www.vheadline.com Posted: Tuesday, January 28, 2003 - 1:48:24 PM By: Patrick J. O'Donoghue

There were a reported 83 homicides throughout Venezuela last weekend, according to the Police Detective Branch (CICPC).

• 40 violent deaths took place in Caracas with Libertador Municipality, as usual and despite Mayor Freddy Bernal, taking the lead with 28 murders compared to Sucre (8), and Baruta (4).

In the provinces, 43 murders were reported with 10 in Zulia, 8 in Carabobo, 8 in Aragua and 5 in Anzoategui.

According to the CICPC body count, 25% of the deaths occurred in shootouts with the police … 18 deaths were attributed to settling of scores and 10 to victims resisting mugging.

www.vheadline.com Posted: Tuesday, January 28, 2003 - 1:05:45 PM By: Gustavo Coronel

VHeadline.com commentarist Gustavo Coronel writes: The number of Venezuelan State owned enterprises keeps changing, mostly upwards ... over 100 of them share some undesirable characteristics:

1. They all lose money,
2. They are all extremely inefficient and fat with political clients, and,
3. Most are corrupt.

From State Banks to industrial agglomerates ... from social service agencies to Universities ... from military run social programs to custom offices ... from tax collecting agencies and lotteries and race tracks, the government shows an appalling capacity to waste money.

How much is this money and where is it coming from?

The government has received about $100 billion in the last four years. About 70% of this money comes from the petroleum industry. After the costs and the required capital investments of PDVSA are deducted, the contribution from PDVSA to the government represents about 30% of  GDP and 35% of National Budget ... a budget of about $30 billion ... only second in size to the Brazilian, although we are only 23.4 million people.

• The other main sources of government income are taxes and indebtedness (our debt is of about $35 billion).

It would seem logical to assume that the main concern of the government should focus on the host of unproductive, corrupt, money losing State enterprises ... concern about the bankrupt Industrial Bank ... about the $45 billion sunk in Guayana industries without one cent of profit ... about the chaotic and corrupt military "Bolivar 2000" program ... about the tragedy of the 200,000 or more street children who wander about in our cities ... about the obscene mediocrity of State Universities (with one exception) ... about the high criminal rate that has made of Venezuela one of the five most violent countries in the world.

We would certainly share those concerns and help in the solution of these tragedies ... but the government shows little or no concern for this gallery of horrors.

On the contrary, hardly a month goes by without the addition of another monster to this gallery: the Women's Bank, the Poor Bank, a projected Military Bank, another Steel Mill, a projected "Popular" university to operate in the Presidential Palace, a Caribbean Airline to go island hopping ... a never ending succession of inept, half-baked government projects.

The main, almost sole, concern of the government is reserved for PDVSA and her "unsatisfactory" performance ... precisely the only State-owned company which makes money ... the same PDVSA which was ranked second in 1998 in a group of 50 world petroleum companies by Petroleum Intelligence Weekly ... the same PDVSA that in 1998-2000 had more productivity per employee than SHELL, EXXON or British Petroleum ... the same PDVSA that in 1998 won first place in the ranking of the best managed State petroleum companies, made by the Petroleum Economist.

In order to attack PDVSA, the government has hired a group of mercenaries which has concocted a story mixing half truths and lies. According to this story, while in 1976 PDVSA gave 80% of total income to the government it gave only 20% in 2000. The reason being, according to the story, that the PDVSA managers are stealing this money from the government.

• This story is designed to promote hatred for those managers among the poor and uninformed population.

What the story does not say is that a comparison between the 1976 PDVSA and the 2000 PDVSA can not be done without the necessary explanations. In 1976 PDVSA was a production company ... it did not invest one cent other than in production costs, since foreign companies had ceased investing due to the imminent nationalization.

In 1976, reservoirs were young and productive ... in 1976 there was no exploration and reserves were only of 18 billion barrels, good for only 20 more years ... in 1976 refineries were obsolete and produced mostly fuel oils.  There was no marketing done directly ... there was no tanker fleet ... there was no research being conducted.

The mercenaries fail to mention that the government's fiscal take was based on a mechanism called the Fiscal Reference Price, which obliged the industry to pay taxes at a government imposed price per barrel, which had nothing to do with the real price.

Example: If the FRP was $10, the company paid taxes like if it had sold the barrel at that price when, in reality, the sale price had been, say, $6 per barrel. Obviously this artificially inflated the government take. This mechanism disappeared soon after nationalization as its existence was senseless under new ownership.

After 1976, moreover, the government had to do something that was previously done by the foreign companies, i.e. INVEST ... in exploration, production secondary recovery, modern refineries, a new tanker fleet. As a result of this huge effort, Venezuela today has reserves for more than 100 years. The refineries produce mostly gasolines and other light products ... what a difference from the PDVSA of 1976!

• But the mercenaries openly lie when they say that PDVSA's contribution to the government (actually, to the nation) is only 20%.

The direct contribution, made up of income tax, royalties and dividends is higher than 40%. There are other substantial indirect contributions, including some $200 million per year for the communities where PDVSA operates and some $300 million per year in gasoline subsidies, since the government forces PDVSA to sell gasoline in the domestic market below production costs and, even worse, below international prices.

A gallon of gasoline sells in Venezuela for $0.20 while in Colombia it is several times higher ... this promotes huge smuggling operations to Colombia and Brazil, which further erodes PDVSA's financial results.

There is still another artificial restriction on PDVSA's financial performance.

Since OPEC has imposed a quota on Venezuela, and PDVSA has won markets which are vastly greater, it has to buy in the open market the oil it could produce internally at some $7 per barrel for around $20 ... this is what could be called punishment for being efficient. When these considerations are properly added to the story it is clear that PDVSA's performance has been exceptional.

What is the reason for Chavez' merciless attack on the only productive State-owned company? Very simple: CONTROL.

PDVSA had become a pebble in Chavez' left shoe. It was in the hands of managers, not politicians ... in the hands of "counter revolutionary" technocrats ... they had to be swept out.

What the Chavez government is doing to PDVSA is a crime which will not go unpunished.

PDVSA, as we knew it, is rapidly ceasing to exist, being replaced by a mediocre, third world outfit complacent to the ideological salad put together by the President, now self-named as "Oil Commander-in-Chief."

• With the collapse of PDVSA we are witnessing the collapse of the country ... when the time comes, if I am still around, I hope to be a witness for the prosecution.

Why? Because when I was building pipelines for a better PDVSA, Ali Rodriguez, the current President of the "revolutionary" PDVSA, was blowing them up, as the main dynamite expert of the Cuban-supported guerrilla which failed in Venezuela during the 1960s.

Gustavo Coronel is the founder and president of Agrupacion Pro Calidad de Vida (The Pro-Quality of Life Alliance), a Caracas-based organization devoted to fighting corruption and the promotion of civic education in Latin America, primarily Venezuela. A member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), following nationalization of Venezuela's oil industry, Coronel has worked in the oil industry for 28 years in the United States, Holland, Indonesia, Algiers and in Venezuela. He is a Distinguished alumnus of the University of Tulsa (USA) where he was a Trustee from 1987 to 1999. Coronel led the Hydrocarbons Division of the Inter-American Development Bank (IADB) in Washington DC for 5 years. The author of three books and many articles on Venezuela ("Curbing Corruption in Venezuela." Journal of Democracy, Vol. 7, No. 3, July, 1996, pp. 157-163), he is a fellow of Harvard University and a member of the Harvard faculty from 1981 to 1983.  In 1998, he was presidential election campaign manager for Henrique Salas Romer and now lives in retirement on the Caribbean island of Margarita where he runs a leading Hotel-Resort.  You may contact Gustavo Coronel at email ppcvicep@telcel.net.ve

www.cnn.com Tuesday, January 28, 2003 Posted: 12:45 PM EST (1745 GMT)

CARACAS, Venezuela (AP) -- Striking Venezuelan oil executives acknowledged Tuesday that daily production surpassed 1 million barrels, signaling that President Hugo Chavez may be regaining control of the nation's key industry.

The statement by dissident executives at the state monopoly Petroleos de Venezuela S.A., or PDVSA, came as opposition leaders debated whether to ease the 57-day-old strike against Chavez. Some fear Venezuelans' discontent with strike-induced food and fuel shortages could undermine their objective of removing Chavez from office.

Negotiations, mediated by the Organization of American States, have focused on whether to hold early presidential elections.

Also Tuesday, the Finance Ministry extended a freeze on foreign currency sales until February 5. The suspension is designed to give the government more time to stem the slide of Venezuela's bolivar currency, which has lost a quarter of its value this year.

Dissident PDVSA executives said Tuesday that output by the world's fifth-largest exporter was 1.05 million barrels. Chavez claimed last week that daily production topped 1 million barrels.

That remains well below pre-strike levels of 3.2 million barrels per day, but well above the 150,000 barrels per day produced during the strike's early days.

The oil industry provides half of government income and 70 percent of export revenue.

The government has fired more than 5,000 PDVSA workers, corporation president Ali Rodriguez told state news agency Venpres on Tuesday.

Rodriguez, a Chavez ally, said more dismissals are forthcoming as the government takes advantage of the strike to downsize the company and eliminate dissent. PDVSA had almost 40,000 employees and the government claims most have returned to work.

Strike leaders deny this, saying the government has increased output by focusing on new oil wells, where it is easier to extract crude oil. They insist the strike, called December 2, will continue in the oil industry despite the government's progress on bring operations back online.

"The protest by oil workers will continue because this is the path we are taking to find a solution to the crisis," dissident oil executive Juan Fernandez said.

But several business leaders said schools, restaurants and malls should reopen amid concern that discontent with food and fuel shortages and financial losses caused by the strike could undermine the objective of removing Chavez.

Julio Brazon, president of the Consecomercio business chamber, which represents about 450,000 stores and retailers, said businesses need "to recover earnings and avoid labor problems."

He said shopping malls and franchises may be permitted to open part-time next week.

Carlos Avila, executive president of Subway de Venezuela, said fast-food franchises were considering opening four days a week. Each of Subway's 76 branches in Venezuela have lost an average of $30,000 during the strike.

The National Association of Private Education, which represents 911 private schools, convoked assemblies this week to decide whether schools should open February 3.

Strike organizers, who accuse Chavez of dragging this South American country into political and economic chaos, warned that easing the work stoppage would be counterproductive.

"If some sectors of the opposition, business sectors or political sectors, think they can save themselves from this regime by easing the strike, they are totally mistaken," said Carlos Ortega, president of the Venezuelan Workers Confederation, the country's largest labor union with 1-million members.

The government is struggling with the strike's impact on the economy. The strike has cost Venezuela at least $4 billion so far and the Santander Central Hispano investment bank has warned that the economy could shrink by as much as 40 percent in the first quarter of 2003.

The Finance Ministry's extended freeze on foreign currency sales is meant to give the government more time to implement a new policy of foreign exchange controls, which will limit the amount of dollars and other foreign currencies Venezuelan can buy.

The exchange controls would stem the slide of Venezuela's bolivar currency but hurt businesses dependent on dollars to buy imported goods.

The strike was called to pressure Chavez to accept a referendum on his rule. The opposition hoped a referendum, though nonbinding, would embarrass Chavez into leaving office.

But Venezuela's Supreme Court ruled last week balloting must be postponed indefinitely, prompting opposition parties to organize a massive signature collection campaign on February 2.

Government adversaries hope to amend the constitution to allow early elections.

Chavez, a former paratrooper, was elected in 1998 and re-elected two years later. His term in office ends in 2007.

www.voanews.com VOA News 28 Jan 2003, 16:58 UTC

The Venezuelan government has extended a freeze on foreign exchange trade for another week in an effort to protect the value of the country's currency.

Officials are expected to set a fixed exchange rate for the bolivar, which has lost at least 25 percent of its value this year.

The halt on trading began last Wednesday and is intended to prevent capital flight from Venezuela as a two-month anti-government strike continues.

The work stoppage had nearly halted the country's normal oil production of more than three million barrels per day. Striking oil executives said Tuesday the production is now more than one million barrels per day.

The government has fired an estimated 3,000 dissident state oil workers and deployed troops to oil installations to restart operations.

Some business owners have returned to work, saying the walkout has cost them thousands of dollars in lost income.

President Hugo Chavez announced Sunday he would impose price controls on medicine and food.

Mr. Chavez, a former paratrooper who survived a short-lived coup in April 2002, refuses to give in to opposition demands to step down or call early elections.

www.forbes.com Reuters, 01.28.03, 4:32 PM ET By Patrick Markey

CARACAS, Venezuela, Jan 28 (Reuters) - Prices soared at Alberto Martin's Caracas electronics store over the last year as a sharp tumble in Venezuela's bolivar currency against the dollar pumped up the cost of his imported stereos.

Now they could go through the roof.

As the government prepares to introduce tight currency controls to offset the impact of an eight-week strike, many Venezuelans are fretting over how the changes may cut into their already depleted buying power.

"If we hardly sold anything before, now we're going to sell less. People will be earning the same, salaries won't go up. People are just going to buy the basics," Martin said.

To counter the strike against leftist President Hugo Chavez, the government last week suspended foreign exchange trading while it studied currency curbs to halt the bolivar's slide and shore up its international reserves.

Trading will be suspended until Feb. 5 while officials fine tune the controls they plan to implement. Finance Minister Tobias Nobrega said late Monday the government was considering a fixed exchange rate, but he did not specify where the rate would be set. The currency <VEBFIX=> closed a week ago at 1,853 bolivars to the dollar.

Prices in Caracas are already climbing as merchants bet that tighter controls over access to dollars will translate into higher costs for them in a nation where the bulk of consumer goods are imported.

FLIGHT TO DOLLARS Costs of electronic goods -- an imported consumer item sensitive to price changes -- at some Caracas stores have shot up as much as 40 percent recently, business owners said.

The opposition strike, started on Dec. 2 to force populist ex-paratrooper Chavez into elections, has pushed Venezuela's fragile economy deeper into recession, battering the bolivar as investors fled for the safety of the dollar.

Buffeted by economic uncertainty, the Venezuelan currency has shed more than 28 percent of its value since the strike began. It plummeted 46 percent last year as inflation topped more than 31 percent in 2002.

Economists said that a fixed exchange rate in the short term could preserve Venezuela's international reserves, which have slipped 7.3 percent to $11.05 billion this year alone as the Central Bank intervened to shore up the bolivar.

But long-term currency restrictions will complicate private sector transactions by limiting dollar access and analysts said the government may find it difficult to sustain a fixed rate.

"Some of the reasons they are doing this is to stop capital flight and save their reserves. But they could find the opposite is true if they have to shore up the fixed rate," said Fitch Ratings director of sovereign ratings Theresa Paiz.

Venezuela last introduced temporary currency controls in 1994 to 1996 during a severe banking crisis.

But that created not only a thriving black market, which ended up becoming the de facto reference rate for the bolivar, but also a parallel market with currency trading conducted through the selling of Venezuela's Brady bonds.

PARALLEL CURRENCY MARKET EMERGING Banking sources said last week that a fledgling parallel market had reappeared though trading in private accounts overseas with the Venezuelan currency valued at about 2,200 bolivars to 2,300 bolivars to the dollar. Black market rates have been pushed as high as 3,000 bolivars to the dollar.

Citing their nation's 1994-1996 curbs, Venezuelan opposition leaders quickly dismissed the government's plans to introduce new controls.

They said restricted access to the dollar would drive up prices as some imported goods became scarcer. Curbs would also drive importers to the black market for greenbacks, which would tack on costs to prices on the domestic market, they said.

"The fundamental problem is that some people are going to be able to get access to the dollars at one price and others will not," said Rafael Alfonzo, an anti-Chavez business leader. "The consumer will be the one who pays for this."

Finance Minister Nobrega said that the government's plan would provide enough dollar access to ensure that prices of essential food and medicine did not rise sharply.

But for Caracas car salesman Jose Antonio Torres the wait for a final decision on where the exchange rate would settle was just another chapter in a disastrous economic year.

"We can't fix a price for cars because we don't know where the dollar is going to go," Torres said as he turned away two customers from his showroom of foreign cars. "When we buy new cars from the plant now, we know we are not going to be able to sell them at the exorbitant prices they'll cost."