<a href=www.vheadline.com>Venezuela's Electronic News Posted: Tuesday, May 27, 2003 By: Patrick J. O'Donoghue

Venezuelan Army Captain Michael O'Brien's defense lawyer, Gustavo Parilli complains that President Hugo Chavez Frias, the Defense Minister and Army C-i-C  are not complying with legally authorized measures to protect his client. 

Parilli, who is dismissed rebel General (ret.) Manuel Rosendo's lawyer, recalls that the 5th Caracas Control Judge ordered the government to introduce protection measures in favor of O'Brien Fossi after the events of April 11. 

General Manuel Rosendo used Captain O'Brien's version of a conversation between Jose Vicente Rangel and Libertador Mayor Freddy Bernal on April 11, alleging that Rangel had told Bernal to bring down Bolivarian Circles from the Caracas hillside slums with sticks and stones to prevent an anti-government crowd from marching on Miraflores. 

• Opposition media picked up on the Captain's allegations, which government sources say was gossip, to boost its take on the Llaguno Bridge shootings that occurred later in the afternoon.

O'Brien has kept his head down since the his superior, Rosendo used his aide's bit of news to defend his own actions on April 11 (2002) when as Armed Force Unified Command (Cufan),  Rosendo cut off communications with the President preventing the implementation of an emergency security plan called Plan Avila to counter disturbances. In view of posterior revelations of US government involvement in the coup, General Rosendo will have to clarify his April 11 disappearing act.

O'Brien's lawyer confirms that the lives of the Captain and his family are in danger. However, the lawyer did not offer details regarding if the government had withdrew protection and when ... it is also unclear whether O'Brien continues as an active service officer or has been discharged. 

What news agencies agree on is that there was a legal order banning the transfer of O'Brien from Caracas to any other part of Venezuela and that apparently the Captain has been asked to make another declaration on what he overheard on April 11 in the morning and has refused. Lawyer Parilli promises to take the Captains' case to the Inter American Human Rights Commission.

Tue May 27, 2003 03:49 PM ET

NEW YORK (<a href=asia.reuters.com>Reuters) - World oil prices hit fresh five-week highs on Tuesday, as the prospect of less supply from OPEC producers threatens to cut further into low U.S. fuel inventories.

U.S. light crude rose 19 cents to $29.35 a barrel, after hitting a high of $29.63, the highest level since in over a month. London benchmark Brent rose 10 cents to $26.34 a barrel.

Prices rose on a renewed pledge from Saudi Arabia, the world's top oil exporter, that beginning in June it would abide by lower OPEC quota levels agreed to last month.

"The kingdom of Saudi Arabia will produce precisely according to its new quota of 8.256 million barrels per day (bpd) from June 1," a Gulf source told Reuters. "And it expects others to do so."

The Organization of the Petroleum Exporting Countries (OPEC) could make deeper cuts when it meets again on June 11 if Iraqi exports resume by then, cartel ministers have said.

U.S. inventories have failed to rebuild as much as expected following a harsh northern winter. Supplies could come under strain as U.S. gasoline demand, which guzzles around 12 percent of all world oil, peaks over the summer months.

"The biggest debate is how gasoline demand was over the weekend, with it sunny in some parts of the U.S. and rainy in the northeast," said Phil Flynn of Alaron Research.

Iraqi officials have said they hoped to resume exports in two or three weeks, with total production of 1.3 million to 1.5 million bpd by mid-June.

Exports from Iraq, normally around 4 percent of internationally traded oil and one of the top six foreign suppliers to the United States, have been halted since a U.S.-led offensive started in mid-March.

The U.N. Security Council's Thursday vote to lift 13-year sanctions on Iraq should allow exports to resume within the next few weeks, but looting and oil field damage will initially keep exports well below pre-war levels.

U.S. crude stocks are 12 percent below year-ago levels and gasoline inventories 4 percent below last year. The next U.S. inventory data will be released on Thursday.

Gasoline supplies from Venezuela, a key regional producer, have stayed well below normal since a two-month workers strike earlier this year.

Tue May 27, 2003 03:16 PM ET By Pedro Nicolaci da Costa

NEW YORK, May 27 (<a href=reuters.com>Reuters) - The specter of deflation in the United States has intensified Wall Street's latest obsession with Latin America as an investment destination, but a persistent global slump in prices would be no fiesta.

As financial experts scramble for alternate ways of making money while U.S. interest rates languish at rock bottom, demand for Latin America's debt has soared, with yields so much higher across the region than in the United States.

If the feared deflation monster rears its head in the United States -- still a remote possibility but a scenario increasingly on the radar screen -- Latin America's commodity-driven economies would suffer disproportionately.

While consumers in the region may be heartened by the prospect of prices tumbling at the local neighborhood store, the longer-term impact on growth would be severe, analysts warn.

Companies faced with a stubborn decline in prices are sure to pass the deflationary pain onto their workers -- either through job cuts, wage decreases or both. Large debt burdens make Latin American nations especially vulnerable.

"Deflation is particularly harmful to countries that have lots of debt, because falling prices will inflate the real debt burden," said Christian Stracke, emerging markets debt strategist at CreditSights.

Brazil, with the region's largest economy, is a classic example. With an estimated $250 billion debt load, the country's large interest payments on external debt would magnify its woes under a scenario of global deflation as export revenues fall but interest costs stay put.

Mexico's close ties to the U.S. economy, which brought tremendous benefits during the boom years of the late 1990s, would bring just as much pain in a prolonged deflationary bust. Mexico startled economists with a surprise 0.41 percent decline in consumer prices for the first two weeks of May.

Chile, Argentina and Uruguay, with their heavy reliance on commodity exports, would also suffer.

BACK ON THE ECONOMIC MAP

Deflation reclaimed its importance in the economics lexicon in April after the Federal Reserve suggested for the first time since the Great Depression that it was worried about the risk of a persistent downturn in prices.

While reaffirming that the threat of deflation is still minor, Fed Chairman Alan Greenspan expanded on the point last week, arguing that price gauges require "close scrutiny and -- maybe, maybe -- action on the part of the central bank."

At first glance, deflation might seem like a blessing to Latin America, where not long ago, several countries grappled with triple-digit hyperinflation.

"The deflationary fears that are spreading around the world, and the growing likelihood that the monetary authorities in the U.S. and Europe will be forced to cut interest rates, are increasing the demand for high-yield assets" such as emerging market debt, Walter Molano, head of research at BCP Securities, said in a report to clients.

Yet a deflationary spiral that prevents a long-sought pick-up in U.S. economic growth would have severe consequences for Latin American economies, whose success often depends on the performance of their northern counterparts.

"The principal problem in Latin America today is not inflation," said Gray Newman, chief economist for Latin America at Morgan Stanley. "Growth is what this region needs, and I'm afraid that the damage of deflation to growth prospects would outweigh the benefits."

THE VALUE OF LABOR

A bout of U.S. deflation would also put Latin American economies at a serious disadvantage in global trade.

Capital goods like heavy machinery and factory equipment, manufactured primarily in rich countries, require more labor and are thus accompanied by higher wage costs. Agricultural or lightly manufactured goods, produced mostly in the developing world, require a much smaller input from workers.

A drop in capital goods prices usually requires wage cuts, which workers are loathe to accept without a fight, so industrial costs tend to fall more slowly than commodities prices, to the detriment of emerging market exporters.

Such imbalances would be less of a problem for some of the region's oil producers, like Venezuela and Ecuador, who could ride OPEC's price-supportive supply restrictions.

But the rest of Latin America would be in a tight spot if governments had no choice but to fight economic forces largely beyond their control.

By Marc Dupee Special to TheStreet.com 05/27/2003 03:03 PM EDT

Millions of motorists hit the road over the Memorial Day weekend, kicking off the summer driving season. Some might have been pleased that prices at the gas pump have finally started to fall since the spike that accompanied the invasion of Iraq. But before drivers -- or holders of short positions in unleaded gasoline futures -- become too convinced that prices will continue dropping, consider the smoldering situation in Venezuela, OPEC's third-largest producer.

Just last December, labor and opposition groups staged a nationwide strike in an attempt to remove Venezuelan President Hugo Chavez from office. Tanker captains joined strikers at state-owned oil monopoly Petroleos de Venezuela S.A., also known as PDVSA, and refused to move cargo.

Output from the oil-dependent country of 25 million inhabitants plunged to 200,000 barrels a day from a prestrike level of 3.2 million barrels a day. The reduction in supply from Venezuela spurred rallies in unleaded gasoline and crude oil that took prices more than 12% higher during the month.

Chavez survived December's strike and de facto coup, and Venezuelan output rebounded sharply. However, the political and economic situation in the hands of Chavez continues to devolve. The resulting uncertainty greatly increases the odds of another round of social upheaval and threatens to disrupt the supply of oil and refined products from Venezuela.

At the heart of the maelstrom is the government's disenfranchisement of the opposition. A law has been proposed to censor the media and potentially quiet opposing voices. The "gagging law" needs only to be passed by the Chavez-dominated national assembly. But more devastating to the economy has been the imposition of foreign currency exchange controls on the country.

Dollar Politics

Opposition forces say that exchange controls are just a Chavez ploy to undermine the private sector. Venezuela exports oil and imports just about everything else. Dollars are required to complete transactions. Exchange controls have denied importers -- made up primarily of the private sector -- access to dollars to pay for goods brought into the country. Everything from food to medicine is running in short supply. The private sector, those least likely to vote for Chavez, are suffering in what appears to be a deliberate government attempt to damage the opposition's base of support. Businesses are closing, and official unemployment has reached 20%.

The result? The economy contracted a record 29% in the first quarter of 2003, and inflation is running in excess of 30%.

As Chavez seems to undermine the private sector, he's shoring up his political base by usurping key businesses. His administration has opened more than 100 government stores in poor neighborhoods and stocked the shelves with reduced-cost staples such as rice, beans and cooking oil. Cuban food brokers are helping the Chavez government with the procurement and bypassing established importers.

Thousands of employees who dissented or participated in last year's strike have also been fired from PDVSA, the nation's biggest employer, exacerbating the economic spiral. In short, Chavez's attempt to grab more power has made the already-volatile country a political powder keg, a situation that threatens U.S. oil and gasoline imports.

U.S. Connection

Venezuela -- along with Saudi Arabia, Mexico and Canada -- is one of the top suppliers of oil and refined products such as unleaded gasoline to the U.S. Before December's strike, Venezuela provided up to 17% of U.S. imports. The worsening social situation in Venezuela and its potential for disruption to U.S. supplies come not only at a time of increasing seasonal demand in the U.S., but also amid tightening domestic supplies.

U.S. environmental law requires that almost all of the high-density population centers from Boston to San Diego burn the less-polluting reformulated grade (RFG) of gasoline from March through October. Refineries have had trouble meeting demand in the past few years since RFG was mandated. This summer looks no different. Last week, the Energy Department said RFG stocks dipped by 10% to 33.3 million barrels as production fell. This occurred as inventories of the regular-grade unleaded gasoline rose.

Not Making the Grade

The volatile situation in Venezuela creates a lot of uncertainty and risk about supplies from that country. It also is taking a toll on supplies of refined RFG destined for the U.S. Normally, the country ships more than 2 million barrels of RFG a month. That's 6% of the current U.S. stockpile.

But for the past few months, PDVSA has consistently failed to get gasoline cargos certified as RFG. To move the refined product, PDVSA has resorted to selling cargoes as regular-grade unleaded gasoline rather than the cleaner-burning RFG grade.

Related Stories Debunking Deflation The Winner in the Devaluation Race The Ides of May Mean Dark Days in France

Why? Thousands of PDVSA employees were fired and replaced by loyalists. Among the fired were employees skilled in production and quality control methods that helped ensure consistent product. Political loyalty does not guarantee high quality.

The unleaded gasoline contract traded at the New York Mercantile Exchange conforms to the specifications for RFG and should reflect the fundamental situation of tightening supplies. The June contract (HUM3:NYMEX) closed at a one-month high Friday and broke the bearish symmetry that had helped define its downtrend. Look for this contract to test resistance at 0.9350 and possibly 0.9750.

Marc Dupee is an independent trader and co-author of the book The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to Marc Dupee.

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<a href=www.voanews.com>VOA News 27 May 2003, 18:16 UTC

New Argentine President Nestor Kirchner has met with several regional leaders, pledging to "work with everyone" to help his country overcome its severe financial crisis.

Mr. Kirchner made the promise Monday in Buenos Aires, where he spent his first full day in office meeting with the presidents of Bolivia, Cuba, Colombia, Peru, Uruguay and Venezuela.

The presidents were among several regional leaders who attended Mr. Kirchner's swearing-in ceremony on Sunday. Mr. Kirchner is Argentina's sixth president since political turmoil led to the resignation of Fernando de la Rua in late 2001.

In his inaugural address, the new Argentine leader said the country must be opened to the world. He pledged to work for conditions where Argentina can create what he called a credible and serious economy.

Mr. Kirchner also called on international markets to be patient as he works to help the economy recover from the crisis that triggered widespread unemployment and social unrest.

Argentina has defaulted on $141 billion in public debt. President Kirchner says his administration will renegotiate the debt, but warned the country cannot pay back what it owes lenders at the expense of those in need of houses, schools, and health care.

Mr. Kirchner also says the priority of his new foreign policy is building a politically stable and prosperous Latin America with democracy and social justice as its foundations.