July 03rd, 2012

Economics & Finance

Central Bank seeks BANDES, FONDEN backing as reserves drop

BANDES (Bank for Social and Economic Development) and FONDEN (National Development Fund) have been transferring US dollars to the Central Bank (BCV) in order to compensate for the drastic reduction of international reserves as a result of falling oil prices. Under an agreement made last week after operating cash reserves dropped to U$D 1.2 billion, less than enough for a month's imports, BANDES and FONDEN agreed to each sell U$D 1 billion to the Central Bank. In addition, BCV exchanged around U$D 1.7 billion in notes that cannot be traded for foreign currency by FONDEN. More in Spanish: (El Nacional; http://www.el-nacional.com/)

Workers in turmoil as Guayana "socialist" industries fail to meet payrolls

Over 5000 workers are going without wages in Guayana as "socialist" state industries BAUXILUM, CARBONORCA and TAVSA fail to meet payroll obligations, and have sent workers home at reduced pay. The companies also deduct social security, insurance and housing benefits and do not transfer funds to service providers. Private aluminum processing firms such as SURAL, WESTALCA and PIANMECA have also reached agreements with their workers to stay home at reduced pay due to lack of aluminum to process. ALCASA President Ángel Marcano failed to show at a scheduled meeting with CARBONORCA workers, and a meeting has been scheduled today with Guayana Corporation President Gil Barrios, whose attendance has not been confirmed. Antonio Rivas, a PSUV government party labor leader, says the main reason for failure are debts by ALCASA and VENALUM, while opposition leaders point to a contract with GLENCORE which commits a significant percentage of alumina, without payment to BAUXILUM, the largest of the companies involved. Workers say the government has stopped payments as a “retaliation” for protests. More in Spanish: (Tal Cual, 07-02-2012; http://www.talcualdigital.com/index.html)

Chavez says June inflation dips to 1.4%, annualized inflation running at 21.3%

Consumer prices rose 1.4% in June, less than the 1.6% increase in May, says President Hugo Chavez. The nation had the highest annual inflation in the Americas last year at 27.6%, and economists had predicted it would be higher in 2012 due to a pre-election spending bonanza by President Chavez's government. Yet officials have had some success combating rises with new price controls in some basic areas, including food and health, from the end of last year. Chavez claimed year-to-date inflation for 2012 was 7.5%, while the annualized rate for the last 12 months was 21.3%. Economists have questioned whether the government's latest price controls will be a sustainable solution for rising prices, or could just be artificially suppressing a major inflation spike later in the year. There are also fears of shortages of products as some businesses opt not to sell rather than adhere to the price controls. (AVN, 07-02-2012; http://www.avn.info.ve/contenido/year-year-inflation-records-lowest-rates-2008; El Universal, 07-02-2012; http://www.eluniversal.com/economia/120702/venezuelan-govt-places-84-of-the-2012-debt; Reuters, 06-29-2012; http://www.reuters.com/article/2012/06/29/venezuela-inflation-idUSL2E8HTIR820120629)

Commodities

Oil exports to US down 12.5% in Q1 2012

The US continues to lose ground within the list of PDVSA clients. The volume of oil exports from Venezuela to the US has continued to slide downward. US Energy Department reports indicate that from January to April 2012, Venezuela sold the US an average 892,000 BPD in oil and related products, a reduction of 12.5% from the previous year. More in Spanish: (El Universal, 07-03-2012; http://www.eluniversal.com/economia/120703/venta-de-petroleo-a-eeuu-cayo-125-en-el-primer-cuatrimestre)

Venezuela Oil Falls to U$D 86.17

Venezuela's weekly oil basket fell U$D 3.92 to U$D 86.17 as oil prices continued to fall in international markets on fears of economic problems across Europe, continued high production by OPEC, mainly Saudi Arabia, and the increasing flows out of the US as the Seagate Pipeline was reversed, causing the price of Brent to fall back toward its eventual average below West Texas Intermediate (WTI). (Veneconomy, 06-29-2012; http://www.laht.com/article.asp?ArticleId=528831&CategoryId=10717)

New labor conditions to increase PDVSA operating cost by 60%

Collective bargaining discussions have entered their final phase, and emerging labor cost could rise by 60% over the next two years if PDVSA accepts union demands. New labor legislation requires that operating costs within PDVSA must rise 35% above last year. PDVSA operating costs, which include wages and labor benefits, closed last year at VEB 50.4 billion, with a variation of VEB 13.2 billion. Revised estimates accept that PDVSA and related companies will be required to increase payroll expenses in order to meet new Labor Law requirements, on average around 20%, including the reduction of working hours and eliminating outsourcing within three years. More in Spanish: (El Nacional, 07-03-2012; http://www.el-nacional.com/)

Government banks have loaned PDVSA U$D 2.4  billion in 5 months

Despite oil prices, PDVSA has continued to demand financial assistance from the official banking system. From November 2011 to April 2012 it has sought direct loans from Banco de Venezuela and Banco del Tesoro for U$D 2.4 billion. More in Spanish: (El Universal, 07-03-2012; http://www.eluniversal.com/economia/120703/banca-publica-presto-a-pdvsa-24-millardos-en-cinco-meses)

Venezuela, China agree to enlarge electricity grid

The National Electrical Corporation (CORPOELEC) and its Chinese counterpart have entered into an agreement to expand the 400-KW electricity grid which will link Tocoma hydroelectric power station in Bolívar state, south Venezuela, with the Uribante-Caparo Development in Andean Táchira state. "This is an overarching project that counts on an up-front investment of U$D 302 million, expected to be completed in 30-month term," says Corpoelec president Argenis Chávez. (El Universal, 07-02-2012; http://www.eluniversal.com/economia/120702/venezuela-china-agree-to-enlarge-electricity-grid)

GDP rise has not been reflected on local production

The Venezuelan economy, which historically has depended on revenues from raw materials, has intensified its monogamous relation to oil over the last decade, to such an extent that 96% of foreign exchange entering the country corresponds to Venezuelan crude oil and by-product exports. This has happened in a period in which oil prices have reached more than USD 115 per barrel, thereby increasing revenues entering the Republic.

Even though oil boom has made it possible to increase public spending so as to reactivate the Venezuelan economy, indicators reveal severe distortions in the local economic apparatus.

In the first quarter of 2012, the Venezuelan economy grew 5.6%, for the highest increase over the past fifteen quarters, and a sign that recession had been overcome. (El Universal, 06-30-2012; http://www.eluniversal.com/economia/120630/gdp-rise-has-not-been-reflected-on-local-production)

International Trade

Venezuelan entry raises storm within MERCOSUR, formal entry delayed to July 31st

Uruguayan Foreign Minister Luis Almagro says his country opposed the manner in which Venezuela is entering MERCOSUR. "It was not the time and should not be carried out under these conditions, and we have legal, political and ethical grounds on the matter... I was against it on those terms". Diego Canepa, Uruguay's Under Secretary of the Presidency explained that his nation's acceptance of Venezuela's incorporation came after a "negotiation" in which it demanded no economic sanctions should be imposed on Paraguay; and accepted due to "political circumstances". Argentina has said Venezuela´s entry complies with standing treaties, and Brazil says the decision was unanimous, agreed to by the presidents of these three nations, meeting alone, without any ministers or staff. At Uruguay's request, Venezuela's formal incorporation was delayed until July 31st. More in Spanish: (El Nacional; http://www.el-nacional.com/; El Universal, 07-03-2012; http://www.eluniversal.com/nacional-y-politica/120703/uruguay-sigue-pendiente-el-ingreso-de-venezuela-al-mercosur; El Mundo, http://www.elmundo.com.ve/noticias/economia/internacional/argentina-dice-que-ingreso-de-venezuela-a-mercosur.aspx; http://www.elmundo.com.ve/noticias/economia/internacional/brasil-dice-que-la-decision-de-incorporar-a-venezu.aspx; http://www.elmundo.com.ve/noticias/economia/internacional/uruguay-acepto-a-venezuela-en-mercosur-a-cambio-de.aspx)

Trade deficit with MERCOSUR rose 1300% since 2001

Venezuelan imports from Argentina, Brazil, Paraguay and Uruguay rose to U$D 6.7 billion in 2011, more than triple Venezuela's exports which came to U$D 1.9 billion, according to official figures reported to the Latin American Integration Association. As imports multiplied 23 times over exports, the deficit has risen to1300% since 2001, when it was U$D 341.4 million. During these years imports rose 583%, and exports rose only 25%. The last time Venezuela had a positive trade balance with MERCOSUR nations was 2000. More in Spanish: (El Nacional, 07-03-2012; http://www.el-nacional.com/)

Politics

Chavez and rival Capriles rally supporters as presidential campaign starts in Venezuela

Venezuela’s presidential campaign officially began Sunday with President Hugo Chavez and opposition leader Henrique Capriles rallying their supporters for what promises to be a hard-fought contest leading up to the October vote. Chavez wore his red beret, waving and blowing kisses as he greeted crowds of supporters from atop a truck that rolled from north-central Carabobo state to the nearby city of Maracay, where he spoke from a stage. (The Washington Post, 07-01-2012; http://www.washingtonpost.com/world/the_americas/chavez-and-rival-capriles-rally-supporters-as-presidential-campaign-starts-in-venezuela/2012/07/01/gJQAEWSbGW_story.html; Fox News, http://www.foxnews.com/world/2012/07/01/chavez-capriles-begin-venezuela-campaigns/)