November 25th, 2011

Economics & Finance

Chavez defends China ties as officials sign deals for U$D 6 billion in loans

Chinese officials signed U$D 6 billion in new loans to Venezuela on Thursday aiming to boost the country’s oil industry. After the loans were signed, President Hugo Chavez defended his country’s growing ties with China as vital to his country’s development. He also dismissed criticisms by opponents who question the mounting loans, which are to be paid back in oil shipments. China has swiftly become Venezuela’s biggest foreign lender in recent years, and had previously agreed to more than U$D 32 billion in loans. Energy Minister Rafael Ramirez had said that the new loans would increase oil production involving Chinese and Venezuelan companies from about 100,000 barrels a day to about 330,000 barrels a day. The new loans include U$D 4 billion to increase oil production, as well as U$D 1.5 billion for refinery projects and U$D 500 million for buying oil drills and other equipment, officials said. Chavez accused opposition politicians of siding with U.S. “imperialism” in criticizing his ties with China. The U.S. government, however, hasn’t publicly objected to Venezuela’s growing trade relationship with Beijing. (Washington Post, 11-24-2011; http://www.washingtonpost.com/business/venezuelas-chavez-defends-china-ties-as-officials-sign-agreement-for-4-billion-loan/2011/11/24/gIQAC4c9sN_story.html)

Government claims it gets better terms from China

According to Asdrúbal Chávez, Vice President of Petróleos de Venezuela (PDVSA) a key reason Venezuela sought credit from the China Development Bank is to obtain a lower financing cost than what is required by bond issues or private financing loans. A report by official to President Chávez indicates financing from the China Fund is repaid with oil sales calculated at LIBOR rates in the London marker, plus a 2.85% bonus which comes to a rate around 3.35%, which is about 8 percentage points lower than 11.95% currently paid for sovereign bonds at a longer accrual rate. More in Spanish: (El Nacional, 11-25-2011; http://www.el-nacional.com/)

Chavez activates Price Law to end “capitalist speculation”

President Hugo Chavez stepped up his control of the Venezuelan economy today as a new price regulation law came into effect that allows his government to set price caps on as many as 15,000 goods. The cost of 18 products will immediately be frozen, including soap, toothpaste and diapers, Vice President Elias Jaua said. Transnational corporations such as Colgate-Palmolive Co. (CL), the world’s largest toothpaste maker, Johnson & Johnson (JNJ), HJ Heinz Co (HNZ) and Unilever Plc, will have to report their production costs to enable the government to set prices. (Bloomberg, 11-22-2011; http://www.bloomberg.com/news/2011-11-22/chavez-activates-price-law-to-end-capitalist-speculation-1-.html)

Price controls to accept only costs based on the CADIVI official FOREX rate of BF 4.30 to the U$D

In announcing details in applying the new price control law, Vice President Elías Jaua said: “In Venezuela there is only one way to import which is through CADIVI. There is only one dollar rate, one price, and it is for official use”. More in Spanish:  (El Universal, 11-25-2011; http://www.eluniversal.com/economia/111125/el-ejecutivo-solo-reconocera-costos-calculados-al-dolar-cadivi)

Venezuela agrees to pay U$D 250 million nationalized FertiNitro Bonds to avoid default

Petroquimica de Venezuela, S.A. (PEQUIVEN) announced that it has entered into a Lock-Up Agreement with the holders of approximately 79% in aggregate principal amount of the U$D 250 million of 8.29% Secured Bonds due 2020 issued by FertiNitro Finance Inc. in connection with the FertiNitro fertilizer project, providing for PEQUIVEN (or an affiliate) to launch a tender offer for the Bonds no later than 30 November 2011. (Latin American Herald Tribune, 11-23-2011; http://www.laht.com/article.asp?ArticleId=447024&CategoryId=10717)

ICSID registers new arbitration proceeding against Venezuela

The International Center for Settlement of Investment Disputes (ICSID), the arbitration body of the World Bank based in Washington, has registered new complaint against Venezuela by an individual, in this case by Hortensia Margarita Shortt, a Venezuelan citizen. (El Universal, 11-23-2011; http://www.eluniversal.com/economia/111123/icsid-registers-new-arbitration-proceeding-against-venezuela)

CAF reports Venezuela shows lowest access to personal and small business credit in Latin America

According to a study by the Andean Development Corporation (CAF), Venezuela has the lowest level of access to financing by individuals and small business: Only 2% report using a credit instrument from any financial institution, The survey was based on 17 Latin American cities, including Caracas and Maracaibo. More in Spanish: (El Universal; http://www.eluniversal.com/economia/111125/acceso-al-credito-en-el-pais-es-el-mas-bajo-de-la-region)

Commodities

FEDECAMARAS asks Government to import 600,000 tons of steel

Jorge Roig, Vice President of the nation’s largest business association says that lowered steel production is hitting domestic industrial production very hard: “We are lacking the basic commodities, specifically for producing steel plates for public housing”; and added that – for the first time – the national Metal and Mining Industry Association is asking the government to import steel for the next few months. Roig points out that from a production peak of 4.3 million tons of liquid steel production went down to 1.8 million tons in 2010 and will barely reach 2.5 million tons this year. More in Spanish: (Noticiero Venevisión, 11-24-2011; http://www.noticierovenevision.net/economia/2011/noviembre/24/2960=fedecamaras-propuso-al-ejecutivo-importar-600-mil-toneladas-de-acero)

International Trade

Port and customs delays raise product prices and production costs in Venezuela

Ana María D’Andrea, Chairperson of the Foreign Trade Committee at the Carabobo Industrial Chamber reports delays in port and product procedures in Venezuela mean higher prices for products sold in the country. She says we refer to “additional unjustified costs”, and explains that at Puerto Cabello the entire process takes 14 days for normal imports, but for consolidated cargo it can take 21 days and added storage costs. More in Spanish: (El Universal, 11-24-2011; http://www.eluniversal.com/economia/111124/retrasos-en-puertos-aumentan-costos-de-los-productos and El Mundo; http://www.elmundo.com.ve/noticias/economia/empresas/costos-de-produccion-se-incrementan-por-retrasos-e.aspx)

Balance of trade with China totals U$D 17 billion

The balance of trade with China will reach U$D 17 billion in 2011, according to Minister of Planning and Finance Jorge Giordani. The official said the balance of trade in 2001 came to U$D 300 million. Today, China is among Venezuela's major trading partners. (El Universal, 11-23-2011; http://www.eluniversal.com/economia/111123/balance-of-trade-with-china-totals-usd-17-billion)

Uruguay could pay its debt to Venezuela with food

Uruguay is to pay with food a portion of a huge debt owed to Venezuela on account of oil shipments under an agreement to be signed next week during the visit of Uruguayan President José Mujica to Caracas, official sources confirmed on Thursday. Daily newspaper La Republica mentioned that the agreement would allow for exports to Venezuela of about 100,000 tons of wheat, a similar amount of rice and 500,000 tons of chicken. The sale is to be paid with the oil bill: Venezuela has credits on its behalf for the oil sent to Uruguay since 2005. (El Universal, 11-24-2011; http://www.eluniversal.com/economia/111124/uruguay-could-pay-with-food-its-debt-with-venezuela)

U$D 929 million paid to Colombian business

According to the President of the Colombia-Venezuela Chamber of Commerce, Luis Alberto Russian, Venezuelan importers have paid U$D 929 million to Colombian suppliers for purchased made before 2009 which had not been admitted by CADIVI. The Exchange Board has totaled debts up to U$D 1.4 billion, over the U$D 800 which the Venezuelan Government has admitted to. More in Spanish: (El Nacional, 11-24-2011; http://www.el-nacional.com/)

US sanctions against Iran endanger Venezuelan interests

New sanctions approved by the United States and other countries against Iran undermine Venezuelan businesses and investments with the Islamic republic, as sanctions are targeting oil, petrochemicals and the banking sector.

Venezuela and Iran have strengthened their links, as they have entered into more than 200 agreements in areas such as agriculture, finance, housing, oil, and industry. Through the third quarter of 2011, bilateral trade between Venezuela and Iran increased by 182%, according to data provided by the National Statistics Institute (INE). (El Universal, 11-23-2011; http://www.eluniversal.com/nacional-y-politica/111123/us-sanctions-against-iran-endanger-venezuelan-interests)

Politics

Opposition won't rush oil policy change

Venezuela's opposition coalition plans to keep most of Hugo Chavez's oil policies in the short term if the socialist president loses his reelection bid in 2012, according to their economic advisors. A loss for Chavez, who faces his toughest election yet as he recovers from cancer, could open new opportunities for oil companies seeking access to vast heavy crude reserves and help boost the OPEC nation's flagging oil production. Advisors to the Democratic Unity coalition told Reuters that although there would be long-term major changes, they will at first maintain state-focused oil laws created by Chavez, respect investment deals signed under his government, and keep Venezuela's membership in the global producer group. (Reuters, 11-23-2011; http://www.reuters.com/article/2011/11/23/venezuela-election-oil-idUSN1E7AL0TO20111123)

The Economist reports: Latin American integration - Peaks and troughs

The inaugural get-together of the Community of Latin American and Caribbean States, a 33-country outfit known as CELAC from its initials in Spanish, to be held in Caracas on December 2nd and 3rd, reveals how Latin America is changing. For a start the influence of the United States is declining in a region it once called its “backyard”. The new body includes all the countries of the Americas except the United States and Canada. The clout of Spain, once seen as a model by Latin America’s restored democracies, is also receding: only half the heads of state bothered to turn up last month at an Ibero-American summit, a Spanish-inspired annual event. Yet, the proliferation of regional bodies does not necessarily mean that Latin America is any more united.  On paper CELAC will try to co-ordinate among trade blocks, such as MERCOSUR and the Andean Community (but UNASUR is also supposed to do that). It will also try to stimulate regional trade and speak with one voice in international forums. If only. The lesson of ALBA is that regional clubs based on political ideology rather than national interests do not get very far. (The Economist, http://www.economist.com/node/21540319)

Venezuela assumes presidency of GAFIC

Venezuelan Internal Affairs and Justice Minister Tareck El Aissami opened the Caribbean Financial Action Group Ministers’ Council Summit (GAFIC) in Margarita and ratified official will to fight against drug trafficking, terrorism and human traffic. Twenty-nine member countries attend the event which will go on for five days. (Veneconomy, 11-23-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=28561&idc=1)

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.