By Alex Kennedy

Caracas, May 9 (<a href=quote.bloomberg.com>Bloomberg) -- Venezuela's economy probably had its biggest contraction ever in the first quarter as an unsuccessful strike to oust President Hugo Chavez crippled oil production and consumer spending.

Gross domestic product probably shrank 29 percent in the first quarter from the same period a year ago, according the median forecast of seven economists in a Bloomberg survey. That loss almost matches oil's one-third contribution to the Venezuelan economy. The previous worst contraction was 17 percent in the fourth quarter of 2002.

``Chavez is still popular with a lot of the poor, but this economic depression is really going to test that popularity,'' said Benito Berber, an analyst with research firm IDEAglobal in New York.

The shrinking economy may accomplish what Chavez's opponents failed to get with the two-month strike: a new president. Chavez may face a binding referendum on his mandate later this year, which if he loses would lead to new elections. The strike, which cost the economy $7.4 billion, helped drive unemployment to 21 percent, and polls show about 60 percent of Venezuelans want Chavez to leave.

The economy has contracted two of the four years the former army lieutenant colonel has been in office. The central bank usually announces GDP results six to eight weeks after the end of a quarter.

The country's oil industry, whose production and revenue usually account for about 30 percent of GDP, fell 45 percent in the January-March period, according to Alejandro Grisanti, an analyst at Santander Investment in Caracas.

Oil Production

Oil production, which fell to 150,000 barrels a day in the first week of January, rose to 3 million barrels a day by the end of March, or back to pre-strike levels, according to the government. Oil output averaged 1.8 million barrels a day during the first three months of the year, down about 35 percent from the year before, the government said.

The strike and concern that a war in Iraq would cut production from that country boosted crude oil prices to $34.67 a barrel on March 12 from $23.63 on Nov. 13. Prices fell to $26.98 yesterday.

``The productive apparatus has been hit by everything that has happened recently -- the strike, the social and political conflict, the uncertainty, the lack of currency,'' said Domingo Maza, one of seven central bank directors.

Chavez restricted foreign currency trading in January to bolster international reserves depleted by falling confidence in the bolivar.

Since then the government has authorized the sale of only $105 million, compared with daily sales of about $60 million before the restrictions. The lack of dollars has stifled production in a country that imports 60 percent of consumer goods and where many companies rely on foreign parts and raw material to operate.

The government fixed the exchange rate at 1,600 bolivars a dollar in February. Companies and individuals scrambling for dollars have pushed the unofficial rate to about 2,200 bolivars.

Provisions

It's not just that we're running out of food, there are no car parts, tools, chemicals for companies, fertilizers for farmers,'' said Albis Munoz, president of Fedecamaras, the largest business association. When you attack private business, when you cut off dollars, you're cutting off the Venezuelan people.''

The government says it will import essential goods to avoid shortages.

Chavez's relations with many of the country's business people have been tense since he decreed 49 laws in October 2001 that included one allowing the government to confiscate private property.

There must be an agreement between the government and private sector over resources and the division of labor,'' Maza said. Without it, there's no possibility of overcoming the economic crisis we're in.''

Inflation quickened to 31 percent last year, a five-year high, from 12 percent in 2001.

The following chart provides a breakdown of forecasts for first quarter and 2003 GDP growth by firm:

T* Firm First Quarter 2003 IDEAglobal -19 -9.1 J.P. Morgan -24 -15 Santander Investment -35.2 -9.3 Banco Mercantil -27.1 -11.3 Deutsche Bank -38.5 -15.3 UBS Warburg -29 -15.5 BBVA -36 -12.3 Bear Sterns -15 Morgan Stanley -16.9 Veneconomy -16.8 IMF -17 Last Updated: May 9, 2003 13:47 EDT

Mon May 5, 2003 05:17 PM ET CARACAS, Venezuela, May 5 (<a href=reuters.com>Reuters) - Venezuela's largest private energy generator and distributor, Electricidad de Caracas (EDC) EDC.CR , on Monday reported a narrower first-quarter net loss of 25.6 billion bolivars and said it had reduced its costs compared with a year earlier.

EDC, an affiliate of U.S. power firm AES Corp. AES.N , said the quarterly result represented a 25 percent improvement over the net loss it posted a year earlier.

Since February, the fixed exchange rate has been 1,600 bolivars to the U.S. dollar. The company did not immediately provide its dollar results.

Mon May 5, 2003 04:11 PM ET (Releads, adds details and background)

NEW YORK, May 5 (<a href=reuters.com>Reuters) - Venezuela's recession-bound economy got more bad news on Monday, when the country was dropped from the FTSE All-World Index as tight foreign exchange controls hampered international investors.

The FTSE Group, which manages the global index of 49 developed and emerging countries, said that, since foreign exchange is not available to international investors wishing to sell on the Caracas stock exchange .IBC , Venezuela is in breach of ground rules written for the management of the index.

Venezuela, the No. 5 oil exporter, will be removed at the close of business on June 20 and the change will be effective Monday, June 23. The Latin American country will be removed at nil value.

"Many fund managers have marked the value of Caracas-listed shares held to zero," said Peter Leahy, Co-Chairman of of the FTSE Americas Regional Committee, in a release.

The FTSE Group, which is co-owned by the London Stock Exchange and the Financial Times, is a leading index manager -- most notably of the FTSE 100 at the London Stock Exchange.

Venezuela, which will attract fewer investors as a result of the FTSE action, is struggling with one of the worst downturns in its history after a two-month opposition strike in December and January slashed its vital crude production and shipments.

The government in February introduced strict currency and price controls to halt capital flight and stem inflation. But the curbs have left the private sector starved of essential hard currency for more than three months.

Business leaders have warned the controls will further curtail economic growth, batter the private sector and prevent importers paying debts with external suppliers.

"These exchange controls make Venezuela effectively uninvestable," Leahy said.

The Caracas stock market's leading player, No. 1 telephone firm CANTV VNT.N TDVd.CR , an affiliate of Verizon Communications VZ.N , is traded in the United States in ADR form. But the Venezuelan firm recently issued an investor warning saying it might not be able to pay its dividends in dollars due to the forex controls. (Additional reporting by Patrick Markey)

Reuters, 05.05.03, 4:34 PM ET

(The following statement was released by the rating agency) NEW YORK, Standard & Poor's Ratings Services today removed its 'B' rating on Petrozuata Finance Inc.'s $1 billion bonds from CreditWatch, where it was placed with negative implications on Dec. 10, 2002. Standard & Poor's affirmed the 'B' rating on the bonds, which are guaranteed by Petrolera Zuata, Petrozuata C.A (Petrozuata). The outlook is stable.

Petrozuata is a heavy oil production and upgrading project located in Venezuela that is owned by Conoco Venezuela Holding (50.1%), a subsidiary of ConocoPhillips (A-/Stable/A-2), and PDVSA Petroleo (49.9%), a subsidiary of Petroleos de Venezuela S.A. (PDVSA: CCC+/Stable/--).

"The removal of the rating from CreditWatch is due mainly to the project's ability to restart and stabilize operations and to make offshore debt payments without exposure to foreign exchange controls," said credit analyst Terry Pratt. "The removal is further supported by the outlook for the Bolivarian Republic of Venezuela and PDVSA, which was revised to stable on April 16, 2003, by Standard & Poor's because of the government's improving liquidity and a reduction, albeit limited, in economic and political pressures."

The Petrozuata project restarted upgrader operations in early March 2003 following the redelivery of natural gas and hydrogen feedstocks by PDVSA Gas and third parties supplied by PDVSA Gas. Petrozuata reports that its current operations are in line with year 2003 business forecasts.

Continued operation of the upgrader relies on continued operations of PDVSA. PDVSA has improved oil production levels to about 3.1 million barrels per day despite the dismissal of about 40% of its employees in response to a general strike. However, PDVSA operations, and thus potentially feedstock supplies to Petrozuata, remain exposed to renewed disruptions caused by continuing political and social tensions and uncertain capital available for investment.

The stable outlook reflects Petrozuata's current production above or at pro forma rates and general expectations that the project will continue to receive sufficient feedstocks from PDVSA Gas to support production and will not be subject to foreign exchange controls. The outlook could change to negative if the project's ability to maintain steady production becomes questionable, or if the credit outlook for the sovereign or PDVSA worsens. The outlook could be revised to positive if the outlook on PDSVA and the government improves.

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit-analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site, at www.standardandpoors.com (under Fixed Income, in the left navigation bar, select Credit Ratings Actions).

Reuters, 05.05.03, 1:34 PM ET

NEW YORK, May 5 (Reuters) - The FTSE Group said on Monday it removed Venezuela from its FTSE All-World Index because the Latin American country's currency is not widely available to international investors in the country.

Since foreign exchange is not available to international investors wishing to sell on the Caracas stock exchange <.IBC>, Venezuela is in breach of ground rules written for the management of the index.

"Many fund mangers have marked the value of Caracas-listed shares held to zero," said Peter Leahy, Co-Chairman of of the FTSE Americas Regional Committee.

"These exchange controls make Venezuela effectively uninvestable," he said.