February 28th, 2012

Economics & Finance

New price controls order cuts of up to 25%

The government will cut prices on a slate of basic goods up to an average of 25% as part of a long-awaited first wave of broadly expanded price controls that officials say will combat the country's soaring inflation, Vice President Elias Jaua announced Monday. "We have not messed with profit margins," Jaua said during a televised rally. "We have only taken out the costs that should not be included in a cost structure." Among the adjustments, the price of bleach and dishwashing liquid will fall 6%, toilet paper and tooth paste, 11%, and shampoo and detergent, 25%. The new prices will go into effect April 1, allowing a chance for appeals, though Chavez has threatened to seize the assets of any company that resists the changes. Companies that faced audits in connection with the first installment of revised prices include local units of multinationals like Colgate-Palmolive Co., PepsiCo Inc., H.J. Heinz Co., Johnson & Johnson Unilever PLC and Nestle, as well as local food distributor and packager Alimentos Polar. (Fox Business, 02-27-2012; http://www.foxbusiness.com/news/2012/02/27/venezuelas-new-price-controls-order-cuts-up-to-25/#ixzz1niHkOVEY)

Venezuelan bonds continue their momentum

Since 2006, the government has been issuing government bonds, with three objectives: control the parallel dollar exchange rate, drain excess cash flows and secure financial resources to invest. Although experts say these goals have not been achieved (the parallel dollar drops momentarily, but quickly starts rising again, liquidity is drained only temporarily), they provide an important opportunity for many Venezuelans to secure dollars below parallel market prices. More in Spanish: (Tal Cual, 02-27-2012; http://www.talcualdigital.com/index.html)

Internal debt increased 13% in six weeks to Bs.148 billion despite the fact that oil prices, the country’s main source of revenue, have rallied 24% in the first six weeks of this year, compared to the same period in 2011. (Veneconomy, 02-24-2012; http://www.veneconomy.com/site/index.asp?ids=44&idt=29548&idc=2)

Private consumption gets a breath of fresh air, but still at bottom

Central Bank statistics show that last year government spending moved up 5.9% to create a boom as part of the election agenda. Nonetheless, private consumption is still 1% below the 2008 level. Barclays Capital explored the effect of public spending and transfers such as scholarships and subsidies in household consumption. According to the investment bank, while there was a positive reaction, "it is worth noting that it is relatively modest compared with that recorded between 2006 and 2008." At that time, a similar expansion of spending attained a "two-digit growth in private consumption." (El Universal, 02-27-2012; http://www.eluniversal.com/economia/120227/private-consumption-takes-a-breath-of-fresh-air-but-still-at-bottom)

Commodities

China raises financing to Venezuela

The government has signed as many as 14 additional bilateral cooperation agreements with the People's Republic of China. The legal instruments will allow for additional funding around U$D 10 billion. As a result, Chinese total lending amounts to U$D 38 billion. "(U$D) 10 billion to reinforce and expand oil drilling at the Orinoco Oil Belt, for agricultural development, for home building, for economic and industrial development, and infrastructure development," said Vice-President Elías Jaua during the signing ceremony held at the headquarters of state-run oil holding Petróleos de Venezuela. (El Universal, 02-28-2012; http://www.eluniversal.com/economia/120228/china-raises-financing-facility-for-venezuela)

Capacity to raise production at the Orinoco Oil Belt in doubt

State-run oil holding Petróleos de Venezuela has voiced its intention to raise by 445,000 barrels per day (bpd) the output at the Orinoco Oil Belt in 2012, that is: from 1.18 million bpd to 1.63 million bpd. PDVSA needs to invest heavily to meet this schedule. The oil company has particularly neglected production due to the large amount of social and industrial commitments set by the Chavez government, which leads many to question the far-reaching nature of the goals in view of difficulties faced by Pdvsa. (El Universal, 02-25-2012; http://www.eluniversal.com/economia/120225/doubts-about-the-capacity-to-lift-production-at-the-orinoco-oil-belt)

Agricultural balance still in the red

World food prices will continue to play a key role in supplying goods to the Venezuelan market in 2012. While the value of some commodities, including sugar, cereal and oil, dropped at the end of 2011, international organizations fear that prices this year will continue above the average. This situation will undoubtedly benefit traditional Latin American exporters, such as Colombia, Brazil, Argentina and Paraguay. However, for Venezuela as an importer of both final products and raw materials, the outlook will not that bright. (El Universal, 02-27-2012; http://www.eluniversal.com/economia/120227/agricultural-balance-still-in-the-red)

Venezuela heads in the opposite direction of Carbs

The new map of the global economy encompasses China and India as a bloc of high-growth emerging nations; superpowers hit by the crisis and showing little progress, such as the United States and the Euro area, and the CARBS (Canada, Australia, Russia, Brazil and South Africa) a the group of countries, which have made effective use of the boom of commodities. CARGS is the acronym coined by Citigroup, to describe the five countries that make-up the world's key commodity markets. As a whole, these countries own commodity-related assets worth U$D 60 trillion. The sun does not set in territories that cover 29% of the planet and control 25-50% of the output of important metals and minerals. (El Universal, 02-25-2012; http://www.eluniversal.com/economia/120225/venezuela-heads-in-the-opposite-direction-of-carbs)

Cristinas gold mine to be developed with China

Venezuela will develop its huge Las Cristinas gold project in partnership with Chinese state investment company CITIC, President Hugo Chavez announced on Friday. The government last year cancelled Canadian company CRYSTALLEX International's permit to develop the long-troubled mine project south of the Orinoco river. Russian-Canadian miner RUSORO had hoped to partner with Venezuela in what could be Latin America's largest gold deposit. Las Cristinas has estimated reserves of 17 million ounces. (Reuters, 02-24-2012; http://www.reuters.com/article/2012/02/24/venezuela-gold-idUSL2E8DOBTT20120224)

International Trade

U$D34 million allocation to raise tractor production

The production capacity at the Pauny tractor factory Pauny, in Guarico State, should rise after the National Government approved U$D 34.990 million to purchase spare parts. Vice President Jaua says "These resources will allow us to purchase over 300 parts to manufacture the same number of tractors, as well as 120 sowers, 5 sowing drill-machines, 150 rotary seeders, 50 stick compactors from Argentina and 100 spray machines". (AVN, 02-26-2012; http://www.avn.info.ve/node/100839)

Chavez says Venezuela is risk-free for foreign investment, after signing new accords with China and reviewing figures of production and oil revenues, as the country has sufficient resources to offer security and guarantee to foreign investment. (AVN, 02-25-2012; http://www.avn.info.ve/node/100749)

Politics

Chavez in good shape after surgery, VP Says

President Hugo Chavez is in good condition and recovering from surgery in Cuba to remove a lesion in his pelvic area where doctors previously detected cancer, Vice President Elias Jaua said. Jaua, reading from a statement while speaking to the National Assembly on state television, said tests on the “lesion,” which was removed in its entirety, will become available in the coming hours. “President Chavez finds himself in good physical condition, in the company of his family and in constant contact with his Vice President and ministers,” Jaua said as allied lawmakers chanted “Oh no, Chavez won’t go!” (Bloomberg, 02-28-2012; http://www.bloomberg.com/news/2012-02-28/chavez-in-good-health-after-operation-vp-says.html; Reuters, http://www.reuters.com/article/2012/02/28/venezuela-chavez-jaua-idUSL2E8DS70T20120228; El Universal, http://www.eluniversal.com/nacional-y-politica/120228/chavez-in-good-condition-following-operation-authorities-confirm)

Chavez surgery gives rival an opening before vote

Throughout his presidency, Hugo Chavez has relied on his vigor and endurance: playing baseball, speaking for hours at a stretch and making decisions on the fly while bounding around Venezuela exuding energy. Now, just as he may need it most, Chavez finds himself ailing heading into a re-election campaign. The 39-year-old state governor has cast himself as a polite, non-confrontational politician, a sharp contrast to the venom-tongued president, who recently referred to Capriles as "a pig" and has accused rivals of wanting him dead. But Capriles didn't rise to the bait. "I wish the head of state a long life," Capriles said. "I want him to see the changes that are going to come about in our country, for him to see a Venezuela of progress, a united country, a country where Venezuelans have many opportunities." (AJC, 02-26-2012; http://www.ajc.com/news/nation-world/chavez-surgery-gives-rival-1363590.html)