March 1st, 2011

Economics & Finance

Venezuela central bank sees faster growth in 2011

Venezuela's economy should grow more than the 2 percent calculated in the budget this year, the central bank president said on Sunday, in a rosier view of growth prospects than is taken by many private economists. Fourth quarter data published last week showed 0.6 percent growth, signaling a sputtering recovery in the OPEC member after a long recession. "We have entered a phase of growth and we have left the phase of recession," central bank chief Nelson Merentes said in an interview on television station Televen. (Reuters, 02-27-2011;

http://www.reuters.com/article/2011/02/27/venezuela-economy-idUSN2714334920110227)

Siege on industry endangers economic recovery

Venezuelan Executive Office began 2011 focusing on economic recovery in order to break a recession ongoing since 2009. But their expectations seem to clash with reality, at least within the manufacturing sector, which faces multiple obstacles to its development. Starting in 2003, a list of around 200 situations, decisions and policies threaten industrial development in Venezuela. As of the first quarter last year, a qualitative industrial survey conducted by the National Statistics Institute (INE) listed the most serious eight problems for manufacturers: difficulties accessing foreign currency; input scarcities; shrinkage in the domestic market; high costs and import difficulties; world economic recession; unfair competition and electricity rationing. (El Universal, 02-25-2011;

http://english.eluniversal.com/2011/02/25/siege-on-industry-endangers-economic-recovery.shtml)

Could Venezuela really go bankrupt?

Ever since Greece plunged into a sovereign debt crisis in 2009, investors have focused on which European country might be next. According to Capital Economics, a research firm in London, however, the next trouble spot could be Venezuela. "There is a growing risk that the government will default on its obligations in 2012," its analysts wrote on Feb. 17. Some in the markets have taken fright, too: the country’ credit default swaps imply a 50 per cent chance of default by 2015. That may be overblown. Even so, Hugo Chavez, Venezuela’s leftist president, seems to be pulling off a dubious achievement by causing the bond markets to fear for the solvency of the world’s eighth-largest oil producer. (The Economist, The Chronicle Herald, 02-27-2011; http://thechronicleherald.ca/Business/1230431.html)

Government economic policy called contradictory

Parliamentary questioning of cabinet members in charge of the economy revealed contradictions in government policy, according to Noel Álvarez, the president of the Federation of Trade and Industry Chambers (FEDECÁMARAS). "The fact of the matter is that they are contradictory speeches," he said apropos the remarks by Ricardo Menéndez, the Minister of Science, Technology and Basic Industries (MCTII) and of Edmée Betancourt, the Minister of Trade. On the one hand, Menéndez said during his presentation at the National Assembly (AN) that the "new productive model" was intended to leave rent-seeking behind and diversify production. On the other hand, Betancourt backed the import policy as a formula to curb inflation. (El Universal, 02-25-2011; http://english.eluniversal.com/2011/02/25/government-economic-policy-labeled-as-contradictory.shtml)

Trying to survive inflation? Ask Venezuelans!

Having suffered double-digit inflation since Ronald Reagan was in the White House; Venezuelans know a money-stretching trick or two the rest of the world could heed as soaring commodities push up prices. A relatively wealthy country with some of the world's largest crude reserves, Venezuela's reliance on exports of one commodity have produced a string of booms and crashes accompanied by double-digit inflation since 1985. (Reuters, 02-25-2011; http://www.reuters.com/article/2011/02/28/venezuela-inflation-idUSN2527605120110228)

MERCOSUR central bankers see heightened economic risks

Central bank chiefs from South American countries in the MERCOSUR customs union said on Friday there are heightened risks to the global economy in light of higher food prices and turmoil in Middle East, but indicated a broad regional slowdown was unlikely. The joint statement was made after a periodic meeting of central bankers from Brazil, Argentina, Uruguay, Paraguay, Bolivia, Venezuela, Peru and Chile. "The tasks of central banks is looking more complex," said the statement, which warned about the challenge of dealing with the growing risk of external price shocks at a time of red-hot domestic demand. (Reuters, 02-25-2011; http://www.reuters.com/article/2011/02/26/mercosur-economy-idUSN2519309920110226)

Chavez's nationalizations worry Asian investors

Asian financial investors expressed interest in Latin America at a seminar in Hong Kong where American entrepreneurs sought to improve the image of their markets, affected by political suspicions. More information in Spanish. (El Mundo, 02-28-2011; http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=17&Id_Noticia=48369)

Rise in consumer spending triggered prices

The private final consumption expenditure showed slight signs of recovery between October and December 2010. In that period, the indicator rose 0.4% after six quarters of declines, according to official figures from the Central Bank of Venezuela (BCV). Jesus Casique economist believes that private consumption can be increased at the end of this year if the executive increases spending, but warns that "this strategy will bring higher inflation, because the domestic supply of goods and services do not meet domestic demand". More information in Spanish. (El Mundo, 03-01-2011; http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=17&Id_Noticia=48480)

Union agrees to restart operations at Heinz Foods

After 27-day standoff, representatives of Heinz Foods and the union agreed this weekend to restart operations at the company, located in San Joaquín, Carabobo. The union leader Edison Garcia reported that the plant is currently undergoing maintenance, in order to achieve the start of production on Wednesday 2 March. More information in Spanish. (El Universal, 03-01-2011; http://www.eluniversal.com/2011/03/01/acuerdan-reinicio-de-operaciones-en-alimentos-heinz.shtml)

Commodities

Venezuela assigns new exploration area to Gazprom

Venezuela has assigned new gas exploration rights to Russia's Gazprom for $20 million, according to Monday's official government gazette. The continent's biggest crude oil producer is sitting on some of the world's largest offshore gas reserves, experts say, but is yet to begin producing any commercial gas. Gazprom has found nothing in two Gulf of Venezuela blocks where it won exploration rights in 2005, so was being granted a "re-assignment of areas," an Energy Ministry source said. Gazprom could now start new explorations in redrawn boundaries for the Urumaco I area, and also in Urumaco III for the first time, the gazette resolutions said. Both of those concessions are for 3-4 years. (Reuters, 02-28-2011; http://af.reuters.com/article/energyOilNews/idAFN2826224720110228)

Expert says that Venezuelan energy crisis is not over

Guillermo Ovalles, the former president of Venezuelan electricity distribution company ELECENTRO and current president of the Commission on Electric Power of the Venezuelan Federation of Trade and Industry Chambers (FEDECÁMARAS), said that Venezuela's electricity crisis, which started in 2010, is far from over. "The situation has not been overcome. Chaos persists," Ovalles stressed. He recalled that the government promised last year that it would add 5,000 megawatts of energy capacity in 2010, but it only added 1,200 MW, of which 600 MW are related to distributed generation plants. (El Universal, http://english.eluniversal.com/2011/02/28/expert-says-that-venezuelan-energy-crisis-is-not-over.shtml)

Venezuela Net Exports of Crude Rose 13% in January

Venezuela’s oil ministry said the nation’s net exports of crude and refined oil products rose about 13 percent in January to 2.54 million barrels a day. Production of crude oil climbed to 2.8 million barrels a day in December, according to an e-mailed statement today, which cited information from Inspectorate Venezuela SCS, a contractor to Venezuela’s Energy and Petroleum Ministry. (Bloomberg, 03-01-2011;

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aOdxV6sUQoqc)

Venezuela Oil Price Soars to $91.11

According to figures released by the Venezuela Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petróleos de Venezuela S.A. (PDVSA) during the week ending February 25 soared to $91.11 from the previous week's $85.02. (Latin American Herald Tribune, 02-25-2011;

http://www.laht.com/article.asp?ArticleId=388019&CategoryId=10717)

Venezuelan oil production fell 7.7% in 2010

Venezuelan crude production averaged 2.78 million barrels per day (bpd) last year, said Tuesday the Department of Energy according to figures audited by an independent firm. Exports from OPEC member country recovered, for his part, averaging 2.59 million bpd in January, up from 2.28 million bpd the previous month. The production achieved in 2010 was 7.7% lower than the 3.01 million bpd a year earlier, according to audited financial statements of PDVSA. On the other hand, exports from the OPEC member was recovered in January, averaging 2.59 million bpd, down from 2.28 million bpd the previous month. The increase followed a rise in conventional crude oil shipments, improved crude Orinoco Belt and products. Heavy rains that lashed the country in the last quarter of the year affected the work of release of oil in the Venezuelan ports to stop the entry and departure of ships for several weeks. More information in Spanish. (El Mundo, 03-01-2011;

http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=26&Id_Noticia=13883)

BCV records production increase in food

The production of processed foods rose 7.1% in the last quarter of 2010, according to a report of the Central Bank of Venezuela, who attributed the recovery to a sustained increase in demand for Christmas products. The report indicates that the surge in orders was met by the timely delivery of currency to purchase raw materials and direct imports by the Government. More information in Spanish. (Entorno Inteligente, 03-01-2011;

http://www.entornointeligente.com/articulo/1094560/BCV-registro-alza-en-sector-de-alimentos)

Politics

US is investigating Venezuelan business with Iran

The State Department notified the Venezuela´s charge d'Affaires in Washington about the US law that calls for sanctions against foreign companies that negotiate with Iran. The chief U.S. diplomat for Latin America, Arturo Valenzuela, had told members of the House of Representatives that Federal authorities are closely following alleged violations by Caracas. U.S. sources claimed that one of the reasons is the sale of gasoline to Iran, for which U.S. is investigating the government of Venezuela and PDVSA for allegedly violating US legislation on Comprehensive Sanctions, Accountability and Divestment against Iran, which increases restrictions on trade with the Islamic Republic, designed to impact foreign companies trading with the Asian nation. More information in Spanish. (Noticiero Digital, 03-01-2011; http://www.noticierodigital.com/forum/viewtopic.php?t=744035)

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.

February 10th, 2011

Economics & Finance

S&P holds Venezuela ratings at BB-/B

S&P on Wednesday affirmed its BB-/B foreign and local currency sovereign credit ratings with a "stable" outlook on Venezuela. The affirmation also covered the BB- transfer and convertibility assessment. The service said the country's solid external and fiscal positions are major rating strengths while its unstable political environment, immature legislation, price and foreign exchange controls and other unpredictable economic measures are rating weaknesses. In addition, frequent seizure of private companies by the state hampers private investments and productivity, the service noted. (ADP News, 02-10-2011; http://adpnews.info/?nid=4156d030ed0b847b)

Venezuela’s inflation accelerates after forex adjustment

Inflation in Venezuela is on an upward trend, as appears from the numbers released on Tuesday by the Central Bank of Venezuela (BCV), which show a 2.7 percent increase in the consumer price index. This rise was due to several reasons, but the exchange rate adjustment was the main factor. In a scenario where the government promised that the unification of the two-tier exchange rate at VEB 4.30 per US dollar in December 2010 would not damage the price of food items and health services, reality shows otherwise, according to Venezuelan economist Pedro Palma. (El Universal, 02-09-2011; http://english.eluniversal.com/2011/02/09/en_eco_esp_venezuelan-inflation_09A5137457.shtml)

Inflation rose 2.7% in January, nearly one percent point higher than the rate last December (1.8%) and a whole point higher than the rate in January 2010. The inflation rate in the last 12 months is 28.5%, the highest in the region.

(Veneconomy, 02-08-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=24832&idc=2)

Agricultural prices rose by 68 percent in 12 months

Data released by the Central Bank of Venezuela (BCV), shows the rising cost of food is unstoppable. This variable has the strongest impacts on the quality of life in the poorest Venezuelan households. The cost of agricultural products in January rose 9.1 percent and over the past twelve months, the cumulative increase in prices reached 68 percent. The BCV showed that the price of vegetables was up 11.1 percent, and it played the main role in the hike of food prices, in general. Food prices were up 4 percent in January and 37.3 percent in the last 12 months. This is the highest jump in the Latin American region. (El Universal, 02-09-2011; http://english.eluniversal.com/2011/02/09/en_eco_art_prices-of-agricultur_09A5136453.shtml)

Commodities

Venezuela's PDVSA offers $3 billion 2022 bond

Venezuela's state oil firm PDVSA offered on Wednesday a new $3 billion 2022 bond which it said was intended to raise funds for its investments in the South American OPEC member nation. In a statement on its web site (www.pdvsa.com), the company said the dollar-denominated paper would have a coupon of 12.75 percent and price at 100 percent. The bond - offered first to companies in Venezuela's "productive sector" - can be purchased at the lowest official exchange rate of 4.3 bolivars to the dollar and then traded abroad in dollars, PDVSA added. (Reuters, 02-09-2011; http://www.reuters.com/article/2011/02/10/venezuela-bond-idUSN0922934020110210)

Barclays Capital: Pdvsa cash flow plunging, short USD 20 billion in cash

The cash flow of state-run oil company Petróleos de Venezuela's will plunge due to the preferential financial conditions granted by Venezuela and the exchange of crude oil and products for goods and services. According to a report issued by Barclays Capital, Pdvsa "will not receive in cash USD 9.4 billion in 2011 and USD 10.7 billion in 2012" due to the export agreement with Cuba and a 50 percent discount in the total invoice value of Venezuelan oil exports to the Caribbean countries (under the PETROCARIBE cooperation agreement). Figures include preferential terms such as long-term funding, and the mandatory payments on loans granted by the bilateral Chinese Fund. As a result, Pdvsa will not receive USD 20.1 billion in cash between 2011 and 2012. (El Universal, 02-09-2011; http://english.eluniversal.com/2011/02/09/en_eco_esp_barclays-capital:-pd_09A5136573.shtml)

Venezuela's PDVSA claims Jan-Sept 2010 profit up 35 pct

Net profit at Venezuela's state oil company PDVSA rose 35 percent to $3.455 billion in the first three quarters of 2010, compared with the same period of the previous year, the company said on Thursday. PDVSA's total financial debt was $22.1 billion at the end of September last year, 0.8 percent higher than at the end of 2009, the company said. The results were a sharp improvement on the first half of 2010, when PDVSA said net profit fell 14 percent after it hiked payments to the state more than 1,200 percent. (Reuters, 02-10-2011; http://www.reuters.com/article/2011/02/10/venezuela-pdvsa-idUSN1018763820110210)

Survey finds global oil production and prices up

An analysis found January oil production from OPEC members reached levels not seen for more than two years as the crisis in Egypt affects prices. Results from a survey by the Platts news agency indicated that oil production from Organization of the Petroleum Exporting counties averaged slightly more than 29 million barrels per day in January, up 300,000 bpd from December and the highest level in more than two years. The survey found that production declines from Iran and Nigeria were balanced by increased production in Angola, Kuwait, Saudi Arabia, the United Arab Emirates and Venezuela. (UPI, 02-10-2011; http://www.upi.com/Science_News/Resource-Wars/2011/02/10/Oil-production-and-prices-up-survey-finds/UPI-46811297345884/)

Alcasa and Venalum aluminium smelters are operating at minimum levels

Negotiations in Caracas by union leaders at CVG Venalum, a Venezuelan basic industry, were unsuccessful. Demonstrations at the aluminum smelter on Monday and workers blocked the access gates of the plant. As a result, operations remain at a minimum level. (El Universal, 02-08-2011; http://english.eluniversal.com/2011/02/08/en_eco_art_aluminum-smelters-al_08A5131571.shtml)

Mayor in Barinas says Venezuela will launch an ethanol plant there by end-2011

Venezuela's government plans to inaugurate in late 2011 a plant in the western Barinas state that will be able to produce 700,000 litres (184,900 gallons) of ethanol per day. Joel Meneses, mayor of the Pedro Manuel Rojas municipality said the plant is being built in the Pedro Manuel Rojas municipality, with Cuban technology as part of a bilateral agreement. The project could benefit communities in the states of Barinas, Portuguesa and Cojedes. The plant is part of a complex, which will include also a 10,600-ton sugar cane mill, storage facilities and a 50 MW power plant. (ADP News, 02-10-2011; http://adpnews.info/?nid=e0607c4806d6aebf)

Politics

VP Jaua says the Government met five serious crises during 2010: energy, banking, rains, mortgage frauds and relations with Colombia

In his speech to the National Assembly on Tuesday, Venezuelan Executive Vice President Elias Jaua highlighted the way the Bolivarian Government overcame successfully five serious crises and he affirmed that only together people and state-run agencies were able to face such situations without negative results, even though attempt of the Right to “take advantage of adversities to generate a climate of hope and send messages of popular defeat.” The Bolivarian Government managed to overcome successfully crises in matters of energy, banking, bilateral relations with Colombia, as well as emergencies in matters of rains and mortgage frauds. He said they were able to overcome these situations and turn them into development opportunities for the population, thanks to reliable and efficient policies implemented by the Executive. (AVN, 02-09-2011; http://www.avn.info.ve/node/42394)

Rousseff seeks to continue Brazil’s close ties With Chavez

Brazil’s President Dilma Rousseff and her Venezuelan counterpart Hugo Chavez will continue the tradition of holding quarterly meetings to discuss trade and social issues, Brazil’s Foreign Minister Antonio Patriota said in Caracas.

“My presence here is to reaffirm Brazil’s pledge to strengthen our bilateral relationship,” Patriota said in comments carried on state television while he met with Venezuela’s Foreign Minister Nicolas Maduro. (Bloomberg, 02-07-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aiDV8eKz3BUo)

Fiber-Optic undersea cable from Venezuela Reaches Cuba

Cuban Computer Science and Communications Minister Medardo Diaz said the undersea cable that arrived on Cuba’s eastern coast on Tuesday after a 19-day voyage from Venezuela, “opens a breach in the (economic) blockade” that the United States has imposed on the island and bolsters “national sovereignty” in telecommunications. (Latin American Herald Tribune, 02-09-2011; http://www.laht.com/article.asp?ArticleId=386513&CategoryId=10718)

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.