Posted on 07/12/2002 3:12:56 PM PDT by Axion
Venezuela: With Strikes Looming, All Eyes on PDVSA Summary SOURCES: Venezuelan government figures and IMF Venezuelan Foreign Currency Reserves (from beginning of the month, US$) Source: Central Bank of VenezuelaCaracas proposed an emergency fiscal adjustment package May 30 that was designed to cut government spending and raise revenues. So far, this package has been a dismal failure. Proposed tax hikes are languishing, and multilateral agencies have refused to lend, forcing Chavez to seek a $5 billion bridge loan from Libya, sources say. Attempts to refinance Venezuela's debt have been equally unsuccessful, primarily because domestic and foreign investors are wary of the risk. Caracas was able to raise only around $4 million, or 10 percent of its goal, in a late-June auction of two-month treasury bills.
12 July 2002
The impact of a nationwide strike in Venezuela will hinge on the participation, or lack thereof, within the state-run oil company. With the country's economy on the rocks and its fiscal situation extremely fragile, a suspension of oil exports would generate a financial crisis that could finally topple President Hugo Chavez.
Analysis
Venezuela's largest labor organization, the Confederation of Venezuelan Workers (CTV), has called for a general strike aimed at forcing President Hugo Chavez to resign. The CTV announced its decision late July 11, following daylong demonstrations in which an estimated 600,000 people took to the streets of Caracas to demand Chavez's resignation.
CTV officials say they will announce the dates of the proposed strike on July 15. A national strike would exacerbate an already severe economic deterioration and -- if lengthy -- tip Venezuela into a full-blown financial crisis that might drive Chavez from office. The key factor in determining the strike's likely damage (and its efficacy, since they are closely related) will be the depth of participation by employees of state-owned oil company Petroleos de Venezuela (PDVSA).
If both workers and managers of PDVSA participate, as they did during strikes in April, Venezuelan oil exports could come to a screeching halt. This could generate an almost immediate financial crisis for the government, making it difficult for Caracas to meet its debt obligations. The effects also would be felt across the globe, as oil prices rose in response to the suspension of exports and renewed concerns over the longer-term deterioration of Venezuelan production capacity.
The economy has headed truly south this year (see Table 1), resulting in sharp contraction in government revenues and currency pressures that forced the regime to draw down cash reserves. Although higher oil prices (see Table 2) have helped reserves recover somewhat, Venezuela is not yet out of the woods.
Venezuela's Economic Woes: The Numbers
GDP Growth
4.2 percent contraction in Q1 and 5.8 percent contraction predicted in Q2
Inflation
Predicted to reach 30 percent by December, with 22 percent to 23 percent annualized inflation for 2002 (IMF)
Public Debt Obligations
$6 billion coming due before the end of 2002
Unemployment
15.3 percent in Q1; total unemployed estimated at 1.7 million people in June
Predicted Fiscal Deficit as a Percentage of GDP, 2002
Between 8.8 percent and 11 percent
Industrial Production
Down 8 percent in Q1 (Conindustria Industrial Association)
Retail Sales, Q1 and Q2 2002
Down 30 percent to 65 percent versus same period last year
Petroleum Sector Revenues
Down 7.6 percent in Q1 and 8.4 percent in Q2
January:
12.037
February:
10.527
March:
9.765
April:
9.444
May:
10.081
June:
10.038
July:
10.939
With $6 billion in debt coming due this year, Caracas can ill-afford another work stoppage, especially if it involves its primary revenue source, PDVSA. Oil exports account for 80 percent of Venezuelan exports and about 35 percent of the gross national product.
It is not clear exactly how long Venezuela could hold out in the event of an oil strike, but events in April offer some clues. Then, at the height of a string of protests and production cutbacks, industry sources told Reuters that oil shipments had been reduced to around 15 percent to 20 percent of normal levels. Export terminals were inoperative in both eastern and western Venezuela, major refineries sat idle and by one count, 36 tankers waited empty in port -- all of which forced PDVSA to declare force majeure on many of its export commitments. This situation would have gotten much worse had the strike persisted; as it was, PDVSA resumed normal operations only about two weeks after strikes ended.
Venezuela exports around 2 million bpd, an amount that equates to about $50 million in revenues each day under current prices. With more than $10 billion in hard-currency reserves, it would seem that Caracas could ride out even a complete cut in oil export revenue for quite a while, but the situation is more complicated than that.
If Caracas were forced to rapidly draw down foreign currency reserves to replace lost oil income, the Bolivar would plummet on international markets. Any refinancing of external debt would become cost-prohibitive, making it difficult for Caracas to meet its immediate debt payments. Domestically, the currency slide would lead to rapid capital flight and possibly to hyperinflation. Much like Argentina, Venezuela could quickly become an international pariah and might even be forced into default.
Even if blue-collar PDVSA workers join the coming CTV strike, an export stoppage might still be avoided. For that to happen, Chavez and newly appointed PDVSA chief Ali Rodriguez must keep managers in line. Middle managers have been able to keep the company going during past labor strikes and likely could do so again, at least for a while.
PDVSA workers and managers have yet to declare their intentions regarding the CTV strike -- although the country's largest oil union, Fedepetrol, has threatened a national strike of its own next week if talks concerning pay increases and benefit improvements fail.
If PDVSA personnel do not join in, the CTV stoppage will be yet another in a long list of unsuccessful attempts to drive Chavez from office. But with their participation, the strike could sink the Venezuelan economy through the floor and probably drive Chavez out the door.
If the govt has no money, the welfare checks and govt paychecks dont come ...
I, for one, would be more than happy to see a spike in energy prices if it would force a despot out of office. I just hope the Venezuelans have a decent replacement lined up to take his place, not just another opportunistic thug that sees this as the chance for him and his cronies to have their turn to feed from the trough.
What an imperialist!
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