[Shef2venez] Recent articles on Venezuela, Latin America

[John Smith]

Bush orders policy to ‘contain’ Chávez
By Andy Webb-Vidal in Miami 
FT, March 13 2005  HYPERLINK "http://news.ft.com/c.gif"

 HYPERLINK "http://news.ft.com/cms/c35b2056-4465-11d8-81c6-0820abe49a01.gif"chavezSenior US administration officials are working on a policy to “contain” Hugo Chávez, the Venezuelan president, and what they allege is his drive to “subvert” Latin America's least stable states.

A strategy aimed at fencing in the government of the world's fifth-largest oil exporter is being prepared at the request of President George W. Bush and Condoleezza Rice, secretary of state, senior US officials say. The move signals a renewed interest by the administration in a region that has been relatively neglected in recent years.

Roger Pardo-Maurer, deputy assistant secretary for western hemisphere affairs at the US Department of Defense, said the Venezuela policy was being developed because Mr Chávez was employing a “hyena strategy” in the region.

“Chávez is a problem because he is clearly using his oil money and influence to introduce his conflictive style into the politics of other countries,” Mr Pardo-Maurer said in an interview with the Financial Times.

“He's picking on the countries whose social fabric is the weakest,” he added. “In some cases it's downright subversion.”

Mr Chávez, whose government has enjoyed bumper export revenues during his six years in office thanks to high oil prices, has denied that he is aiding insurgent groups in countries such as Bolivia, Colombia and Peru. But a tougher stance from the US appears to be in the offing, a move that is likely to worsen strained bilateral relations.

The policy shift in Washington, which a US military officer said is at an early stage but is centred on the goal of “containment”, could also have implications for the world oil market.

Mr Chávez has threatened to suspend oil shipments to the US if it attempts to oust him. He and Fidel Castro, the Cuban president, have alleged, without offering proof, that the Bush administration was plotting to assassinate the Venezuelan leader, an allegation that US officials have dismissed as “wild”. 

Suggestions that Mr Chávez backs subversive groups surface frequently, although so far also with scant evidence. Colombian officials close to President Alvaro Uribe say Venezuela is giving sanctuary to Colombian guerrillas, deemed “terrorists” by the US and Europe.

US officials say Mr Chávez financed Evo Morales, the Bolivian indigenous leader whose followers last week unsuccessfully tried to force President Carlos Mesa's resignation. In Peru allegations emerged suggesting that Mr Chávez financed a rogue army officer who tried to incite a rebellion against President Alejandro Toledo in December.

Mr Chávez has dismissed such claims as fabrications designed to undermine his attempts to foster greater political and economic integration in Latin America.

Mr Pardo-Maurer said Washington has run out of patience: “We have reached the end of the road of the current approach.”

 

Venezuela restocks its arsenal
By Andy Webb-Vidal in Miami 
FT, March 14 2005 

The US military's senior officer responsible for security co-operation in Latin America has warned of the destabilising potential posed to the region by the Venezuelan government's controversial, and opaque, arms procurement programme.


Hugo Chávez, the president of the world's fifth-largest oil exporter, has begun signing contracts to buy an array of weapons to revamp his defences to thwart what he claims could be outside “aggression”.

Such fears were intensified two weeks ago when Venezuelan officials were alarmed by the presence of US warships and marines near Curaçao, off Venezuela. US officials said it was a routine manoeuvre.

Equipment ranging from 50 latest-generation Mig-29 warplanes to dozens of helicopter gunships, 100,000 Kalashnikov automatic rifles and a fleet of naval vessels, have all been reported as imminent deliveries to Venezuela's new arsenal.

General Bantz Craddock, the commander-in-chief of the US Southern Command, said Venezuela's arms-procurement plan was a worry because the motive was unclear, raising concern among its Latin American neighbours.

“We are wondering just what is the intent here,” Gen Craddock said in an interview. “If it is for sovereign defence, obviously each nation can do their own, and as well they should in terms of protecting their sovereignty and their national boundaries.”

But Gen Craddock, who is scheduled to testify before the Senate's armed forces committee tomorrow, said it was unclear if the end-user of some of the weapons, in particular the 100,000 rifles, really was Venezuela.

“If it is to export instability that is a different situation,” he said. “We are concerned about that and we would like that not to happen.”

US defence officials are especially concerned that once the rifles are delivered, there is a high risk that other weapons or ammunition from Venezuela could fall into the hands of Colombian guerrillas who are seeking to overthrow President Alvaro Uribe, Washington's main ally in the region.

The Revolutionary Armed Forces of Colombia, or Farc, have long received guns and ammunition from rogue factions within governments in neighbouring countries.

Vladimiro Montesinos, Peru's spymaster under former president Alberto Fujimori, is alleged to have arranged the delivery of 10,000 Kalashnikovs to the Farc as part of a covert operation when he was in power.

However, US officials are less concerned about Mr Chávez's apparent plans to acquire Mig-29s from Russia. “Most up here figure this would be a colossal waste of money for Chávez as he likely couldn't keep these things in the air very long,” said a US military officer. Venezuela already has US-built F-16s and French Mirages but defence analysts believe that few are operational.

Some US officials are more concerned by what they see as the lack of financial transparency in the negotiation of the arms deals than by the bellicose capability of the arms themselves. Price tags ranging up to $5bn (€3.7bn, £2.6bn) have been reported as the total cost of Mr Chávez's oil-financed defence spending spree, yet none of the purchases has yet been debated in Venezuela's legislature.

“It's an orgy of corruption,” said Roger Pardo-Maurer, deputy assistant secretary for western hemisphere affairs at the US Department of Defense.

Mr Chávez responded last month that the US had no moral authority to make such complaints because it “lied” about the existence of weapons of mass destruction as the principal justification for the invasion of Iraq.

■ Venezuela's government will expropriate land belonging to the Vestey Group, the British-owned meat producer, and an animal reserve, among other properties, saying that the private owners did not have legitimate claims, AP reports in Caracas. The National Lands Institute said it would take over a total of 96,440 hectares of land and give it to the poor.

The government will take over all of El Charcote Ranch, a cattle ranch belonging to an affiliate of the Vestey Group, an animal reserve, Pinero Ranch, and a third privately owned ranch, El Coco. None of the owners could be reached on Sunday. It was not clear when the government would take possession of the lands.

 

Latin America region boosted by $56bn investment 
By Richard Lapper, Latin America Editor 
FT, March 15 2005 

International companies last year invested $56bn in Latin America and the Caribbean, 44 per cent more than in 2003 and the biggest total for the region since 2001. 

In a report* that provided further evidence of recovery after a prolonged slowdown at the beginning of this decade, the United Nations Economic Commission for Latin America (Eclac) said on Tuesday that increased interest "could indicate a new period of sustained investment growth". 

Even so, the region is still some way off the average of $70.6bn per year achieved in the late 1990s, when privatisation and financial restructuring were in full swing. 

"It is a strong increase but my impression is that it is part of a permanent improvement," said José Luis Machinea, general secretary of Eclac. "The region is getting better, its export sectors more competitive and we have the incipient Chinese interest in natural resources." 

The trend disguised pronounced differences between countries, with six - Trinidad & Tobago, Chile, Brazil, Chile, El Salvador and Colombia - performing especially well. 

Both Trinidad, which has seen heavy overseas interest in its natural gas industry, and Chile welcomed more fresh investment than their average in the second half of the 1990s. But investment continued to decline across the Andean region. Political instability has been particularly pronounced in two Andean countries, Venezuela and Bolivia. 

The report warns that Brazil, Argentina, Chile and other countries from the southern cone need to attract as much as $20bn in fresh investment into their energy sector if electricity shortages are not to undermine economic performance. 

During the 1990s, more than $77bn was invested in the gas and electricity industries, but only about a quarter of that amount was directed towards new capacity or improving plants. 

This means the region does not have enough capacity to meet growing demand and many pipelines and electricity lines will need to be upgraded. 

Eclac noted a steady decline in European interest in Latin America. Spanish banks and utility companies were badly affected by the near financial collapse in 2001 of Argentina. But it pointed to a steady increase in the market penetration of Latin American transnationals, singling out companies such as Telmex and Cemex of Mexico, and Companhia Vale do Rio Doce and Petrobrás of Brazil. 

* Foreign investment in Latin America and the Caribbean 2004. United Nations Economic Commission for Latin America and the Caribbean (ecla). HYPERLINK "http://www.eclac.cl"www.eclac.cl

Latin America is looking healthy - for now
By Mark Mulligan 
FT, March 14 2005  HYPERLINK "http://news.ft.com/c.gif"

Latin America, prone to boom and bust, capital flight, political instability, corruption and regulatory inefficiencies, has never been for the faint hearted.

When Argentina defaulted on US$100bn (£5bn) of sovereign debt in early 2002, investors were ready to write off the region. Soon after, Brazil's risk premium widened to levels usually linked with default on the election of the so­cialist, Luiz Inácio Lula da Silva.

Now Latin America is back in vogue. And observers are venturing that deeper structural reform could flatten the traditional peaks and troughs in the longer term. "There have been noticeable efforts to move away from the old boom and bust pattern," says Seamus Lyons, fund analyst at Forsyth Partners.

Latin American growth rates last year averaged 5 per cent, and a 22.5 per cent rise in the value of exports helped the region record its second annual current account surplus in a row. Currencies have strengthened against the falling dollar, to the point where governments in Mexico, Colombia and Brazil are considering issuing international bonds in local currencies.

Relative political and macroeconomic stability, thanks largely to strong commodity prices and demand from China, is feeding consumer confidence and corporate results. Risk premiums on sovereign debt are slimmer than ever. Yield-hungry investors are piling into sovereign debt, mainly from Brazil, amid healthy appetite for medium-risk paper from developing countries.

Reflecting this, Morgan Stanley's benchmark MSCI Latin American equity index has soared by about 135 per cent since the start of 2003, compared with a 95 per cent rise on the broader Emerging Markets index.

Light-weighted Venezuela and Argentina have bounced back and the Colombian stock market last year surged 133 per cent in dollar terms, putting it among the top global performers.

Although the rally in the heavily weighted Mexican and Brazilian markets may lose steam this year, investment managers and analysts remain bullish. David Dowsett, senior portfolio manager at Blue Bay, highlights the healthy external accounts and buoyant domestic demand and investment being enjoyed by most of the region's economies. "This has been backed up by sound political trends - with country variations, of course - and sensible fiscal management," he says.

There is also caution, amid signs of monetary tightening in the US. The last important Latin American asset sell-off was in mid-2004, when comments from Alan Greenspan, Federal Reserve president, pointed to an interest rate hike. The spectre of a slowdown in Chinese demand and softening commodity prices hovers, too.

Added to this, the ebbing fortunes of Vicente Fox, the Mexican president, and Mr Lula da Silva have put fund managers on their guard.

"Brazil over the next six to seven years is a magnificent story," says Rupert Brandt, who runs the US$300m F&C Latin American Investment Trust, "but the market has tripled in value in dollar terms in the last two years and is vulnerable to a period of profit-taking." He has taken profits and cut his exposure in Brazil. Similar strategies are becoming standard in Mexico's equity market; investors fret about Mr Fox's room for manoeuvre on economic reforms.

"Mexico is a good bottom-up story, but top down it's a bit of a political basket case at the moment," says Mr Lyons. These concerns are offset by the country's continued convergence with the US economy, in defiance of those who saw manufacturers dumping Mexico as a low-cost manufacturing base and decamping to Asia.

"Mexico is by far the strongest conversion story in the world," says Mr Brandt. Analysts suggest the only dark cloud is a downturn in US consumer spending.

Smart money is chasing good local corporate stories. Price-earnings multiples are cheap and efficiency gains forced by more than a decade of fluctuating credit and consumer conditions have built resistance at many companies. Many see profits growth continuing to outstrip gross domestic product for the next year at least, and are looking for value in market-dominating telecommunications and retail businesses, for example.

"It will, of course, be far from a smooth ride," says Mr Lyons, "but the region should perform strongly again this year."

 

Argentina, the IMF and good faith
By Adam Thomson in Buenos Aires
FT, March 13 2005 

Argentina last month persuaded creditors holding more than three-quarters of its record $103bn in defaulted debt to accept its restructuring offer.

Measure it any way you like – in absolute terms or as a percentage of the original debt – it is the biggest reduction any emerging-market country has ever achieved. But did Argentina negotiate its way out of default? And did it do so in good faith?

These two questions are circulating the corridors of the International Monetary Fund as the institution contemplates how to re-engage with Argentina after the suspension of its three-year agreement last August.

And they are doing so thanks to the IMF’s “lending into arrears” policy, which requires members in default to make “good faith efforts” to come to terms with their private sector creditors.

If the fund concludes that negotiations did not take place and that good faith was absent, Argentina could yet find itself in trouble. Talks to secure a new programme, which the government considers vital to meet its financing needs this year, could run aground.

A “no” response would also focus additional attention on the hold-out creditors – investors who rejected the government’s offer. In spite of the high level of bondholder participation Argentina achieved, about $19bn of the defaulted debt was not tendered in the exchange. That is about three times the size of Ecuador’s total default in 1999.

The IMF and the Group of Seven industrialised nations, which controls the fund, are naturally concerned about the size of these hold-outs. If they conclude that Argentina was not acting in good faith towards its creditors, they will be far less willing to let Argentina ignore the hold-outs, as the country has vowed to do.

Bondholders that rejected the exchange – and many that accepted it – argue that Argentina refused to negotiate and acted in bad faith. They also say Argentina turned its back on more than a century of precedents that have until now ensured quick and satisfactory results. Unfortunately for Argentina, there are signs that many in the fund share that view.

But look at it another way. In September 2003, Argentina unveiled its original debt-restructuring proposal, which came to be known as the Dubai offer. At the time, most analysts said it was worth about 10 cents on the dollar in terms of the original nominal value of the defaulted bonds.

Last month’s widely accepted offer, by contrast, is worth about 34 cents on the dollar. True, some of that improvement – about eight cents of it was the result of falling interest rates for emerging-market debt. But the bulk of the improvement came from at least two important changes Argentina made to its offer – one in June last year and the second in November.

A similar thing happened to the bondholders’ position. In July 2004, representatives of the Global Committee of Argentina Bondholders, the biggest creditor group, embarked on a world tour to “raise awareness” of what Argentina could afford to pay. By changing a few figures, it claimed, Argentina could offer investors about 70 cents on the dollar.

This year, the same group staged a shadow roadshow to publicise a considerably less-ambitious counter offer, whose main proposal was to persuade the IMF to stump up $3bn for the restructuring. That modest idea was doubtless secretly welcomed by the government because, by adding a mere 3.75 cents in value, it implicitly suggested that Argentina’s offer was close to what even the most aggressive bondholder group considered acceptable.

The point is that both sides softened their original demands and the government arrived at an agreement with three quarters of investors somewhere in the middle of the two extremes. Sounds a lot like a negotiated settlement, doesn’t it?

Not in the traditional sense, though. Most bondholders understood the word negotiation to mean arduous, face-to-face meetings with investors and government representatives wearing each other down over stewed coffee and stale sandwiches.

The world has moved on. Today, negotiations take place on the telephone, via the internet, in the press and through informal soundings conducted by advising banks. Indeed, negotiation in the modern sense simply means a process by which both sides gather sufficient information to arrive at a deal most will accept. That is what happened in Argentina’s recent debt-restructuring process.

The good-faith part is a similar story. Argentina was not polite to bondholders. In fact, it often treated them badly. But good faith in negotiations does not mean you have to be nice or that you have to respect precedent. In its purest form, it simply means making a genuine attempt to get a deal done.

For the first two years after the December 2001 default, Argentina did not want a restructuring and it acted in bad faith. But by the beginning of 2004 it became clear to even the most cynical investors that Argentina was desperate for a deal. Its aggressive, bullying tactics may not have been to bondholders’ liking but the government’s job was not to charm investors. It was to secure a widely accepted debt-restructuring at the lowest possible cost to the country.

The fund may not see things this way. But to stick to the old definitions of “negotiation” and “good faith efforts” looks like trying to prevent a change that has already taken place. Given Argentina’s success, the odds are that it is a permanent change.


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