362&CategoryId=10717)

Borrowing raises credit concerns-Fitch

Fitch Ratings on Monday said Venezuela's credit profile faces increased risk of deterioration if increased borrowing is met with a "significant" macroeconomic shock. Venezuela, rated B-plus by Fitch, sold an additional U$3D billion worth of debt maturing in 2026 at a discounted price of 95 cents on the dollar with a coupon of 11.75%. The OPEC member's borrowing, between the government and the state-run oil company PDVSA, totals U$D 15.2 billion so far in 2011. (Reuters, 10-17-2011; http://af.reuters.com/article/commoditiesNews/idAFWNA107020111017)

World Bank says it is difficult to conduct business in Venezuela

The Doing Business 2012 report by the World Bank and the International Finance Corporation (IFC) signals Venezuela as the most complicated country in which to do business in Latin America and most of the world. The country dropped two steps down to 177 out of 183 nations analyzed for investment and business creation climate. The report says: “Over the past 6 years, 163 economies adopted more open regulations for business, only a few went in the opposite direction. The Bolivarian Republic of Venezuela and Zimbabwe are those that enacted more difficult regulations for business” according to an AP report. More in Spanish: (El Nacional, 10-21-2011; http://www.el-nacional.com/)

Business questions allocation of foreign exchange

Carlos Fernández, president of the Venezuelan Council of Trade and Services (CONSECOMERCIO) says the Government must correct the criteria to allocate US dollars through the issuance of bonds. "It is not possible that (all the foreign currency) is allocated to priority sectors," said the business leader with regard to the recent issue of US dollar-denominated 2026 bonds. (El Universal, 10-19-2011; http://www.eluniversal.com/economia/111019/entrepreneurs-question-allocation-of-foreign-exchange)

350,000 hectares projected for additional government takeovers next year

The 2012 budget for the Agriculture and Land Ministry will grow 16.7%, to 2.93 billion VEB, and includes government plans to take over 350.000 hectares of agricultural land next year, 22.2% less than were projected in the 2011 budget. More in Spanish: (El Nacional, 10-21-2011; http://www.el-nacional.com/)

Giordani says FONDEN has received U$D 81.1 billion since creation

Venezuela’s Finance Minister Jorge Giordani said the government’s off-budget fund known as FONDEN has received U$D 81.1 billion dollars since it was created. About U$D 47.3 billion have already been spent while a further U$D 31.9 have been assigned to projects, Giordani said today in Caracas during the presentation of the country’s 2012 budget. (Bloomberg, 10-20-2011; http://www.bloomberg.com/news/2011-10-20/giordani-says-fonden-received-81-1-billion-since-creation.html)

Government approves U$D 179.16 million to strengthen food distribution

The Council of Ministers has approved U$D 179.16 million to continue strengthening food distribution, according to Food Minister, Carlos Osorio, who said that all the products within the basic-needs food basket (milk, chicken, sugar, etc) will have a priority so the Government can distribute them at low prices among Venezuelan families. (AVN, 10-19-2011; http://www.avn.info.ve/contenido/government-approves-17916-million-strengthen-food-distribution)

Commodities

PDVSA says studies show recovery factor above 20% in Orinoco Oil Belt

Eulogio Del Pino, vice-president of Exploration and Production of the Venezuelan state-run oil company PDVSA, says technical studies will be presented that show it possible to obtain a recovery factor above 20% in the Orinoco Oil Belt.

In a press release he announced the presentation of studies used to obtain the quantification and certification of oil reserves in the Orinoco Oil Belt, which placed Venezuela as the world's largest oil reserves holder.(AVN, 10-20-2011; http://www.avn.info.ve/contenido/studies-show-recovery-factor-above-20-orinoco-oil-belt)

Major refining compound hit by failure

A disruption has occurred within the gasoline production unit (which processes 8,300 tons of gasoline) at the Paraguaná-Cardón Refining Complex, in the northwestern Venezuelan state of Falcón. The glitch occurred in the catalytic cracking unit (FCC). Oil experts were working in the plant to start up the complex on Thursday. CRP oil workers said that the damaged equipment had been recently purchased for plant expansion. (El Universal, 10-20-2011; http://www.eluniversal.com/economia/111020/venezuelas-major-refining-compound-hit-by-failure)

International Trade

Peru announces new negotiations with Venezuela

The Peruvian Trade Ministry announced the Third Round of Negotiations for a Productive and Commercial Complementarities Agreement with Venezuela will be held November 9-11 in order to finish up pending issues. Foreign Affairs Ministers, Rafael Roncagliolo (Peru) and Nicolas Maduro (Venezuela), had already agreed to extend tax regulations between AnPact member countries. (AVN, 10-19-2011; http://www.avn.info.ve/contenido/peru-announces-new-round-negotiations-venezuela)

Politics

Chavez declares he is free of cancer

Hugo Chavez has declared he is cancer-free four months after surgery to remove a malignant tumor."I am free of illness," Chavez, 57, said in an address to Venezuelans after touching down from Cuba in a western state to make a pilgrimage to a Catholic shrine. "The new Chavez is back ... We will live!" Despite the charismatic socialist president's ebullience, doctors say it is impossible for him to be considered out of danger until at least two years after treatment has finished. "No matter what kind of cancer he was treated for, it's just too early to tell," said a U.S.-based cancer expert, who asked not to be named. U.S.-based Nomura Securities analyst said Chavez was seeking to quell the speculation his condition had awoken. "Nobody is going to know for sure if he is cured. But he has to say this because he needs to bring peace to the Chavistas. His being there is to try to calm them down and tell them that Chavismo continues and he'll take it from here." (Reuters, 10-20-2011; http://www.reuters.com/article/2011/10/20/us-venezuela-chavez-idUSTRE79J5CA20111020

Government fines TV station for prison coverage

Regulators fined a TV channel more than U$D 2 million on Tuesday for its coverage of a deadly prison riot that became a political headache for President Hugo Chavez. The hefty fine against GLOBOVISION sharply raises the stakes in an intermittent conflict between the government and the country's only remaining channel that takes a staunch anti-Chavez stance. GLOBOVISION was fined for its coverage of a prison riot that erupted in a prison in June after troops raided an adjacent prison looking for weapons. The raid set off gunfights that left three dead, and the standoff finally ended with negotiations after 27 days. Authorities said four inmates who escaped also were slain by soldiers. (Business Week, http://www.businessweek.com/ap/financialnews/D9QEUSH80.htm)

Venezuela to take care of relations with Colombia, prevent conflicts

President Chavez has emphasized that the Government has recovered relations with Colombia and "we shall keep caring them. We do not want more conflicts, because that is a sister Republic." At his arrival from Cuba into La Fria, in Tachira state on the Colombian border he said that Venezuela and Colombia are destined to be brother countries.  (AVN, 10-20-2011; http://www.avn.info.ve/contenido/venezuela-care-relations-colombia-prevent-conflicts)

US urges Venezuela to abide by IACHR ruling on ex mayor, Venezuela rejects US statements

A US State Department spokesman says Venezuela should meet its international commitments and abide by the ruling of the Inter-American Court of Human Rights (IACHR Court) which restores the political rights of opposition leader Leopoldo López. "We join the Court, as well as Human Rights Watch and other observers to ask Venezuela to fulfill its international commitments," said spokesman Mark Toner. Venezuela then issued a formal communiqué rejecting the statements made by the US State Department spokesman questioning the local judiciary system. (El Universal, 10-19-2011; http://www.eluniversal.com/nacional-y-politica/111019/us-urges-venezuela-to-abide-by-ruling-on-ex-mayor; AVN, 10-20-2011; http://www.avn.info.ve/contenido/venezuela-rejects-us-statements-questioning-venezuelan-judiciary-system)

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.