Posted on 01/08/2003 12:21:40 AM PST by Cincinatus' Wife
Summary
Venezuela's economy contracted an estimated 10 percent in 2002 due to the country's persistent political turmoil. The situation will worsen in the first quarter of 2003 as the fallout from an ongoing strike and a likely surge in unemployment are felt.
Analysis
Despite record-high global oil prices throughout the year, the Venezuelan economy contracted about 10 percent in 2002. The blame lies with the country's persistent political turmoil, including a military rebellion in April and a national strike in December that shut down operations of state-run Petroleos de Venezuela (PDVSA).
However, the economic crisis likely will grow even worse in the first quarter of 2003, as the government runs out of cash to pay its employees, creditors and debts, according to senior government officials, opposition leaders and private economists in Caracas.
Planning Minister Felipe Perez acknowledged Jan. 2 that the government's $24 billion budget for 2003 would have to be "revised" during January to reflect the fiscal losses accruing from PDVSA's work stoppage. The government will have to slash its $24 billion budget by at least 20 percent to avoid financial insolvency, according to Central University economics professor Francisco Vivancos.
However, with new polls showing that President Hugo Chavez is losing substantial support among poor Venezuelans, who represent the base of his political support, the government likely will try to keep budget cuts to a minimum. At the same time, it probably will resort to devaluing the currency, issuing Venezuelan debt paper, deferring payments of external and internal debts and possibly seeking financial assistance from the International Monetary Fund and other multilateral entities.
Still it is unlikely that the IMF will aid Venezuela's government without substantial economic reforms, which Chavez would be unwilling to make. Venezuelan banks -- already holding $12 billion of domestic government debt -- in turn will be unwilling to absorb more government debt, even at exorbitantly high interest rates, while the combined work stoppages in the private sector and PDVSA last.
This will leave the Chavez government with three main options for dealing with its fiscal deficit: cutbacks, currency devaluation and deferment of debt payments. However, these options will make a bad economic situation much worse and further cut into Chavez's popularity among the poor.
According to private and government economists in Caracas, the combined work stoppage at PDVSA and the strike by approximately 80 percent of the country's private sector cost the economy more than $10 billion in total losses during December. This is equivalent to slightly more than 8 percent of the country's $124 billion gross domestic product.
As the national strike continues in January 2003, the economy's losses will grow and the government's fiscal deficit will widen as tax revenues collapse. Under normal conditions, Venezuela's government derives about a third of its annual budget from non- oil-tax revenues, including value-added taxes and income taxes. Oil-tax revenue and royalty payments account for 30 percent of the annual budget, while borrowing represents another 30 percent.
However, PDVSA currently is not generating any tax revenues or royalty payments for the government. In addition, value-added tax revenues plunged more than 80 percent in December -- traditionally a strong sales month in Venezuela. Tax experts in Caracas predict that many large industrial groups likely will report heavy losses for December and, as a result, will pay little or no income tax for the 2002 period.
Meanwhile, the effects of the ongoing strike will be reflected in a steep rise in unemployment during the first quarter of 2003. Fedeindustria, traditionally a pro-government advocate of small- and medium-sized businesses, warned Jan. 2 that more than 25,000 enterprises will go out of business during the first half of 2003 due to the cumulative effects of last year's economic recession.
Also, private economists in Caracas predict that many large industrial enterprises that granted their workers collective vacations from mid-December to Jan. 6 or Jan. 14 likely will not reopen later this month. Some companies reportedly intend to continue their strike against the Chavez regime, while others will remain closed either because it's cheaper or they are already bankrupt.
This means that Venezuela's unemployment rate, estimated at 17 percent to 20 percent by different sources in Caracas, likely will climb by several percentage points as hundreds of thousands of retail and manufacturing workers are laid off from their jobs.
It's likely that the Chavez regime will heap the blame for the economy's crisis on private business groups and PDVSA's striking managers. The president has portrayed PDVSA strikers as traitors, and throughout his four-year regime he has consistently blamed the country's wealthy elites for the woes of Venezuela's poor.
However, a late December 2002 survey by Alfredo Keller, an independent Caracas-based pollster, suggests that Chavez has lost substantial credibility and popularity among poor voters. Keller's survey, which focused exclusively on poor Venezuelans who identified themselves as members of Chavez's Fifth Republic Movement (MVR) party, found that 85 percent believe that unemployment, poverty and the cost of living have worsened under the Chavez regime, and personal security has collapsed.
The poll also found that 67 percent of the MVR's poor members feel new general elections should be held as soon as possible. Nevertheless, 28 percent of those surveyed refuse to consider new elections, and instead are willing to take up arms to defend their revolution. Chavez is counting on such sentiment, plus his senior military commanders, to keep him in power.
Protesters cheered and blew whistles as they tore up blank tax forms at the doors of the tax agency. They called for individuals and businesses to stop paying income and value-added taxes. The march was the first opposition protest in the capital since clashes between Chavez foes and followers and security forces left two people dead and 78 injured last week.
Venezuela's largest labor confederation, the biggest business chamber and opposition political parties began the strike Dec. 2 to pressure Chavez into resigning or accepting an early vote on his rule. The president has refused to do either. The strike has crippled Venezuela's oil industry, which provides half of government income and 80 percent of export revenue. [End]
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OPEC may open up spigots to allay strike, war concerns - [Full Text] LONDON -- Hoping to ease fears of a possible oil shortage, OPEC representatives plan an emergency meeting this weekend to discuss boosting the cartel's crude production by up to 2 million barrels a day, or 8.7 percent, an OPEC official said Tuesday. Oil prices, which are about 45 percent higher than they were a year ago, have surged in recent weeks on concerns about deepening turmoil in Venezuela and a possible war against Iraq, two key members of the Organization of the Petroleum Exporting Countries.
A hike in production would represent an abrupt reversal in OPEC policy. OPEC's 11 members decided less than a month ago to slash output by up to 1.7 million barrels a day in the hope of preventing a price decline when seasonal demand dips this spring. But oil industry analysts and traders pointed out that any additional oil exported by OPEC would not reach the United States soon. As a result, they said they expected the price of oil in the United States to remain above $30 a barrel. Those high prices, in turn, have pushed up retail prices of gasoline, heating oil and jet fuel.
Ministers of each member country except Algeria have agreed to meet Sunday at the group's headquarters in Vienna, Austria, the official said. Since OPEC's Dec. 12 decision to cut production, worrisome signs of a potential shortage have begun to appear. Oil shipments from Venezuela, normally OPEC's third-largest producer, have dwindled by 80 percent because of a month-old strike aimed at forcing the country's president, Hugo Chavez, from office. A U.S.-led attack on Iraq would halt exports from that country, which has the world's second-biggest crude reserves after Saudi Arabia.
OPEC officials have said the group cannot pump enough additional crude to make up for a simultaneous loss of exports from Venezuela and Iraq, which together have historically exported roughly 4 million barrels a day. OPEC's remaining members have spare production capacity of 3.3 million barrels a day, according to the Paris-based International Energy Agency, the West's energy watchdog. Saudi Arabia, OPEC's most influential member, has proposed that the group raise output by 1.5 million barrels a day.
Crude prices slipped after news of OPEC's discussions. In New York, the price of light, sweet crude for February delivery tumbled $1.02 to $31.08 a barrel. February contracts of North Sea Brent crude fell 87 cents a barrel to $29.33 in London. February heating oil futures shed 3.91 cents to close at 84.88 cents a gallon, while February gasoline lost 4.02 cents to settle at 84.18 cents a gallon. Natural gas for February delivery gained 19.2 cents to settle at $5.127 per thousand cubic feet. [End]
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Venezuela to Split State's Oil Monopoly - Replacement workers damaging equipment *** CARACAS, Venezuela - President Hugo Chavez, battling a strike that has paralyzed the world's fifth-biggest oil exporter, will restructure the state oil company to tighten government control and eliminate dissent, the energy minister said.
In a nationally televised speech, Energy Minister Rafael Ramirez said the Caracas headquarters of Petroleos de Venezuela S.A. would be mostly dismantled. The company's administration would be moved to two centers of operation in eastern and western Venezuela.
Ramirez didn't say how many of the 7,000 workers at the headquarters will lose their jobs, but most are currently on strike. The government says it will fire strikers - some 35,000 are off the job - and already has dismissed high-ranking executives.
Ramirez, who told reporters last week of the plan to split the company, said a new board "with a more strategic vision" will soon be appointed. The company will focus more on production of crude, gas and refining, he said.
Chavez long has said he wanted to restructure the company, which he has called a "state within a state" run by privileged executives. Chavez wants to increase government revenues from the company.
"We need a PDVSA much more efficient ... and not as an oil enclave, but a company at the service of the nation," Ramirez said. Bureaucracy in Caracas increases operating costs by $1 billion a year, he added. ***
Last month, the president issued Decree 1011, creating a corps of ``itinerant inspectors'' empowered to close schools and fire teachers that don't follow government-setprocedures and standards. ``Political commissars,'' Agudo called them. Jaime Manzo, head of the national teachers' union, called it ``a sword hanging over the head of any teacher who refuses to sing Chávez's praises in the classroom.''
Parents' groups and the teachers' union have appealed to the Supreme Court to block the decree and submitted to the assembly an alternate education reform plan that guarantees a ``pluralist education'' and bans ``partisan politics'' from the classroom. New history texts for fourth- and sixth-graders published in 1999 praised Chávez's coup attempt and branded as ``corrupt oligarchies'' the two parties that ruled Venezuela since the late 1950s, Democratic Action and COPEI.
Chávez has also greatly expanded a system of paramilitary classes in public high schools that had long been on the books but were seldom held, portraying them as ``the founding stones of the new Venezuelan man.'' ``He is promoting militarism, infecting texts with viruses that foster class hatreds ... and speak against globalization and privatization,'' Raffalli said in an interview.
Chávez recently signed a deal with Cuba under which Havana will train Venezuelan teachers and provide educational materials, and Education Minister Hector Navarro last year approved a nationwide essay competition on the life of Argentine-born Cuban revolutionary Ernesto ``Ché'' Guevara.***
Hugo Chavez - Venezuela REPORT ON VENEZUELA*** Fuel: Gasoline stored in the Paraguana complex (Cardon and Amuay refineries, the world's largest) might grant 20 days supply of national consumption (around 40 Mm barrels), at the same time, this inventory does not allow the refineries to operate for lack of additional storage capacity. One tanker was partially loaded by the end of the week with some difficulty due to shortage of qualified manpower. It is a well-known fact that the complexity of these refineries makes them not available for production in the short term.
The El Palito refinery was positioned as a symbolic figure and the Government is focusing all efforts and manpower into its start up, however there are several difficulties to overcome in order to succeed.
PDVSA refineries located abroad: Isla in Curaçao, closed operations December 29th, and will require at least 15 days to get restarted. St. Croix refinery is in full operation.
Gasoline distribution seems to worsen the problem on a daily basis. There are difficulties in the Andean region, gasoline is being smuggled from Colombia and sold at 14 times its current price in Venezuela. Caracas is being served from the Guatire reservoir, yet this terminal and its pipelines were contaminated when at the peak of the crisis, the Government pumped more than 200.000 barrels of Catalytic Nafta in order to pump out the gasoline inside the pipes. There is an existing black market in major metropolitan areas selling gas at $1 per liter (v. standard market price of $0.06 per liter) and the danger of accidental death due improper gasoline storage in jerry-cans has already occured.
This last weekend clean gasoline was pumped in again without purging the pipelines. The resulting mixture of gasoline and nafta will be distributed with the high risk of engine damage. (Explosion grade of gasoline is lower than nafta - nafta is a primary derivative of crude refining, needing additional refining plus the addition of derivatives to obtain gasoline. Additionally, the usual quality control of gasoline is not being conducted, and damage to vehicles is expected to happen). The Central region, Maracaibo, Oriente and Guayana areas are being hit the hardest by the fuel shortage.
It is noteworthy that only around 40% of available tank trucks are operating, most of them in an illegal manner, since they were confiscated "de facto" by government supporters. The available fuel, in no manner, covers distribution needs.
Crude Exports: For reference, please note that regularly, around 240 to 260 vessels are used to move oil exports from Venezuela. During the current strike, only 6 have been dispatched (carrying around 4.5 mm barrels). There are 27 vessels in the bay, an additional 17 have refused to enter Venezuelan ports and 4 are either loading or unloading (Vessels positioned in non operating terminals: Puerto La Cruz B/7 O/2, Jose B/1, Criogenico B/1, Puerto Cabello B/2, Cardon B/3, Amuay B/6, Tacoa O/1 Catia la Mar B/1, Carenero O/1, Bitor and Petrozuata none, Bajo Grande B/1, El Palito B/1 - B: moored in bay, O: in operation, None no vessel in port). It is noteworthy that PDVSA's own ships carried 90% of the operation and these are being operated under armed military supervision, which adds danger to the critical operation.
Operations - production and refining facilities are closed in all the Oriente Areas and also in Tia Juana, Paraguana and El Palito. Petrochemical plans are also closed. All facilities, nationwide are under military control.***
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