Mining giant BHP Billiton, Perupetro to meet on oil sector issues this week

PeruPetro's chairman Daniel Saba said that representatives of Australian-British mining giant BHP Billiton group will visit Peru because they are interested in the hydrocarbon potential of the country and in the tender for 20 oil and natural gas blocks for exploration/production licenses to be issued in late April.

"They are coming to obtain in-situ information on the hydrocarbon sector, legal issues and other aspects before making a decision," he said.

This world-renowned company has shown keen interest to enter the country's hydrocarbon sector, along with other large companies such as US ExxonMobil and France’s Total.

With production in six countries and nearly 1,500 employees worldwide, BHP Billiton Petroleum is a key player in the oil and gas industry.

According to Perupetro's chairman, Korean and Russian investors have invited that entity to make a presentation on the hydrocarbon potential of Peru, as they are interested in participating in the upcoming tender. (Andina)

Petrobras Steps Up Drilling at Site of 1939 Discovery

Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, is accelerating exploration at the onshore Reconcavo basin, where Brazil found its first oil in 1939, the country’s oil regulator said.

Agencia Nacional do Petroleo, or ANP, authorized Petrobras to start exploratory drilling ahead of schedule at block REC-T- 168 in northern Brazil during a Feb. 2 board meeting, ANP said in a document on its Web site. Petrobras has found oil or natural gas at 11 exploration wells it has drilled in the basin since 2001, according to ANP data.

“Petrobras was born in Reconcavo,” Wagner Freire, an independent oil consultant and former Petrobras exploration and production manager, said in a Feb. 4 telephone interview. “They know the basin very well.”

Petrobras plans to boost output in Reconcavo to more than 50,000 barrels a day in the next five years, up from 46,800 barrels a day now, a spokeswoman, who can’t be named under company policy, said in a Feb. 5 e-mail to Bloomberg News.

The company made the “routine request” to accelerate exploration because a drilling rig was available, she said today. Rio de Janeiro-based Petrobras is investing $174.4 billion in the five years through 2013 to increase output.

Commercial Block

Petrobras declared block REC-T-265 commercial in June, after finding oil at a well in March, according to the ANP.

Petrobras needs to find and develop new Reconcavo fields to offset declining output at “mature” areas of the basin where the company has been producing for about seven decades, Freire said.

“There are fields that were producing in 1939 and are still producing,” he said. “The operational cost is very high.”

Decades of exploitation has decreased underground pressure and caused water reservoirs to mix with the oil, lowering productivity and increasing costs at older fields, he said.

Reconcavo accounted for 22 percent of Petrobras’s onshore production of 216,000 barrels a day last year. Petrobras aims to more than double total oil production from onshore and offshore fields to 5.7 million barrels a day by 2020.

Petrobras rose 22 centavos, or 0.7 percent, to 31.74 reais in Sao Paulo trading. The stock has climbed 16 percent in the past year, compared with a 50 percent gain for Brazil’s benchmark Bovespa index.

Bloomberg - Peter Millard
To contact the reporter on this story Peter Millard in Rio de Janeiro at at Pmillard1@bloomberg.net

Chile’s Economy Expands at Fastest Pace in 15 Months

Chile’s economy expanded at the fastest pace in 15 months in December, led up by a rebound in the services industry, retail sales and electricity, gas and water utilities.

Economic activity expanded 3.9 percent in December from a year earlier, the central bank said today, the fastest since September 2008. Economists expected growth of 2.9 percent, according to the median estimate of 16 forecasts compiled by Bloomberg. Activity in December grew 0.6 percent from November.

South America’s fifth-largest economy is emerging from the deepest contraction in a decade as demand from China helps the price of copper, its biggest export, rebound. Activity declined 1.7 percent last year, the bank said.

“The country’s doing well,” said Cesar Perez, an economist at Celfin Capital SA in Santiago. “You’re seeing consecutive month-on-month positive changes, which are indicative of a sustained recovery.”

Chile’s economy grew about 2.1 percent in the fourth quarter of last year from a year earlier, according to the average of the three monthly figures. The economy shrank in each of 2009’s first three quarters from a year earlier.

The central bank, which cut the overnight rate seven straight times last year to a record low of 0.50 percent in July, is unlikely to raise it anytime soon, Perez said.

Policy makers expect economic growth of as fast as 5.5 percent this year, while the median forecast of 25 economists in a January survey was for growth of 4 percent.

“With these numbers, we’re converging on the central bank outlook, which is better than the market has been pricing in,” Perez said.

The peso strengthened 0.4 percent to 541.85 per dollar at 10:31 a.m. New York time from 544.13 yesterday.

Bloomberg - Sebastian Boyd
To contact the reporter responsible on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

Serra waits, a bit too patiently, for the presidency

With almost 30m voters and a population greater than Canada’s and on a par with Argentina’s, the giant industrial state of São Paulo is accustomed to playing a big part in choosing Brazil’s presidents. The retiring incumbent, Luiz Inácio Lula da Silva, and his predecessor, Fernando Henrique Cardoso, both had their political roots in the state. The front-runner so far in this year’s race, José Serra, has been the state’s governor for the past three years. He has suffered much criticism of late, as heavy rains have caused flash floods, landslides and collapsing roads, resulting in around 70 deaths. Despite the accusations of failing to improve the state’s flood defences, Mr Serra’s team still think his record as governor is solid enough to carry him to the presidency in October’s election.

Brazil’s rising economic and diplomatic muscle means that the job of running it is becoming an ever bigger one. With an impressive record as an academic, minister and state governor, Mr Serra is surely a strong candidate to fill the post. But he is a curious character. A friend says he announced that he would become president of Brazil when he was just 17. Colleagues describe a nocturnal control freak with a stubborn streak. Paulo Renato Souza, a former cabinet colleague of Mr Serra and now his state education secretary, remembers him telephoning in the middle of the night, demanding information.

A difficult man he may be, but the governor inspires loyalty from those who work with him. “He’s a leader and he knows it,” says Luiz Carlos Mendonça de Barros, another former minister, who saw Mr Serra cut his teeth as a student leader.

In the Cardoso government Mr Serra built a reputation as a good manager, determined to get his own way. He left the planning ministry after disagreeing with free-market colleagues in the finance ministry and Central Bank. Then, as health minister he took on two big foreign drugmakers, threatening to break the patents on their HIV drugs and getting them to cut their prices. Mr Serra organised a lobbying effort at the World Trade Organisation, where America eventually dropped a case against Brazil for patent infringement.

After losing to Lula in the presidential election in 2002, Mr Serra became mayor of São Paulo city in 2005, stepping down the next year to run for governor. In this job he seems to have been following a predetermined plan to raise cash in the first two years of his mandate so as to spend it on public works in the second two, says Alexandre Marinis of Mosaico, a political consultancy. Much of it has gone on improvements to the state capital’s metro and its main arterial roads. His presidential campaign will contrast all this digging and asphalting with the projects announced by the federal government three years ago, many of which have yet to get going. Mr Serra seems to have learned from past São Paulo governors and mayors that having a big, visible legacy to pose in front of does wonders in swaying voters.

Less visibly but just as important, this has been achieved without busting the state’s finances. Signs of improvements to public services can be found elsewhere too. Mr Serra has introduced testing for teachers to make sure the best are retained and are paid more, and a system of bonuses for schools that show improved results. Both reforms were pushed through despite the opposition of teachers’ unions. Better policing has contributed to a fall in the state’s murder rate (though it did tick slightly upwards last year).

The same as Dilma, but different
For all the good stories that Mr Serra has to tell about his governorship, the strong poll lead he has held for over a year has recently faded (one poll this week put it as low as seven points), as President Lula, still hugely popular after seven years in office, has campaigned energetically for his chosen candidate, Dilma Rousseff. Mr Serra is a “developmentalist”, as Brazilians call social democrats who retain their faith in active government, so he is ideologically not far from Ms Rousseff, though he seems more likely to push through fundamental reforms needed to improve public services and speed up the economy.

Ms Rousseff, though an able administrator, is even less charismatic than her rival. So Mr Serra’s ratings ought to perk up again once he starts campaigning. But Brazil’s riotous multiparty system, in which candidates must delicately stitch together broad coalitions, is harsh on those whose bandwagons lose momentum. Mr Serra needs to get out on the stump and start singing his own praises now, if he wants to avoid being remembered as the best president Brazil never had. (The Economist)

Cuetos to Raise $1 Billion as Pinera Readies Lan Sale

Costa Verde Aeronautica SA, the holding company owned by Chile’s Cueto family, plans to raise $1 billion in a move analysts say will finance the purchase of Lan Airlines SA shares from President-elect Sebastian Pinera.

Costa Verde may sell 500 million new shares at $2 each, the company said in a statement distributed at a shareholders meeting today in Santiago. It didn’t disclose how it plans to use the money.

Pinera, who agreed to sell the shares before taking office on March 11, controls Lan in an agreement with the Cuetos, who have an option to purchase his shares. Axxion SA, the company through which Pinera owns a 19 percent Lan stake, received approval from shareholders today to sell the shares.

Costa Verde’s capital increase “must be for buying part of the Lan shareholding,” Adolfo Moreno, an analyst who tracks Lan Airlines at brokerage IM Trust, said by telephone. “The rest could be sold to another company or investor or some could be offered on the market.”

Costa Verde officials didn’t immediately respond to a telephone message seeking comment.

Axxion’s 19 percent stake in Lan is worth about $1 billion at market prices. Pinera owns 26 percent of Latin America’s biggest airline by market value.

“Axxion’s board was authorized to proceed with setting a price for the Lan shares and initiating the sale mechanism stipulated in the shareholder pact with the Cueto family,” Fernando Barros, the company’s chairman and Pinera’s legal adviser, wrote in a statement distributed by e-mail.

Share Rise

Axxion shares jumped as much as 16 percent to 26 pesos as the Santiago exchange lifted a trading halt on the stock following today’s meeting. The company will buy back the shares at 21.45 pesos from holders who voted against the sale, it wrote in a regulatory filing today.

Axxion has been halted at least four times as shares surged 140 percent before tumbling as much as 48 percent since the billionaire investor won a Jan. 15 presidential vote, sparking a regulator’s probe and reigniting criticism of his refusal to sell his investment before the vote.

“There was speculation on the price that minority holders who voted against the Lan sale would be offered,” Gabriela Clivio, head of research at Itau Chile Corredor de Bolsa, said by telephone. She values the shares at 13 pesos to 15 pesos.

Lan fell 0.5 percent to 8,740 pesos today, erasing a gain earlier this week.

Bloomberg - Eduardo Thomson and James Attwood
To contact the reporters on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.netJames Attwood in Santiago at jattwood3@bloomberg.net

Central Bank robbery

Critics of Argentina’s government have two main explanations for the behaviour of Cristina Fernández de Kirchner’s administration: cunning conspiracy or bumbling incompetence. Two bits of evidence suggest the truth lies somewhere in between.

First, Martín Redrado, the governor of the Central Bank, was pushed out on January 29th, after a battle with the president over the bank’s dollar reserves. Ms Fernández ostensibly wanted to use the cash to reassure foreign investors about Argentina’s creditworthiness. If so, her government has achieved the opposite with its bullying of Mr Redrado, who was making a stand for central-bank independence—something investors tend to like. That his replacement will be Mercedes Marcó del Pont, an economist said to be close to the presidency, is also a discouraging sign.

Second, it emerged that in 2008, when the global financial crisis was at its height, Ms Fernández’s husband and predecessor as president, Néstor Kirchner, sold $2m worth of pesos and bought dollars. There was nothing illegal about this, and Mr Kirchner did declare the transaction. But the trade hardly expressed confidence in the government’s economic management.

Ms Fernández justified her raid on the reserves by saying that the Central Bank had more than it needed, because they exceeded the size of the monetary base. Economists disagree about what is an appropriate target for the reserves, but Mr Redrado’s view is that a highly dollarised emerging economy like Argentina’s needs an abundance of Treasury bonds (the form in which most reserves are held) as insurance. Even if Ms Fernández might find support from some economists for her argument, her plan to swap the dollar reserves for a non-transferable government bond would not.

Argentina’s economy is on course to rebound this year and grow at 3-5%. But the government is spending money so fast that this growth will not finance current spending on its own, says Daniel Marx, a former finance minister. Ordinarily, a government faced with a shortfall would turn to domestic and international bond markets. But this has been difficult since Argentina defaulted in 2002.

Yet if the government was just in search of cash, the timing is odd. It could have funded itself from domestic sources, such as the pension funds that it took over in 2008, Banco Nación (a public bank) and the Central Bank itself, without having to look further afield, says Daniel Volberg of Morgan Stanley, an investment bank. The evidence therefore points to a miscalculation by a president who rejects checks on her power and has given up listening to anyone outside her coterie of advisers. (The Economist – USA)

Peru Aims to Speed Up Machu Picchu Rail Repairs as GDP Suffers

Peru’s government will help repair the privately owned rail line that takes tourists to the Machu Picchu ruins in a bid to limit economic losses for the country that could reach $800 million.

The government is providing manpower to help rehabilitate the flood-damaged tracks, which may not be operating normally for seven to eight weeks, Deputy Transport Minister Hjalmar Marangunich said. Ferrocarril Transandino SA, a unit of Orient Express Hotels Ltd., manages the rail line to Machu Picchu.

The decrease in tourism could cost Peru’s economy as much as $800 million, equivalent to 0.63 percent of gross domestic product, according to Jose Marsano, a researcher at the Lima- based Tourism Observatory of Peru. The government is looking at ways to use more helicopters to ferry tourists to the site until the rail line reopens, Marangunich said in an interview.

“Machu Picchu is central to the regional economy so we have made the railway repairs a priority,” Marangunich said from Lima.

The Inca hiking trail about 7,700 feet above sea level, closed after torrential rains trigged landslides last month, will be reopened when the weather improves, he said. The trail serves as the second major access point to the ruins.

About 4,000 tourists were evacuated by helicopter from Machu Picchu last week after the longest period of heavy rain in 20 years in Peru’s southern Andes triggered landslides. An Argentine tourist and her Peruvian guide were killed Jan. 26 after a landslide on the Inca trail.

About 858,000 tourists a year visit the 15-century Inca ruins, according to the Tourism Observatory.

Bloomberg - John Quigley
To contact the reporters on this story: John Quigley in Lima at jquigley8@bloomberg.net

Asian roots run deep in Peruvian soil

Anyone with Asian features quickly stands out as a foreigner in most of Latin America. But not in Peru, where a large percentage of the population is of Asian descent.

The first Chinese and Japanese who left their countries for Peru trusted that their hard work would give them the chance to return home. Many decades later, their children and grandchildren are well integrated into Peruvian society.

Liliana Com believes that she has the power to change her life dramatically from one day to the next, should she choose - just like the snake of her Chinese zodiac. She could move to China at any time.

Com devoted 15 years of her life to running a restaurant, the renowned Wa Lok in Lima, where the cuisine combines the Chinese heritage of her parents with the traditions of her native Peru in a harmonious blend called "chifa."

Her parents chose not to keep statues of Buddha in their home, but they regularly visited the temple in Lima's Chinatown to stay in touch with their Eastern roots. Com grew up being "the Chinese girl" at her school, as her identity evolved between the ancient traditions of China and Peru.

She eventually decided to embrace both cultures as her own.

"As a child I had identity problems. Because of my way of talking, because I am very sociable, my mum used to tell me that I didn't look Chinese," Com told the German Press Agency dpa in an article published by the Earth Times.

Fifty years after Com's mother arrived in Peru, she and her two daughters travelled to Sun Pun Chung in China's Guangzhou province. Little had changed in what remained a quiet, rural area.

"When I went to China I felt very Peruvian, because everyone there realized that I wasn't fully Chinese," said Com, who speaks fluent Cantonese.

The Chinese were the first Asians to arrive in Peru, replacing the slaves of African origin in coastal plantations. Japanese followed after 1899.

Many immigrants died amid the tough working conditions and endemic diseases that they encountered. The survivors drew strength from their tightly knit groups and eventually left their employers to start their own businesses and carve out their own niche in Peru.

With an estimated 600,000 descendents of Chinese and Japanese migrants, Peru has the second-largest population of Asian descent in Latin America behind only neighbouring giant Brazil. And Far Eastern cultures have had much greater influence on Peru, with a population of 29 million, less than one-sixth that of Brazil.

Chinese and Japanese integration with Peruvian culture is most apparent in cuisine. In Lima, Peruvian-Chinese food is so popular that every neighbourhood has its "chifa" restaurants.

The "Nikkei" immigrants, as the Japanese are known, and "Tusan," or Chinese immigrants, are greatly influential in Peru's political and economic life. The most prominent example is former Peruvian president Alberto Fujimori (1990-2000), who eventually faxed in his resignation from Japan.

After his exit from power, Fujimori took refuge in the land of his ancestors. Peru sought his extradition to answer charges of corruption and human-rights abuses, but Japanese law forbids the extradition of Japanese citizens.

He was later arrested in Chile and extradited in 2007 to Peru.

Dante Valenzuela said he was called "El Chino," the Chinese boy, since he was little. Yet, the fact that his grandfather migrated from China did not mean that the family followed Chinese traditions.

Valenzuela was a tourism entrepreneur until a left-wing insurgency in the 1980s badly hurt Peru's tourism industry. An engineer by training, he decided to look for a job in Japan to support his wife and three children.

Despite his own Chinese descent, Japanese friends helped Valenzuela gain the right to work in Japan, where he eventually spent six years working and exploring his Asian roots.

"For the first two years I saved money, the next two when my family came over I spent it, and the last two I had to stay in Japan alone again to be able to save," he told the German Press Agency dpa. "That was how I finished building my house in Lima, and I could return to tourism."

Like his Chinese forefathers who migrated to Peru, Valenzuela found factory work in the car and meat industries.

"They looked at me in a strange way, because while I do have Asian traits they are not so apparent. So, when did they confirm that I was Japanese? When they saw me work," Valenzuela recalled, though his roots are actually Chinese.

While Valenzuela and Com have always regarded Peru as their home, many in the younger generations of "Nikkei" and "Tusan" Peruvians see their futures in their ancestral homelands in the increasingly prosperous Far East. (Andina)

Cencosud Falls After Saying Wong to Auction Shares

Cencosud SA, Chile’s biggest retailer by sales, fell the most in three weeks after saying Peru’s Wong group will sell its stake in the company in an auction.

Cencosud, controlled by chairman Horst Paulmann, closed down 1.2 percent to 1,846 pesos. It dropped as much as 2.1 percent, the steepest decline since Jan. 8.

Wong will sell the 49.75 million shares it acquired as part of Cencosud’s purchase of Wong’s supermarket chain in 2007, Santiago-based Cencosud said in a regulatory filing yesterday. The shares to be sold are worth about $175 million at current prices, Banchile Inversiones wrote in a note today.

“This could be an attractive opportunity for another group or institutional investor to buy the stock,” said Matias Brodsky, an analyst at CorpResearch in Santiago.

Bloomberg - James Attwood and Eduardo Thomson
To contact the reporters on this story: James Attwood in Santiago at Jattwood3@bloomberg.net; Eduardo Thomson Correa in Santiago at ethomson1@bloomberg.net

Brazil Industrial Output Had Record Gain in December

Brazil’s industrial output rose the most ever in December from a year earlier as manufacturers recover from their worst slump ever.

Industrial production jumped 18.9 percent in December, after contracting 14.7 percent a year earlier, the national statistics agency said today in a report distributed in Rio de Janeiro. Production fell 0.3 percent from November.

President Luiz Inacio Lula da Silva said today the government won’t renew tax cuts implemented last year to boost the economy because the government now sees “clear signs of recovery.” Finance Minister Guido Mantega forecast the economy will expand between 5 percent and 5.5 percent this year.

“The economy can now stand on its own feet,” Mantega said today in Sao Paulo. “Brazil is beginning a new cycle of expansion that will last many years.”

Policy makers will start raising interest rates as early as April to keep inflation in check as domestic demand in Latin America’s biggest economy fuels growth, a central bank survey published yesterday shows. The bank’s benchmark rate will be lifted to 11.25 percent by year end from a record 8.75 percent, according to the median forecast in the survey.

The yield on interest rate futures contracts due in January 2011, the most traded in Sao Paulo stock exchange, dropped 1 basis point to 10.3 percent at 7:46 a.m. New York time.

‘Room to Expand’

Economists expected industrial production to rise 18.5 percent from a year earlier and fall 0.2 percent from November, according to the median of 23 forecasts in a Bloomberg survey.

“Manufacturers still have further room to expand production given that production hasn’t reached pre-crisis levels,” Cassiana Fernandez, an economist at Maua Sekular Investimentos said. “Investments have been driving industrial production in the past two months, which is also good for increasing the supply capacity ahead.”

Fernandez expects policy makers to increase the so-called Selic rate to 9.25 percent in April.

Bloomberg - Adriana Brasileiro
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

AndeanGold signs MoU to acquire 60% JV interest in Urumalqui Au-Ag project

AndeanGold Ltd. announced Monday that it has signed a Memorandum of Understanding (MoU) with Gitennes Exploration Inc. to acquire a 60% Joint Venture (JV) interest in Gitennes' Urumalqui Au-Ag Project.

The project is located in the department of La Libertad, Peru, approximately 70 km east of the city of Trujillo.

The Project consists of four (4) contiguous concessions totaling 2,700 hectares, and is located at elevations ranging from 3,400 - 3,700 metres.

Mineralization at the Urumalqui Project is hosted in volcanics and is comprised of several gold-silver quartz veins.

Vein mineralogy and textures and associated alteration are characteristic of low- sulphidation, vein-style, epithermal, mineralization.

Gitennes acquired an interest in the Project in 2002 by way of a joint venture with Meridian Gold Inc. The joint venture was terminated in mid-2005, upon which Gitennes assumed 100% ownership of the Project.

Work on the property since January 1, 2003 includes grid-controlled soil sampling, two episodes of IP and magnetic geophysics surveying, three phases of core drilling (approximately 7,336 metres in 47 holes) and preliminary metallurgical testing. Please click here to read complete press release. (Andina)

Argentine Central Bank President Quits Over Reserves

Argentina’s central bank President Martin Redrado resigned last night after a standoff with the government over its plan to use $6.6 billion in reserves to pay debt due this year. “I have followed the Constitution, the law and the central bank rules,” Redrado said during a press conference in Buenos Aires. “My cycle has ended at the bank.”

President Cristina Fernandez de Kirchner tried to fire Redrado, 48, by decree on Jan. 7 for not backing her plan to tap reserves. A judge halted the measure the following day, saying Fernandez hadn’t notified Congress as required in the central bank charter. A bicameral commission, whose decision isn’t binding, began discussing the decree Jan. 26.

Economy Minister Amado Boudou has said the government intends to name former central bank President Mario Blejer, who also worked at the International Monetary Fund and the Bank of England, to replace Redrado. Blejer today declined to comment when contacted by Bloomberg News in Davos, where he is attending the World Economic Forum’s annual meeting.

Central Bank Vice President Miguel Pesce has been running the institution since police barred Redrado from entering its headquarters on Jan. 24.

“The government tried to destroy the central bank,” Redrado said last night.

The peso slid 0.3 percent yesterday to 3.8305 per dollar from 3.8202. The yield on Argentina’s 7 percent dollar bonds due in 2015 fell 79 basis points to 12.96 percent, according to JPMorgan Chase & Co. Financial markets closed before Redrado’s announcement.

Resignation Letter

In his resignation letter, a copy of which was circulated to the press today, Redrado said his refusal to accept dismissal by Fernandez and the subsequent creation of the congressional committee had ensured that “from now on, it is Congress who must decide, through Constitutional mandate, the fate of the central bank, its reserves and the policies that shall be applied in the future.”

Cabinet Chief Anibal Fernandez said on C5N television last night that it wasn’t up to Redrado to resign. The official said President Fernandez would decide whether to remove the banker after she receives the commission’s report.

Central bank reserves almost tripled under Redrado to more than $48 billion. Appointed in 2004 by Fernandez’s husband and predecessor, Nestor Kirchner, Redrado was the country’s longest- serving central bank chief since 2001, when Argentina defaulted on $95 billion in bonds. His term was due to end in September.

‘Satisfaction’

“I have the satisfaction that in the 2004-2010 period, the central bank overcame the largest international financial crisis in recent decades, offering all Argentines monetary and financial stability and a predictable exchange rate,” Redrado said in his resignation letter.

Harvard University-educated Redrado was unable to rein in inflation that accelerated under Kirchner and Fernandez, said Boris Segura, a Latin America economist with RBS Securities Inc. in Stamford, Connecticut. “Despite being independent on paper, in Argentina the central bank lost its independence over the past decade,” Segura said in a Jan. 22 telephone interview. “Redrado is responsible for that because he never stood up to the Kirchners until it was very late.”

High Inflation

Government reports say inflation peaked at 12.3 percent in 2005 and fell to 7.7 percent in December 2009. Economists and politicians, including Vice President Julio Cobos, say the official data underestimates consumer prices. Annual inflation accelerated to as much as 30 percent in 2008 before slowing during the past year, economists, including Juan Pablo Fuentes at Moody’s Economy.com, said.

Redrado said last night that the high rate of inflation was caused by government policies and wasn’t the fault of the central bank. He said he had resisted pressure to let the peso weaken because that would have led to even faster price increases. His policy of a “managed floating” exchange rate was vital to ensuring the country’s financial stability given Argentina’s history of financial crises, he said.

Redrado, who had previously been a deputy foreign minister and chief of the country’s securities and exchange commission, had said he wanted to review Fernandez’s plan to use the reserves to ensure that it was legal and that the money wouldn’t risk being embargoed by investors who own the country’s defaulted debt.

He said last night that he planned to work as an economist in Argentina and abroad.

Bloomberg - Bill Faries and Rodrigo Orihuela
To contact the reporters on this story: Bill Faries in Buenos Aires at wfaries@bloomberg.net; Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net.

Chile Budget Deficit Widened to Biggest Since 1990

Chile posted its biggest budget deficit since 1990 as the government boosted spending to help protect the country from the worst global slowdown since the Great Depression, budget director Alberto Arenas said.

President Michelle Bachelet’s government reported a $7.2 billion budget deficit in 2009, equal to 4.5 percent of gross domestic product, Arenas said in a statement distributed today in Santiago. Revenue from copper, the country’s biggest export, contracted 51.3 percent while tax revenue fell 20.4 percent from 2008, the report said.

Income fell 23.2 percent from 2008 to 18.3 trillion pesos ($34.9 billion) as spending rose 17.8 percent to 22.3 trillion pesos. The so-called structural budget deficit, or budget balance using the government’s long-term copper price forecast, was 0.9 percent of GDP, wider than the target of 0.4 percent of GDP announced last year as the global economy slowed.

“We expect the fiscal deficit to moderate to less than 1.0 percent of GDP in 2010, backed by higher average copper prices and the rebound of real activity,” Alberto Ramos, an economist at Goldman Sachs Group Inc., wrote in an e-mailed research report. “Cyclically adjusted, the structural budget balance is expected to move from a 0.9% of GDP deficit in 2009 to broad balance in 2010.”

Government debt in 2009 totaled 5.6 trillion pesos, or 6.3 percent of GDP, up from 5.2 percent of GDP in 2008, Arenas said.

The government’s Pension Reserves Fund and the Economic and Social Stabilization Fund accumulated reserves of $14.7 billion. The two sovereign funds have posted annual returns of 6.9 percent since their creation in 2007, Arenas said.

Arenas said Chile’s next government will be left to decide whether to move forward on a recommendation made by the finance ministry last year that the funds boost returns by investing more in stocks and corporate bonds.

President-elect Sebastian Pinera takes office March 11.

The peso gained for the first day in 10, climbing 0.5 percent to 524.75 per dollar at 2:10 p.m. New York time from 527.60 yesterday.

The currency has declined 3.3 percent this year, the second-worst performance against the dollar among 26 emerging market currencies tracked by Bloomberg.

Bloomberg - Eduardo Thomson
To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net

Ecuador Default ‘Clear and Present Danger,’ S&P Says

Ecuador’s bondholders face a “clear and present danger” the country may default again this year as a sluggish economic recovery curbs tax revenue, Standard & Poor’s said.

President Rafael Correa defaulted on $3.2 billion in bonds due in 2012 and 2030 last year, saying the securities were “illegitimate” and “illegal.” The government’s bonds due in 2015 were the only of three global notes Correa kept servicing. S&P rates Ecuador CCC+, seven levels below investment grade and the second-lowest in the Western Hemisphere.

“There is still a clear and present danger Ecuador will default,” Richard Francis, a director of sovereign ratings at S&P’s, said in a telephone interview. He said the country’s rating is in part based on questions about its “willingness to pay debt. Ecuador is basically locked out of capital markets.”

Ecuador will struggle to finance its budget deficit this year after the debt default cut off access to international credit markets. The economy, whose main export is oil, will grow 1 percent this year after shrinking 1.5 percent in 2009, according to S&P.

Ecuador’s 2015 bonds have rallied since the government said it bought back more than 90 percent of its defaulted securities in June. The price of Ecuador’s $650 million of 9.375 percent bonds maturing in 2015 has surged to 94.50 cents on the dollar from 68 cents in June. The securities yielded 10.65 percent, according to JPMorgan Chase & Co.

‘Small Probability’

The bond’s price indicates the probability of default is about 11 percent, according to Igor Arsenin, an emerging-market strategist at Credit Suisse Group AG in New York.

“It’s a relatively small probability,” he said. “The market isn’t pricing in an imminent default.”

The defaulted bonds traded at 33 cents.

Calls made to the Finance Ministry seeking comment were unanswered.

Kathryn Rooney, an emerging-markets analyst at Bulltick Capital in Miami, estimates Ecuador’s budget deficit will equal 2 percent of gross domestic product this year, compared with a 3 percent shortfall in 2009.

Correa “has no financing alternatives to fund his economy,” she said. “The 2015 bonds are a high risk. Ecuador’s capacity to pay is diminishing and willingness isn’t there.”

Ecuador will tap “friendly countries,” including Venezuela, Iran, China and Russia, for financing help instead of relying on private lenders, Correa said in November.

Bloomberg - Nathan Gill
To contact the reporter on this story: Nathan Gill in New York at ngill4@bloomberg.net

Starbucks Buying May Push Peru Coffee Sales to Record

Peru’s coffee exports may rise to a record this year as buyers including Kraft Foods Inc. and Starbucks Corp. boost purchases of the bean because of improving quality, the head of the Peruvian Coffee Chamber said.

Sales of coffee, Peru’s biggest agriculture export earner, may climb by 12 percent to $650 million in 2010, compared with $580 million a year earlier, Eduardo Montauban, head of the association, said yesterday in an interview in Lima.

Peru’s coffee output has doubled since 1999 as the country’s exporters increased yields and enlarged plantations by half to 370,000 hectares (914,000 acres), according to the Agriculture Ministry. This year’s harvest is slated to rise to 5 million bags from 4.8 million bags in 2009, Montauban said. The country is the world’s largest producer of organic coffee.

“Companies are buying more of our organically grown Arabica beans because they’re cheaper than Colombian coffee, have a smooth flavor and have improved in quality in recent years,” Montauban said. “The long stretch of strong prices is also prompting farmers to plant more.”

May Kulthol, a spokeswoman with Starbucks, said in an e- mailed response to Bloomberg News questions that the company doesn’t disclose coffee purchases by country and that 78 percent of its purchases came from Latin America in 2008. Kraft, based in Northfield, Illinois, didn’t immediately respond to an e-mail seeking comment.

Coffee prices may rise this year as harvests drop in Brazil, Vietnam and Mexico, said Scotiabank Peru analyst Pablo Nano. A bag of coffee weighs 60 kilograms (132 pounds).

Lower Production

Growers worldwide will probably produce 125 million bags this year, 2.3 percent less than last year, the International Coffee Organization said Dec. 9.

Arabica-coffee futures for March delivery fell 4.5 cents, or 3.3 percent, to $1.3375 a pound at 1:18 p.m. on ICE Futures U.S. in New York. The commodity has climbed 10 percent in the past year after bad weather damaged crops in Colombia and Brazil, the world’s biggest producer.

Robusta coffee for March delivery slumped $14, or 1 percent, to $1,333 a ton today on the Liffe Exchange. Robusta, which is planted in Brazil and Africa, will average $1,650 a ton this year, Commerzbank AG said in a report.

Peru fell in the overall rankings last year to the world’s sixth-largest coffee grower from fifth, according to the International Coffee Organization.

‘Major’ Output Boost

Coffee farmers will replace aging bushes on 100,000 hectares over the next 10 years, Nano said. “This will be a major boost for productivity,” he said.

Local coffee producers such as Secovasa, Cocla and Cepicafe will invest $25 million this year. Free-trade agreements with the U.S. and European Union may eliminate 12 percent import tariffs for roasted, ground and vacuum-packed coffee, Montauban said.

“Exporters are also benefiting from increased investment in infrastructure,” Montauban said. “This will go a long way to cutting transport costs.”

Brazil’s Odebrecht SA is building a $1 billion highway linking Atlantic and Pacific ports that will run through coffee- producing areas, while DP World Ltd. will finish a $600 million pier at the country’s largest port in May.

Bloomberg - Alex Emery
To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net.

Ecuador’s Cocoa Sales May Fall for 1st Time in Decade

Ecuador, the second-largest cocoa producer in the Americas, may have a drop in exports this year for the first time in a decade because of a drought, an exporters’ group said.

Sales abroad may slide to about 120,000 tons of the bean used to make chocolate from about 130,000 tons last year, the first drop since 2000, said Xavier Elizalde, manager of the National Association of Cocoa Exporters.

A drought triggered by the El Nino weather pattern threatens to cut cocoa harvests in Ecuador, neighboring Colombia and Venezuela. Cocoa has climbed 28 percent in 12 months to $3,425 a ton at the last close amid speculation worldwide production will lag demand for the bean.

“The harvest is very sensitive to the weather,” Elizalde said in a Jan. 22 telephone interview from the city of Guayaquil. “We’re hoping El Nino won’t be strong.”

Lack of rainfall also has cut hydroelectricity generation, sparking energy shortages in Ecuador and Venezuela. Last year’s shortages increased cocoa processing costs, Elizalde said. The export figure excludes processed cocoa beans, he said.

Cocoa futures for March delivery slipped $17, or 0.5 percent, to $3,408 a metric ton on ICE Futures U.S. in New York at 11:13 a.m. New York time.

Brazil is the largest producer of the bean in the Americas, according to the International Cocoa Organization.

Bloomberg - Heather Walsh
To contact the reporter on this story: Heather Walsh in Bogota at hlwalsh@bloomberg.net

Brazil Inflation Quickens to Fastest Pace in 8 Months

Brazil’s mid-month inflation quickened to the fastest pace in eight months, prompting traders to raise bets that the central bank will increase interest rates as soon as March.

Consumer prices, as measured by government’s benchmark IPCA-15 index, rose 0.52 percent in the month through mid- January, the national statistics agency said today. The gain beat all but one of 27 forecasts in a Bloomberg survey of economists.

Higher commodity prices and bus fares fueled inflation over the past 30 days, Andre Perfeito, an economist at Gradual Investimento, said. Traders expect policy makers to start raising the benchmark interest rate as early as March to keep inflation in check, according to Bloomberg estimates based on interest-rate futures.

“While prices are still in a safe zone, the central bank needs to watch inflation very closely to make sure it won’t spread,” Perfeito said in phone interview from Brasilia. “Futures rates that were already under pressure from the October presidential election are now also reacting to quicker inflation.”

Yields on interest rate-futures maturing in January 2011, the most traded on the Sao Paulo BM&F, rose 2 basis points to 10.40 percent at 7:37 a.m. New York time.

Raising the Selic

Perfeito forecasts that policy makers will start raising the so-called Selic benchmark rate in April from its record low 8.75 and will push it up to 11.25 percent by year-end.

While policy makers will keep the rate unchanged at their meeting next week, they will “scale up the hawkish tone” thereafter, Diego Donadio, senior analyst for Latin America with BNP Paribas, wrote in an e-mailed report today.

Food prices, in the month through Jan. 14, rose 0.81 percent, up from 0.17 percent last month as commodity prices gained and heavy rains in Brazil pushed up the cost of some food staples. Bus fares jumped 1.46 percent.

“Today’s data was not good,” Donadio wrote.

Rising prices for some specific products may spread this year as economic growth quickens, Perfeito said. The central bank forecasts that Latin America’s biggest economy will expand 5.8 percent in 2010, up from 0.2 percent last year.

A weakening real may add to inflation pressure as imported goods and raw materials become more expensive, Perfeito said.

After a world beating, 33 percent rally in 2009, the real has declined 3.7 percent against the dollar so far this year, the worst performer among the 16 most-traded currencies tracked by Bloomberg.

The real fell for a fourth day, losing 0.5 percent to 1.8116 per dollar at 7:44 a.m. New York time from 1.8031 yesterday.

Bloomberg - Andre Soliani
To contact the reporter on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net;

Canadian Geologix Explorations adquires 100% interest in Peruvian properties

Canadian mining company Geologix Explorations announced that it has acquired Newmont's interests in five Peruvian properties formerly held under joint venture with Newmont Peru, a subsidiary of Newmont Mining Corporation.

The company is now 100% owner of the properties subject to a 2% NSR royalty on precious metals and 1% NSR Royalty on all other minerals payable to Newmont.

Dunham Craig, President and CEO stated that with this move, Geologix Explorations consolidates its interest in these properties to a clear 100% ownership, subject to a NSR, as it gives clear direction for its business planning going forward.

"We thank Newmont for their participation in the joint ventures and found them to be an excellent business partner. We hope we have the opportunity to work together again in the future," he added.

In Peru, Geologix currently has nine 100% owned mineral properties, according to a statement realeased by the company.

The five properties subject to the Newmont royalty are the La Joya, Liscay, Lagaritia, Mirko and Lachoc properties.

Geologix Explorations is a mineral exploration company focused on acquiring, exploring and developing gold properties in North and South America.

The company has a wealth of experience in the mining industry taking early stage exploration prospects to final feasibility and ultimately to production. (Andina)

Venezuela Central Bank Sends $3 Billion to State Fund

Venezuela’s central bank transferred $3 billion of a total $7 billion to the government’s off-budget development fund, known as Fonden, said a bank official, who declined to be identified because he’s not authorized to speak publicly.

The central bank may transfer the remaining $4 billion next month, the official said in a phone interview. Central bank President Nelson Merentes said that the bank would transfer $7 billion of “excess” reserves on Jan. 8 to be used for infrastructure and development projects.

President Hugo Chavez has taken about $25 billion of international reserves for the development fund since 2005 when the central bank law was revised to determine an “optimal amount” of reserves needed for the South American nation. Fonden, which also receives dollars from state oil company Petroleos de Venezuela SA, has managed about $60 billion since being created in 2005, according to the finance ministry.

The government’s transfer of reserves comes after the country’s first devaluation since 2005 at a time when Chavez has vowed to strengthen the bolivar in the unregulated parallel currency market. The drop in reserves may complicate his plan to strengthen the currency to 4.3 per dollar, from 6.1 today, Jose Guerra, former chief of economic research at the central bank, said in a phone interview.

‘Without Dollars’

“The central bank won’t be able to strengthen the parallel rate if it continues to transfer reserves to Fonden because they’re left without dollars to inject in the market,” Guerra said.

The central bank shifted $12 billion to Fonden last year after international reserves reached a record $42 billion at the end of 2008. Reserves totaled $31.3 billion as of Jan. 20, according to central bank data.

Chavez approved $300 million on Jan. 20 from Fonden to rehabilitate part of the Caracas metro system and said he’ll use funds from the development fund for cable car transport systems into shanty towns of the capital.

Following a reform of the central bank law last year, the bank will now transfer “excess” reserves twice a year. The optimal level of reserves at present is $28 billion, Merentes said. Fonden had $2 billion to be allocated for spending in August, Chavez said then.

Bloomberg - Daniel Cancel
To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net.

Venezuela’s Planta Centro Generator Sputters Amid Energy Crisis

Planta Centro, Venezuela’s biggest fossil-fueled power plant, is operating at less than a fifth of its designed capacity, exacerbating a power crisis that has shuttered businesses from aluminum plants to shopping malls.

The plant operated at 267 megawatts of power on Jan. 20, or at about 13 percent of its 2,000 megawatt capacity, according to a daily report from Venezuela’s grid manager, the National Electric System Administration Center, known by its Spanish acronym CNG. The plant hasn’t produced at more than 26 percent of capacity in at least three months, according to CNG.

Venezuela is suffering its most severe electricity crisis in six years because of growing demand and a drought which cut water levels in the hydro dams that provide 73 percent of the country’s power. Guri Lake, the biggest reservoir, is at 53 percent of useful capacity, according to the CNG daily report.

“The plant needs a total overhaul, a cleanup or maybe a complete replacement with a more modern plant,” Miguel Lara, who headed Venezuela’s power planning agency from 1999 to 2004, said yesterday in a telephone interview.

Venezuelan utility Cadafe, which ran Planta Centro until handing it over to state oil company Petroleos de Venezuela SA, said in 2003 it planned to spend $100 million to boost capacity from 900 to 1,600 megawatts. Two years later, Cadafe said the plant was operating at about 500 megawatts and it would spend $400 million to overhaul the plant. This year’s federal budget allocated 13.8 million bolivars ($3.2 million) to the project.

‘Didn’t Take Actions’

“They didn’t take the actions they planned,” Lara said. “If it rains they will delay the investments again.”

The country’s electrical system is at risk of a “collapse” by April and the government may have to extend power rationing, Patrick Esteruelas, a Latin America analyst at Eurasia Group in New York, said in a note to clients Jan. 19.

Chavez halted production lines at state-run aluminum and steel companies in December to save 558 megawatts of electricity. Customers of Edelca, the utility that serves the country’s heavy industries, used 20 percent of Venezuela’s power in the first 11 months of last year, according to CNG’s November monthly report. (Bloomberg - Steven Bodzin)