Venezuela’s economy: Disappearing dollars

by The Economist, September 16th, 2010.

An oil producer’s strange foreign-exchange squeeze.

With the price of oil at record highs over the past few years, oil-exporting countries have enjoyed a bonanza. So the last thing you might expect to be scarce in Venezuela is foreign exchange. But for mysterious reasons, dollars are in short supply—and that threatens slowly to strangle the economy.

Hugo Chávez, the country’s left-wing president, imposed exchange controls back in 2003, during a crippling strike by the management and workers of Petróleos de Venezuela (PDVSA), the state oil company. But he also fixed the exchange rate, from 2005 at 2.15 to the dollar even though inflation has since ranged from 14% to 31% a year. This triggered an import boom.

The exchange-control board, known as Cadivi, never supplied all the hard currency the economy required (of the $38.4 billion spent on imports in 2009, only $22.3 billion came from Cadivi, for example). But until recently, the government tolerated a parallel foreign-exchange market known as the permuta, which involved trading government bonds. These could be bought in bolívars and sold for dollars, or vice versa, through brokerage houses. The relation between the two prices became the free-market exchange rate. (continue reading… )

Venezuela bid has big risks, rewards for oil majors

by Brian Ellsworth and Marianna Parraga, for Reuters, January 29, 2010.

CARACAS (Reuters) – Venezuela’s Carabobo auction presents global oil giants with a major opportunity to gain access to what the U.S. Geological Survey recently called one of the world’s largest reserves of crude oil.

But winners of the auction face risks that could include delays in development, a major financing burden and a thicket of problems building infrastructure from roads, pipelines and ports to high-tech facilities to upgrade the heavy crude.

The leftist government of Hugo Chavez has drawn the interest of global oil giants for projects in the Orinoco region despite nationalizations there just three years ago that boosted concerns about the OPEC nation’s political risk.

Companies are keen on low exploratory risk and manageable production costs offered by the three projects, which will produce 1.2 million barrels per day and hold total estimated 128 billion barrels of oil in place…(continue reading)