Aug
17
2011
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E-Alert – ICYMI: Analysis – Chavez seeks to contain voter angst over economy

Reuters - August 15, 2011

By Louise Egan

CARACAS – Venezuela’s economy is plagued by shortages, high inflation and crippling currency controls, but a massive spending spree by President Hugo Chavez will likely keep an incipient recovery alive, at least until a 2012 vote.

Polls show support for the charismatic leftist leader has edged up since he announced in June he had cancer. But unless he can generate as much sympathy for his economic stewardship, his re-election bid could be at risk.
In the short term, Chavez can paper over underlying problems with subsidies, price controls and ramped-up spending on his flagship health and housing programs for the poor.

But eventually, falling oil production by the OPEC nation combined with mounting debt will make it harder to finance his socialist “revolution,” analysts say, leading to sub-par growth and possibly another painful currency devaluation.

“We expect Venezuelan growth to lag behind the rest of Latin America over the coming years,” said David Rees, emerging markets economist at Capital Economics in London.

“Of course Chavez, current health concerns aside, will try to pump the economy ahead of next year’s presidential election with strong government spending.”

Venezuela has the world’s largest oil reserves, according to OPEC. Yet it was the last in Latin America to pull out of recession, returning to growth in the fourth quarter of 2010.

The recovery advanced at a healthy clip in the first half of this year and is on track for 4.5 percent annual growth, the U.N.’s regional economic body ECLAC predicts.

High oil prices and public spending are powering the expansion. Since taking office in 1999, Chavez has nationalized large swaths of the economy, scaring off foreign investors and slowing domestic manufacturing, farm and even oil production as companies are reluctant to bet on new projects.

The 57-year-old former soldier’s illness has slowed him, but he has made an effort to show he remains in charge, displaying his characteristic flair during regular phone calls to state television programs. He has undergone two chemotherapy sessions in Cuba as Fidel Castro’s guest and says he is recovering well.

Oil prices may continue to work in Chavez’s favour, rallying since a sharp sell-off last week over the U.S. and European debt crises and fears of another global downturn.

“Even if we see a Lehmann-style sell-off like we saw in 2008 … as long as oil stays above $70 (42.69 pounds) a barrel, they’re in pretty good shape,” said Russ Dallen, head of Caracas Capital Markets.

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Aug
17
2011
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ICYMI: Venezuela Plans to Move Reserve Funds

Venezuela Plans to Move Reserve Funds

The Wall Street Journal - August 17, 2011

By José de Córdoba and Ezequiel Minaya

CARACAS – Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.

The planned moves would include transferring $6.3 billion in cash reserves, most of which Venezuela now keeps in banks such as the Bank for International Settlements in Basel, Switzerland, and Barclays Bank in London to unnamed Russian, Chinese and Brazilian banks, one document said.

Miraflores Press/Zuma Press
Hugo Chávez returned to Venezuela after completing another phase of his treatment for cancer in Cuba.

Venezuela also plans to move 211 tons of gold it keeps abroad and values at $11 billion to the vaults of the Venezuelan Central Bank in Caracas where the government keeps its remaining 154 tons of bullion, the document says.

Venezuelan officials were tight-lipped. Representatives of the ministry of finance and the central bank said there was no official comment, and no one was authorized to address the issue.

Lately, senior Venezuelan officials have criticized Venezuela’s dependence on the dollar. Last Saturday, Venezuelan Foreign Minister Nicolas Maduro said the world’s financial system, based on the dollar, “had entered into a crisis of uncertainty and we are planning to construct a new international monetary system, and especially in South America, protect ourselves from this situation,” he said.

The Bank of England recently received a request from the Venezuelan government about transferring the 99 tons of gold Venezuela holds in the bank back to Venezuela, said a person familiar with the matter. A spokesman from the Bank of England declined to comment whether Venezuela had any gold on deposit at the bank.

A spokesman for the Bank for International Settlements where Venezuela keeps $3.7 billion of its cash reserves, and 11.2 tons of gold, Venezuela svalues at $544 million, according to the document, also declined to comment.

Analysts said the planned move made little economic or financial sense, since Venezuela would be taking its money out of secure banks in safe countries and putting it in countries that are not as safe and perhaps in currencies such as the Chinese yuan or the Russian ruble, which are not reserve currencies. “It’s a big risk,” said José Guerra, a former official at Venezuela’s central bank. Mr. Guerra said he also had heard about the documents whose authenticity was confirmed to him by Central Bank officials.

Mr. Guerra said one possible reason for the planned moves could be that Venezuela is afraid it could be compelled to pay billions of dollars in compensations to foreign companies that have gone to court to recover damages for companies Venezuelan President Hugo Chávez has nationalized. Another reason could be that China may have asked for collateral for billions of dollars it has loaned Venezuela, Mr. Guerra said.

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Aug
17
2011
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ICYMI: Venezuela Plans to Move Reserve Funds

Venezuela Plans to Move Reserve Funds

The Wall Street Journal - August 17, 2011

By José de Córdoba and Ezequiel Minaya

CARACAS – Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.

The planned moves would include transferring $6.3 billion in cash reserves, most of which Venezuela now keeps in banks such as the Bank for International Settlements in Basel, Switzerland, and Barclays Bank in London to unnamed Russian, Chinese and Brazilian banks, one document said.

Miraflores Press/Zuma Press
Hugo Chávez returned to Venezuela after completing another phase of his treatment for cancer in Cuba.

Venezuela also plans to move 211 tons of gold it keeps abroad and values at $11 billion to the vaults of the Venezuelan Central Bank in Caracas where the government keeps its remaining 154 tons of bullion, the document says.

Venezuelan officials were tight-lipped. Representatives of the ministry of finance and the central bank said there was no official comment, and no one was authorized to address the issue.

Lately, senior Venezuelan officials have criticized Venezuela’s dependence on the dollar. Last Saturday, Venezuelan Foreign Minister Nicolas Maduro said the world’s financial system, based on the dollar, “had entered into a crisis of uncertainty and we are planning to construct a new international monetary system, and especially in South America, protect ourselves from this situation,” he said.

The Bank of England recently received a request from the Venezuelan government about transferring the 99 tons of gold Venezuela holds in the bank back to Venezuela, said a person familiar with the matter. A spokesman from the Bank of England declined to comment whether Venezuela had any gold on deposit at the bank.

A spokesman for the Bank for International Settlements where Venezuela keeps $3.7 billion of its cash reserves, and 11.2 tons of gold, Venezuela svalues at $544 million, according to the document, also declined to comment.

Analysts said the planned move made little economic or financial sense, since Venezuela would be taking its money out of secure banks in safe countries and putting it in countries that are not as safe and perhaps in currencies such as the Chinese yuan or the Russian ruble, which are not reserve currencies. “It’s a big risk,” said José Guerra, a former official at Venezuela’s central bank. Mr. Guerra said he also had heard about the documents whose authenticity was confirmed to him by Central Bank officials.

Mr. Guerra said one possible reason for the planned moves could be that Venezuela is afraid it could be compelled to pay billions of dollars in compensations to foreign companies that have gone to court to recover damages for companies Venezuelan President Hugo Chávez has nationalized. Another reason could be that China may have asked for collateral for billions of dollars it has loaned Venezuela, Mr. Guerra said.

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