www.manilatimes.net Saturday, January 11, 2003 By David DeRosa

New Canaan, Connecticut — Venezuela is beginning to sound like something out of Ayn Rand’s novel Atlas Shrugged — where the middle class and professionals literally walk off their jobs.                               

Banks have started to join the 40-day-old strike paralyzing the country. Yet things are still at a stalemate with President Hugo Chavez’s opposition demanding that he resign or at least hold a referendum on the continuation of his administration.                                                            

Rand’s novel has workers and management refusing to work at jobs requiring more than manual labor skills because they know any wealth they create will be looted from them by an oppressive government. As Rand once wrote: “The man who produces while others dispose of his product is a slave.”                     

Venezuela has foreign debt payments on principal and interest this month of $76 million, said Luis Oganes, a Latin American strategist with J.P. Morgan Securities Inc. in New York. That will rise to $173 million in February, $601 million in March, and $1.2 billion in the second quarter.                                 

This, in large part, is the crux of the beef against the autocratic Chavez. In fact, the opposition started to materially coalesce when he began suspending private property rights.                                                               

Since then Chavez has been alienating one group after another while supposedly retaining some support among the poorest classes. The strength of that support is questionable. El Nacional reported yesterday that a poll taken last week of 1,200 Venezuelans by Cifras Enuestadora CA found about 63 percent of Venezuelans are in favor of broadening the strike to force Chavez from office.                             

Oil practically shutdown

The fear is that Chavez may incite a civil war. Venezuela’s political problems appear intractable, and, to make matters worse, they have spilled into the economic sector.                                                                         

Some banks closed yesterday and today to express sympathy with the strikers. If the banks reopen Monday, hours of operation are likely to be shorter than normal.                       

The partial shutdown of the banking sector caused a flight to dollars. The bolivar sunk to a record low against the dollar, plunging 10 percent Wednesday but rallied by five percent yesterday.                                                             

Even more damaging to Chavez is that the strike has crippled the state-owned oil industry. Venezuela before the strike was the fifth largest oil-exporting nation with daily crude production of $3 million barrels.                                        

Current oil exports are estimated to be a mere 10 percent of the pre-strike levels. Venezuela’s oil company gets to sit back and watch as its problems, combined with a possible war in the Middle East, have sent oil prices soaring. Oil was trading on the New York Mercantile Exchange yesterday at over $32 a barrel.                                                

Debt concern

That is not the worst of it. Even if the strike were settled today, it could be up to four months before the full resumption of oil production. The killer there is that by then oil prices may have plunged if tensions in the Middle East have been resolved. The market could be awash in crude just when Venezuela is ready to sell.                                          

The loss of revenue has increased concern that Venezuela might be forced to default on its debt. The 9.25-percent bond due 2027 yesterday yielded 14.87 percent, up 187 basis points since the strike began on Dec. 2. 

Venezuela has foreign debt payments on principal and interest this month of $76 million, said Luis Oganes, a Latin American strategist with J.P. Morgan Securities Inc. in New York. That will rise to $173 million in February, $601 million in March, and $1.2 billion in the second quarter.                                                                       

“During the first two months of the year given the amounts are relatively low, they have some room to maneuver,” said Oganes. “But after February, the situation complicates itself tremendously.”                                             

‘My brother’

Meanwhile, on Monday two radio talk show hosts in Miami who like to be pranksters on the air succeeded in pulling one over on Chavez. They synthesized an amalgam of sound clips from the speeches by Cuban President Fidel Castro and used them to actually get Chavez on the phone on live radio at his private telephone line at the presidential palace.                      

Chavez, apparently thinking he was speaking directly to his idol, greeted him with “Good morning, my brother.” The “Castro voice” then began making disjointed comments and asking bizarre questions, like, “What’s the day of the week?” and “Did you get my package?”                                       

Chavez appeared to have been taken in until it became totally obvious that something strange was going on.

This must have been an absolute scream in Miami, the center of gravity for Cuban refugees who make no attempt to hide their visceral hatred of Castro.                                          

People in Caracas probably weren’t laughing so hard because for now they are saddled with Chavez and the ideology of “his brother” in Havana. --Bloomberg

www.forbes.com Reuters, 01.10.03, 8:47 AM ET By Dominique Vidalon

PARIS, Jan 10 (Reuters) - The reporting season heats up next week and investors hope for positive signals from top European retailers and from technology giants on both sides of the Atlantic that may inject confidence into glum stock markets.

France's Alcatel <CGEP.PA> talks strategy on Tuesday while quarterly earnings from Microsoft (nasdaq: MSFT - news - people) and more sales data from British retailers may bolster markets knocked down by mounting evidence of weak corporate earnings. Profit warnings from the likes of British retailer Dixons <DNXS.L> have nearly derailed a new year rally in major European indexes after three straight years of losses.

Expected U.S.-led military action in Iraq coupled with confrontation between the U.S. and North Korea over nuclear arms and political upheaval in Venezuela also weighed.

"Earnings growth remains elusive and war in Iraq looms large. Until investors can price in a recovery in earnings, markets are going nowhere fast," said Deutsche Bank analysts in a research report released this week.

THE CONSUMER STILL IN LIMELIGHT The week starts with more Christmas season trading updates from top European retailers like Pinault-Printemps-Redoute <PRTP.PA>, Marks & Spencer <MKS.L> and Germany's KarstadtQuelle <KARG.F> -- amid worries consumer confidence, one of key engines of European growth, is starting to crack.

The sector was pummelled this week after Britain's biggest electronics retailer Dixons warned on profits after poor Christmas sales.

"As for year-end sales, it's hard to say if it's just an accident along the way, or if this heralds a bigger slowdown for the retail sector," said CIC analyst Emmanuelle Thollon Pommerol.

British retailers GUS <GUS.L>, New Look <NEW.L>, Woolworth <WLW.L>, Sainsbury <SBRY.L>, Burberry <BRBY.L>, the luxury fashion label, and women's fashion retailer Monsoon <MSN.L> all report next week.

In Germany, KarstadtQuelle AG <KARG.DE>, Europe's largest department store and mail order group, issues a trading statement on January 13, which is expected to add to national sector gloom.

Investors will focus on whether the group meets its stated goal of a three percent decline in sales in 2002.

Its bigger rival Metro <MEOG.DE>, which is less exposed to the difficult German market, this week revealed a four percent rise in sales, falling short of its own goal, while the 2002 sales of French supermarket group Carrefour also disappointed.

In France, household appliances group Seb <SEBF.PA> posts annual sales on Tuesday followed by electrical equipment supplier Rexel <CDME.PA> on Wednesday and by Rexel's parent Pinault-Printemps-Redoute <PRTP.PA> on Thursday.

"There is a risk that (PPR) Q4 sales could disappoint, however Gucci had already reported and mail order seems to be reasonably robust," said BNP Paribas in a research note.

TECH NERVES As a slew of U.S. technology giants open up their fourth quarter books next week -- including Apple Computer (nasdaq: AAPL - news - people) on January 15 and software giant Microsoft and Juniper Networks (nasdaq: AAPL - news - people) on January 16 -- investors brace for further earnings shocks which may hit software and network equipment makers.

"Looking at this week's reports, risk is that the data will be below expectations, which would potspone a profit recovery to the second half of 2003, possibly 2004," said Aurel Leven strategist Jean-Noel Vieille.

Bad news largely outpaced good news in the technology sector this week. Personal computer maker Gateway (nyse: GTW - news - people) warned of a deeper quarterly loss than previously expected while Intel (nasdaq: GTW - news - people), the world largest chipmaker, predicted little improvement in technology spending in the next six months and Dutch electronics firm Philips <PHG.AS> no recovery in the semiconductor market in 2003.

Dutch chip equipment maker ASML <ASML.AS> will post yearly sales on January 16 amid worries over falling capacity and utilisation at its largest client Taiwan Semiconductor Manufacturing Co (TSMC) <2330.TW>.

In France, telecoms equipment giant Alcatel, which last month predicted a furter deterioration in its markets in 2003, will discuss its strategy at a January 14 meeting ahead of full year earnings on January 30.

Investors will focus on whether Alcatel sticks to a prediction that fourth quarter sales should grow by about 20 percent from the third quarter.

Elsewhere investors also await third quarter sales from French heavy engineering group Alstom <ALSO.PA> on January 16 after market rumours on its financial health knocked down its shares this week.

WAITING FOR OPEC Investors also await the outcome of an emergency meeting of the Organisation of the Petroleum Exporting Countries (OPEC) on Sunday to discuss plans to raise output in a bid to cool rampant oil prices which are threatening world economic growth.

"But as long as we do not get a clearer picture on Iraq, uncertainty will continue to steer oil prices," said JCF Group strategist Jean-Luc Buchalet.

U.N. inspectors late Thursday gave a mixed interim report on Iraq's arms programmes.

The next U.N. inspection report is due January 27 and that date is often viewed as a decisive moment on whether Iraq's cooperation has been sufficient to head off military action.

On the data front, investors will scan U.S. December retail sales on Tuesday along with Wednesday's Beige Book and Friday's University of Michigan's preliminary consumer sentiment for January amid growing doubts consumer spending can hold up.

Striking oil workers of Petroleos de Venezuela protest in Caracas www.forbes.com

WASHINGTON, January 10 (IslamOnline & News Agencies) - The Bush administration is preparing a major initiative in the Venezuelan crisis due to its increasing concerns about an oil shortage as a possible war with Iraq approaches.

The U.S. initiative is centered on the formation of a group of "Friends of Venezuela," trusted by one or both sides to the conflict, which would develop and guarantee a compromise proposal, based on early Venezuelan elections presented through an existing mediation effort by the Organization of American States, the Washington Post reported on Friday, January 10.

The U.S. hopes the initiative, expected to be announced "within the next week" will lead to a breakthrough in deadlocked talks between the government and opposition there, according to U.S. and foreign diplomatic sources, the Post said.

Venezuela stopped 1.5 million oil barrels sent daily to the U.S.

Venezuela has been wracked by 40 days of sometime violent strikes organized by labor and union leaders with the aim of forcing populist President Hugo Chavez out of office.

The strike has hit Venezuela's oil exports the hardest, with production dropping from around three million barrels before the strike to between 600,000 and 800,000 barrels a day now, according to the Chavez administration.

Venezuela has practically stopped all oil exports, including the 1.5 million barrels a day it regularly sent to the United States -- 15 percent of all U.S. oil imports.

"We were getting 1.5 million barrels of oil each day, and we're not getting it now," the senior State Department official said. Concerns have multiplied over the past week as Chavez moved to fire senior oil executives and restructure the state-owned oil enterprise, the official said.

It is the success of the oil strike that has prompted the United States to seek a role in the crisis, a foreign diplomat told the Post.

For Washington, the diplomat said, the situation in Venezuela moved "from a problem in an important country in Latin America to a very critical matter ... With the war in Iraq, it became a really strategic matter."

According to the sources, Brazil, Chile, Mexico, the United States, the United Nations and possibly Spain would develop and guarantee one or two possible formulas to solve the impasse in Venezuela: a constitutional amendment or a referendum.

Chavez refuses to resign and the Venezuelan constitution allows for a referendum on the president's continuance in office held half way through his term, in Chavez' case, in August. The opposition is pressing for one on February 2.

An unidentified senior U.S. State Department official told the Post that the United States could support either option, but wants something to be agreed to soon that would stop the strikes and street demonstrations.

The U.S. hope, sources said, is that both sides adhere to an agreement guaranteed by the new "group of friends."

Secretary of State Colin Powell, in an interview with the Post on Wednesday, January 8, said he was working on the Venezuelan crisis, but refused to provide details.

"We're just trying to put a little more oomph behind what (OAS Secretary General Cesar) Gaviria is doing," he said.

Powell has held discussions in the past few days with Mexican Foreign Minister Jorge Castaneda, as well as with Brazilian officials, Annan and OAS Secretary General Cesar Gaviria, who has been mediating talks in Caracas between the opposition and the Chavez government.

Those talks are stalled on the fundamental issue of whether, and how, Venezuelan President Hugo Chavez remains in power, AFP said.

Brazilian President Luis Inacio Lula da Silva has not yet agreed to the U.S. idea and is awaiting a meeting he has called for Wednesday, January 15, when regional leaders gather in Quito for the inauguration of the newly elected president of Ecuador.

Latin American sources said there is little desire to involve any government outside the hemisphere, except perhaps Spain.

At the same time, Latin American sources told the Washington Post, it is widely believed that any high-level intervention in the OAS effort that does not include the United States is unlikely to bring the opposition to agreement.

Reuters, 01.10.03, 8:28 AM ET

CARACAS, Venezuela, Jan 10 (Reuters) - Venezuela's central bank (BCV) said it would not hold its daily dollar auctions on Friday, the second day of a 48-hour bank stoppage called by banking workers.

The central bank also canceled auctions on Thursday, the first day of the strike.

Union leaders representing bank workers on Wednesday announced they would halt banking services Thursday and Friday in support of a five-week-old strike by foes of President Hugo Chavez.

"The Venezuelan central bank informs authorized exchange traders that today's dollar auctions will not take place," the BCV said in a note posted on its Web site. It offered no explanation.

The bolivar currency, as measured by the Central Bank's reference rate <VEBFIX=>, fell 5.3 percent against the dollar on Thursday to 1,594.75 bolivars. The BCV on Thursday sold dollars through its foreign exchange trading desk.

www.forbes.com Reuters, 01.10.03, 7:57 AM ET By Suleiman al-Khalidi

AMMAN, Jan 10 (Reuters) - A senior World Bank official said on Friday that the possibility of war in Iraq was hanging like a "sword of Damocles" over the prospects for reforms and economic recovery right across the Middle East.

Jean-Louis Sarbib, the World Bank's Vice President for the Middle East and North Africa, said the region would be hit dramatically by the consequences of a U.S.-led war on mainstay sources of income such as oil, remittances and tourism.

"The region has had two major impacts. The first has been the overall slowdown of the world economy. The second has been essentially September 11 and its immediate impact on the countries that rely on tourism as an export," Sarbib said.

"Combined with the concerns about the situation that may or may not develop in Iraq, that is making the Middle East a place where the economic environment and the investment climate on a technical side are not the most attractive and where the risks are perceived to be very high," he told Reuters in an interview.

Egypt, Morocco and Jordan in particular have suffered from holidaymakers' reluctance to visit the region. Other states reliant on oil imports have also been hit hard.

Oil prices have soared by 25 percent in the last two months to touch two-year highs because of an export halt in Venezuela and fears of more shortages if U.S. forces massing in the Gulf launch military action to disarm Iraq.

"If you are an oil exporting country it's good. If you are an oil importing country that's not so good. So that's where the balance is going to be," he added.

The World Bank's latest 2003 growth prospects for the region hinge on whether conflict in Iraq occurred. If conflict is averted and confidence in the region is gradually restored, the region's growth is forecast to increase to 3.7 percent by 2004.

Despite high oil prices that propped up Gulf oil producers, a global economic slowdown has sapped oil exports and the region's overall estimated GDP growth declined to 2.5 percent in 2002, down from 3.2 percent in 2001.

INVESTMENT WANES, SOCIAL TENSION BREWS In 2002 foreign direct investment (FDI) in the region suffered from a sagging global economy, which has reduced private flows by at least 25 percent to developing countries since 1997.

"FDI in the region is even lower than in sub-Saharan Africa, and that says something about the attractiveness of the investment climate in the region," Sarbib said.

"You are not going to see a rush of private investment in the region and I am not talking simply about foreign direct investment. A lot of the money from the region is invested outside the region," he added.

A conflict in Iraq would also hit confidence in fragile capital markets and possibly trigger cross-border capital flows particularly from countries near war zones, he said.

Sarbib said "the sword of Damocles over the region as to whether or not the United States is going to have a war with Iraq" was prompting already nervous governments to drag their feet over International Monetary Fund-guided structural reforms.

"There are social tensions exacerbated by the very understandable fear of governments to create any more social unrest at a time when populations are very edgy," Sarbib said.

Serious reforms are needed to create jobs and cut poverty across the middle east and north Africa region, in which 80 million people or some 30 percent of the population live on less than $2 a day.

But Iraq worries are adding to worsening living conditions and ongoing Israeli-Palestinian violence to make governments even more hesitant to embark on politically difficult reforms.

"So all of these things create a very fragile and very tense environment in which decision makers are understandably not ready to jump ahead into reforms," Sarbib said.

"Right now it's such a volatile, such a difficult environment...but if you have a world economy that is not particularly growing or healthy in a region that is on edge right now then you are not going to do (reforms)," he added.