March 13th, 2012

Economics & Finance

Central Bank projects economic growth above 5% in 2012

Central Bank President Nelson Merentes, says the government’s economic goals for 2012 are starting to show positively with inflation slowing down for three consecutive months, He also says that, based on early results, economic growth may be above the 5% estimated in the 2012 budget. More in Spanish: (AVN, 03-13-2012; http://www.avn.info.ve/node/103125)

Price caps hit manufacturers and wholesalers

Industry is the most concerned sector impacted by plans set forward by National Superintendent’s Office for Cost and Prices (SUNDECOP) for setting and limiting prices. An initial analysis shows that announced criteria narrow any manufacturers' range of motion. Standard prices, according to industrial experts, mean that given SUNDECOP’s failure to acknowledge different product presentations, production costs for certain products will be above prices set by the governing agency. A press release from the National Federation of Industry (CONINDUSTRIA) says "certain personal-care products will have standard retail prices and, though those products may be similar in nature, they actually have different components and cost structures." (El Universal, 03-10-2012; http://www.eluniversal.com/economia/120310/price-caps-pound-manufacturers-and-wholesalers)

Exchange rate adjustment postponed, overvaluation aggravated

The outstanding rise in oil prices has allowed the government to resort once more to a strategy of maintaining the dollar exchange rate stable despite high inflation, which is a formula that increases imbalances and portends further devaluation in the future. The combination of static exchange rate and an inflation rate far above the U.S. and the rest of Latin America lead to an overvalued currency, an imbalance which makes imported products cheaper than those produced domestically, and imports soar. Over time, the imbalance will become unsustainable, the high demand for foreign exchange becomes impossible to satisfy, and a decrease in production in the face of competition from cheap imports will leave the Government no choice but to devalue the currency. More in Spanish: (El Universal, 03-12-2012; http://www.eluniversal.com/economia/120312/posponen-el-ajuste-cambiario-y-se-agrava-la-sobrevaluacion)

President Chavez has announced a VEB10 billion agricultural bond issue to pay 9% interest. He also approved a three to five-year deadline to place VEB.2 billion, maturing in 2015; VEB 4 billion, maturing in 2016 and VEB 4 billion, maturing in 2017. (Veneconomy, 03-12-2012; http://www.veneconomy.com/site/index.asp?ids=44&idt=29747&idc=2)

Chavez funds priority sectors

President Hugo Chavez has approved a significant amount aimed at reinforcing the development of important sectors, such as housing, food, transport, agriculture and sports. VEB 216.9 million was allocated to speed up 10 agribusiness projects launched by the Government in different states. He also approved VEB 725.1 million 8 sugar-growing centers nationwide. (AVN, 03-12-2012; http://www.avn.info.ve/node/103005)

Commodities

Junín 10 block within the Orinoco Belt to begin production in 2012

The Junín 10 block within the Orinoco Oil Belt, which holds proven reserves of 10.5 million barrels of extra-heavy crude oil according to state-run oil holding Petróleos de Venezuela, SA (PDVSA), will be the first among the new oil drilling projects at the belt to start producing oil as early as in 2012. Eulogio del Pino, PDVSA’s VP for Exploration and Production, reports that the first oil barrels from Junín 10 block -an area developed by PDVSA alone and likely to be renamed as the Southern Junín District-will be pumped by June this year. The partner selection process for the Junín 10 block closed on January 21, 2010, as "proposals made by French TOTAL and Norwegian STATOILHYDRO failed to meet eligibility criteria," according to PDVSA. (El Universal, 03-10-2012; http://www.eluniversal.com/economia/120310/junin-10-block-at-the-orinoco-belt-starts-production-in-2012)

Oil basket down to U$D 115.82

The price of the Venezuelan oil basket of crude oil and products decreased by U$D 1.28 during the week of March 5-9, according to the Ministry of Petroleum and Mining on its Twitter account. As a result, the average price of the Venezuelan oil basket of crude oil and products year to date fell to U$D 110.60. The ministry reports that "prices fluctuated amid concerns about the economy, mainly the Euro zone and its effects on global demand, geopolitical tensions and changes in the US dollar.” (El Universal, 03-09-2012; http://www.eluniversal.com/economia/120309/venezuelas-oil-basket-down-to-usd-11582)

Analysis: CHEVRON's Amazon-sized gamble on Latin America

Its footing in Venezuela -- where Chevron stayed after major U.S. oil companies EXXON MOBIL and CONOCO PHILLIPS departed in 2007 following oil nationalizations -- is also unstable. Ali Moshiri, Chevron's head of exploration and production in Latin America and Africa, is hailed as a "close friend" by anti-American President Hugo Chavez. Moshiri has strived to keep CHEVRON in Chavez's good graces, accepting laws limiting foreign oil companies to minority roles. The company shares projects led by state-owned oil company PDVSA, and invests in Venezuelan social welfare programs. However, a tax increase last year rattled oil companies that stayed in Venezuela, and PDVSA annoyed CHEVRON last month when it announced plans to sell part of the giant PETROPIAR oil upgrading plant to a Chinese state fund, industry sources said. CHEVRON owns 30% of PETROPIAR but was not consulted. Meanwhile Chevron's newest oil venture with PDVSA in the oil-rich Orinoco Belt faces delays. Production was expected to start this year, but sources say Chevron and PDVSA have yet to agree on investment terms, and basic engineering is unfinished. (Reuters, 03-12-2012; http://www.reuters.com/article/2012/03/12/us-chevron-latam-analysis-idUSBRE82B0FX20120312)

International Trade

Colombia and Venezuela will complete trade agreement within the next few days when Foreign Ministers Nicolás Maduro of Venezuela and María Ángela Holguín of Colombia sign six corollary agreements as agreed to by Presidents Chavez and Santos in their recent meeting in Havana. The agreement will then go to the legislatures of both countries for ratification. More in Spanish: (El Universal; http://www.eluniversal.com/economia/120313/esperan-refrendar-anexos-del-acuerdo-comercial-con-colombia)

Politics

President Chavez announces he will return to Venezuela next Sunday

During a special TV program broadcast from Havana, President Hugo Chavez announced he will return to Venezuela next Sunday, March 18. "God willing, next Sunday afternoon I will already be in Venezuela," said President Chavez. (AVN, 03-12-2012, http://www.avn.info.ve/node/102985; CNN, http://edition.cnn.com/2012/03/12/world/americas/venezuela-chavez/index.html?iref=allsearch; The Washington Post, http://www.washingtonpost.com/world/the_americas/chavez-recovering-after-cancer-surgery-in-cuba-says-he-will-return-to-venezuela-soon/2012/03/11/gIQAdHJA6R_story.html)

Down but not out, a sick Chavez seeks re-election

Facing potentially debilitating radiation treatment after a second malignant tumor was removed from his pelvis, the once-inexhaustible Chavez, 57, is being forced to slow down just as he goes into what could be his toughest election yet. "Unfortunately you are not going to see that much of me," a reflective Chavez said from Cuba, where he is recovering from surgery late last month after a recurrence of the cancer that struck him in 2011. "I'm forced to confront this new situation, to rethink my personal agenda and take better care of myself."Chavez has denied rumors that his cancer has spread but if his health worsens and less-popular ministers are pushed into the spotlight on his behalf, voters will wonder if a weakened Chavez can govern for another six-year term. The only person giving information on his condition, Chavez has not said what kind of cancer he has or laid out a detailed prognosis, though he has announced he will need radiation treatments which are bound to take a heavy physical toll. (Reuters, 03-11-2012; http://www.reuters.com/article/2012/03/11/us-venezuela-election-chavez-idUSBRE82A07720120311)

In Venezuela, elections won't bring stability

In Venezuela's increasingly unpredictable presidential election, voters face more than a choice between competing ideologies. They must also weigh which candidate represents the best hope of staving off political and social upheaval. Neither of the two contenders can guarantee the nation's stability past the Oct. 7 election. The challenges extend well beyond a polarized electorate, Latin America's highest inflation rate, rampant crime and shortages of basic goods, electricity and housing. (The Wall Street Journal, 03-08-2012; http://online.wsj.com/article/SB10001424052970204781804577269442727746860.html?KEYWORDS=Venezuela)



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.