Venezuela and Cuba ".are in the Vortex and circling the drain in the Crapper of civilization "

Socialism is a fight of many battles and required dedication.......
S.

Key political risks to watch in Venezuela
Wed Sep 1, 2010 10:40am EDT
CARACAS, Sept 1 (Reuters) - Venezuelans vote in legislative
elections this month with runaway crime and the ragged state of
the economy the main issues in the campaign. [ID:nVENEZUELA]
Keep an eye out for unpredictable policy changes by
socialist President Hugo Chavez, especially if the poll
bolsters the opposition, as well as the chance of new
nationalizations in the energy sector.
LEGISLATIVE ELECTIONS
Elections on Sept. 26 will weaken Chavez's grip on the
National Assembly and give the opposition its first big voice
in the legislature since it boycotted the last vote for
lawmakers in 2005. Polls suggest Chavez's socialist party will
likely keep control of the Assembly, but with reduced numbers
that could make it harder to pass major legislation.
The party may win most seats without the majority of the
vote, a symbolic blow to populist Chavez. The unlikely event of
the opposition winning control of the Assembly would create
serious headaches for Chavez before the 2012 presidential
election and increase political instability.
Political risk consultancy Eurasia Group predicts a
fragmented opposition could gain 40 percent of the Assembly
seats because Chavez is increasingly being held responsible by
voters for Venezuela's problems. He remains Venezuela's most
popular politician, however, and there have been few major
street protests recently. Media freedom is a perennial concern.
The government has piled pressure on top opposition TV station
Globovision, and two of its owners have fled arrest warrants
criticized by the United Nations. [ID:nN2041884]
Chavez's main challenge may be to mobilize his supporters,
who have in the past expressed dissatisfaction by abstaining
rather than voting for the opposition. He has seized on the
conflict with Colombia as a rallying cry but will need to find
another issue to fight voter fatigue. [ID:nN26224167]
What to watch:
-- Chavez's approval ratings. His popularity recovered
until May, [ID:nN17255157] but is under pressure from the food
scandal and country's broader economic woes.
-- While mostly noisy rhetoric, Chavez's campaigns lead to
market-shaking threats against foreign investors and
governments. [ID:nN25145071]
-- Although unlikely, an opposition majority in the
Assembly would be a game changer. It would likely bring a
short-term boost for financial markets, but that could quickly
reverse if a political crisis ensued.
ECONOMIC POLICIES
Venezuela will almost certainly be mired in recession for a
second year in 2010, making it the only Latin American country
not in recovery. With risk indicators like Morgan Stanley's
EMBI+ 11EMJ and CDI spreads VEGV5YUSAC=MP consistently
rating the OPEC member's debt as the world's highest default
risk, the key question is whether Chavez will keep paying.
In the short term, yes. Almost nobody thinks Venezuela will
default because of its large oil output and history of meeting
its debt obligations [ID:nN16107974]. Some analysts are
cautious about how finances will hold up in the medium term
without a sustained rise in oil prices and production --
pointing out that Chavez has unusually not hiked spending
before this month's election: a possible sign of tight cash
supplies.
Even so, tens of billions of dollars in oil investment
planned for the next few years and relatively low foreign debt
levels will help avoid disaster. The government will be cheered
that inflation slowed for a third month in a row in July
[ID:nN05126101], and that while the economy contracted in the
second quarter, it shrank less than expected. [ID:nN19271117]
With Chavez set on increasing the state's role in the
economy, Venezuela's manufacturing base is likely to erode
further, leaving it more exposed to oil price volatility. The
government is closing brokerages and recently took over some
U.S.-owned oil rigs -- triggering a new jump in risk ratings.
The economy is a political problem for Chavez and he has
been embarrassed by a scandal over rotting food that critics
say proves the state is a bad administrator [ID:nN16174036].
The public is feeling double-digit inflation more now that the
economy is shrinking. The government has stopped a 40 percent
dive in the value of the bolivar currency on a free-floated
market for now, but price rises and attacks on the private
sector mean the bolivar remains under pressure.
Venezuela is preparing a $2 billion dollar-denominated bond
issue by state oil company PDVSA for September, a senior
government source has said, adding that the country should
emerge from recession at the end of the year. [ID:nN25140272]
Currency risks are high, with foreign companies taking a
cash hit this year because of the weaker bolivar.
[ID:nN21170208] Many economists are doubtful a new foreign
exchange market is sustainable. If it collapses, a byzantine
system of fixed rates may get even more complicated and imports
could be hit.

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Rains have brought temporary relief at hydro-electric dams,
reducing power shortages but deeper problems mean Venezuela is
likely to suffer an energy deficit until at least next year.
Oil prices remain the key variable, with any large,
sustained drop threatening stability and fiscal health. CDS
prices shoot up and bonds VENGLB27=RR plunge when oil falls.
What to watch:
-- Further nationalizations, perhaps in food, healthcare or
mining [ID:nN25163924], and more regulation.
-- Shortage of dollar supplies to foreign exchange market
putting more of a squeeze on importers.
-- Growing imbalances in the economy.
DIPLOMATIC TENSIONS
Andean tensions flared up again in July, with outgoing
Colombian President Alvaro Uribe raising the issue of FARC
rebel camps in Venezuela days before he left office. Chavez cut
diplomatic ties, then restored them after meeting new Colombian
President Juan Manuel Santos. Both sides said they had decided
to begin a new chapter in relations, but the detente is
unlikely to give Chavez a boost ahead of this month's polls,
and analysts say the Venezuelan leader could well ramp up his
rhetoric again. [ID:nN11231503]
Venezuela has agreed to pay $200 million it owes Colombian
exporters as a first step towards restoring billions of dollars
of trade lost between the Andean neighbors. [ID:nN20166203]
Increased pressure on Iran by the West could create stress
between Venezuela and the European Union and Washington, since
Venezuela has close ties to Tehran and will not respect
sanctions against its ally. It has said it will continue to
send gasoline to Iran despite new sanctions. [ID:nN18203205]
Raising the likelihood of more tension ahead, Chavez has
said newly nominated U.S. ambassador Larry Palmer will not be
allowed to take up his post after he criticized Venezuela's
socialist government. [ID:nN08211955]
A leading voice of the left in Latin America, Chavez could
lose allies after elections in Brazil this year and in
Argentina in 2011. The region is already less friendly toward
him after right-of-center presidents won power in Panama,
Honduras and Chile in recent months [ID:nLDE60H1T7].
What to watch:
-- Short-term recovery of Colombia ties for trade.
-- Tensions with the United States ratcheting up as
elections approach. Iran relations may be an issue.
OIL INDUSTRY
Venezuela is one of the United States' top five oil
suppliers but exports are pressured by shutdowns at refineries
and domestic demand for fuel, partly triggered by a growing
reliance on thermoelectric power plants. [ID:nN17127861]
Refinery outages have kept production below normal levels
of 3 million bpd. The Carabobo bidding round wrapped up in
February brings billions of dollars from companies such as
Chevron (CVX.N), Repsol (REP.MC) and a consortium of Russian
firms [ID:nN30193185] to develop new extra heavy oil fields.
The projects are likely to run behind schedule and new oil
output may only replace that lost at older fields. On the
positive side, a flood of money into the oil industry,
including a $20 billion loan from China, will boost government
and state oil firm PDVSA coffers starting this year.
A looming ruling in a World Bank court could see Venezuela
landed with a bill of several billion dollars to compensate the
takeover of ConocoPhillips (COP.N) property in 2007.
The devaluation of the currency in January means PDVSA
receives more bolivars for each dollar of income, which company
officials says adds up to an equivalent of 800,000 extra
barrels of oil per day. The company's finances will still be
tight this year, however. PDVSA funds much of Chavez's social
spending and its obligations will increase as elections close
in. The company is also in arrears with service companies and
must pay down its debt to them.
What to watch:
-- Further outages in refineries and upgraders.
-- New nationalizations in the oil sector, perhaps more
service companies.
-- Tension between PDVSA and the oil majors and foreign
state companies who are developing new areas.
-- A sharp drop in oil prices hurting PDVSA's finances.
(Reporting by Frank Jack Daniel, Patricia Rondon, Marianna
Parraga and Daniel Wallis; Editing by Kieran Murray)