05/19/2003 - Source: Business News Americas (<a href=www.latintrade.com>LatinTrade-BNamericas.com) - The governments of Venezuela and Brazil, together with France's Alstom, are negotiating financing for the US$160mn La Vueltosa hydroelectric dam in western Venezuela, Alstom Brazil systems manager Edwaldo Tamberg told BNamericas.

A consortium of Alstom Brasil's Power Environment unit and the French parent company Alstom signed May 11 a turnkey contract with the Uribante Caparro Development (DESURCA) unit of state power company Cadafe to build the powerhouse, transmission lines and two substations for La Vueltosa.

Talks are ongoing with Brazil's national development bank BNDES and French export development agency Coface, Tamberg said. The final division of work depends on the outcome of these talks, but preliminary calculations suggest 80% will be supplied from Alstom Brazil and 20% from Alstom France, he said.

The whole project is brokered on recent talks between the Brazilian and Venezuelan presidents, Luiz Inacio Lula da Silva and Hugo Chavez, and the prioritization of bilateral trade and partnership, Tamberg said.

As well as determining financing, this also helps mitigate some of the political risk, Tamberg explained. Because the talks are between the two governments any default on payment would be with the government and not Alstom, Tamberg said.

"We understand that as long as both governments are in agreement, secure the financing and regulate the guarantees in the best line of the law, the interests of Alstom will be safeguarded," Tamberg said.

"A default by Venezuela would not be a default with Alstom Brazil but with the Brazilian government. It is a different type of risk," Tamberg said.

This is an evolution of the now extinct Reciprocal Trade Covenant (CCR) agreement that used to exist between Latin American countries, Tamberg said. Under CCR, cross border trade between companies was provided with guarantees between the two governments - but it was killed after the financial chaos of recent months and years.

"CCR will not return in the model that was effective previously and that was bilateral for all countries. We needed a new instrument to substitute it, and that is what is being developed now," Tamberg said. "The conditions are being recreated for foreign trade to start working again."

As well as Venezuela, the Brazilian government has determined that Argentina is a priority, and Alstom will seek opportunities with both these countries, where the chance of securing financing for exports is higher, he said.

Alstom will hire a construction company for the civil works at La Vueltosa, which are expected to be straightforward, as the dam was built 10 years ago and geological risks are therefore low, he said.

Alstom will install two Francis turbines, generation units and all associated equipment for total installed capacity of 514MW.

Work should be completed within 36-38 months from the date when financing is closed.

Buenos Aires, May 19 (<a href=quote.bloomberg.com>Bloomberg) -- Argentina's currency fell for a fourth day after President-elect Nestor Kirchner said he wants to see it weaken to 3 per U.S. dollar to make the country's exports more attractive and spark economic growth.

The peso plunged 2 percent to 2.9475 per dollar at 12:01 p.m. New York times and has dropped 6.3 percent since May 14, when former President Carlos Menem pulled out of the election, giving Kirchner the win. Brazil's real and Mexico's peso fell.

``It's less appealing to put your funds there with this noisy political background,'' said Guillermo Estebanez, a currency strategist at Banc of America Securities Inc. in San Francisco.

The Argentine peso had gained 16 percent against the dollar in 2003 before today, making the country's exports less competitive overseas, arousing investor concern a strong peso might choke off a nascent economic recovery. Additionally, Argentina's new government will spend 8 billion pesos this year on public works projects, such as paving roads and building homes, to try and spark economic growth, Vice President-elect Daniel Scioli said in an interview. The country hasn't begun talks with bondholders on $95 billion in defaulted debt.

``Kirchner is basically saying he will take away from the fiscal numbers whatever amount could be used to pay creditors,'' Estebanez said.

Brazil

Brazil's real fell for the fourth day in five on investors' expectations the government will cut interest rates, easing its fight against inflation and causing the trade surplus to shrink.

Brazil's real slid 1.4 percent to 2.9825 per dollar, headed for its weakest closing level in almost two weeks, from 2.9425 on May 16. The real has declined 3.7 percent since May 12, the sixth- worst decline of 59 currencies tracked by Bloomberg. In 2003, it is up 18 percent, the best performance in that time.

Pressure on the government to cut the benchmark interest rate from 26.5 percent is mounting both inside and out of the government and was attacked in a front-page editorial yesterday in the Folha de S. Paulo, Brazil's largest-circulation daily.

The market is beginning to slowly realize this government sees the current set of policies as somehow temporary,'' said Tony Volpon, an economist with New York based Dinosaur Securities. A shift to a growth promoting policy, independent of pension and tax reforms in Congress will lead to a weaker real.''

Central bank president Henrique Meirelles has said interest rates will not fall unless inflation, now running at its highest annualized rate since 1995, declines as well. The government, though, already faces a revolt from party members opposed to a plan to reduce pension spending.

While 13 of 15 economists polled by Bloomberg expect the government to keep rates steady this week, interest rates fell in the futures market for contracts maturing in July or later.

The overnight interest-rate futures contract for January settlement, the most-traded on Sao Paulo's BM&F Exchange, fell 14 basis points to 23.69 percent from 23.83 percent on May 16. The contract indicates investor expectations for the end of December. A basis point is 0.01 percentage point.

Brazil's benchmark 8 percent bond maturing in 2014 fell 0.75 cent to 87.63 cents on the dollar from 88.38 on May 16, according to J.P. Morgan Chase & Co. The yield rose to 11.10 percent.

Merrill Lynch & Co., the biggest securities company by capital, today in a note to investors by Tulio Vera, head of emerging market fixed-income research, raised its recommendation on Brazil debt to overweigtht, so as ``to better capture the next leg of this run up.''

Mexico

The Mexican peso fell for the third day in four as declining global stock indexes and local interest rates prompted traders to sell pesos.

The peso fell 4.05 centavos, or 0.4 percent, to 10.3405 per dollar from 10.3 per dollar at the close May 16. The peso fell to a record low of 11.2644 on March 6 and last week rose to 10.0985.

U.S. and Mexican stocks declined on concern slow global economic growth will choke off demand for Mexico's exports and capital inflows. Comments by U.S. Treasury Secretary John Snow this weekend that suggested the U.S. is content with the 22 percent slide in the dollar this year also weighed on the peso.

The peso is getting weaker because markets don't know to interpret'' Snow's comments, calling the dollar's recent losses fairly modest,'' said Jose Maria de la Torre, head of fixed- income research at ING Bank Mexico SA. ``The losses in stocks point to further weakness in the U.S. economy.''

Rates on Mexico's benchmark 28-day Treasury bill dropped to a historic low of 4.9 percent in the May 13 weekly auction of government debt, reducing investor sentiment to hold peso- denominated assets.

Colombia

Colombia's currency fell for the third day in four after the Prosecutor General Edgardo Maya said a government plan to cut spending through a referendum was largely unconstitutional.

The peso fell 1.4 percent to 2,888.10 per dollar from May 16, when its plunged 1.5 percent after the central bank called off its June dollar call options auction, traders said.

``This is partly due to what the prosecutor general said and also because of the suspension of dollar options sales for June,'' said Juan Pablo Barney, a peso trader with Banco de Credito de Colombia SA.

Maya, who monitors government agencies, said 14 of 19 questions proposed in a government-backed referendum, including one to freeze some government spending for two years, were unconstitutional.

The Constitutional Court, which is studying the referendum's constitutionality, is set to issue a ruling in late September. Ratings agencies such as Standard & Poor's are closely monitoring the progress of the proposed referendum. Colombia has a Ba2 rating from Moody's Investors Service and BB from Standard & Poor's, both two levels below investment grade.

The country's peso-denominated bonds paced declines by the currency. The benchmark 15 percent coupon peso-denominated bond due in January 2012 fell 2.27 to 95.9, pushing its yield up to 15.84 percent.

The country's 10 percent dollar-bond that matures in January 2012 fell for a fifth day, losing 1 cent on the dollar to 109.75, down from a high of 115.25 last week after Merrill Lynch downgraded Colombian debt to marketweight from overweight.

Chile's peso fell for the fourth day in five, declining 0.8 percent to 710.90 per dollar from 705.05 on May 16. Peru's new sol weakened 0.1 percent to 3.4789 per dollar from 3.4759 on May 16. Uruguay's peso strengtheded for a second day, rising 0.5 percent to 2915 per dollar from 29.3 on May 16. Venezuela fixed its bolivar at 1,598 per dollar this year. Last Updated: May 19, 2003 12:05 EDT

aebrazil.com

São Paulo, 19 - Merrill Lynch has upgraded Brazil to overweight in its emerging-market debt portfolio, citing "a near term correction that offers buy opportunities."

In a report Monday, the investment bank said its "baseline strategy" remained unchanged.

"For now, we still see the market´s behavior as primarily a liquidity story and less a fundamentals-driven story," the Merrill Lynch report said.

"In the very near term, the market may still see a bit more downside before it stabilizes, but we are confident that given the ample liquidity conditions, buyers will soon re-appear," said Merrill Lynch.

"To better capture the next leg of this run up, we up Brazil, Uruguay and Venezuela to overweight, and we downgrade our long-standing overweights of Russia and Colombia to marketweight."

Monday, May 19, 2003 Posted: 9:24 AM EDT (1324 GMT)

CARACAS, Venezuela (CNN-AP) -- Venezuelans raised over US$4 million for homeless children in a charity concert and a two-day telethon.

Venezuelan singers, comedians and actors performed in front of a crowd of tens of thousands until late Sunday night. Top names included salsa and merengue star Chichi Peralta, and ballad singers Franco de Vita and Carlos Ponce.

The fund-raising event, which was sponsored and broadcast live by public and private television stations, received pledges of 6.8 billion bolivars, or US$4.2 million.

Hundreds of children end up on the streets of Caracas and other major cities after running away or being abandoned. Venezuela's deficient and cash-strapped social service system has failed to solve the problem despite repeated efforts.

NewsMax Tiana Perez Monday May 19, 2003

The government of President Chávez may lack ideology and political direction, but it certainly knows how to cater to the sector of the population that is politically most important to its survival.

A few months away from a much discussed referendum that would question the President’s tenure, Chávez is making sure that while the private enterprise gets starved, popular markets can sell at below market prices.

In 116 days of foreign exchange control, the government has issued an estimated .5% of the average demanded dollars by Venezuelan importers and manufacturers. Many companies refuse to even file their paperwork in fear of political retaliation and so prefer to go to the black market instead.

The foreign currency shortages added to the price controls imposed on February have resulted in an average decline of 25% in products on-shelf threatening normal supply of basic food products, such as eggs and chicken.

Foreseeing a further closure of private businesses, the government has assigned US$261 million to a newly created government-run enterprise called Agricultural Services Supply Corporation. The firm will buy 501,000 tons of food products within the next 180 days to deliver cheap products to the planned network of popular stores called Mercal.

Operated by the military, the stores are a relief for many families who would otherwise not survive in view of the sharp rise in unemployment. The figure now stands at around 21%, 5% higher than at the end of 2002.

The Venezuelan Agricultural Ministry is using Cuban trading companies to import the products, but reserves the right to re-sell, export, intermediate, determine prices, ship and equip tax-free through the Agricultural Services Supply Corporation.

The military has also been involved in pleasing the populace at the high cost of violating private property rights through a so-called agrarian reform that would use certificates of ownership as its main instrument.

Initially, the National Institute of Lands, presided by Adán Chávez, brother of the President, had promised to grant landownership certificates to low income families who were willing to work the empty lands. The government of Venezuela owns about 70% of the countries’ territories. Most of it will be empty.

However, the brothers chose to grant the certificates for privately owned land alleging under-utilization of the farms. Lines of people wait at the entrances of farms with the certificates in their hands, waiting for the military to pave the way for the invasion. In Barinas, home state of Chávez, the best lands have already been taken by his brother and 150,000 acres have been distributed in the form of agrarian certificates.

The country’s rule of law, civil society, Foreign Direct Investment or economy are obviously not on Chávez’ concern list. To date, the economy shrunk 15 to 25% in 2002 according to the Venezuelan Central Bank. Priorities first.