September 19th, 2011

Economics & Finance

Chavez again threatens to nationalize Venezuela banks

Venezuelan President Hugo Chavez on Saturday again threatened to nationalize the country's private banks, arguing that they are not financing families seeking to buy a house. “We really need to keep an eye on private banks," said Chavez. "I do not have any problem nationalizing them, or expropriating them. We will not accept that banks continue to joke around with people who do not have a home.” (Latin American Herald Tribune, 09-19-2011; http://www.laht.com/article.asp?ArticleId=425910&CategoryId=10717)

Financial controls damage Venezuelan competitiveness

According to overall rankings in The World Economic Forum’s Global Competitiveness Report for 2011-2012, based on World Bank data, Venezuela ranks 124^th in global market sophistication. Its’ low ranking is due to the removal of financial market instruments and obstacles to foreign private investment essential to productivity. (El Universal, 09-19-2011; http://www.eluniversal.com/2011/09/19/financial-inflexibility-hits-venezuelas-competitiveness.shtml)

CAN re-entry considered best deal for Venezuela

Most analysts agree that member countries of the Andean Community have made great strides in tariff and economic integration, whereas Venezuela remains stagnant by applying dated rules. Both Colombian and Venezuelan private sectors, plus the Secretary General of the Andean Community, Adalid Contreras, suggest reinstating Venezuela into the multilateral group in order to promote trade, which has fallen to unprecedented levels. More in Spanish at: (El Mundo, 09-19-2011; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/reingreso-a-la-can--es-el-mejor-negocio--para-vene.aspx)

Local stock market up 53.75% YTD

Caracas stocks rose 0.7% last week on continued low volume with the Caracas Stock Index closing at 100,450 for the week. Banco Provincial rose 2.78% to Bs. 37, with Envases Venezolanos dropping 13% at Bs. 20.88, CANTV losing 3.7% to Bs. 6.5, Mercantil Servicios Financieros A down 0.7% at Bs. 35 and Sivensa lost 0.27% to Bs. 7.3. All other stocks in the Caracas Stock Index did not change in price. The Venezuela Stock Market Index is now up 53.75% for the year to date. (Latin American Herald Tribune, 09-19-2011; http://www.laht.com/article.asp?ArticleId=426138&CategoryId=10717)

Commodities

Oil Minister says PDVSA will import 138 Chinese rigs

Venezuelan Energy and Petroleum Minister Rafael Ramírez says PDVSA will import 138 rigs from China, and that another 20 rigs are being built in Venezuela. The Minister also said the state owned oil holding will continue to use its agreements with the People's Republic of China. (El Universal, 09-19-2011; http://www.eluniversal.com/2011/09/19/oil-minister-pdvsa-is-to-import-138-chinese-rigs.shtml)

Chavez orders new state gold grab

A new law regulating gold mining in Venezuela took effect Monday and will require mining companies to sell all the gold they extract to the government. The decree, which was signed by President Hugo Chavez is aimed at boosting government control of gold mining operations. Private companies will still be allowed to participate in mining, but as minority partners in joint ventures with the government. There was no immediate reaction from Rusoro Mining Ltd., the one company with significant mining operations under way in Venezuela. Chavez said last month that officials had contacted the company, based in Vancouver, British Columbia, to continue mining as a joint venture. (Washington Post, 09-19-2011; http://www.washingtonpost.com/business/industries/mining-companies-will-have-to-sell-all-gold-extracted-to-venezuelan-government-under-new-law/2011/09/19/gIQAFEMTgK_story.html)

Gold prices picked up Monday after European officials failed to calm fears over a Greek default and a spread to other countries in the Euro Zone. Gold in cash was trading at U$D 1,817.99 the troy ounce at 10:33 GMT. It posted a record at U$D 1,920.30 on September 6. (Veneconomy, 09-19-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=27653&idc=2)

Venezuela oil basket rises to U$D104.47

Venezuela’s oil export basket gained U$D 1.19 to U$D 104.47 a barrel for the week of September 12-16, edging the annual average closer to U$D 100 a barrel, the Energy and Oil Ministry said. According to the Ministry, the average price so far in 2011 for Venezuela's mix of heavy and medium crude is now U$D 99.54 -- higher than 2010's U$D 72.43, and much higher than 2009’s average price of U$D 57.01, and above the previous high set by 2008's U$D 86.49 average. (Latin American Herald Tribune, 09-17-2011; http://www.laht.com/article.asp?ArticleId=425779&CategoryId=10717)

Logistics & Transport

Venezuela’s port authority (BOLIPUERTOS) signs new contracts with China and Portugal

Elsa Graff, President of BOLIPUERTOS announced that plans are underway to strengthen port operations, including contracts signed with Chinese and Portuguese companies to purchase machinery that will streamline operations at both Puerto Cabello and La Guaira. More in Spanish at: (Notitarde, 09-19-2011; http://www.notitarde.com/notitarde/plantillas/nota.aspx?idart=1432205&idcat=9849&tipo=2)

Politics

Chavez heads to Cuba for 4th round of chemotherapy

Venezuela's cancer-stricken leader Hugo Chavez returned to Cuba on Saturday for a fourth and probably last round of chemotherapy, vowing to be recovered and fit for a tough re-election campaign next year. The charismatic leftist has led Latin America's top oil exporting country since 1999 and wants to stay in office until at least 2025 to consolidate his self-styled "revolution." But his hopes for a lengthy rule were put in doubt by a cancer diagnosis this year. (Reuters, 09-17-2011; http://www.reuters.com/article/2011/09/17/venezuela-chavez-idUSS1E78G05720110917)

Chavez calls IACHR Court worthless after it ruled to reinstate Leopoldo López’ political rights

In less than five minutes, Venezuela's President Hugo Chavez went from saying that it was not up to him to comment on the ruling of the Inter-American Court of Human Rights (IACHR Court) in the case of former Chacao municipality mayor Leopoldo López to state that the hemispheric court has no value for his government and is “worthless”. At the same time, Venezuelan Solicitor General Carlos Escarrá said that the ruling – which orders the Venezuelan government to reinstate the political rights of López, and enable him to run for elected office, violates all universal legal principles. (El Universal, 09-19-2011; http://www.eluniversal.com/2011/09/19/chavez-the-iachr-court-has-no-value-it-is-worthless.shtml and http://www.eluniversal.com/2011/09/19/solicitor-general-iachr-court-ruling-disregards-the-constitution.shtml)

Electoral Council says it will wait for a Supreme Court decision on the López case

Socorro Hernández, a director of the National Electoral Council (CNE) has said that the CNE will wait for a decision by the Supreme Court in the case of ex mayor and political leader Leopoldo López before it takes a formal stance on the issue. "The CNE cannot make a decision on its own on the situation of Leopoldo (López). The CNE will take steps as soon as it receives an official decision from the TSJ or the Comptroller General Office. We have to wait for the decision of the TSJ. When it decides, the CNE will do what it has to do in such cases," said Hernández. (El Universal, 09-19-2011; http://www.eluniversal.com/2011/09/19/electoral-body-waits-for-top-court-decision-on-leopoldo-lopezs-case.shtml)

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.

August 05th, 2011

Economics & Finance

Debt service is smothering the economy

According to Caracas daily TAL CUAL, the Chavez-Giordani model will end in total failure. Although proponents of new indebtedness claim Venezuela has one of the lowest debt/GDP ratios in Latin America, the publication says nationalizations have generated unprecedented fiscal deficits, which have overwhelmed and distorted state finances. According to economist Alejandro Grisanti, of Barclays Capital, Venezuela has 17 outstanding bond issues, of which 15 were placed during the past 12 years, for a total of U$D 31.3 billion. They generate yearly interest payments of U$D 3 billion. In addition, since 2007 PDVSA has issued 8 bonds for U$D 18.5 billion, and yearly interest payments of U$D 1.5 billion. More information in Spanish. (Tal Cual, 08-03-2011; http://www.talcualdigital.com/Avances/Viewer.aspx?id=56484&secid=3 and El Nacional; http://www.el-nacional.com/www/site/p_contenido.php)

The public sector absorbed 60% of the 2031 bond; JP Morgan terms it “unattractive”

As some analysts expected, most of the 2031 Sovereign Bonds went to the public sector. Minister of Planning and Finance, Jorge Giordani, reports that 60% of the issue was taken by government entities. Of the U$D 4.2 billion issued, U$D 2,520 million are in the hands of official entities. Further, although specifications indicated 40% (U$D 1.68 billion) were earmarked for priorities in health, food and capital goods, only 33% went to these areas, according to a detailed note of the ministerial portfolio. JP Morgan has reported that the newly issued 2031 Sovereign Bond is not "too attractive" to the market despite its high yield since it seems designed to meet the import demands. More information in Spanish. (Tal Cual; 08-04-2011; http://www.talcualdigital.com/index.html and El Nacional; 08-04-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Venezuela's annual inflation tops 25%

Venezuelan officials say the country's annual inflation rate has risen to 25.1%. The Central Bank and the National Statistics Institute record a 2.7% rise in prices during July. That's up from the annualized rate of 23.6% in June. Food prices rose especially quickly, increasing 4.8% last month alone. The oil-exporting country has consistently had Latin America's highest inflation in recent years. Prices rose 27.2% during 2010. (Forbes, 08-04-2011; http://www.forbes.com/feeds/ap/2011/08/04/business-lt-venezuela-inflation_8601126.html)

BCV president considers inflation troublesome

Nelson Merentes, the president of the Central Bank of Venezuela (BCV), acknowledged on Thursday that inflation continues being the country's problem. Accumulated inflation in seven months totals 16% and it is expected to end 2011 at 23%-25%. "It is a problem to turn three decades around. All of us should focus our creative capabilities, our work and our knowledge and try to find a way to reach one digit in the short term, in two or three years at the very latest". (El Universal, 08-04-2011; http://www.eluniversal.com/2011/08/04/for-the-bcv-president-inflation-is-still-troublesome.shtml)

Jaua admits that the U.S. recession will affect Venezuela, but not as much as before

Venezuela's government admits that recession in the U.S. economy affects this country, but not as much as before, due to a policy that has become independent of the "bankrupt" U.S. Venezuelan Vice President Elias Jaua says "Venezuela has spent twelve years separating itself from that ship" and the crisis has "an effect on us ... but we are not dependent on funding and on the failed banks in the United States". He adds that this "allows you to navigate through a crisis with some comfort, without resorting to layoffs, or regressive policies in social rights." More information in Spanish. (El Mundo, 08-03-2011; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/jaua-admite-que-la-recesion-de-eeuu-afecta-a-venez.aspx)

Economist expects only partial enforcement of the new Cost-Price Law

Economist José Guerra says enforcement of the new Law on Fair Costs and Prices could bring the Venezuelan economy to a standstill. He adds “my impression is that the law will be implemented only partially. If the law is implemented as it is, the economy will be paralyzed" (El Universal, 08-04-2011; http://www.eluniversal.com/2011/08/04/cost-law-expected-to-be-partially-enforced.shtml)

World Bank tribunal dismisses BRANDES case against Venezuela

An international arbitration panel dismissed a claim by BRANDES Investment Partners against Venezuela seeking damages for the forced sale of its stock in the nationalization of the country’s phone company. CANTV. The panel sided with Venezuela, saying it lacked jurisdiction to resolve the dispute, and put an end to a case filed in 2008.  (Bloomberg, 08-03-2011; http://www.bloomberg.com/news/2011-08-03/world-bank-tribunal-dismisses-brandes-case-against-venezuela.html and Noticiero Digital, 08-03-2011; http://www.noticierodigital.com/2011/08/tribunal-internacional-rechaza-reclamo-de-empresa-estadounidense-por-nacionalizacion-de-cantv/)

Commodities

PDVSA commits almost 350,000 bpd of oil yearly to China

Eulogio del Pino, Exploration and Production Vice-President for the state-owned oil holding Petróleos de Venezuela (PDVSA) says Venezuela is supplying around 350,000 barrels per day (bpd) of crude oil and byproducts to China under agreements for the repayment of the Chinese Fund. (El Universal, 08-04-2011; http://www.eluniversal.com/2011/08/04/pdvsa-sends-near-350000-bpd-of-oil-to-china.shtml)

Oil shipments to Iran, Belarus and Portugal increased drastically in 2010

The latest yearly management report by state-run Petróleos de Venezuela (PDVSA) shows it provided Portugal, Iran and Belarus around 88,000 barrels per day (bpd) of crude oil and byproducts during 2010. No further details as to individual destination were provided. This was an exponential increase in volume for last year, as compared to 5,000 bpd annually in 2008 and 2009. (El Universal, 08-03-2011; http://www.eluniversal.com/2011/08/03/pdvsa-has-given-iran-belarus-and-portugal-88000-bpd-of-oil.shtml)

Venezuela increased oil dispatches to the United States during the last week of July PDVSA was shipping 882,000 barrels a day, up 65.1% from the previous month, according to a report from the US Department of Energy. Venezuelan imports average around one million barrels a day so far this year, 900,000 of which correspond exclusively to oil and the remaining 100,000 barrels to by-products. (Veneconomy, 08-04-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=27043&idc=4)

Fire affects operations at Venezuela oil dock

A fire affected operations on Thursday at one of Venezuela's main docks used for shipping petroleum byproducts like coke and sulfur from the state oil company PDVSA, a union representative told Reuters. Many of the oil terminals in the South American OPEC nation suffer frequent disruptions because of poor maintenance, hurting oil industry exports. (Reuters, 08-04-2011; http://af.reuters.com/article/energyOilNews/idAFN1E7731UA20110804)

CVG BAUXILUM production in the hands of GLENCORE through 2018

According to Correo del Caroni newspaper, GLENCORE will advance U$D 120 million in installments in exchange for 1 million 380 thousand tons of alumina, to be delivered from 2014 to 2018. This is 69% of the plant’s annual installed capacity. In 2009, the company signed a similar contract with GLENCORE, engaging part of its production until 2013. According to José Luis Morocoima, Secretary General of SUTRALIMINA, the Aluminium Workers Union, the multinational company will make a first installment of U$D 40 million in order to solve production problems. More information in Spanish. (Correo del Caroni, 08-04-2011; http://www.correodelcaroni.com/index.php?option=com_content&view=article&id=184212:cvg-bauxilum-en-manos-de-glencore-hasta-2018&catid=75:laboral&Itemid=114; La Patilla, 08-04-2011; http://www.lapatilla.com/site/2011/08/04/cvg-bauxilum-en-manos-de-transnacional-glencore-hasta-2018/)

ALCASA in danger of collapsing

ALCASA President, Elio Sayago, says that due to "ineffective financial bureaucracy" the nation’s largest aluminum company – which belongs to State-owned Corporacion Venezolana de Guayana - is in a fragile state "despite funds for raw materials and requirements provided by the Government." As a consequence of delays in allocating emergency funds operating costs rose due to the absence of fluoride and other chemicals needed to maintain the operational cells. "This puts us in danger of an operational collapse." More information in Spanish. (Tal Cual; 08-04-2011;  http://www.talcualdigital.com/index.html)

Politics

Chávez to call Santos over FARC issues

President Hugo Chávez said he will cal Colombian President Juan Manuel Santos over statements by the commander of Colombia’s Armed Forces, Edgar Cely, about the presence in Venezuela of members of the rebel Revolutionary Armed Forces of Colombia. "I asked my staff to call President Santos because I want to talk to him." He noted that the Colombian government has clarified Cely's statements on the alleged presence of FARC and ELN guerrillas in Venezuelan territory. (El Universal, 08-03-2011; http://www.eluniversal.com/2011/08/03/chavez-is-to-call-santos-to-address-farc-issue.shtml)

Santos says some are interested in damaging ties with Venezuela

Colombian President Juan Manuel Santos says that "many enemies" want to damage relations between Colombia and Venezuela, but added that "mutual trust" prevails. The Colombian leader would not name the sectors trying to torpedo bilateral relationships, but says that "we began a sort of process of restoring mutual confidence with President Chavez" AP reported. (El Universal, 08-02-2011; http://www.eluniversal.com/2011/08/02/santos-there-are-sectors-interested-in-harming-ties-with-venezuela.shtml)

Analyst believes we could be on the brink of a serious diplomatic impasse

Economist and Carabobo University Professor José Ignacio Díaz Retali believes the situation could arise if Chávez government accepts Libya’s request to take over its oil production in order to have access to funds sanctioned since February 2011. He added the consequences for Venezuela could even affect its internal economy. (Veneconomy, 08-03-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=27020&idc=4)

Morales say Chavez's illness delays debate on new OAS without the U.S.

Bolivian President Evo Morales says “there is a continental issue: A new OAS without the United States, without the North. Regrettably, this debate has been postponed due to the health problems of comrade Chavez". Morales say meetings are pending in the region to discuss this issue and expressed concern over possible effects on developing countries' “unpayable debts". More information in Spanish. (El Mundo, 08-05-011;  http://www.elmundo.com.ve/noticias/economia/internacional/enfermedad-de-chavez-posterga-debate-sobre-nueva-o.aspx)

Venezuela: After Hugo, an analysis by Walter Molano of BCP Securities

In 1989, a Category 5 hurricane ripped through parts of the Caribbean and the south of the United States, killing 56 people and causing $10 billion in damages. The storm, called Hugo, left an indelible mark on the Gulf Coast. In the same way, Venezuelan President Hugo Chavez is leaving a permanent scar on Latin America. Venezuela was once the star of Latin America. In the early 1990s, the government privatized state-owned companies, allowing them to issue IPOs and Eurobonds. Eschewed by the investment community, thanks to the radical policies of the Bolivarian tyrant, Venezuela became one of the favorite destinations for the high beta investor—willing to take a punt regardless of the underlying risk in order to boost their returns. On paper, Venezuela has some of the best credit metrics in Latin America. Therefore, it is no surprise that some investors are lured by Venezuela’s siren song. However, there is more than meets the eye. (Latin Business Chronicle, 08-04-2011; http://www.latinbusinesschronicle.com/app/article.aspx?id=5049)

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.