www.forbes.com Reuters, 01.19.03, 6:41 PM ET

CARACAS, Venezuela (Reuters) - Crude oil exports from strike-bound Venezuela fell by 45,000 barrels per day (bpd) to 480,000 bpd last week, or one sixth of the pre-strike level, shipping sources said Sunday.

Crude exports fell to 480,000 bpd in the week to January 18, versus 525,000 bpd in the previous week, according to calculations made by Reuters based on data from shipping sources and state oil company Petroleos de Venezuela (PDVSA). One shipper saw exports rising next week as he expected more pilots to be available in the western Lake Maracaibo. Another agent said dock workers were abundant in main eastern ports, although the strike has disabled many automated systems and loading rates have fallen from 40,000 barrels an hour to just 6,500 in one port.

The OPEC nation exported approximately 2.7 million bpd of crude oil and refined products before the seven-week-old strike, aimed at forcing President Hugo Chavez to resign.

The strike draws support from many of PDVSA's 37,000 workforce in oilfields, refineries, tankers and ports. But PDVSA President Ali Rodriguez has sacked some 1,500 absentee workers, split the company into two operating units, and hired replacement staff to restore operations.

Both government and opposition figures show oil output doubling last week, although government data show current flows at 1.2 million bpd, while strikers peg it at 650,000.

Only ships chartered by PDVSA and its U.S. subsidiary Citgo have been loading cargoes for export because foreign customers are concerned about insurance risks associated with uncertified staff in the terminals.

Foreign oil companies have commissioned an audit of Venezuelan ports to be conducted this week which will determine whether their loadings can resume.

www.cnn.com Chavez vows more raids on industries that support strike Sunday, January 19, 2003 Posted: 5:59 PM EST (2259 GMT)

New army chief Jorge Garcia Carneiro helps Venezuelan President Hugo Chavez prepare for his weekly TV and radio show Sunday.

CARACAS, Venezuela (CNN) -- Embattled Venezuelan President Hugo Chavez appointed two retired generals to key posts Sunday as an opposition-led oil industry strike, intended to force Chavez from office, entered its eighth week with no end in sight.

Chavez also threatened military raids on food producers who participate in the strike, which has crippled oil output and brought Venezuela's economy to a standstill. The country is facing severe shortages of gasoline, flour and bottled drinks, including milk, soft drinks and water.

"There are some businesspeople who have thought about it, who have made their products available to the consumers," Chavez said during his weekly television and radio show "Hello President." "Those who refuse, those who resist, can rest assured that today, tomorrow or beyond, we will search their warehouses, their storerooms. If they don't want to open, we will open them."

The statement comes after the national guard, on Chavez' orders, took over a Coca-Cola distribution plant Friday in the state of Carabobo. Officials said the army will turn over the products it seized to the state consumer protection agency, Indecu, which is then to distribute Coca-Cola to stores.

The move came after the country's superior court of agricultural affairs ruled that the government can take over facilities necessary to keep basic goods flowing.

Chavez said during the program Sunday that he was appointing retired Gen. Lucas Rincon as his new interior minister and Gen. Jorge Garcia Carneiro as the new chief of the army. Both men are considered loyal generals who have proven their staunch support for Chavez.

Rincon, who retired as defense minister in July, was also a former army chief of staff. Carneiro replaces Gen. Julio Garcia, who was named to the post in April after Chavez withstood a military coup attempt.

-- CNN producer Penny Mannis and correspondent Diana Muriel contributed to this report.

www.alertnet.org Jan 2003 22:10

By Tom Ashby

CARACAS, Venezuela, Jan 19 (Reuters) - Venezuelan President Hugo Chavez said on Sunday that he was winning an "oil war," restoring crude flows, restarting refineries and reopening ports crippled by a seven-week strike.

But the leftist leader said he faced resistance from "saboteurs," who cut off gasoline supplies to Caracas, hacked into computers controlling oil facilities and finances and persuaded some trading partners not to deal with the South American nation.

Crude oil output, which fell from three million barrels per day (bpd) to about half a million earlier this month, had recovered to almost 1.2 million bpd by Sunday, Chavez said.

"We could reach two million barrels per day before the end of the month," he said during his weekly television and radio show "Hello President".

Striking employees of the state-owned Petroleos de Venezuela (PDVSA), who want to force Chavez to resign by cutting off his economic lifeline, estimated output was half the volume stated by Chavez at 650,000 bpd.

Calling himself the "oil commander," the former paratrooper said he had ordered the Armed Forces to step up surveillance of the industry, which was the world's fifth largest exporter before the strike.

"If we have to use our last soldier to prevent more damage being done to the oil company, which is the economic heart of Venezuela, we will do it."

The government has sacked some 1,500 PDVSA employees, and is using retired staff, unemployed workers, the military and some foreigners to restore operations.

Strikers blame unqualified staff for a spate of accidents, including 38 oil spills totaling 4,500 barrels and seven fires in oil installations since the strike began on Dec. 2.

REFINERY RESTART

Chavez said two oil refineries paralyzed by the strike, El Palito and Amuay-Cardon, had begun to process crude oil and would together process 250,000 bpd later this week.

El Palito was already running 105,000 bpd of crude oil, and aimed to start a key gasoline producing unit, the catalytic reformer, on Wednesday.

At Amuay-Cardon, with 940,000 bpd capacity the largest oil refinery in the western hemisphere, crude processing would reach 150,000 bpd by Monday.

"That should relieve fuel supply, especially in the west," Chavez said.

Of 20 state-owned oil tankers, 16 were now operating normally, including eight crude carriers to supply Venezuelan-owned refineries in the United States, Chavez said.

Some foreign companies, which normally buy the bulk of Venezuela's oil exports, were still reluctant to send tankers to its ports, he added.

Lines of cars and buses stretched for miles outside service stations in the capital on Sunday, after two days without any deliveries by road tankers.

"Until the refineries start working we will depend on imports of gasoline. We will be subject to shipping delays, sabotage to valves and pipelines," Chavez said.

Chavez said "saboteurs and traitors" had hacked into PDVSA's computer system, siphoning money out of company accounts illegally.

He said he would sue Intesa, a U.S. controlled information services company, for failing to keep computers running and withholding key passwords.

"What we have done is to cut off the systems and operate manually as we did 20 years ago," Chavez said.

"This is an electronic war... We are nationalizing the brains of PDVSA because they are in the hands of traitors and saboteurs," Chavez said.

Energy and Mines Minister Rafael Ramirez, who also appeared on the show, said a tanker carrying 1.5 million gallons of gasoline to Venezuela was diverted to another country after striking workers shed doubts on PDVSA's ability to pay.

Opposition elements were organizing meetings with the financial community abroad to spread disinformation about the company, he said.

www.forbes.com Reuters, 01.19.03, 4:22 PM ET  By Hugh Bronstein

NEW YORK, Jan 19 (Reuters) - Ecuador sovereign bonds, bolstered by a new government austerity plan, are set to rise this week, while Venezuelan debt is sapped by the country's seven-week-old national strike, Wall Street analysts said.

Ecuador bonds are trading at spreads wider than those of Venezuela, reflecting the perception of greater risk. But if Ecuador takes concrete steps toward solvency while Venezuela's economy falls victim to political conflict, analysts said Ecuador could trade inside Venezuela before the end of the month.

Ecuador's new president, Lucio Gutierrez, will freeze wages and raise fuel prices under an austerity decree aimed at closing a financing gap inherited when he took office, the government said on Sunday.

The decree raises the price of the most commonly used gasoline from $1.12 to $1.48 a gallon for consumers, a hike that Gutierrez's leftist and Indian supporters have threatened to protest.

"There are two bets," said Jose Cerritelli, a Bear Stearns debt strategist.

"Either Gutierrez succeeds and he gets an International Monetary Fund agreement within a month, which would prompt an Ecuadorean bond rally, or you think his ex-supporters will go to the streets and force him to backtrack," Cerritelli said. "This would probably be the first step toward default."

Investors will watch this week for protests in Ecuador as well as any signals that might come from the IMF.

"My bet is that the protests will not be serious, the new economic program will survive and that Gutierrez will get a new IMF deal within a month," Cerritelli said. "Therefore the country that will probably rally the most this week and this month will be Ecuador." Daniel Tillotson, an emerging markets analyst at Prudential Securities, was more moderate in his optimism.

"It sounds like (Gutierrez) is delivering some seriousness that will impress the IMF," Tillotson said. "But will the IMF demand legislative endorsement of the decrees, and will the opposition-dominated legislature deliver that endorsement if required? There's still some uncertainty."

Ecuador spreads ended last week at 1541 basis points. Venezuela spreads ended at 1371. Narrower spreads reflect the perception of decreased risk as measured against safe-haven U.S. Treasury bonds.

CHAVEZ, MORE DEFIANT THAN EVER Venezuelan President Hugo Chavez, meanwhile, named a new interior minister and head of the army, placing loyal generals in key posts as he fought to beat a 49-day-old opposition strike that has strangled vital oil exports.

"The damage to the government's finances is continuing," Tillotson said. "Until that turns around, Venezuela bond spreads will have to widen to reflect the increasing risks."

Chavez said on Sunday his government would use "everything we've got" to defeat the strike launched by opposition leaders, who are pressing him to resign and hold early elections.

Chavez was elected in 1998 after vowing to wrest control from the country's corrupt elite and enact reforms to help the poor. But opposition has grown amid charges the president wants to establish a Cuban-style authoritarian state.

The only reason Venezuelan bonds might stop their decline would be if investors start to believe that the opposition will force Chavez from office.

"But I think it's too early for that and the people who might be planning to remove him are not going to broadcast their plans ahead of time," Cerritelli said. "So there's really no reason for investors not to reduce their exposure to Venezuela this week."

Venezuela total returns have fallen 8.36 percent so far this month while Ecuador's are 14.19 percent higher, according to JP Morgan's Emerging Markets Bond Index Plus. The index itself stands 1.5 percent higher so far in January.

BRAZILIAN INTEREST RATES Economists largely expect Brazil's Central Bank to hold its benchmark interest rate steady at 25 percent on Wednesday, according to a Reuters poll.

Nineteen of 22 economists surveyed this week bet the bank would leave the Selic rate unchanged when the Monetary Policy Committee (Copom) finishes its monthly meeting on Wednesday, its first under Brazil's new left-leaning president, Luiz Inacio Lula da Silva, and Central Bank President Henrique Meirelles.

"It might be good for the new central banker to establish credibility by raising rates," said Mark Dow, a portfolio manager at MFS Investment in Boston.

"That might drive a stake through the heart of fear that Lula will follow an inflationist policy," Dow said. "But I'm not sure which way the central bank is going to go."

news.ft.com By Sebastian Edwards Published: January 19 2003 20:36 | Last Updated: January 19 2003 20:36

The election of Luiz Inácio Lula da Silva as Brazil's president has given Washington a unique opportunity to engage seriously with the biggest country in South America. Improved relations with Brazil - including genuine progress towards a free trade agreement - would dramatically change the political and diplomatic landscape of Latin America. Indeed, after a US-Brazil trade accord, the rest of the region would follow swiftly and the Free Trade Area of the Americas - until now an elusive goal - would rapidly become a reality.

But not everything is about trade. If Brazil were to become a close ally, it would be much easier for the US to tackle other tricky Latin American issues, including increasing political instability in Venezuela and implementation of an effective anti-narcotics policy for the region. It would also be easier to tackle the increasing use by Islamic terrorists of the triple frontier of Argentina, Brazil and Paraguay as a financial centre.

Unfortunately, the Bush administration has failed to grasp this opportunity. Indeed it has done little to signal any interest in forging closer ties with Brazil. Diplomatic circles were astonished to find out that no senior US cabinet member attended Mr Lula da Silva's inauguration this month and at last week's nomination of Roger Noriega - the little-known ambassador to the ineffective Organisation of American States - as the senior state department official responsible for Latin America. Indeed, the nomination of Mr Noriega - a staunch anti- communist who once served as an aide to former Senator Jesse Helms and who has little expertise beyond central America and Cuba - is a snub to the large Latin American countries. The nomination can be interpreted only as a political move aimed at pleasing the anti-Castro Cuban community in South Florida.

But it is not too late for the US to change course. The administration should recognise its mistake and withdraw Mr Noriega's nomination. It should then nominate a truly senior figure with deep knowledge and understanding of the region and in particular of Brazil. And if the administration is unwilling to do it, Senator Richard Lugar, the highly respected chairman of the Senate's foreign relations committee, should step in and ensure that Mr Noriega is not confirmed to such a critical post.

While not openly anti-American, many Latin Americans - and in particular many Brazilians - have traditionally been suspicious of US goals in the region. Some believe that Washington intends to impose its own policies, without much regard for domestic views; others worry about the implications of US protectionism. These concerns have been exacerbated by recent US protectionist policies on steel and agriculture.

Because of this deep suspicion, Brazilian politicians have traditionally taken a cautious approach towards relations with the US. Indeed, most Brazilian political leaders have feared that voters could interpret overtures towards Washington as a sign of weakness and of catering to American interests. As a result, Brazil's diplomatic relations with the US have historically been cold, awkward and distant.

With Mr Lula da Silva at the helm, however, this difficult relationship could change for the better. With his impeccable left-wing credentials and his past as a trade union leader, no one could possibly accuse Mr Lula da Silva of being pro-capitalist or of giving in to pressure from multinational corporations. He is thus uniquely positioned to initiate open, frank and productive negotiations with the US that go beyond the usual rhetoric. This is a chance to make real headway on bilateral and hemispheric issues.

During his first few weeks in office Mr Lula da Silva has given positive signals. Contrary to the fears of many Wall Street analysts, he has appointed a solid economic team. He clearly intends to pursue economic modernisation and his administration will welcome foreign investment. Indeed, after years of seeking the presidency, Mr Lula da Silva is aware that fiscal discipline, low inflation and honouring debt commitments are the prerequisites for sustained growth in any modern economy. He is also aware that without robust growth there is no chance that his social programmes will succeed.

All of this is good news, not only for Brazil but also for Latin America as a whole. The best way to make sure that Mr Lula da Silva keeps his promises is for the US to treat him seriously and to bring him to the table to discuss a free trade agreement that would dismantle protectionist measures in both countries. This, however, would require the White House to appoint a first-rate diplomatic team to deal with Brazil and the rest of Latin America. Mr Noriega simply does not make the cut. As the experience of the North American Free Trade Agreement has shown, enhanced trade is not only good for the economies involved. It also brings closer diplomatic ties and forges support in the world diplomatic arena. And more and better friends are one thing the US needs as the crises in Iraq and North Korea deepen.

The writer is a professor of international economics at UCLA's Anderson graduate school of management. From 1993 to 1996 he was the World Bank's chief economist for Latin America