www.forbes.com Reuters, 02.26.03, 6:33 PM ET

CARACAS, Venezuela, Feb 26 (Reuters) - Venezuela's Planning Minister Felipe Perez said on Wednesday the government could end currency curbs and float the bolivar currency in four to six months if state oil firm PDVSA recovers production lost during a two-month opposition strike. "We believe in about four or six months we could have the problem resolved at PDVSA and the transition needed to guarantee the return of a floating system," Perez said. Venezuela's government imposed strict foreign exchange controls and price curbs in early February to shore up its strike-hit economy. Opposition leaders and dissident oil workers began the shutdown in December to pressure President Hugo Chavez to accept elections. The Venezuelan bolivar slipped about 24 percent against the dollar from the start of the year until the government closed the currency markets on Jan. 21, ending free flotation of the local currency. The new currency regime set a fixed exchange rate of 1,596/1,600 bolivars to the dollar. But the government has struggled to fine tune the new mechanisms and only a few banks have so far signed deals with the currency control board CADIVI. Perez said that the government was also studying a tax on currency transactions, but he did not provide more details. Chavez, an outspoken former paratrooper who brands his opponents terrorists trying to topple him, has said he will use the controls to deny opposition businesses access to dollars. Economists and opposition business leaders fear the currency curbs will create a thriving black market, hike inflation and severely restrict transactions in a nation which imports more than 60 percent of its goods. Venezuela's economy, already reeling from a sharp recession, could contract as much as 13.7 percent in 2003 as the lingering effects of the strike take a toll on the oil and non-oil sectors, according to a recent Reuters poll of analysts and economists. The government says output now stands at about 2 million barrels per day (bpd) compared with 3.1 million bpd that the world's No. 5 oil exporter produced before the strike. Estimates from rebel oil workers put production at about 1.5 million bpd. Oil exports, which account for half of state revenues, are at 1.5 million bpd compared with around 2.7 million bpd in November, the government says. But some analysts believe it will be difficult for the government to bring oil production above 2.2 million bpd this year.

www.iht.com Juan Forero NYT Thursday, February 27, 2003   CARACAS Tankers are once again setting sail loaded with crude oil bound for the United States, while government planners busily try to rebuild and reorganize the state-owned Petroleos de Venezuela SA, pondering how to function with 40 percent fewer workers. Oil, the lifeblood of Venezuela, is flowing again after a two-month national strike, with production now topping 2 million barrels a day, leaders of the $46 billion-a-year oil company say. They predict that Venezuela's oil industry, with a leaner government-run company leading the way, will soon churn out 3.1 million barrels daily, matching the pre-strike level. "We are getting close to normal," said Enrique Salazar, a loading master on the Caribbean coast, peering from a control room as a tanker, the Morichal, took on 25,000 barrels an hour. But oil analysts and economists say the government's rosy statements hide a painful truth about a 27-year-old company that was born when Venezuela nationalized oil production and quickly became one of Latin America's more highly regarded multinational companies. Petroleos de Venezuela has lost $4 billion in exports and nearly 16,000 workers, fired by the government for taking part in a walkout aimed at debilitating President Hugo Chavez's left-leaning government. That financial blow and the loss of workers with, on average, 17 years of experience could permanently hobble the company, keeping it from assuming its role as a leading world oil provider, analysts here and abroad say. "It will not be the company it once was," said Mazhar Shereidah, an oil economist in Caracas who helped write oil regulations for the Chavez government. "For a country that depends on petroleum, now more than ever, the challenges are too great. You have to pray for Venezuela." The dire predictions, if borne out, would be disastrous for this country of 24 million people, which depends on oil for half of its government revenue and 80 percent of export earnings. It would also leave the United States - which has counted on Venezuelan oil for decades - without one of its most reliable suppliers as war with oil-rich Iraq promises to batter energy markets. The obstacles in the aftermath of the strike, which ended in early February, are daunting. A lack of maintenance has caused sand to build up in the gelatinous deposits and the pressure to drop, making some fields worthless and threatening to cut production capacity by 300,000 or more barrels a day. And perhaps most troubling is that no one knows what Chavez's government has in store, though it has promised a wholesale revamping of what was once the second-largest oil company in the world. Reports from international analysts are blistering. UBS Warburg predicts that oil's contribution to gross domestic product will fall 22 percent this year, with Venezuela facing "a fiscal crisis of major proportions." Fitch Ratings Inc. says Venezuela's "image as a reliable crude oil supplier has been undermined" and will be hard to recover. Analysts say the lack of technical expertise and the company's financial straits mean that Petroleos de Venezuela will be unable, in the short term, to return to its pre-strike status as the fifth-largest oil exporter in the world. Most of the recent production has come from the fields that were the easiest to restart, leading independent analysts to predict that Venezuela will, at best, produce 2.3 million barrels daily by the end of this year. The government is already preparing for the worst. The 2003 budget for the oil company was cut by $2.7 billion, to about $6 billion, while the income the government draws from oil is forecast by UBS Warburg to fall from $11.5 billion in 2002 to as little as $5 billion this year. The sharp drop will make it especially difficult to raise the $5 billion the company would have spent to keep production steady. Ali Rodriguez, the former leftist guerrilla who is now president of Petroleos de Venezuela, does not gloss over the obstacles. But in an interview, Rodriguez said the doomsday predictions had originated from dissident executives who hoped to undermine international confidence in the oil company and thereby weaken Chavez. He predicted that through sharp budget and personnel cuts, the company would reach 3.1 million barrels a day. And "with its resources," he said, "it is perfectly possible that it will even surpass that level." But analysts still warn that the company will be debilitated for years by the loss of many experienced workers. Those employees - executives, office workers, engineers and highly trained technicians - joined the walkout and, in some cases, damaged computers and software and stole files to hinder reactivation efforts.

usinfo.state.gov 26 February 2003

(U.S. envoy to OAS says rhetoric adds to "climate of tension") (1040)

Recent "belligerent rhetoric" by President Hugo Chavez of Venezuela has contributed to a "climate of tension" that does not contribute to the search for a peaceful solution to the political stand-off in that Andean nation, says Roger Noriega, U.S. Permanent Representative to the Organization of American States (OAS).

In February 26 remarks to a meeting of the OAS Permanent Council, Noriega said the United States "strongly condemns" the February 25 bombings in Caracas of the Spanish Agency for Technical Cooperation and the Colombian Consulate. Noriega said the United States hopes that an "expeditious and thorough investigation into the bombings will be conducted and that those responsible will be held accountable."

Noriega said that pamphlets found at the scene of these bombings "echoed some of the heated rhetoric of Venezuelan government officials from the previous days."

"This very fact," Noriega said, "reinforces why it is important that all sides in the Venezuelan dispute respect a non-violence agreement," signed February 19 by the government of Venezuela and opposition negotiators. That agreement, Noriega said, represents an important step toward improving Venezuela's "troubled political climate."

The U.S. official expressed concern over intemperate comments by Chavez, who on February 23 sharply criticized Spain, Colombia, and the United States, and admonished all countries in the Western Hemisphere to "stop meddling" in Venezuela's internal affairs, as well as telling OAS Secretary General Cesar Gaviria that he was "out of line" for his efforts to bring about a dialogue between the government and the political opposition.

Noriega said Chavez' comments were "surprising in light of the fact that the OAS member states and the OAS secretary general have become involved in Venezuela at the invitation of the government of Venezuela with the express purpose of helping Venezuelans overcome the current polarization" in that country.

Following is the text of Noriega's prepared remarks:

(begin text)

Statement by Ambassador Roger F. Noriega U.S. Permanent Representative to the OAS Statement on Violence and Detentions in Venezuela Meeting of the Permanent Council of the OAS February 26, 2003

Last week on February 18, the Government of Venezuela and opposition negotiators at the OAS dialogue table facilitated by OAS Secretary General Gaviria signed a Non-Violence Agreement that committed both the government and the opposition to:

-- Reject confrontational rhetoric and to moderate the tone, style and content of the public discourse;

-- Denounce all types of violence;

-- Call on the Venezuelan people and authorities to respect the Constitution and the laws;

-- Reject any manifestation of violence and intolerance;

-- Create the conditions for peace;

-- Call on the Venezuelan people to respect human rights and to reject direct or indirect threats of violence; and

-- Respect freedom of expression, as established in the Venezuelan Constitution.

The signing of this Non-Violence Agreement represented a very important step forward toward improving Venezuela's troubled political climate. The accord embodies the political will on both sides to take advantage of the dialogue facilitated by Secretary General Cesar Gaviria. It also represents an important step forward in fulfilling the requirements of Permanent Council resolution 833, calling on Venezuelans to work toward a "peaceful, democratic, constitutional and electoral solution" to that country's political problems.

Immediately in the wake of this very hopeful development, however, emerged a disturbing series of events that raises questions about the Government of Venezuela's commitment to honoring the non-violence agreement:

The following day, February 19, Venezuelan authorities arrested and detained opposition leader Carlos Fernandez, the President of the Venezuelan Chamber of Commerce (FEDECAMERAS), and issued arrest orders for opposition leader Carlos Ortega, the President of the Confederation of Venezuelan Workers (CTV). President Chavez noted that this was a judicial measure, but nonetheless characterized Mr. Fernandez as a "terrorist."

Four days later, on February 23, President Chavez sharply criticized the Governments of Spain, Colombia, and the United States, and admonished all of the countries of this continent to "stop meddling" in Venezuela's internal affairs. President Chavez also used the media to send a message to our Secretary General -- who has spent the past four months arduously and delicately trying to facilitate dialogue in Venezuela's polarized, political environment -- that he was "out of line" and should keep his place.

President Chavez' comments are surprising in light of the fact that the OAS member states and the OAS Secretary General have become involved in Venezuela at the invitation of the Government of Venezuela with the express purpose of helping Venezuelans overcome the current polarization.

Two days after President Chavez' comments, on February 25, bombs exploded at the Spanish Agency for Technical Cooperation and the Colombian Consulate in Caracas. Pamphlets found on the scene of these acts of terrorism echoed some of the heated rhetoric of Venezuelan government officials from the preceding days. This very fact reinforces why it is important that all sides respect the Non-Violence Agreement's call for reducing rhetorical excesses.

In solidarity with the governments of Colombia and Spain, the United States strongly condemns the recent bombings and the use of any form of violence. We hope that an expeditious and thorough investigation into the bombings will be conducted and that those responsible will be held accountable. We note that Venezuelan authorities have pledged such action.

What is of even greater concern is the fact that these attacks on diplomatic missions are only the most recent in a series of deeply disturbing -- and still unexplained -- violent actions. The search for a peaceful, negotiated solution to Venezuela's crisis is made even more difficult when politically motivated violence (including killings) remain unsolved at the same time that political leaders are prosecuted vigorously.

The recent bombings are still being investigated, and it is too early to reach conclusions or assign responsibility.

Nevertheless, there can be little doubt that President Chavez' belligerent rhetoric has contributed to a climate of tension that does not contribute to the search for a peaceful solution.

The United States will continue to work with the Group of Friends of the Secretary General, and we commend the Secretary General's continued commitment to the dialogue process.

We urge other member states to support the full implementation of Permanent Council resolution 833.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)

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reuters.com Wed February 26, 2003 06:02 PM ET By Anna Willard

WASHINGTON, Feb 26 (Reuters) - Latin America's economies should grow faster this year than originally expected despite the uncertain global economy, a top World Bank official told Reuters.

The bank is now expecting regional growth of around 2.2 percent in 2003, higher than the 1.8 percent it forecast at the end of 2002.

"2003 should be somewhat better than last year and we would expect capital flows to recover," the bank's chief economist for Latin America, Guillermo Perry, said in an interview by video link from Colombia on Tuesday. "We are expecting some recovery."

A lengthy war in Iraq could lower the forecast, but Perry said the bank has not yet calculated growth for such a scenario.

"Clearly you could have a combination of events...a more protracted Iraq war, turbulence in financial markets and a credit event in one country," he said.

"But the probability of this happening -- all of them together -- is relatively low at this moment."

Perry estimated that growth in the region shrank 1.2 percent in 2002, largely due to the economic crisis in Argentina, which had knock on effects for Uruguay, and political turmoil in Venezuela. The bank had predicted a drop of 1.1 percent.

Apart from Venezuela, where political unrest persists, Perry said that Argentina, Uruguay and most other countries in the region should see more economic stability this year.

"We are seeing a clear recovery in Chile, we are seeing a recovery in Colombia and Ecuador," he said. "We see Peru going well. We don't foresee any major problems there."

ARGENTINA COULD HAVE SHARP GROWTH

But several countries will have to be keenly focused to keep reforms on track. The government in Argentina, for example, has a lot of work to do, Perry said.

"Both us and the IMF encourage the present administration to deal with (reforms), but they prefer to leave it to the next administration," Perry said.

The interim government of President Eduardo Duhalde will stay in office until a new team is chosen in elections at the end of April.

Improving the capital base of the banks and regulatory supervision, taking moves to ensure sustainable long term fiscal stability and rebuilding the credibility of its institutions, particularly the central bank, are key challenges for Argentina.

"There are a lot of problems going forward for the long term fiscal stability," he said. "The loose structure with the provinces has to really be put in place in a more consolidated long term way."

If the government makes the necessary changes, there could be a sharp rebound in the economy as it profits from the competitive exchange rate, Perry said.

BRAZIL ON THE RIGHT TRACK

Brazil's economy is also looking better after turbulence in its financial markets last year.

"Brazil in our view is looking well. Obviously some risks remain. We all know that," he said.

But Perry did not comment on Brazil's enormous debt load. Investors were alarmed last year by fears that newly-elected president, leftist Luiz Inacio Lula da Silva, would not follow conventional economic policies, thereby threatening debt repayments.

"The debt dynamics (are) very sensitive to external or domestic shocks because of the composition of the debt," Perry said.

Brazil has said its total public sector debt should rise in 2003 to between $263 billion and $285 billion from $250 billion last year.

VENEZUELA DESPERATE

The future does not look so bright, however, for Venezuela. Perry estimates the economy, which is heavily dependent upon oil, shrank around 9 percent in 2002. He said estimates for this year vary from a contraction of 4 percent to market estimates for another 9 or even 10 percent decline in growth.

"It is difficult to predict, but obviously it is not going to be a good year in Venezuela," Perry said.

Opponents of President Hugo Chavez recently staged a two-month national strike during which the oil industry was particularly hard hit.

Perry called the country's decision to impose currency controls an "act of desperation" and said Venezuela should not keep them for longer than six months.

"We hope that is the case because otherwise it will be very, very costly," he said, adding that such controls can create distortion in the economy.

A recovery in oil production and some political stability would be preconditions for lifting the controls, Perry said.

CHALLENGES FOR URUGUAY

Uruguay is still facing some challenges, Perry noted.

"It was a very bad year for Uruguay, and they are not completely out of the woods yet," he said.

Perry said in the bank's view the country's debt situation in "not unmanageable" as long as it sticks to the fiscal targets agreed with the IMF.

"With those levels unless there are further shocks, Uruguay should be able to have a sustainable path for its debt," he said.

But the country does have liquidity issues for making debt repayments to international financial institutions like the bank and IMF this year and in 2005 and 2006.

"I think what they are working on is like a voluntary swap, and it should be able to work because they need something like this for liquidity purposes."

www.planetark.org

SOUTH KOREA: February 27, 2003

SEOUL - Power generator Korea Southern Power Co Ltd expects delivery of a power fuel orimulsion from Venezuela to resume in March, after delays due to strikes in the Latin American country, a company source said yesterday.

The power generator, wholly-owned by state-run power monopoly Korea Electric Power Corp (KEPCO) (15760.KS), bought 25,000 tonnes of orimulsion in January from Venezuela under a spot contract, the first of its type in country, and planned to keep importing the fuel throughout the year. It was directly burned at Korea Southern's Youngnam thermal power plant.

But the delivery was halted from February due to an anti-government strike aimed at forcing Venezuelan President Hugo Chavez to step down.

"We will be able to see orimulsion delivered in March as they (Bitor) told us production would return to normal by the end of February, and they could make the delivery in March," a company source who asked not to be identified told Reuters.

OFFICIALS TP VISIT BITOR

Orimulsion, a mixture of 70 percent extra heavy crude oil and 30 percent water, is produced in Venezuela and used for direct burning at power plants.

He said Bitor, an affiliate of Venezuela's state oil firm PDVSA, would later notify them of details of the March amount.

Officials of the KEPCO unit plan to visit Bitor next month to resume talks for a one-year term contract for 2004 and hope to have term contracts over the following years after 2004, the official said.

Korea Southern has enough capacity to use up to 600,000 tonnes of orimulsion a year.

The first deal for orimulsion imports came amid a shortage of liquefied natural gas (LNG) in South Korea which stemmed from strong demand due to colder winter.

There has also been strong demand for oil from Japan, where shutdowns of nuclear power plants for safety checks have prompted higher demand for those fossil fuels.

State trader Chinaoil said yesterday it loaded early this week, about 150,000 tonnes of orimulsion from Venezuela after two months of delays due to the strike, which crippled oil exports from the world's number five oil exporter.