www.forbes.com Reuters, 02.20.03, 2:25 PM ET By Hugh Bronstein NEW YORK, Feb 20 (Reuters) - International investors fretted about Venezuela on Thursday after an opposition leader was arrested, the latest sign that left-leaning President Hugo Chavez, known for his anti-capitalist rhetoric, remains entrenched in power. But selling of the country's sovereign bonds was muted as Wall Street analyzed the risk presented by Chavez versus the tempting rewards offered by high-yielding Venezuelan bonds. Despite his unimpressive economic record, Chavez has sworn to honor debt contracts. "Chavez has won and it appears that he is consolidating his hold on power," said Mark Dow, a portfolio manager at MFS Investment in Boston, referring to a recent two-month national strike that, like a short-lived coup last April, failed to push the pugnacious former paratrooper from office. The strike briefly crippled the oil industry of the world's No. 5 petroleum exporter. Production is still not back up to full capacity. State security police at about midnight seized Carlos Fernandez, a business chief who helped lead the work stoppage. A judge had ordered him and opposition union boss Carlos Ortega detained on charges of rebellion. HIGHER INFLATION ON THE WAY? Dow said he is concerned that recently-imposed capital controls, in combination with the government's weak fiscal position, are setting the stage for Venezuela to print money to cover its public sector borrowing requirements. Such a move would likely increase inflation significantly. "It is almost impossible that Chavez's economic policies will work, so the non-oil economy will continue to deteriorate," Dow said. While emerging market debt on average yielded 7.15 percentage points more than U.S. Treasuries, Venezuela debt yielded an average 13.81 percentage points more than Treasuries. This means investors are demanding much higher yields in exchange for assuming the risks they see in Venezuela. After the Fernandez arrest, investors were left to wonder how far the economy will deteriorate before Chavez is finally forced out, and whether current yields fairly compensate investors for the risks. The answer to the latter question is 'yes', according to Jose Cerritelli, a Bear Stearns debt strategist. "With oil prices so high and with the government's willingness to pay its bonds not in question, people are being more than adequately compensated for the near-term political risk," Cerritelli said. "My recommendation is buy." Three months of negotiations, involving the Organization of American States and a group of countries known as Friends of Venezuela, have made little progress toward hammering out an agreement on early elections. Chavez's term of office is due to expire in January 2007. Jose Pedreira, managing director, Latin World Asset Management, said news of the arrest is not likely to ruffle investors who have come to see the country as an oil play and nothing more. "Chavez has his own agenda and he is not paying attention to what the Friends of Venezuela are trying to do," Pedreira said. "But as long as oil is at $37 per barrel investors are not paying much attention to this kind of news." Dissident Venezuelan oil workers said on Thursday that output was at 1.4 million barrels per day, compared with 3.1 million barrels before they launched the strike in December. The government said output stands at more than 2 million barrels per day.

www.vheadline.com Posted: Thursday, February 20, 2003 By: Patrick J. O'Donoghue

The Education, Culture & Sports (MECD) Ministry has invited UNICEF-Venezuela, National Children’s Rights Council (CNDN), The Inter American Institute of the Child, Ombudsman’s Office and Attorney General’s office to discuss violations of children’s rights during the national stoppage.

When the discussion finishes tomorrow, those attending the event hope to draw up a declaration on children’s rights in Venezuela during events of December-January.

UNICEF-Venezuela representative, Ana Lucia D’Emilio has called on both sides not to use children’s rights as part of their political discourse. More and more people are coming around to the viewpoint that teachers who abandoned the classroom to join the national strike did indeed violate children's right to education and the UNICEF representative suggests that rights cannot be separated.

“Teachers can’t argue in their favor that the right to life is higher than the right to education … rights cannot be separated … by violating one right today, we may be violating a whole string of rights tomorrow.”

UNICEF insists that children’s rights must be guaranteed in times of crisis and the government must be aware of this.

reuters.com Thu February 20, 2003 11:55 AM ET By Susan Schneider

NEW YORK, Feb 20 (Reuters) - Emerging sovereign bonds meandered sideways on Thursday as investors, captive to global war worries, stayed on the sidelines awaiting fresh developments in the U.S.-led march toward a possible strike on Iraq.

J.P. Morgan's Emerging Market Bond Index Plus posted a scant 0.24 percent return on the day as market heavyweight Brazil gained 0.18 percent. Brazil's benchmark C bond BRAZILC=RR slipped 0.25 point to 69.875 bid.

With the United States facing fierce opposition in the United Nations Security Council in its push for a war in Iraq, emerging markets investors were making few moves pending new clues on the timeline and international support for an attack, analysts and traders said.

Investors "are just waiting to see what's going to happen on the global backdrop, what the conditions are going to be for war and diplomacy," said Siobhan Manning, Latin American debt strategist at Italian investment bank Caboto.

"You don't want to take any risks. You don't want to take any huge positions. You just want to batten down the hatches and wait and see what happens with the war," she added.

The United States and Britain said on Wednesday they would introduce a resolution within a week seeking U.N. authorization for a war against Iraq, which U.S. President George W. Bush sees as justified because he says the nation is producing banned weapons.

While the broader market tread water, a handful of sovereign debt issuers made modest moves on Thursday.

Venezuela's debt slid after the state security police captured a business chief who helped lead a general strike against President Hugo Chavez. A judge ordered the leader, Carlos Fernandez, and union boss Carlos Ortega detained for rebellion.

"It's pretty quiet. The only real price movement has been Venezuela," said an emerging debt trader. "People are taking (the judge's arrest orders) as a little bit negative, that Chavez may be gaining some ground."

Fernandez and Ortega spearheaded a two-month opposition strike, started in December, in a bid to force Chavez to call early elections or resign. Chavez has taken a tough stance against his foes since the leaders called off the strike in early February to ease the burden on the private sector.

"It's more proof that Chavez has the upper hand, the opposition is weaker, and it really raises the risk of when or if he will step aside," said Manning. "It's an event like this that caps the upside for Venezuela."

Wall Street would love to see a more market friendly leader replace the former paratrooper Chavez, who has introduced currency curbs and price controls in a bid to bolster an economy battered by recession and the strike's strangling of the nation's lucrative oil production.

Venezuela's DCB bond VENDCB=RR slid 0.25 point to 69.625 and the nation's share of the EMBI-Plus lost 0.08 percent.

URUGUAY GAINS, ECUADOR EXTENDS RALLY

Uruguay remained an emerging markets focus in the midst of lingering uncertainty about whether the nation will undertake some kind of debt restructuring.

Uruguay, ravaged by the fallout of Argentina's financial crisis and a run on its own banks, failed to pass an IMF review in December on its $2.8 billion loan program. The IMF said this week it expects a deal on Uruguay's 2003 economic program within coming days. Last week IMF sources said talks included a possible restructuring of the nation's debt.

On Wednesday, U.S. Treasury Undersecretary for International Affairs, John Taylor, weighed in on the issue, saying Uruguay may need help to close its financing gap and this may include "some action" on the country's debt. But Taylor said the gulf might be narrowed through fiscal adjustment or with additional aid.

The nation's 2012 dollar bonds URUGLB12=RR , which have lost half their value over the past year, moved slightly higher in early trading with a gain of 0.75 point to 43.0 bid.

Ecuador, meanwhile, extended its strong showing of recent days on optimism over a $200 million loan deal with the International Monetary Fund. The nation's share of the EMBI-Plus rose 1.32 percent on the day, adding to the 20.1 percent the debt has already added so far this year.

Ecuador's new President Lucio Gutierrez has taken tough austerity measures to help close a 2003 financing gap estimated at $2 billion. The efforts helped pave the way for a long-elusive IMF deal that analysts have said is necessary to help Ecuador avoid a cash crunch.

The fund's executive board is slated to vote on the Ecuador accord next month.

www.vheadline.com Posted: Thursday, February 20, 2003 By: Oscar Heck

VHeadline.com commentarist Oscar Heck writes: Looking back to the well planned, yet failed attempt at getting Chavez out of office by using "el paro" (the stoppage) as a major "ousting" tool, one can (perhaps) gather the following information:

• Typically, in Venezuela, it is very difficult to begin any legal proceedings between the beginning of December and about the third to fourth weeks in January. Most judges and lawyers are on lengthy vacations, often out of country. (If the Chavez government wanted to attempt to stop the stoppage legally, they would have to wait until at least the third week in January. This in fact happened.)

• Typically, in Venezuela, as in many countries, December is the "spending month," the traveling month and the month in which most employees get their bonuses. (Make certain that the shelves are empty and that there is no gasoline so that people have the worst Christmas vacation ever experienced...and convince the people that it is the fault of Chavez. Psychological warfare?...oh, and bombard them with anti-Chavez propaganda since they are not going anywhere during their vacation and are probably watching TV most of the time).

• If the Chavez government attempts at re-stabilizing the country by using the severe methods that most governments would use in times of crisis, then call Chavez a "dictator" and "communist" ... or as was insinuated on television today ... "Hitler." (This is now happening).

Here is my analysis of recent events.  Some readers may say that I am paranoid ... as they also accuse Chavez of being.  However, looking at past world history, what I am about to propose as a theory, is not so far-fetched.

Here is the scenario ... Chavez had planned to travel to Malaysia on Saturday, February 22 ... on what apparently was to have been a very important trip. There has been a shroud of secrecy recently as to why he has cancelled the trip.

"Mystery surrounds Chavez' decision NOT to travel to Malaysia"

The results of the "El Firmazo" (the "signing") * were supposed to be presented a few days after the "Firmazo" itself took place on February 2, 2003. However, the presentation of the results was postponed until Wednesday, February 19, 2003 at 7:00 p.m. local Venezuela time, and was transmitted by Globovision television ... one of the privately-owned television stations most associated with anti-Chavez propaganda.

• The "signing" was a signing of petitions geared at forcing Chavez to resign and call early elections, and was organized by the coordinated efforts of:

• Coordinadora Democratica (Democratic Coordinator), one of the principal anti-Chavez movements.

• The CTV, one of the major Venezuelan union groups.

-Fedecamaras, one of the major Venezuelan business associations.

-Gente de Petroleo (Petroleum People), one of PDVSA's union movements.

• Perhaps the Cisneros and the Mendozas, the two multi-billionaire Venezuelan  families who basically have the monopolies of major Venezuelan markets?

Note: Most of the above have used mostly illegitimate and immoral methods.

Today, Thursday, February 20, 2003 (two days before Chavez was to leave for Malaysia), the major papers are front-lining the claimed success of "El Firmazo."

Supposing, that the opposition's plan (possibly thwarted now due to last night's arrest of Fedecamaras president Carlos Fernandez) was to attempt another "coup" while Chavez was abroad ... the timing would again have been perfect. Today, Thursday and tomorrow, Friday would have given the media and all other coup plotters the necessary two days to "justify" a take over of Venezuela on Saturday, February 22.  The numbers of "El Firmazo," the fact that the country is in a mess (created by the opposition themselves) and the fact that Chavez is "as usual" traveling abroad when the country is in such a mess!

This morning on Globovision, they were calling Chavez a "dictator" because Carlos Fernandez was arrested ... they were saying that Chavez is now a "kidnapper." Why is this? If someone has committed a serious crime such as treason, does the police come to one's home and politely ask " Do you want to come with us to jail?" I do not think so, especially not in the USA, which many of the opposition seem to glorify...  see: www.petitiononline.com

Now, about the "El Firmazo" results, based on figures presented by the opposition, which may not be very reliable, however, in my opinion, close to reality:

1)  36.89% of the voting population want amendments to the Constitution and abolition of 47 of 49 laws ("Ley Habilitante") which include Bank and Land reforms. (If, I am not mistaken, many of these laws were mostly approved nearing  the end of 2001. This is when the anti-Chavez movement began to escalate dramatically).

2)  30.17% of the voting population agree with writing a letter to the "International Community." (Probably a letter asking for international support to oust Chavez, the democratically-elected President of the Bolivarian Republic of Venezuela).

3)  29.96% to 26.96% of the voting population want Chavez out of power either by binding referendum or simply by not recognizing the he is President ... that is by abolition of his post or by his resignation. (Sounds like much less than the % of people that wanted Brian Mulroney out of office while he was Prime Minister of Canada. He was democratically elected and Canadians waited).

4)  23.7% of the voting population supports the people that have been fired from PDVSA. (Not close to the vast support alleged by the opposition).

5)  22.31% of the voting population want the reversal of laws aimed at controlling media content. (This means that approximately 40% of the people who signed petitions do essentially support some kind of television programming regulation).

6)  10.53% of the population wants all pro-Chavez National Assembly members to be relieved of their (elected) posts. (Does this represent the true radical wing of the opposition? Makes sense to me. This  may therefore mean that approximately 2/3 of the people that signed still have some sense of respect for the democratic system of elections. 1/3 of the opposition does not).

The way I see the "El Firmazo", is that Chavez has just had a "free" poll handed to him and paid for by the opposition. If 85% of the anti-Chavez people signed the petition (maximum 4,426,921), it would represent 5,208,142 possible eligible voters or 43% of the voting population. So, if there were elections today, and 85% of the voting population showed up to vote, Chavez would win at least 57% of the votes.

48% of the signatures came from 6 of the 25 geographical areas of Venezuela (24 plus exterior). The 6 geographical areas represent the main anti-Chavez areas, the major ones being the Caracas and Maracaibo (the home of PDVSA).

Even if the anti-Chavez people have their binding referendum in August 2003, what will it accomplish? If the referendum asks for re-elections, who will win the elections. What if Chavez wins again? What will the opposition people do then?

Maybe all the opposition supporters and anti-Chavez people can do a referendum between themselves and ask the following questions:

1)  "Maybe we should create our own independent state?" (Margarita can fit 4.5 million people and we can afford to import everything, including sardines from Portugal).

2. "Maybe we should leave Venezuela all together and create a new American (USA) state somewhere on the Caribbean or maybe in the hinterlands of Alaska?" (There is oil in Alaska and cheap labor in certain parts of the Caribbean ... how about Cuba?)

When Quebecers held a referendum for separation from Canada they did not achieve the required 50% + one (they were close however). The vast majority of the voters (say, about 85%) had voted for the separatist government in power at the time of the referendum. At one time some separatists were even beginning to consider becoming Americans rather than Canadians.

Quebec is still part of Canada ... things have settled down since.

Oscar Heck oscarheck111@hotmail.com

news.ft.com By Andy Webb-Vidal in Caracas Published: February 20 2003 19:01 | Last Updated: February 20 2003 19:01

Venezuela's government stepped up what appeared to be a retaliatory crackdown on opponents of President Hugo Chávez on Thursday with the arrest of the business leader who led a two-month strike aimed at forcing the president's resignation.

Carlos Fernández, head of the Fedecamaras business federation, was captured by a group of heavily armed men outside a restaurant, witnesses said, and taken to the headquarters of the Disip political police in Caracas.

A judge said a warrant had been issued for the arrest of Mr Fernández on charges of "treason" and "civil rebellion". A similar warrant was also issued for Carlos Ortega, leader of the main labour union, which backed the strike in December and January.

Opposition leaders condemned the detention as evidence that Mr Chávez was drifting towards "dictatorship" and embarking on a "campaign of intimidation". Government legislators said the arrest followed correct legal procedures.

Mr Chávez, emboldened by his survival after the stoppage, has promised to jail the strike's organisers for "sabotaging" the economy and has warned that exchange controls will be used to deprive opposition-aligned businesses of foreign currency.

The strike at Petróleos de Venezuela (PDVSA), which is producing only about half of the 3m barrels a day from before the strike, has left what was the world's fifth-largest oil-exporting economy facing a contraction of at least 15 per cent this year.

Rafael Alfonzo, an opposition negotiator in talks intended to defuse Venezuela's political deadlock, said Mr Fernández's arrest undermined an anti-violence pact signed only two days ago with the government.

The agreement was the first breakthrough in three months of negotiations backed by the Organisation of American States aimed at finding an electoral solution to the tensions between Mr Chávez and opposition groups.

Mr Fernández's arrest comes a day after Washington-based Human Rights Watch urged the Venezuelan government to investigate the murder of four opposition supporters this week.

The bodies of three junior military staff and a civilian woman who had joined dissident officers pressing for Mr Chávez's resignation were found dumped on a roadside outside Caracas.

"The circumstances strongly suggest that these were political killings," said José Miguel Vivanco, executive director of the Americas Division of Human Rights Watch.