May 10th, 2011

Economics & Finance

Venezuelan accountant held in US pleads guilty in PDVSA U$D 500 million Ponzi fraud

Juan Carlos Guillen Zerpa, 44, the Venezuelan head of the Venezuelan affiliate of BDO, the world's fifth largest accounting and consulting firm, pled guilty in a plea bargain to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission (SEC), over a fake U$D 275 million asset verification letter he was paid U$D1 million to execute by Francisco Illaremandi, a Venezuelan investment adviser who ran Michael Kenwood Asset Management.

According to the SEC, a large part of the USD $500 million managed by Illarramendi has apparently been lost. llarramendi lived in New Canaan, Connecticut and ran several hedge funds that handled money for Venezuelan state oil company Petroleos de Venezuela (PDVSA) worker retirement funds. (Latin American Herald Tribune, 05-06-2011; http://www.laht.com/article.asp?ArticleId=393375&CategoryId=10717)

Price controls rely on high oil revenues

Although price controls implemented by President Hugo Chávez have failed to curb prices and accumulated inflation stands at 431% for the past eight years, the total collapse of price controls has not arrived, as it did during the administrations of Rafael Caldera and Jaime Lusinchi.  During those governments, price controls discouraged the production and supply of regulated items, thus leading to a shortage of products led to increased imports until international reserves fell and authorities were forced to remove price caps, which translated into a high cost for people.

Efraín Velásquez, the President of Venezuela's National Economic Council, does not hesitate to point out that increasing oil prices and a policy where the private sector has been sacrificed have prevented a final crisis from happening so far. (El Universal, 05-09-2011; http://english.eluniversal.com/2011/05/09/lingering-price-controls-supported-by-high-oil-revenues.shtml)

Real minimum wages have dropped 37.1% since 1980

Recurrent economic crises, currency devaluations and inflationary spirals have hit the Venezuelan economy over the past three decades and have prevented minimum wage from growing enough to improve Venezuelans' income. Its improvement, in real terms, has not been consistent over time and, although the purchasing power of the base salary increased by 14.8% over the past decade, the overall balance is negative. The Central Bank of Venezuela (BCV) and the National Statistics Institute (INE) estimate that the purchasing power of the minimum wage has fallen 37.1´% since 1980, even though the nominal wage has been increased by more than 20% on a yearly basis. Official data show a 0.6% drop in the purchasing power of minimum wage between 2009 and 2010, which is consistent with a fall that has not stopped since 2006. (El Universal, 05-09-2011; http://english.eluniversal.com/2011/05/09/real-minimum-wage-has-dropped-371-percent-since-1980.shtml)

Government must raise food prices

A report by BANCARIBE’s Management for Research and Economic Strategy indicates that if the Government may incur losses if it does not raise controlled food prices. As the public sector is a major food importer, would have to absorb losses encouraged not only for adjustment of 65% in the official exchange rate for priority items in place since January 2011, but also because of an increase of raw materials in the international market. This all adds on to shortages of goods in the domestic market. "In this sense, it is expected that the Executive will gradually increase food prices over the coming months, the prices will encourage re-register an acceleration to locate the annualized inflation levels of 30%." (El Nacional; 05-10-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Food shortages at 20.22%

The level of general shortage of basic food basket increased by 0.16% last week in connection and is now at 20.22%.That is the highest shortage level reported this, above all records for the last quarter of 2010. This study shows weekly supply basic food basket estimated by polling firm DATANÁLISIS, which states that milk powder is the only product in the range of severe shortage (over 40%). More information in Spanish. (Ultimas Noticias, 05-09-2011; http://www.ultimasnoticias.com.ve/Noticias/Actualidad/Escasez-de-alimentos-esta-en-20,22-.aspx)

Venezuela official April inflation rises by 1.4%

The Venezuela Central Bank reported April inflation increased by 1.4%, the same as that of March, which is a total increase of 7.5% to date in 2011. For the last twelve months inflation has increased by a total of 22.9%.Alcoholic Beverages and tobacco was up 3%, Home Equipment was up 2%; Diverse Services up 2%, Transportation 1.8% and Food and Beverages was up 1%. (Latin American Herald Tribune, 05-09-2011;  http://www.laht.com/article.asp?ArticleId=393568&CategoryId=10717)

Venezuela Stock Market index up by 17.58%

The Caracas Stock Index soared the week ending May 6, as its main financial components all moved up, while no issues fell. The Caracas Stock Index was up 8.5% closing at 76,823 on Friday. (Latin American Herald Tribune, 05-09-2011; http://www.laht.com/article.asp?ArticleId=393558&CategoryId=10717)

Few believe

The Venezuelan daily El Universal, quoting Consultores 21 reports Great Housing Mission has been launched with a rather negative perception: over 52% reject the claim by President Chávez that he can build the two million housing units over the next seven years or fulfill the promises made to the rain victims. However, 72,454 people families registered during the first stage of the official housing census. (Veneconomy, 05-09-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25876&idc=3)

Commodities

Venezuela's oil basket down U$D 2.40 to U$D 108.01

The price of the Venezuela oil basket shed U$D 2.40 in the week from May 2 to 6, according to the weekly report of the Ministry of Energy and Petroleum. Domestic crude oil ended the week at U$D 108.01, lower than U$D 110.41 the previous week. "Average prices of main crude oil markers in the week closed lower, due to high volume of sales of crude oil contracts and concerns over global economic recovery, larger inventories in the United States, and a stronger US dollar versus other currencies," stated the press release issued by the Ministry of Energy and Petroleum. (El Universal, 05-06-2011; http://english.eluniversal.com/2011/05/06/venezuelas-oil-basket-down-usd-240-to-usd-10801.shtml)

Selling off assets: ROSNEFT has purchased 50% equity in Ruhr Oel refinery From PDVSA

Russia's state-controlled oil major OAO ROSNEFT said Thursday it has completed the purchase of a 50% stake in German refinery Ruhr Oel from Venezuelan state oil company Petróleos de Venezuela, S.A. The company said the deal was approved by the European Union antitrust watchdog March 11, and came in force May 1. The deal, signed October, has ROSNEFT paying U$D1.6 billion for the stake and makes ROSNEFT a partner with BP PLC (BP), as Ruhr Oel is a 50-50 joint venture between PDVSA and the U.K. oil company. (Fox Business, 05-06-2011; http://www.foxbusiness.com/industries/2011/05/05/rosneft-closes-purchase-50-ruhr-oel-refinery-pdvsa/)

And spending income from sales: PDVSA to invest $1 billion in Gran Misión Vivienda Venezuela

According to Enery and Oil Minister Rafael Ramírez, the Venezuelan Government, after receiving U$D 1.6 billion for the sale of 50% of shares of the Ruhr Oel refinery in Germany, through the state-run oil company Petróleos de Venezuela (PDVSA), will apply at least U$D 1 billion for development of the housing program Gran Mision Vivienda Venezuela. (AVN, 05-09-2011; http://www.avn.info.ve/node/56769)

PDVSA restarts Amuay units after steam supply problems

Venezuelan state oil company Petróleos de Venezuela (PDVSA) on Friday said it was restarting some units of its Amuay refinery that were paralyzed earlier in the day due to steam supply problems. The problems occurred at 1000 local time, forcing several units to suspend operation, but the steam supplies were restored the same day, PDVSA said. The accident did not cause injuries and damages. The company said the fuel supply to the national and international markets was guaranteed. (ADP News, 05-09-2011; http://adpnews.info/?nid=b703b5adec37ffc2)

Chavez authorized aluminum imports from Canada

The scandal over ALCASA’s importing 5,000 tons of aluminum, part of a lot more than 32,000 tons that were bought from the same "trader", plus another lot of 112,000 tons took another turn yesterday as President Company, Elio Sayago, confirmed everything and said that permission for the entire operation was given by President Hugo Chavez on June 4, 2010. Sayago, has been facing stiff opposition from other pro Government groups over his handling the company. (Tal Cual, 05-10-2011; http://www.talcualdigital.com/index.html)

Venezuelan government ponders choices to bolster the national grid

The Venezuelan government is weighing alternative schemes to upgrade the transmission networks of the National Electricity System (SEN) which suffer shortcomings in power energy supply from the Guri dam to distribution centers in central and western Venezuela.  The system operates under risk in those areas, given the consequences of such restrictions. According to unofficial sources, transmission lines in these areas are daily overloaded. The Ministry of Electric Energy received a proposal that is intended to return "stability to the national grid." (El Universal, 05-06-2011; http://english.eluniversal.com/2011/05/06/venezuelan-government-ponders-on-choices-to-ease-the-national-grid.shtml)

Politics

Colombia extradites reputed drug kingpin to Venezuela, where he has implicated officials

Colombia has extradited to Venezuela a man the White House has called an important drug kingpin. Walid Makled faces drug smuggling and murder charges in Venezuela. He was handed over to Venezuelan officials by Colombian police at a Bogota air base, and arrived in Caracas aboard a Venezuelan Learjet. His extradition by Colombia has generated a great deal of attention because Makled says some close associates of Venezuelan President Hugo Chavez were his business partners. Officials named by Makled have denied the accusations. (The Washington Post, 05-09-2011; http://www.washingtonpost.com/world/colombia_extradites_reputed_drug_kingpin_to_venezuela_where_he_has_implicated_officials/2011/05/09/AFVjAdYG_story.html)

Chavez suspends trip to Brazil, Ecuador and Cuba

Venezuelan President Hugo Chavez suspended planned trips to Brazil, Ecuador and Cuba because of a knee injury. (Agencia Venezolana de Noticias, 05-10-2011; http://www.avn.info.ve/node/56844)

Venezuela parliament authorizes new satellite program with China

Venezuela's National Assembly on Thursday endorsed a new satellite contract program with China, the second such bilateral project between the two countries. The parliament published authorization for the new project, also known as "VRSS-1," in Venezuela's official gazette, at which point the project legally takes effect. The notification in the gazette said this program is developed jointly between Venezuela's Ministry for Science, Technology and Intermediate Industries and China Great Wall Industry Corporation. (Space Daily, 05-09-2011; http://www.spacedaily.com/reports/Venezuela_parliament_authorizes_new_satellite_program_with_China_999.html)

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 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.

May 3rd, 2011

Economics & Finance

Morgan Stanley says Venezuelan disposable reserves may run out by the Third Quarter 2011, but estimates the country may grow 3%

In the latest report on Venezuela, dated May 2, Morgan Stanley increased the estimate of growth for the country's economy in 2011 from 0.3% to 3%.

Also, the investment bank improves its growth forecast for next year from 1.6% to 3.6%. The improved outlook is due solely to the jump in oil prices in the order of 40% over the past four months, but the analysis makes clear that the barrel no longer has the same effect on the economy. The study points out that the liquid portion of international reserves, that is, dollars immediately on hand for imports, debt repayment and demand for foreign currency, decreased by U$D 3 billion this year, to U$D 6,100 billion. It adds that if this trend continues Venezuela will find itself without liquid reserves by the Third Quarter. More information in Spanish. (El Universal; http://www.eluniversal.com/2011/05/03/morgan-stanley-proyecta-que-el-pais-crecera-3.shtml)

Supply of U$D through Sitme shrinks by 26%

The System for Foreign Currency Denominated Securities Transactions (SITME), created by the Central Bank of Venezuela for companies that do not receive US dollars through the Foreign Exchange Administration Commission (CADIVI) to access US dollars at an exchange rate of up to VEB 5.30 per US dollar, has registered a significant drop in the supply of foreign exchange. Data released by the Central Bank of Venezuela, which manages SITME, show that between September and December 2010, the daily supply of US dollars averaged U$D 42 million. However, it plummeted 26% to U$D 31 million durin the first four months of 2011. Analysts believe the way SITME was set up forces financial authorities to keep a low supply of dollars. (El Universal, 05-02-2011; http://english.eluniversal.com/2011/05/02/supply-of-us-dollars-through-sitme-falls-26-percent.shtml)

Chavez to Cut Bank Reserve Requirements by 3% to Fund Housing

Venezuelan President Hugo Chavez said he has asked the central bank to lower reserve requirements by 3 percent to free up money so that private banks can provide credit to build houses. Chavez, speaking on state television at the start of a social program that aims to eradicate Venezuela’s housing deficit of more than 2 million homes, said banks will be obliged to finance a portion of the 30 billion bolivars ($7 billion) needed to build the government’s 2011 target of 153,000 homes. Central bank President Nelson Merentes said lowering reserve requirements by 3 percent would free up 10 billion bolivars ($2.33 billion). (Bloomberg, 30-04-2011; http://www.bloomberg.com/news/2011-05-01/venezuela-s-chavez-to-cut-bank-reserve-requirements-by-3-to-fund-housing.html)

Bill on Costs, Prices and Protection of Salaries to be discussed this week in Council of Ministers

Next Tuesday, the President of Venezuela Hugo Chavez will bring to the Council of Ministers the Bill on Costs, Prices and Protection to Salary to be discussed and passed in the framework of the Enabling Law. Chavez underscored that the new legal instrument is aimed at giving tools to the State and the people to “defeat speculation, hoarding and the voracity of the markets and the bourgeoisie.” The announcement was made on Sunday during a mass gathering in Caracas, where thousands of workers met to commemorate the May Day. The President explained that it is expected to transform the Institute for the Defense of People’s Access to Goods and Services (INDEPABIS in Spanish) “into a sort of superintendence of costs, prices and protection of salaries.” (AVN, 05-02-2011; http://www.avn.info.ve/node/55665)

EPA following Éxito’s path?

During the same speech, President Chávez also threatened to expropriate the EPA chain of hardware stores if it “insists” on speculating with prices, and “that has to be in the law,” he said. (Veneconomy, 05-02-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25791&idc=3)

Terms for Venezuela-Colombia trade are made official

The Venezuelan government has implemented an agreement entered into by Venezuelan President Hugo Chávez and his Colombian counterpart Juan Manuel Santos on April 9 in Cartagena. These rules will govern bilateral trade provisionally.

Technical teams of Venezuela and Colombia held talks to achieve an Agreement on Economic and Trade Complementarity upon Venezuela's departure from the Andean Community (CAN) on April 22. Absent a permanent understanding, the Heads of State chose to extend for 90 days the regulations within the sub-regional bloc. (El Universal, 04-29-2011; http://english.eluniversal.com/2011/04/29/terms-for-venezuela-colombia-trade-are-made-official.shtml)

A reliable power supply requires an additional grid

A study by the public electric enterprise EDELCA on problems within the National Grid (SEN) has found that in order to support the economic growth envisaged for this and subsequent years, in addition to housing, development programs, and increasing population, demand for electricity is rise to heighten by a yearly average of 6.5%. Professionals and experts from the company, now merged into the National Electrical Corporation (CORPOELEC), find that "the electricity supply should be of a thermal nature, in order to diversify sources and ensure a safe grid." During 2011 there is the need to "rely on 2,700 installed megawatts (Mw) of new thermal generation, composed of combined-cycle and gas plants." (El Universal, 04-29-2011; http://english.eluniversal.com/2011/04/29/another-grid-is-the-key-for-a-reliable-power-supply.shtml)

Commodities

Venezuela ministry source says China could invest U$D40 billion in energy sector

China could further increase its investments in Venezuela's energy sector in oil production, refineries, natural gas projects, terminals and in the exportation and industrialization of coke and sulfur, a source with Venezuela's Energy and Oil Ministry said Monday. "It is anticipated that the joint investments between PDVSA and Chinese companies might reach $40 billion in the next 10 years," said the official, who spoke on condition of anonymity. This comes after a Chinese delegation visited Venezuela during the last two weeks of April to discuss possibly participating in state oil company PDVSA's projects underway to improve refineries in Puerto La Cruz and El Palito. Delegates included representatives from the China Development Bank, China International Engineering Consulting, and China Petroleum and Petrochemical Engineering. (Platts, 05-03-2011; http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/8839231)

Venezuela’s ALCASA to Get U$D403 Million Investment From Government, China

A joint development fund between China and Venezuela will invest $403 million in CVG Alumino del Caroni SA after the state-run aluminum producer declared an operational and financial emergency, Venezuela Basic Industries and Mining Minister Jose Khan said. Beijing-based Aluminum Corporation of China Limited will provide operational advice to the metal maker known as ALCASA, Khan said in comments carried on state television. “This is going to give ALCASA an increase in production and an increase in its income,” Khan said. (Bloomberg, 30-04-2011; http://www.bloomberg.com/news/2011-04-30/venezuela-s-alcasa-to-get-403-million-investment-from-government-china.html)

El Salvador- ALBA fuel storage plant, a joint venture with Venezuela, will be inaugurated next month. The plant, located in Acajutla, 85 kilometers from the capital city El Salvador, has capacity for 300,000 barrels of gas, diesel and natural gas. (Veneconomy, 04-29-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25768&idc=4)

Politics

President Chavez's performance rating rose 12% in 2011

According to data gathered by a polling company called GIS XXI in March, released by the Government news agency, the performance rating for President Hugo Chavez has risen 12% over the past 12 months. From a sample of 2,500 people surveyed for the comparative study between the first trimester of 2010 and 2011, the study shows that 52% of the people consider the general performance of the head of State as very good. The index was at 40% in the first trimester of 2010. (AVN, 05-01-2011; http://www.avn.info.ve/node/55582)

Venezuela's Chavez predicts full employment if re-elected

Addressing tens of thousands of red-clad workers at a May Day march on Sunday, Venezuelan President Hugo Chavez set a goal to create more than 3 million jobs in eight years and end unemployment in the OPEC nation. Chavez arrived at the rally waving a Venezuelan flag from an open-topped truck. "I am absolutely sure we will incorporate 3.5 million jobs in the next eight years," Chavez told the workers, who were brought in on buses to Caracas from across the country. (Yahoo News, Reuters, 05-01-2011; http://news.yahoo.com/s/nm/20110501/wl_nm/us_venezuela_chavez_1)

Jaua says people's awareness crucial for the continuation of the Revolution

Venezuelan Executive Vice President Elias Jaua said this Monday that “the guarantee for the continuation of the Revolution in the future is politicization.” In a local television program, Jaua said that raising people’s level of consciousness and their capacity of organization is crucial for the revolutionary process to keep in the future. The Venezuelan Revolution is relaunching itself and if works keeps the same pace, “we will have a great people’s victory in 2012 (in the presidential elections), a guarantee for the Revolution to continue.” (AVN, 05-02-2011; http://www.avn.info.ve/node/55668)

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

April 29th, 2011

Economics & Finance

Venezuela oil tax to net billions before Chavez vote

New Venezuelan taxes on windfall oil revenue will let socialist President Hugo Chavez boost spending on popular social programs by billions of dollars ahead of his re-election bid next year. They set a top rate of 95 percent on some oil income and are Chavez's latest move to increase the state's share of the OPEC member's main export. During 12 years in power he has nationalized most of the South American nation's oil industry. His government predicted on Tuesday the new tax rates will bring in between $9 billion and $16 billion this year if oil prices keep rallying. Chavez has earmarked the money for a social spending fund and is already splashing it around. "This is justice," he said as he unveiled pay rises of up to 66 percent for public sector workers. (Reuters, 04-27-2011; http://www.reuters.com/article/2011/04/26/us-venezuela-oil-idUSTRE73P6Z920110426)

Wage hike expected to boost Venezuela's inflation

President Hugo Chavez's decision to increase the minimum wage 25 percent is expected to elevate Venezuela's already high inflation, economists and opposition lawmakers said Wednesday. Chavez's decree involves a 15 percent boost in pay at the beginning of May, then a 10 percent rise Sept. 1. The wage hike announced Tuesday will benefit more than 6 million people, who will earn $360 a month once the full increase is phased in. Chavez also gave public employees a 45 percent raise. Government officials said they hope to keep inflation in check despite wage hikes. Labor Minister Maria Iglesias suggested greedy businessmen are partly responsible for Latin America's worst inflation, accusing them of unjustifiably inflating prices. (Forbes, 04-27-2011; http://www.forbes.com/feeds/ap/2011/04/27/general-lt-venezuela-inflation_8438194.html)

PDVSA transfers U$D1.37 Bln to Venezuela's National Development Fund

Petroleum Minister and PDVSA President Rafael Ramírez said the state-owned Petróleos de Venezuela (PDVSA) has transferred $1.37 billion to the Venezuela’s National Development Fund (FONDEN) in the first quarter of this year, to be invested in socioeconomic development projects. The announcement was made during the presentation of the Law that creates a special tax on windfall and exorbitant oil prices in international oil markets. (AVN, 04-27-2011; http://www.avn.info.ve/node/54954)

JP Morgan criticizes lack of transparency in government figures

In a report, the U.S. firm JP Morgan described a "puzzling" lack of transparency in government figures in regard to the surplus oil which is obtained by rising oil prices. It notes that it has become difficult to make accurate estimates due to the opacity in the official numbers. The document also points to a drop in international reserves pegged at U$D 3.6 billion to date this year. The firm claims that U$D 2 billion are attributable to transfers to the National Development Fund and the rest may have been used by the Ministry of Planning and Finance for repayment of some of the titles of the Republic, which became due on April 20 2011. (El Nacional, 04-28-2011;

http://www.el-nacional.com/www/site/p_contenido.php)

Tariffs could be reduced by 6 points once Venezuela enters MERCOSUR

Eduardo Porcarelli, executive director National Council for Investment Promotion (CONAPRI) says that once Venezuela becomes a full member of MERCOSUR, the common external tariff – which currently averages 13%  - should drop by 3 percentage points. "In the specific case of agricultural and agroindustrial products, the existing tariff which is 16.66% on average, would decrease more than six percentage points, because MERCOSUR has a 10% tariff for third countries, "said the expert. Juvenal Arvelaez, chief executive of the Venezuelan Chamber of the Food Industry (CAVIDEA) agrees with Porcarelli that "the entry of Venezuela into Mercosur will mean an average 40% reduction in the protection of agricultural and agribusiness sector in Venezuela in relation to third countries." (El Mundo, 04-27-2011; http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=19&Id_Noticia=54171)

Businessmen warn that entering MERCOSUR now is harmful

Private sector spokesmen say it is the worst time for Venezuela to enter into MERCOSUR. "At this time, accession to MERCOSUR would be really harmful for the country's industry," said Ismael Pérez Vigil, the executive president of the Venezuelan Confederation of Industries (CONINDUSTRIA). After withdrawal from the Andean Community of Nations (CAN), government authorities' priority is to enter the Common Market of the South (MERCOSUR)

(El Universal, 04-27-2011; http://english.eluniversal.com/2011/04/27/businessmen-warn-that-membership-in-mercosur-is-harmful.shtml)

Minister of Labor: Wages for 21% of workers still do not cover the cost of the basic food basket

María Cristina Iglesias, the Minister of Labor and Social Security, said that 21% of the working population earns the minimum wage, compared with about 65% 11 years ago. There are about 2.7 million workers earning the minimum wage, according to data reported by the Minister of Labor. From May 1, they will be paid VEB 1,407.4 (U$D 327.30), after a 15% increase in a first tranche and an additional 10% raise from September 1. (El Universal, 04-27-2011; http://english.eluniversal.com/2011/04/27/minister-of-labor-21-percent-of-workers-still-fail-to-cover-the-cost-of-food-basket.shtml)

Canary Islands seek solution for seizure of companies in Venezuela

The local parliament of the Canary Islands requested the Spanish government to seek negotiations to work out the "unresolved" serious problems due to the seizures of Spanish companies in Venezuela, undertaken by Venezuelan authorities. The resolution shows all political groups are aware of the difficulties faced by Spanish companies seized by the Venezuelan government and the implications for those involved. (El Universal, 04-27-2011; http://english.eluniversal.com/2011/04/27/canary-islands-seek-solution-for-seizure-of-companies-in-venezuela.shtml)

Commodities

Venezuela sets oil windfall tax for oil price at U$D 40-70

The Venezuelan government set an additional 20% tax on oil windfall revenues by state-run oil company Petróleos de Venezuela (PDVSA) and its joint ventures whenever oil prices fluctuate between U$D 40 and U$D 70 per barrel, as per decree No. 8,163, published in the Extraordinary Gazette No. 6,022 with the Law that creates a special tax on windfall and exorbitant oil prices in international oil markets. "When the monthly average of the Venezuelan basket of liquid hydrocarbons in international markets is above the price set in the Budget Law for that fiscal year, but not higher than U$D 70 per barrel, a 20 percent tax will be levied on the difference between both prices," according to the Official Gazette. (El Universal, 04-27-2011;

http://english.eluniversal.com/2011/04/27/venezuela-sets-oil-windfall-tax-for-oil-price-at-usd-40-70.shtml)

Economic emergency was declared in ALCASA

Company president, Elio Zayago, publicly declared a state of "financial and operational emergency”, thus admitting that the situation is untenable in CVG ALCASA. "It is no secret that when this administration, under workers' control took over management of the plant, it received more than 50% of diseased cells, with high temperatures and exceeded nominal life. These conditions, which are joined by strikes that prevented the proper treatment and low cash flow generated (sic) a weakness in terms of acquisition time, coke, tar and fluoride, "he explained Thursday at a news conference. More information in Spanish. (El Universal, 04-29-2011; http://www.eluniversal.com/2011/04/29/fue-declarada-la-emergencia-economica-en-alcasa.shtml)

Venezuela Oil Hits $110.33

Venezuela's Ministry of Energy and Petroleum reports that the average price of Venezuelan crude sold by Petróleos de Venezuela S.A. (PDVSA) during the week ending April 29 rose to U$D110.33 from the previous week's U$D108.29, raising the average for the year to U$D95.04, above the previous high set by 2008's U$D86.49 average. (Latin American Herald Tribune, 04-29-2011; http://www.laht.com/article.asp?ArticleId=392690&CategoryId=10717)

Venezuela's PDVSA Discussing Tech Projects With China Firms

Venezuelan state oil company Petróleos de Venezuela said Thursday that it is discussing possible technological development projects for refining and upgrading of crude oil with an advisory group from the China Development Bank. (The Wall Street Journal, 04-28-2011; http://online.wsj.com/article/BT-CO-20110428-721423.html)

PDVSA said to be building seven thermoelectric plants to add 1,954 MW by 2012

Electric Energy Minister Alí Rodríguez Araque says Venezuela’s state-run oil company Petróleos de Venezuela (PDVSA) is building seven thermoelectric plants that will add 1,954 MW to the National Electric System in 2012. He has recently said that “In total, 800 megawatts will be added by PDVSA by the end of 2011”. By the end of 2011, the Government claims it will to add 2,568MW in total. In addition, to the 800 MW from PDVSA, the National Electric Corporation (CORPOELEC) expects to add 1,593 MW and the Basic Industries and Mining Ministry other 175 MW for the National Electric System. (AVN, 04-27-2011; http://www.avn.info.ve/node/54975)

Venezuelan steelmaker recovers after power crisis in 2010

Venezuelan state-run steelmaker Siderúrgica del Orinoco (SIDOR) reported an output of 767,000 tons of liquid steel in the first quarter this year, said Pedro Acuña, the main director of Class B shareholders on SIDOR's board of directors.

Production in the same period of 2010 totaled 308,000 tons, amid power rationing implemented in Guayana's basic industries, which undermined SIDOR's regular operating performance. The output of Venezuela's main steelmaker rose 149% in 2011 compared to 2010. (El Universal, 04-29-2011;

http://english.eluniversal.com/2011/04/29/venezuelan-steelmaker-recovers-after-power-crisis-in-2010.shtml)

Politics

Some 25 foreign ministers prepare a summit to set up a "parallel OAS"

Latin American and Caribbean foreign ministers are meeting in Venezuela to prepare a presidential summit to be held in Caracas in July in order to establish a new regional body that excludes the United States and Canada. Ministers and diplomatic representatives from over 25 countries are discussing regional integration and development issues, and will prepare the agenda of the presidential summit to be held in Venezuela on July 5. The Presidents and Heads of State of the region will outline the Charter of the Community of Latin American and Caribbean States (CELAC), which aims to be an Organization of American States that excludes the United States and Canada. (El Universal, 04-26-2011;

http://english.eluniversal.com/2011/04/26/some-25-foreign-ministers-prepare-a-summit-to-set-up-a-parallel-oas.shtml)

Venezuela-Colombia relations benefit the entire region

Colombian Foreign Affairs Minister Maria Angela Holguin has said that bilateral relations with Venezuela will not be “derailed” by any differences because, Colombia is working hard to keep and improve the ties with its sister nation. “The relation, as you well know, has a lot of issues to deal with day after day. Many things happen in the border, which is big, issues are many, and there are many critics. It is not an easy relationship, but the Colombian Government is committed to it, the President Santos and I have placed this relationship as a priority for Colombia. We believe it not only benefits the people of Colombia and Venezuela, but the entire region and we will keep working for such purpose”. (AVN, 04-27-2011; http://www.avn.info.ve/node/54943)

Cardoso urges Rousseff not to be contradictory on Venezuela

Brazil's former President Fernando Henrique Cardoso asked current Brazilian President Dilma Rousseff and Foreign Minister Antonio Patriota to be "sensitive enough" to deal with criticism from the Venezuelan government, without damaging the relationships and the dialogue between the two countries. "It appears that, as regards human rights, she (Rousseff) has been more consistent in her protest, but Brazil has common interests with Venezuela and we cannot all of a sudden have an attitude that could be regarded as contradictory on Venezuela". (El Universal, 04-27-2011; http://english.eluniversal.com/2011/04/27/cardoso-urges-rousseff-not-to-be-contradictory-with-venezuela.shtml)

Chavez announces a Libyan delegation sent by Qaddafi is in Venezuela

President Hugo Chavez has announced that a Libyan delegation sent by Muammar Qaddafi has arrived in here seeking international support for a truce in the Libyan conflict. The delegation will hold talks with Chavez’s government to see if members of the Bolivarian Alternative for the Americas, a trade bloc spearheaded by Chavez, and other Latin America countries can help efforts to restore peace to Libya, said Foreign Minister Nicolas Maduro. (Bloomberg, 04-26-2011; http://www.bloomberg.com/news/2011-04-26/libyan-delegation-sent-by-qaddafi-in-venezuela-chavez-says-1-.html)

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.