By Andy Webb-Vidal in Caracas Published: January 9 2003 4:00 | Last Updated: January 9 2003 4:00

Venezuela will be forced to default on payments due to state oil company bondholders or on its domestic debt with private banks in the next few weeks if the government is unable to restart crippled oil production, bankers and oil industry officials said yesterday.

A five-week-old strike by opposition-aligned workers at Petróleos de Venezuela (PDVSA), who are putting pressure on President Hugo Chávez to resign or call early elections, has cut daily output from 3.1m barrels to about 300,000 barrels.

Employees loyal to the government have so far made minimal progress in restarting oil production, resulting in a collapse in export revenue. PDVSA sells its oil at between 30 and 45 days' credit, and executives at the company say cashflow has now dried up.

PDVSA has external debt of about $4bn (€3.8bn), and its next interest payment, of $150m, is due in February. The company could service the debt using money normally held in a $600m rotating fund held offshore, although it is not known whether the cash is still available.

"If I were the finance minister or treasurer of PDVSA, I would be negotiating right now [on] how to not go into default," said Luis Pacheco, until two months ago corporate planning vice-president of PDVSA. Senior PDVSA officials were due to meet US investment bankers in New York yesterday.

PDVSA has so far lost at least $2bn in unrecoverable earnings as a result of the ongoing strike, in turn severing the source of about half of government revenue.

However, analysts say there is no immediate risk that Venezuela, which holds about $11bn in international reserves, will default on its sovereign foreign debt.

The current fiscal liquidity crunch could nonetheless lead to the government defaulting on its domestic debt with private banks, a central bank official said.

Venezuela's domestic debt has trebled in size over the past three years, and totals about $6bn, accounting for an average of 40 per cent of banks' assets.

Local subsidiaries owned by Spain's BBVA and BSCH, which together account for more than half of the banking sector, and the domestically-owned Banco Mercantil, are the most exposed.

Private banks are already expected to see a sharp deterioration in the quality of their loan portfolios in the weeks ahead, given that many private companies are seeking to renegotiate their credits after remaining shut during the peak sales month of December.

Oscar García, president of Banco Venezolano de Crédito, said the banks' domestic debt levels are close to saturation point, rendering it highly unlikely that the government will be able to borrow to cover its immediate spending requirements.

"The possibility of default is very serious," said Mr García. "The government is practically insolvent, as it doesn't have a source of revenue because of the cessation of income from PDVSA, and the banks cannot buy more debt."

Venezuelan banks, which have become the most profitable in Latin America under the Chávez government, despite an economic slowdown, are expected to shut today as employees begin a two-day strike in sympathy with the oil workers.

Concern over the economy and the banking system prompted a run on deposits and a surge in demand for dollars yesterday, driving the bolívar currency down by 15 per cent to 1,646 to the dollar.

09.01.2003 3.26 pm

CARACAS, VENEZUELA - Venezuelan bank workers on Wednesday called a 48-hour shutdown of banking services this week, escalating a five-week opposition strike that has already crippled the country's vital oil exports.

The bank stoppage call spooked Venezuela's currency market, sending the local bolivar tumbling against the United States dollar.

Union leaders said the action by employees at private and state banks across the South American nation would halt services to the public on Thursday and Friday.

"We are calling for a complete banking stoppage," Jose Elias Torres, president of the bank workers' union federation Fetrabanca, told a news conference in Caracas.

Fetrabanca called the work stoppage in support of the gruelling strike launched by opposition leaders on December 2 to press leftist President Hugo Chavez to resign and hold early elections. The ongoing shutdown has crippled oil output and shipments by the world's No 5 petroleum exporter.

The Venezuelan Central Bank's bolivar reference rate against the US dollar closed 5.7 per cent down at 1507/1510.50 bolivars. The local currency's interbank rate slid by nearly 10 per cent against the US greenback to an average low of 1585 bolivars, traders said.

As the opposition's economic offensive against the populist president increased, so too did tension on the streets.

National Guard troops fired tear gas on Wednesday to keep back stone-throwing Chavez supporters who besieged the National Electoral Council in Caracas, where opposition leaders were holding a news conference. No injuries were reported.

08:45 PM EST Jan 08

CARACAS (AP) - Venezuela's currency reached a record low against the U.S. dollar Wednesday after banks said they will close for two days to support a 38-day-old strike seeking President Hugo Chavez's ouster.

Demand for dollars soared on speculation Chavez's government, facing a fiscal crisis because of dwindling oil and tax revenues, would devalue the bolivar to balance its budget. Nervous depositors wanted dollars before the banks closed, not knowing what the bolivar would be worth when banks reopen next week.

Jose Torres, president of Fetrabanca, the umbrella group for bank employees, said banks will shut down Thursday and Friday, adding weight to a strike that has dried up oil income in the world's fifth-largest oil exporter.

The bank strike underscored the intransigence of both sides, despite international pleas for them to help the Organization of American States negotiate a solution to the standoff.

The bolivar plunged by as much as 13 per cent before its official close at 1,510 bolivars to the dollar, down six per cent, said the Central Bank, which uses an average of all the day's trading prices. Previously the lowest close was 1,492 to the dollar on Sept. 15.

Earlier Wednesday, the government tried to raise money by offering 40.5 billion bolivars in government bonds, worth at $29 million US at that point. There were no takers.

National guardsmen fired tear gas Wednesday to disperse pro-Chavez street activists throwing objects at the National Elections Council building, where opposition leaders were holding a news conference.

The strike leaders are calling for a Feb. 2 non-binding referendum on Chavez's rule and want him to schedule an election in 30 days if he loses the referendum.

Chavez insists the constitution only requires him to respect a possible recall referendum next August, the midpoint of his six-year term.

Chavez has gone so far as to threaten nationalizing striking banks, which have opened just three hours a day since Dec. 9. Thousands line up each morning outside Caracas banks that are splattered with graffiti reading: "I want my money!" and "Banker thieves!"

Before Wednesday, the bolivar's value had fallen by more than 45 per cent since Chavez abandoned exchange controls last year to curb capital flight. Venezuela spent $6 billion US in 2001 to support the bolivar.

The strike briefly sent international oil prices above $30. The state oil company is seen as gradually picking up activity but is still operating well below normal. Crude output is estimated at about 400,000 barrels a day, compared with the pre-strike level of three million barrels a day. Exports, normally 2.5 million barrels a day, are at 500,000 barrels a day.

Chavez has managed to somewhat stabilize domestic gasoline supplies through imports. Caracas streets were jammed with traffic Wednesday and many businesses were open. However, international franchises, large malls and many factories were closed, emptying industrial parks. Public schools opened for the new year Monday but some private schools have delayed classes.

Three Venezuelan navy ships were collecting Colombian rice, beans and other staples to alleviate strike shortages in Venezuela.

Late Tuesday, Energy Minister Rafael Ramirez threatened to crush the strike by decentralizing the oil monopoly, where 30,000 workers are on strike.

Chavez's government will cut jobs at the Caracas headquarters of the company, a hotbed of dissent where 7,000 are employed, Ramirez said. His government is systematically firing strikers at the giant company.

The strike has all but shut Venezuela's oil industry, which contributes one-half of government income. Other revenue is down because thousands of businesses closed, affecting tax collection. The government is cutting its 2003 budget by 10 per cent.

Reuters, 01.08.03, 7:45 PM ET

CARACAS, Venezuela, Jan 8 (Reuters) - The Venezuelan bolivar plunged nearly 10 percent against the dollar on Wednesday as citizens, faced with a 48-hour bank shutdown during a five-week-long national strike, rushed to snap up the U.S. currency. The bolivar interbank rate <VEB=> <VEB2=> plummeted by nearly 10 percent against the U.S. greenback to an average low of 1,585 bolivars, traders said.

The Venezuelan Central Bank's reference rate <VEBFIX=> at the end of the day stood at 1,507/1,510.50 bolivars, a fall of 86.5 bolivars, or 5.7 percent, over Tuesday's close.

The battered currency has tumbled 12.3 percent, based on the official rate, since November 29, just before a general strike by opponents of President Hugo Chavez began on Dec. 2. The strike has now ground the South American nation's economy to a near standstill.

"Venezuelans are looking for refuge in the dollar, fearing that the 48-hour banking strike could be extended for a longer period," said Luis Oganes, a sovereign strategist at JP Morgan, who predicted further slippage in the exchange rate as the general strike persists. The bolivar, which has been falling steadily for at least six years, has shed more than 7 percent of its value against the U.S. currency since the start of the year.

It lost 46 percent against the dollar over 2002, when Chavez survived a short-lived coup against him in April by rebel military officers.

"Given that the government gains fiscally from currency depreciation, because oil revenues are received in U.S. dollars, it may actually have incentive to allow the currency to slide further in order to partially compensate for the impact of the strike on fiscal revenues," Oganes said.

Leaders of the Venezuelan bank workers' union Fetrabanca said on Wednesday a work stoppage at private and state banks would suspend banking services for 48 hours on Thursday and Friday. "That frightened a lot of people who went out and converted their bolivars into dollars, in case the situation gets worse," one trader said.

Opposition leaders said on Wednesday that they have prolonged the strike, aimed at forcing leftist President Hugo Chavez to resign and call elections in the world's No. 5 oil exporter, for a 39th day. The strike is strangling the country's oil production and exports, which account for half of government revenues and 80 percent of total export revenues.

Chavez was elected in 1998 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.

Reuters, 01.08.03, 7:00 PM ET

CARACAS, Venezuela (Reuters) - Rebel employees of state oil giant Petroleos de Venezuela (PDVSA) on Wednesday dismissed a government plan to restructure the firm to battle a 38-day strike against Venezuelan President Hugo Chavez.

The transitional plan, announced by oil minister Rafael Ramirez on Tuesday, shifts power away from the firm's current base in Caracas to two regional production centers and slashes PDVSA's management headcount. Striking PDVSA staff said those administrators were needed to run the vast international operations of South America's largest oil firm.

"How will they coordinate finances? Who will be responsible for coordinating and optimizing the movements of these mega-operating units," said dissident oil leader Edgar Paredes reading from a statement from striking PDVSA workers.

PDVSA's operations have been virtually paralyzed by the stoppage, slashing oil sales which account for about half of state revenues.

The government has been struggling to restart the oil industry of the world's No. 5 crude exporter despite strong support from key logistics PDVSA managers and executives in Caracas. Oil field and refinery workers, PDVSA tanker captains, pilots and docking crews are also taking part in the stoppage.

Oil exports have been cut to about 370,000 barrels per day (bpd) since the shutdown began on Dec. 2 compared to nearly 2.7 million bpd in November, according to official PDVSA figures. Crude production has been reduced to 450,000 bpd from 3.1 million bpd, one PDVSA executive said.

Chavez has vowed to use the strike, aimed at removing the leftist leader from power, to cull anti-government employees from the firm. PDVSA employees taking part in the stoppage say Chavez has appointed political allies to top posts ahead of more qualified personnel, and that they won't return to their jobs until he is out of power.

The striking PDVSA employees denied government claims that payroll expenses from Caracas administrators increased the costs associated with lifting crude from $3.50 a barrel to $15 a barrel.

Ramirez said 7,000 employees in the capital city cost PDVSA $1 billion. But dissident oil workers said it was government bureaucracy that was driving up the oil extraction expenses. The PDSVA strikers say government efforts to restart the industry using unqualified replacement workers is threatening installations and the safety of neighboring communities.

On Tuesday, the vacuum unit of Venezuela's 130,000 bpd El Palito domestic refinery was damaged during restart operations. The government had said before the accident that the refinery would be restarted in the coming week.

The hemisphere's largest refining complex, the 940,000 bpd Amuay-Cardon plants, remained stopped due to a lack of gas feedstock, General Manager Ivan Hernandez said on Tuesday. 277 2655))