December 15th, 2011

Economics & Finance

Venezuela's economic model leads to weak economic growth

Local quality of life has been hit by the economic policies implemented by the Chávez Administration. According to Efraín Velásquez, President of Venezuela's National Council on the Economy, changes to the institutional structure are creating uncertainty and are hurting changes for development. Velásquez warned against high inflation and said that even though Venezuela's economic activity began to show an upward trend this year; these results have a limited effect. "In principle, the level attained in the third quarter of 2011 (3.5%) has the same size as in 2009," he said. (El Universal, 12-14-2011; http://www.eluniversal.com/economia/111214/expert-venezuelas-economic-model-leads-to-weak-economic-growth)

Public spending threatens to spur inflation

The government will expand public spending in 2012, an election year, to boost consumption. However, increased liquidity and unchanged supply will lead to higher prices. Given booming oil prices, new corporate taxes and debt issues, central government spending grew over 50% over the past three months, after inflation, as compared to the same period in 2010. (El Universal, 12-14-2011; http://www.eluniversal.com/economia/111214/public-spending-threatens-to-boost-inflation)

More dollars to be sold in 2012 to drain excess liquidity

Official sources say one way to rein in growing money supply is to increase foreign currency allocations starting in 2012. They claim greater fluidity in allocating foreign currency demand will be key to reaching macro-economic goals and avoid runaway inflation next year. More in Spanish: (El Mundo, 12-15-2011; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/venderan-mas-dolares-para-drenar-exceso-de-liquide.aspx)

Venezuela among the most expensive countries in which to do business

Venezuela is among the most expensive countries for investment, according to Carlos Henrique Blohm, president of the Venezuelan-American Chamber of Commerce and Industry (VenAmCham). "The cost of doing business is higher than that in any competitive country and it will not decrease through laws and repression," said Blohm. “A comparison of prices prevailing in Venezuela with prices in Mexico, Colombia and Brazil shows that those nations have "a third of our risk and a fifth of our inflation." (El Universal, 12-14-2011;  http://www.eluniversal.com/economia/111214/venezuela-among-the-most-expensive-countries-to-make-business)

Government takes up to 60% of net income on any product made in Venezuela

A study by the National Industry Federation (CONINDUSTRIA) shows that around 40% to 60% of net income from any product goes to the Government in taxes. The report says that for each product local companies must pay the Government a added value tax (12%), income tax (34%), municipal taxes and labor contributions (9 to 11%); employment benefits contribution (2%), official training programs (2%), and housing and living contributions (2%). More in Spanish: (El Universal, 12-15-2011; http://www.eluniversal.com/economia/111215/estado-percibe-hasta-60-del-ingreso-neto-de-un-producto)

Local companies have received only 2.2% of indemnity payments for expropriations

According to ECOANALÍTICA Director Asdrúbal Oliveros the Government has paid out U$D 11.5 billion dollars in expropriation compensations from 2007 to 2011 to date. Multinational companies that have received payments include VERIZON, Spain’s Santander banking group, and the LAFARGE, HOLCIM and CEMEX cement companies. He added that the Government still owes close to U$D 22 billion on account of expropriations. It owes CONOCO and EXXON alone some U$D 12.6 billion. More in Spanish:  (El Nacional, 12-15-2011; http://www.el-nacional.com/)

Venezuela’s price regulator extends company registration period

The government extended the period transnational and local companies have to register the price of 18 beauty and cleaning products to December 30, according to a resolution published today in the Official Gazette. President Chavez’s administration froze prices last month on products including toothpaste, soap and diapers, and ordered companies including Colgate-Palmolive Co. (CL), Johnson & Johnson (JNJ), Procter & Gamble (PG), and Unilever to report their production costs to the government as he seeks to extend price regulations in Venezuela. Initially, companies were given three days to register. (Bloomberg, 12-14-2011; http://www.bloomberg.com/news/2011-12-14/venezuela-price-regulator-extends-company-registration-period.html)

Food shortages worry Venezuelans

During a recent visit to Guaicaipuro, a traditional market in Caracas, the Venezuelan capital, a fresh meat refrigerator sat empty at a grocery. Many consumers looking for beef, poultry or fish had to go home empty-handed.

The produce section looked well stocked with plenty of fruits and vegetables. But consumers shopping at Guaicaipuro complained that prices, even for basic products, had skyrocketed. (CNN, 12-13-2011; http://edition.cnn.com/2011/12/13/world/americas/venezuela-food-shortages/index.html?hpt=ila_c1)

Venezuela will take another U$D 4 billion loan from China to finance an ambitious housing construction plan to be started in advance of the 2012 presidential elections, according to President Chávez. It was not clear whether he was referring to a new loan or to the third installment of the Chinese-Venezuelan Fund. (Veneconomy, 12-14-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=28854&idc=2; and El Universal; http://www.eluniversal.com/economia/111214/chavez-chinese-loan-is-intended-for-house-building)

Commodities

Oil joint ventures operating in Venezuela seek U$D 14 billion

A dozen joint ventures operating in mature oil fields in Venezuela are studying new ways to relieve their tight cash flow and obtain fresh capital from parent companies or private banks for investment over the next five years. According to a source involved in planning told Reuters that companies seek to raise U$D 14 billion in outside funding to reverse the trend of declining or stalling oil production in Venezuelan oil fields. Spanish oil company REPSOL-YPF, Royal Dutch Shell and Brazilian federal oil company Petroleo Brasileiro (PETROBRAS), minority partners of state-run oil holding Petróleos de Venezuela (PDVSA) in several joint ventures, are among the oil firms seeking to reverse the trend of declining or stalling oil production in Venezuelan ancient oil fields, which require substantial investments. (El Universal, 12-14-2011; http://www.eluniversal.com/economia/111214/oil-joint-ventures-operating-in-venezuela-seek-usd-14-billion)

Russia-Venezuela oil venture said set to miss 2012 output target

Russia’s five largest oil companies will fail to meet next year’s crude production target for the Junin 6 project with Petroleos de Venezuela SA, said two company officials with knowledge of the matter. The OAO Gazprom Neft-led group may produce no more than 10,000 barrels a day next year, about 20% of the planned level, said the people, who work at different companies and who declined to be identified because the matter is sensitive. State-run OAO Rosneft, OAO Lukoil, TNK-BP and OAO Surgutneftegas are partners. (Bloomberg, 12-15-2011; http://www.bloomberg.com/news/2011-12-15/russia-venezuela-oil-venture-said-set-to-miss-2012-output-target.html)

Ramirez says OPEC agrees on oil output ceiling

The Organization of the Petroleum Exporting Countries (OPEC) has agreed on a new output limit for the first time in three years, thus ending a six-month argument over output quotas with a move that favors Saudi Arabia. The OPEC ministers agreed on a new supply target of 30 million barrels a day, according to Venezuelan Petroleum and Mining Minister Rafael Ramírez. The figure is roughly in line with current production. (El Universal, 12-14-2011; http://www.eluniversal.com/economia/111214/opec-agrees-on-oil-output-ceiling)

Venezuela becomes the largest consumer of Guyanese rice

Venezuela purchased close to 160,000 metric tons of rice from Guyana during 2011, which makes it the largest cereal buyer, according to the Guyana Chronicle. The information was disclosed as Guyanese Agriculture Minister Leslie Ramsammy inspected an outgoing shipment of 5000 as part of a U$D 48 million agreement signed in October. The Guyana Chronicle says the deal means Caracas will purchase 30.000 metric tons  of white  rice at U$D 800 a unit; and another 50000 tons of paddy at U$D 480 per unit. There have been claims of surcharging in the deal. More in Spanish: (El Nacional, 12-15-2011; http://www.el-nacional.com/)

Politics

Chavez launches new social programs, boosts spending ahead of re-election campaign

President Hugo Chavez is launching new social programs including hikes in pensions and a $100-a-month cash payment for needy children as he prepares for his re-election bid next year. Chavez has announced that the government would increase pension payments to more than 200,000 retirees through a newly created “mission” program. A day earlier, he launched a program to benefit the South American country’s poorest children, whose parents will receive $100 per child every month to help them makes ends meet. Such programs have helped Chavez cement support among the poor who are his electoral base. The newest programs will cost an estimated U$D 3.7 billion, Chavez said. (Washington Post, 12-13-2011; http://www.washingtonpost.com/world/americas/venezuelas-chavez-launches-new-social-programs-boosts-spending-ahead-of-re-election-campaign/2011/12/13/gIQAWTLPsO_story.html)

CITGO resumes US energy aid effort

Venezuelan-owned oil group CITGO announced plans Tuesday to resume its winter energy assistance program to needy US consumers, a move which has drawn kudos from some but has also been denounced as propaganda. CITGO, a wholly owned subsidiary of the state-owned Petroleos de Venezuela, said its program offering heating oil will help more than 400,000 people this year in 25 US states, including 250 homeless shelters. CITGO president and chief executive Alejandro Granado was joined at the announcement by former congressman Joseph Kennedy II, now head of the nonprofit group Citizens Energy. (AFP, 13-12-2011; http://www.google.com/hostednews/afp/article/ALeqM5i3JawIBY2Asej-UmcLBlg9WY59vg?docId=CNG.e5cfb32f7d3af3e9dc7deb566aed95c7.1d1)

US sees no change in bilateral relations

James Derham, Deputy Chief of Mission of the Embassy of the United States in Venezuela says the relationship between the governments of the two countries is "a complicated, most of the time, difficult relationship"; and added that "dramatic changes" will hardly appear in the bilateral relationship over the short term. (El Universal, 12-14-2011; http://www.eluniversal.com/nacional-y-politica/111214/us-venezuela-ties-have-the-chance-to-improve)

Carter Center will monitor opposition primary in February

Teresa Albanes, head of the Election Commission for the Democratic Unity opposition coalition announced that the Carter Center will attend as an international observer in opposition presidential primary election scheduled for February 12, 2012. She added that OAS Secretary General José Miguel Insulza is awaiting an invitation from the National Elections Board in order to send a representative from his organization. Over 40 international political leaders are expected to attend. More in Spanish: (El Nacional, 12-15-2011; http://www.el-nacional.com/)

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.

July 11th, 2011

Economics & Finance

Chavez says Venezuela to sell part of any new debt in US dollars

Venezuelan President Hugo Chavez said part of any new bonds sold by the nation will be denominated in dollars. Chavez announced financial terms for the expanded debt ceiling approved by the National Assembly last month. (Bloomberg, 07-09-2011; http://www.bloomberg.com/news/2011-07-09/chavez-says-venezuela-to-sell-part-of-any-new-debt-in-dollars.html)

New public debt bond issue approved  for BF Bs. 45.000 million

Chavez has approved issuing a new public debt bond for BF 45,000 million as granted in the Special Complementary Indebtedness Law approved on June 9th by the National Assembly. The bonds will be sold in bolivars and dollars, and the Treasury Ministry will set conditions for these operations, such as prices, interest rates and redemption. More information in Spanish. (Agencia Venezolana de Noticias;  http://www.avn.info.ve/node/66486)

2011 Petrobond for U$D $2.350 billion now due

The bond issued by PDVSA on 25 June 2009, for a total U$D 3 billion has come due. Financial sector sources indicate about U$D 2,350 billion are still in circulation. Although they have come due there are some doubts as to how they will be handled as over 50% were held by the Templeton investment fund, but there are reports that they were traded indirectly two weeks ago by this fund, PDVSA and Venezuela’s Central Bank; with PDVSA reopening its 2013 Bond with a private and direct offer to the Central Bank for U$D 1.783 billion, and the Bank would in turn these bonds over to Templeton in exchange for the 2011 bond. More information in Spanish. (El Universal; http://www.eluniversal.com/2011/07/11/vencio-petrobono-2011-con-$2350-millones-por-pagar.shtml)

Windfall oil revenues at U$D 6.6 billion in second quarter

An increase in Venezuelan oil prices above U$D 90 per barrel over the past few months resulted in windfall oil revenues available to the Executive Office, particularly after the "special tax on windfall oil revenue" was implemented under an April decree by President Chávez. (El Universal, 07-11-2011; http://english.eluniversal.com/2011/07/11/windfall-oil-revenues-at-usd-66-billion-in-second-quarter.shtml)

Central government spending rises 3.8% in the first half of 2011

The Chavez administration is again starting up the expansionist public spending policy it implemented in 2004-2008. More obligations and upcoming elections are boosting spending. Figures from the Ministry of Finance show government spending for the first half of 2011 at U$D 26.16 billion, which is a 3.8% increase in real terms over U$D 19.77 billion in the same period of 2010. Asdrúbal Oliveros, a director at ECOANALÍTICA, says "the government began the year with a spending spree and it is now in a expansionist phase in expenditures." He also says that economic growth is related to current expenditure. (El Universal, 07-11-2011;  http://english.eluniversal.com/2011/07/11/central-government-spending-rises-38-percent-in-the-first-half.shtml)

Venezuela allocates U$D2 billion for joint fund with China

President Chavez has approved a U$D2 billion contribution by Venezuela to the bi-national fund with China, which will contribute another U$D4 billion. “That’s $6 billion for the central railroad system,” which will use a total of $711 million from that fund, and for a metro line in Caracas, which will receive another $350 million, according to Chavez. (Latin American Herald Tribune, 07-09-2011; http://www.laht.com/article.asp?ArticleId=405865&CategoryId=10718)

Expropriations and seizures total U$D 23 billion

Prepared to increase the State clout on domestic economy, Venezuela's President Hugo Chávez has pioneered a plan of procurement and requisition of companies in a wide variety of sectors. The cost and results of this policy are reviewed by economists Richard Obuchi, Anabella Abadi and Bárbara Lira in a new book called “Management in Red”, published by the Institute of Higher Education in Business Administration (IESA). It reviews the performance of 16 companies that have gone to the State; macro-economic signals and an inventory of costs already paid or publicly acknowledged, in the first stage of expansion. (El Universal, 07-09-2011; http://english.eluniversal.com/2011/07/09/seizures-in-venezuela-amount-to-usd-23-billion.shtml)

Chávez claims his policies rein in inflation

Despite trends shown by Venezuela’s Central Bank which point to 13% inflation over the past six months, President Chávez claims the Government will have “correct policies that will avoid price speculation”.  He added that inflation closed at 2.5% for June, “but we are continuing downward, we continue to rein in inflation”. More information in Spanish. (El Universal; http://www.eluniversal.com/2011/07/11/chavez-asegura-que-hay-medidas-para-frenar-la-inflacion.shtml)

Forbes Magazine ranks Venezuela as one of the world’s worst run economies

FORBES has included Venezuela in a recent ranking of the 10 worst run world economies. The list is headed by Madagascar and Venezuela comes in sixth. The only worse nations are Armenia, Guinea, Ukraine y Jamaica. The list also includes Kyrgistan, Swaziland, Nicaragua and Irán. These are not the poorest countries but those with the worst economic management, headed for the worst results. More information in Spanish. (Tal Cual; http://www.talcualdigital.com/index.html)

Commodities

Venezuela rejects calls to change gold export limits

Industry Minister Jose Khan has rejected calls to change rules that limit miners to exporting only 50% of their gold output. He also says the government has perceived interest by various foreign companies in its giant Las Cristinas gold mine, which has estimated reserves of 17 million ounces but has not been developed since the 1980s. The Minister told reporters "These are regulations that were made to favor these companies; no one can criticize it... no one can reject it. It is an issue of sovereignty." (Reuters, 07-08-2011; http://www.reuters.com/article/2011/07/08/venezuela-gold-idUSN1E7671MO20110708)

Short fuel supply curbs electrical projects

Expert says "failure to comply with plans and widespread politicization" in the oil and electrical industries over the past few years has resulted in "losing energy security." Nelson Hernández, a Professor at the School of Graduate Studies in Economics and Energy Policy, Metropolitan University, says Venezuela has lagged significantly in investment, works and maintenance. (El Universal, 07-09-2011; http://english.eluniversal.com/2011/07/09/fuel-in-short-supply-curbs-electrical-projects.shtml)

Venezuela Oil Rises to $103.76

Venezuela's Ministry of Energy and Petroleum reports that the average price of Venezuelan crude sold by Petróleos de Venezuela S.A. (PDVSA) rose during the week ending July 8 to U$D103.76 from the previous week's U$D100.43, raising the average for the year to U$D98.43. (Latin American Herald Tribune, 07-08-2011; http://www.laht.com/article.asp?ArticleId=405377&CategoryId=10717)

Politics

Former VP J.V. Rangel claims Chavez does not have colon cancer

Colombia’s SEMANA magazine reports Venezuelan President Hugo Chavez’s cancer isn’t of the colon and isn’t “serious,” saying its source is former Vice President and Defense Minister Jose Vicente Rangel. (Bloomberg, 07-10-2011; http://www.bloomberg.com/news/2011-07-10/venezuela-s-chavez-doesn-t-have-colon-cancer-semana-reports.html)

Burelli says Chavez ailments raise doubts about the region’s direction

Pedro Mario Burelli, an oil expert and former executive director of state-run oil holding Petróleos de Venezuela (PDVSA) says the key element that will henceforth define political structures in Latin America and Caribbean is the argument raging in Cuba between those adamant in keeping the Castro-style model and those who would bet on dramatic government reforms. He adds the Venezuelan president's current situation offers a chance for changes, as the briefing on his disease has raised multiple doubts about the leading role played by him in the region. (El Universal, 07-09-2011; http://english.eluniversal.com/2011/07/09/ailments-raise-doubts-about-regional-leadership.shtml)

No substitute in sight

A poll conducted by Keller & Associates just before a convalescent Chávez reported that he was fighting against a cancerous tumor shows over 65% of his followers cannot identify a successor. They cannot name a leader other than Chávez, or at least were not thinking about it. Recent surveys and polls show Vice-President Elías Jaua; Foreign Minister Nicolás Maduro and Congressman Diosdado Cabello as the top three. (El Universal, 07-09-2011; http://english.eluniversal.com/2011/07/09/no-relay.shtml)

Trade agreements with Colombia and Perú remain stalled

Three months after a continuance of Andean Pact trade rules was agreed to between Venezuela, Colombia and Perú, no final agreement has been reached to govern trade relations between these nations. Professor Gerardo Arellano, a trade expert, says that under present conditions the prívate sector remains at the mercy of changing official decisions and creates uncertainty. More information in Spanish. (El Universal; http://www.eluniversal.com/2011/07/11/parados-pactos-comerciales-con-colombia-y-peru.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.

 

May 24th, 2011

Economics & Finance

United States to sanction Pdvsa on Iran trade

The United States will sanction Venezuela's state-run oil holding Petróleos de Venezuela (Pdvsa) on Tuesday for dealing with Iran in violation of a Washington ban, sources familiar with the situation told Reuters.

Deputy Secretary of State James Steinberg was expected to announce the sanctions, which could include stiff penalties such as being banned from the US financial system or being denied US contracts, the sources said. (El Universal, 05-24-2011; http://english.eluniversal.com/2011/05/24/united-states-to-sanction-pdvsa-on-iran-trade.shtml)

 
Venezuelan financial authorities expect inflation under 20% in 2012

The president of the Venezuelan Central Bank Nelson Merentes estimates an inflation rate below 20% for the next year, if demand for massive consumption products, such as food, is satisfied. “We can besure that this is the first time that the country has a technical team analyzing weekly the behavior of goods and services. We know that we have to produce more, most of all in the food sector to satisfy domestic demand and prevent market distortions,” he explained. (AVN, 05-23-2011; http://www.avn.info.ve/secciones/english/venezuelan-financial-authorities-expect-inflation-under-20-in-2012)

Central Bank chief says the private sector grew more strongly than the public sector

Central Bank President Nelson Merentes has said that the private sector grew significantly within the economy “with more strength than even the public sector”, in the First Quarter of this year. He said that all productive areas related to industry grew by 7.6%. More information in Spanish. (Agencia Venezolana de Noticias; 05-24-2011; http://www.avn.info.ve/secciones/economia/nelson-merentes-sector-privado-economia-crecio-manera-importante)

Eight industrial sectors in Venezuela produce less than in 1997

After two years of a steady decline in industrial production, Venezuela's industrial output rebounded during the first quarter of this year and grew by 7.5% over the same period in 2010. However, a thorough analysis shows that this economic sector needs much more to move from stagnation to real growth. Data from the Central Bank of Venezuela (BCV) shows that the industrial sector grew compared to a quarter in which electric power shortage led to production stoppages in many plants. A comparison of the first quarter of 2011 with periods prior to 2010 found insignificant progress. For instance, industrial production in the first quarter of 2011 remained 2.5% beneath industrial output in the same quarter of 2009 and was 3.1% less than in the first quarter of 2008. (El Universal, 05-23-2011; http://english.eluniversal.com/2011/05/23/eight-industrial-sectors-in-venezuela-produce-less-than-in-1997.shtml)

Sagging oil GDP mirrors drop in drilling

As the Venezuelan economy grows at 4.5% in goods and services, the outlook is not as encouraging for the oil sector. According to data supplied by the Central Bank of Venezuela (BCV), in the first quarter of 2011, oil operations recovered 1.8% compared with the same period last year. But it is the poorest result since the first quarter of 2003, in the middle of a nationwide oil strike. Drilling volume has gradually dwindled up to 2.76 million barrels per day (BPD), based on the latest audit of the industry. Oil drilling had already diminished in 2010, on average, as low as 2.78 bpd. Nevertheless, PDVSA’s official report put the output volume at 3.1 million bpd. (El Universal, 05-21-2011; http://english.eluniversal.com/2011/05/21/sagging-oil-gdp-mirrors-drilling-drop.shtml)

Brokerage firms may “eventually” return to the bond market

In a first stage they will only be allowed to trade instruments in bolivars to later trade financial instruments in dollars, a government source told daily El Mundo. (Veneconomy, 05-23-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26077&idc=2)

National Academy of Economics views communal system as confiscatory

Following a review of the communal economic system, the Venezuelan National Academy of Economic Sciences concludes that the new model institutionalizes seizure and expropriation of private property. “In this system, the State is responsible for allocating ownership, never grants ownership to anybody. It is almost similar to what they are doing with housing, the State grants the right of use," explained Pedro Palma, the president of the Academy. (El Universal, 05-21-2011; http://english.eluniversal.com/2011/05/21/communal-system-is-viewed-as-confiscating.shtml)

Investment in public works slows despite Government spending increase of 10,4% 

Construction dropped 7.7% in the first quarter of 2011. This was not only due to by a decline in private sector's activity, but also because of a decrease in public sector's construction for lack of resources. In the first quarter of the year, government's spending surged by 10.4%, according to data from the Central Bank of Venezuela (BCV). However, those funds were mainly allocated to current spending instead of infrastructure investments. The number of completed housing units dropped 35% compared to 2010 and the road infrastructure construction fell 16%. (El Universal, 05-23-2011;  http://english.eluniversal.com/2011/05/23/despite-high-spending-investment-on-public-works-has-slowed.shtml;  Veneconomy, 05-23-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26076&idc=2)

PDVSA bonds decline as Central Bank announces plan to sell securities

Petroleos de Venezuela SA bonds maturing in 2022 had their biggest fall in two weeks after a central bank director said more of the securities will be offered to investors in a state-run currency trading system. Yields on the PDVSA bond that matures in 2022 rose 14 basis points, or 0.14 percentage points, to 16.42% after central bank director Armando Leon said they would be sold on the SITME market for the first time. The yield on PDVSA bonds maturing in 2017, currently offered in Sitme, fell 5 basis points to 15.26% percent after Barclays Capital recommended buying following Leon’s comments. (Bloomberg, 05-20-2011; http://www.bloomberg.com/news/2011-05-20/venezuela-may-weaken-currency-rate-to-discourage-import-surge.html)

Commodities

Venezuelan oil Falls to $99.12

Venezuela's weekly oil basket fell just under a dollar as oil prices continued to soften in international markets. According to figures released by the Venezuelan Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petróleos de Venezuela, S.A. (PDVSA) during the week ending May 20 fell to U$D99.12 from the previous week's U$D100.00. (Latin American Herald Tribune, 05-20-2011; http://www.laht.com/article.asp?ArticleId=394462&CategoryId=10717)

Minister says Venezuela plans to ration energy for another year

Venezuela will ration energy again this year, planning steps similar to those taken in 2010 amid an energy crisis, Electricity Minister Ali Rodriguez said. “We’re going to reapply the measures we applied in Caracas last year nationwide, which punishes the wasting of electricity and encourages energy savings,” Rodriguez said in an interview on state television today. Any rationing measures require President Hugo Chavez’s approval, Rodriguez said.  Venezuela has struggled to boost energy-generating capacity to keep pace with an estimated 6% increase in demand this year. The consumption jump, if it persists, would require an additional 2,000 megawatts of new capacity a year, which is “unsustainable,” Rodriguez said. Rodriguez said that the Government is ready to install 7,747 MW adding the units that have been purchased from China. (Bloomberg, 05-23-2011; http://www.bloomberg.com/news/2011-05-23/venezuela-plans-to-ration-power-for-second-year-minister-says.html; AVN, 05-23-2011; http://www.avn.info.ve/secciones/english/venezuelan-electric-system-to-be-stable-by-the-end-of-2011)

PDVSA’s Cardon refinery rocked by explosion

Petróleos de Venezuela, S.A.’s Cardon refinery in western Venezuela had an explosion today at its catalytic cracking unit, news agency NOTIFALCON reported on its website, without saying where it got the information. The explosion damaged the unit, without specifying the amount of damage or how production was affected. Plant workers were evacuated, and the situation has been controlled, Notifalcon, based in Punto Fijo, Venezuela, reported. (Bloomberg, 05-23-2011; http://www.bloomberg.com/news/2011-05-23/pdvsa-s-cardon-refinery-rocked-by-explosion-notifalcon-says.html)

Politics

President Chavez nominated his vice-president for governor

President Hugo Chavez has nominated his vice-president Elias Jaua as a candidate for Governor of Miranda State, in the next regional elections. (AVN, 05-22-2011; http://www.avn.info.ve/secciones/english/president-chavez-proposes-his-vice-president-for-governor)

Paraguayan Senator claims Venezuela offers up to U$D 200,000 for votes on MERCOSUR entry

Paraguayan Senator Juan Carlos Galaverna, of the Colorado Party, says the Venezuelan Government offers “incentives” of up to U$D 200,000 to Paraguayan senators for a positive vote on Venezuela’s entry into MERCOSUR. “The amounts fluctuate between 100,000 and 200,000 per head”, he said and added “the briefcases” come “from Buenos Aires” and are paid out by “a retired military officer along with a foreigner and other compatriots”, he told Agence France Presse. The Paraguayan Senate is the last hurdle to Venezuela’s entry into the regional group. More information in Spanish. (El Universal; 05-24-2011; http://www.eluniversal.com/2011/05/24/denuncian-que-gobierno-ofrece-hasta-$200-mil-para-ingresar-al-mercosur.shtml)

May 06th, 2011

Economics & Finance

ECLAC report: Foreign direct investment plunges U$D 1.4 billion in Venezuela, as Government investment abroad rises 30%

The annual report of the Economic Commission for Latin America and the Caribbean on foreign investment in 2010 not only notes that Venezuela, for the second consecutive year, recorded a negative balance in the flow of foreign capital of U$D1.4 billion, but also investments abroad, mainly those of the government, rose 30% last year.

ECLAC notes that the disbursements made by companies in the country, among which Petróleos de Venezuela, were U$D 2.3 billion against U$D 1.8 billion in 2009. It also mentions that a portion corresponding to the National Development Fund, although the report does not disclose the amount but presents the overall amount. In the case of the fund indicates that it acquired an equity stake in the Bank of Russia Mosnarbank Yevrofinans AKB, while PDVSA reports that expenditures were mainly for oil projects in countries of Central America, the Caribbean and South America. The report points out that Venezuela's strategy "focuses on the nationalization of foreign assets rather than on foreign direct investment as a core development objective." The nationalization of companies owned by multinationals determines that there is a negative investment flow despite the fact that "several major investment projects were also made, totaling U$D 668 million, mainly in the form of reinvested earnings," the ECLAC said. (El Universal, 05-05-2011; http://english.eluniversal.com/2011/05/05/foreign-direct-investment-plunges-usd-14-billion-in-venezuela.shtml) More information in Spanish. (El Nacional; http://www.el-nacional.com/www/site/p_contenido.php)

Latin America Business: Chile Best - Venezuela is worst

Chile has the best business climate in Latin America, followed by Panama and Peru, according to the sixth annual Latin Business Index from Latin Business Chronicle. Venezuela ranks worst by a far, scoring less than 2 points when every other country tallied at least 13 points, the latest calculation shows. The 2011 index broadly measures the climate for business in 18 countries in Latin America. It focuses on five categories using a methodology revised from 2010. (Latin Business Chronicle, 05-05-2011; http://www.latinbusinesschronicle.com/app/article.aspx?id=4884)

Venezuela’s Central Bank will become custodian of bonds held by private banks after June 30

Venezuela’s Central Bank is stepping up oversight of local banks’ bond trading in an effort to slow capital flight, according to bank president Nelson Merentes. On March 30 the central bank ordered private banks to register their securities within 10 working days and to transfer bonds, whether they’re held abroad or locally, to the Caracas-based institution, which will act as their custodian. “We’re holding the securities under custody at the central bank to avoid capital flight and financial engineering that allowed banks to register the value of the bonds below market price,” Merentes told reporters today in Caracas. “We aren’t going to regulate the sale of these bonds, but the Central Bank will monitor the operations to avoid losses.” Eudomar Tovar, First Vice President of the Central Bank, explains that banks continue to carry out transactions without limitations, only to be reported to the Central Bank. "The issuing entity does not become owner of the securities and can use them," said Tovar. (Bloomberg, 05-03-2011; http://www.bloomberg.com/news/2011-05-03/venezuela-s-central-bank-acting-as-custodian-of-bonds-1-.html) More information in Spanish. (El Mundo, 05-06-2011; http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=19&Id_Noticia=55228)

IMF raises Latin America economic growth forecast amid signs of overheating; Venezuela inflation rises

Economies in Latin American are showing signs of overheating as growth this year is poised to be faster than previously estimated, the International Monetary Fund said in a report today. Driven by high commodity prices and abundant global liquidity, Latin America and Caribbean economies should expand 4.7% this year, up from the 4% forecast made by IMF in October. Venezuela will lead the region in consumer price increases this year with an inflation rate of 32%, compared with an estimated 27% in 2010, the IMF said. (Bloomberg, 05-03-2011; http://www.bloomberg.com/news/2011-05-03/imf-raises-latin-america-growth-forecast-to-4-7-amid-overheating-signs.html)

Giordani claims wage increase exceeds annualized inflation rate

The Venezuelan Planning and Finances minister Jorge Giordani claims that the increase of 26.5% in the minimum wage, decreed by the President Hugo Chavez to take into effect since May 1, exceeds the annualized inflation rate until April (22.9%), which is also below the inflation estimated by the Executive branch in the budget for this year (23%). “We are evidencing a significant deceleration in the inflation rates,” said the minister. According to these results, Giordani claimed that inflation will not reach the levels estimated by the IMF and most economists. (AVN, 05-04-2011; http://www.avn.info.ve/node/55989)

Wage protection law to be in force by the end of 2011

The Law on Costs, Prices and Wage Protection is slated to become effective by the last quarter of 2011. Vice President Elias Jaua says a Superintendent Office will be created in order to guarantee compliance. It will have the responsibility of supervising, regulating, controlling and sanctioning those who fail to meet the law, which basically aims at attacking “the speculative heart if the national economy.” “This is not about attacking productivity nor the private company, but just to end with that chronic disease which is speculation and which is an evil mechanism to enable speculators to have a double profit. They have an economic profit because they take possession of Venezuelans purchasing power and they also earn by trying to accuse the Government of high prices,” said Jaua. (AVN, 05-04-2011; http://www.avn.info.ve/node/55990)

Venezuela to Form National Pricing Commission

President Chavez is scheduled to announce the creation of a government commission that will set maximum prices to be implemented across all sectors of the national economy. Officials will set up a central office that will monitor production costs and set maximum profit rates that will be adjusted every three months. The measure will allow companies that manufacture goods in Venezuela to earn higher profits than import companies, citing Nicmer Evans, a government official working on the law to form the commission. (Bloomberg, 05-03-2011; http://www.bloomberg.com/news/2011-05-03/venezuela-to-form-national-pricing-commission-el-nacional-says.html)

Barclays: PDVSA may pay Central Bank U$D 1 billion

Barclay’s says the state-owned oil company Petróleos de Venezuela (PDVSA) has outstanding obligations to the Central Bank of Venezuela (BCV), and the industry is currently identifying options to pay the debt. The British investment bank said in a report on debt amortizations that PDVSA will pay U$D 1 billion to the Central Bank. The investment firm estimated that obligations would total U$D 3 billion. Between 2010 and 2011, the Venezuelan oil industry reissued its 2014 and 2017 bonds in order to meet commitments to the Central Bank. (El Universal, 05-04-2011; http://english.eluniversal.com/2011/05/04/barclays-pdvsa-may-pay-usd-1-billion-to-the-central-bank.shtml)

Government says Venezuela's oil extra income to be used in social projects

The resources obtained the new Law on “Extraordinary and Exorbitant Oil Prices” will be invested in social projects conducted by the Bolivarian Revolution, says Rafael Ramirez, Energy and Oil minister and president of the state-run oil company Petroleos de Venezuela (PDVSA). “The goal is to transform those resources that belong to Venezuelans as a result of a sovereign exploitation of natural resources into households, agriculture, jobs, health, education, railroads, in conclusion: in social inclusion,” says Ramirez. (AVN, 05-05-2011;http://www.avn.info.ve/node/56189)

State food distribution network will feed over 13 million Venezuelans this year, almost half the population

Minister for Food, Carlos Osorio is announcing an expansion of the government food distribution network to over 13 million Venezuelans.Osorio explained that organizations such as Mercal, Abastos PDVAL and Bicentennial reach approximately 11 million Venezuelans. "As we have advanced this year, over 13 million people are supplied with the State food distribution" said Osorio. More information in Spanish. (AVN; http://www.avn.info.ve/node/56264)

Commodities

CITGO reportedly will shut Corpus Christi refinery coker unit nriefly for repairs -Source

CITGO Corp. will briefly shut a coker unit Thursday at its oil refinery in Corpus Christi, Texas, to repair a leak in a feed line, a person familiar with operations at the plant said on Wednesday. "The repair is expected to take about six hours during which time the coker unit will be off line," the person said. A CITGO representative wasn't immediately available for comment. The Corpus Christi refinery is able to process up to 165,000 barrels of crude oil a day. (Fox Business, 05-05-2011; http://www.foxbusiness.com/industries/2011/05/05/citgo-shut-corpus-christi-refinery-coker-unit-briefly-repair-source/)

PDVSA assembled the first oil rig platform on Venezuelan soil

The rig is currently located within the metal-mechanics firm Venezuelan Heavy Industries, C.A. (VHICOA) facilities and it will be moved via the Orinoco River towards the Paria Gulf in the next few months to be finally set up in Güiria where the FCP Platform will be operational. (Veneconomy, 05-03-2011; http://www.veneconomy.com/site/index.asp?idt=25810&idc=4&NPag=2&Start=15&aaD=2011&ids=44&Var_Send=1&mmD=05&ddD=03&mmH=05&ddH=05&aaH=2011&Send=Find)

Chavez claims new law will encourage gold production

Venezuela's President Hugo Chavez said he plans to create a new law to encourage investment in gold production in the country, which currently has an official output of about 11 tons/year. Chavez will pass the law by decree under special powers the country's national assembly granted him in January, after major flooding in the country. Chavez said that in addition to official production, another 11 tons of gold may leave the country every year as contraband. (Platts, 05-05-2011; http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Metals/6058304)

Politics

Poll: 56% of respondents say that Chavez is not capable of solving problems

Hugo Chávez has not yet regained the trust of Venezuelans. According to pollster Consultores 21, people' perception of the president's ability to solve the problems faced by Venezuela is still below the historical average, to the extent that 56% of respondents consider that he is not capable of solving them. The current Venezuelans' perception is similar to the view reported between the third quarter of 2002 and the first quarter of 2004, a period during which up to 60% of respondents came to believe that Chávez was not capable of solving the country's problems. (El Universal, 05-05-2011; http://english.eluniversal.com/2011/05/05/poll-281-of-respondents-say-that-chavezs-government-is-bad.shtml)

Governor Capriles set to challenge Chavez in 2012

The governor of Venezuela's Miranda state says he plans to run for the presidency next year, challenging President Hugo Chavez. Governor Henrique Capriles made the announcement Tuesday, saying he wants to be "president of all Venezuelans." Capriles also said he would run in opposition primaries in order to challenge President Chavez, who has been in office since 1999 and is seeking a new six-year term. An opposition primary is scheduled for February 2012, with the presidential election set for later in the year. (VOA News, 05-03-2011; http://www.voanews.com/english/news/americas/Governor-to-Challenge-Venezuelas-Chavez-in-2012----121195219.html)

Michael Rowan / Election Strategy

The opportunity is there. The country has long been split 30% for Chávez, 30% for the opposition and 40% ni-ni. So the opposition could achieve a 70/30 win at the polls if they did everything right. The two tasks for the Venezuelan people in 2012 are first, to win the election with 70% of the vote, and second, to get that result ratified without violence by an autocratic government that won't recognize it. Both tasks are close to impossible but very much worth the effort because failing in 2012 almost certainly condemns Venezuela to total collapse for many decades more. (El Universal, 05-04-2011; http://english.eluniversal.com/2011/05/04/michael-rowan-election-strategy.shtml)

US to examine possible sanctions against Venezuela

The US House of Representative's Committee on Foreign Affairs will hold a hearing to examine the Venezuelan government activity and determine whether it must be subject to sanctions. The hearing, which will be attended by senior US administration officials, was scheduled to be held on Tuesday, but was postponed due to the death of Saudi terrorist Osama Bin Laden, which forced the Congress to change the agenda. (El Universal, 05-04-2011; http://english.eluniversal.com/2011/05/04/us-to-examine-possible-sanctions-against-venezuela.shtml)

UN Mediator begins good offices on border dispute with Guyana

Norman Girvan, appointed s the new UN Mediator to advance negotiations in the border dispute between Venezuela and Guyana, held his first official meeting with Nicolás Maduro, "to identify options and advance the negotiation process to address a territorial dispute between Guyana and Venezuela in the Essequibo territory," said a press release reported by AFP. (El Universal, 05-05-2011; http://english.eluniversal.com/2011/05/05/un-mediator-begins-good-officer-efforts-on-border-dispute-with-guyana.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.