Venezuela’s Dollar Bonds Rise to Seven-Week High on Oil Rally

[Judi Lynn]

Venezuela’s Dollar Bonds Rise to Seven-Week High on Oil Rally
By Daniel Cancel

March 12 (Bloomberg) -- Venezuela’s benchmark dollar bonds rose to a seven-week high on speculation a rally in crude oil, the country’s biggest export, will prompt the government to pare back debt sales this year.

The yield on Venezuela’s 9.25 percent bonds maturing in 2027 fell 11 basis points, or 0.11 percentage point, to 12.22 percent at 1:02 p.m. in New York, according to JPMorgan Chase & Co. The bond’s price rose 0.65 cent to 78.75 cents on the dollar, the highest level since Jan. 20.

Venezuela’s bonds are heading for their biggest weekly gain since Jan. 8 as oil, which finances more than 50 percent of government spending and accounts for 93 percent of export revenue, climbed above $83 a barrel. Rising oil prices may lead the government to limit debt sales in 2010, said Russell Dallen, head trader at Caracas Capital Markets at BBO Financial Inc. in Miami.

“It’s been a very strong week for Venezuelan bonds,” Dallen said. “The fact that oil is trading at over $80 a barrel and has stayed there is definitely helping.”

More:
http://www.bloomberg.com/apps/news?pid=20601086&sid=aOYX2mUYLmXA

[protocol rv]

1. More from the Bloomberg story and some background info:

"Venezuela and state oil company Petroleos de Venezuela SA sold $11.3 billion of bonds last year in part to provide dollars to investors in the local market. The central bank has issued $310 million of dollar bonds payable in bolivars in the local market this year, part of an effort to hold down inflation after President Hugo Chavez devalued the official exchange rate by as much as 50 percent on Jan. 8 as he struggled with dollar outflows and a growing budget deficit.“

From the CSIS website, additional background on what's going on - I blanked out the unregulated market rate because it's illegal to mention it. However, the reader may look it up using his or her own means, I suppose.

" Soon after implementing the two-tiered exchange rate, Chavez began selling dollars from its central bank reserves to strengthen the unofficial exchange rate of the bolivar by more than 30 percent in its unregulated trade markets, where it previously exchanged for ___ per dollar. By strengthening the unofficial exchange rate, Chavez is attempting to prevent arbitrage and move the unofficial rate closer to the new 4.3 exchange rate for oil.

Almost immediately after the devaluation, financial markets responded positively as Venezuela’s bonds soared in price by nearly 5 percent. The encouraging reaction came as a relief for a president who is attempting to maintain legitimacy in the midst of economic decline. However, the heightened demand for Venezuelan bonds are not mitigating the concerns that economists, politicians and media sources alike are echoing. Concerns over inflation are shared by economists and by Venezuelans who are rushing to stores to purchase goods before they see a rise in price levels. In an attempt to curtail the potential inflation, Chávez sent soldiers to monitor shopping districts. Inflation has increased significantly in recent years in Venezuela from 14 percent in 2007 to 31 percent in 2008. However, since Chávez will continue to subsidize food and medicine costs, many Venezuelans may not feel the full inflationary effect. But this depends on how long the Venezuelan government can sustain the subsidies."

[Peace Patriot]

2. 'Protocol rv' made a racist comment about 'Indians' on another thread,

...comment #36, here

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=405x30994

...advocates for Chevron-Texaco and regularly touts the latest rightwing 'talking points' on Latin American topics. See my comments here

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=405x31115

and here

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=405x30994#31021

----------------

My "rule of thumb" for Bushwhacks applies to 'protocol rv,' that whatever 'protocol rv' avers, and whatever corpo-fascist 'news' garbage that 'protocol rv' promotes, look to the opposite and you will find the truth. In this particular case, 'protocol rv' fails to provide a link, so I won't bother to comment, except to say that my "rule of thumb" applies to these un-sourced and improperly quoted/attributed fragments.

[naaman fletcher]

5. What is the racist comment? That he called "indigenous people" "indians"? nt

[Peace Patriot]

3. As I have frequently said, Venezuela faced the Bushwhack worldwide depression in very good shape,

after five straight years of sizzling economic growth (10%, 2003 through 2008), with the most growth in the private sector (not including oil), low debt, good credit, very high international cash reserves ($50 billion), and many positive social/economic indicators, such as low unemployment, big increases in educational enrollment, a 50% reduction in poverty (and 70% in extreme poverty), and full funding of many new social programs including universal medical care.

Our corpo-fascist press never credits the Chavez government with these things, nor with their pivotal contract negotiations with multinational corporations, whereby the Chavez government stared Exxon Mobil down (which walked out of the talks) and strongly asserted Venezuela's sovereignty in requiring a better oil deal for Venezuela and its social programs. Previous, rightwing governments had nearly given the oil away, in 10/90 deals favoring the multinationals, after creaming some of the profits off the top for themselves and their rich oil elite, of course (and grossly neglecting their country and the poor majority). The Chavez government required a 60/40 split, favoring Venezuela--and just signed eight oil companies from as many countries on Venezuela's terms.

As the Bushwhack depression hit, the Chavez government projected a very conservative budget for 2009-2010, based on $40/barrel for oil, with a little belt tightening but continued full funding of social programs. They had that $50 billion in cash reserves to fall back on, and with which they could set their own terms for utilizing the cash and financing debt. But then oil prices started rising and are now over $80/barrel. And because of their excellent position, they could voluntarily devalue the bolivar--another sign that they were quite confident in their economic strategy and budgeting.

Because our corpo-fascist press ignores these facts, they are always wrong about Venezuela, which 'somehow' lands on its feet every time--no matter how much they badmouth the Chavez government and predict doom and gloom. They've been predicting doom and gloom for more than a decade now--and Venezuela just keeps trucking along creating increasing prosperity and well-being for its people.

Just one more thing: Inflation. The inflation is a direct result of worker-friendly sizzling economic growth--something else that the corpo-fascist press never tells you. The Chavez government has invested in the people, as opposed to what the Bush Junta and the Democrats have done here--invest in the banksters and to hell with "the people." Inflation is an inevitable hazard of such growth and they do need to control it, but it is important to know that this is NOT a symptom of Venezuela being "out of control" or however they try to dis the Chavez government. The Venezuelan economy is very much in control, and benefitting the people. It is the U.S. which is "out of control" having suffered massive looting by corporations, war profiteers and the super-rich. It is the U.S. where our corporate rulers are so "out of control" that we can't get a public health bill!

[ChangoLoa]

4. Why do you describe a 30% inflation rate as the "direct result of worker-friendly" growth?

Is it because you consider full-consumption-oriented policies to be better than investment-oriented policies or than a middle point between both?

Why favor public current expenses over capital expenses? Commercial and financial services over industry, agriculture and infrastructure?

You can keep pushing the demand up during an oil shock and consider it to be "worker-friendly" in the short run (in fact, consumer friendly). But when inflation is rising that way, it means that the domestic supply (investment-employment-production) is lagging, since we can't compensate everything with imports.

In the long run, when the oil prices go down, the demand plunges and the economy gets cold. There's no industry or agricultural production to take the relay in terms of growth or compensate for the lost value of the exports. The Govt can try to keep the illusion by rising its expenses and the level of employment but, unfortunately, it needs to devalue the local currency. A big share of its revenues (oil) is in dollars so, in order to compensate the loss, they decide a better value for them in bolivares. The nominal wages rise by 20% but the real wages go -5 to -10%.

At the end it's still them same recession with the same old post-1989 (IMF reform) tendencies. We can't grow if oil revenues don't grow. And when they shrink, our economy shrinks too. We finished last year with a -5.4% growth rate (last trim). It's not the "Bushwhack depression", it's the oil prices decrease which btw is good for you.

I see no miracle. Nice oil shock, very tasty indeed and a certified historical record, we got real high, but now we face our hangover.

[naaman fletcher]

6. How is inflation worker friendly? You think workers like having their savings worth 30% less?

Please explain.

[protocol rv]

7. Point by point rebuttal

"after five straight years of sizzling economic growth (10%, 2003 through 2008)" - reference point is cherry picked, 2003 was a terrible year due to the national strike at the beginning of the year. The economy lost steam with an official GDP drop of 3,3 % in 2009, and it's clear 2010 will be negative as well.

"Our corpo-fascist press never credits the Chavez government with these things, nor with their pivotal contract negotiations with multinational corporations, whereby the Chavez government stared Exxon Mobil down (which walked out of the talks) and strongly asserted Venezuela's sovereignty in requiring a better oil deal for Venezuela and its social programs." - ExxonMobil hasn't been stared down. The case is in arbitration - and there's a long line of companies also in arbitration or lining up to sue. Bye bye Citgo if they win.

"As the Bushwhack depression hit, the Chavez government projected a very conservative budget for 2009-2010, based on $40/barrel for oil" - They did the budget using a fake production forecast (go to the OPEC website for more reliable figures).

As regards the devaluation, devaluations under an exchange control regime are always "voluntary". In this case, it was as voluntary as a man is doing something voluntary when he drops his pants because he has diarrea.

"Just one more thing: Inflation. The inflation is a direct result of worker-friendly sizzling economic growth" - What's next, cirrosis as a result of worker friendly beer?

[naaman fletcher]

8. lol..

your last two points cracked me up. thanks. they are also dead-on.