Emerging Debt-Venezuela in focus, trade slows for Christmas

Reuters, 12.24.02, 12:15 PM ET By Hugh Bronstein NEW YORK, Dec 24 (Reuters) - Emerging market sovereign bonds meandered in stagnant holiday trade on Tuesday while the few analysts who showed up kept their eyes on Venezuela, where President Hugo Chavez was trying to break a national strike that has throttled oil exports. "We're not seeing any transactions and there has been no news," one emerging debt trader said. "But desks are a little bit better staffed than they usually are at Christmas because people are on their toes, keeping their eyes on Venezuela." The strike, which has slashed Venezuela's petroleum output, moved into its fourth week without any signs of easing. Heading into the holiday, Wall Street had worried that domestic shortages of gasoline and, to a lesser extent, food might set the stage for street violence. "According to the latest reports, Venezuela has increased its gasoline stock enough to get them through the Christmas season," said Rafael de la Fuente, an emerging markets analyst at BNP Paribas. "And, at least according to government sources, there's enough food to go around. So over the next two to three days we should not see a big issue," he added. "But it's a touch and go situation." Strike leaders, who are seeking Chavez's resignation, rejected the government's appeal on Monday for a Christmas truce. Negotiators from the two sides remained far apart on the key issue of early elections demanded by Chavez's foes. Chavez was elected in 1998 after a campaign in which he vowed to wrest control from the country's corrupt elite and enact reforms to help the poor. But opposition has grown amid chargesthe president wants to establish a Cuban-style authoritarian state. Many investors say Chavez is probably on the way out and that Venezuelan bonds are poised to rally on that development. This optimism helped account for the stunning rise seen this year in Venezuelan bond prices. Other market players say Chavez, whose struggle for control of the country began with an unsuccessful coup he led in 1992, is not likely to leave without a long, economically debilitating fight. Venezuelan debt has rewarded holders with total returns of 18.6 percent in 2002, compared to the 14 percent rise in the overall market, according to JP Morgan's Emerging Markets Bond Index Plus. But as the strike eats into the country's Christmas season tax revenues, Venezuelan total returns have dropped 3.4 percent so far in December. Copyright 2002, Reuters News Service