Latin American currency: Colombia goes bananas

A good way to monitor Latin American currencies is against the Canadian dollar, rather than the US dollar. The USD, as world reserve currency, is mostly a measure of risk tolerance around the world. People fearing instability (still and despite it all) buy greenbacks. But the CAD, as the currency of a stable, developed, but resource-dependent country, is a nice comparison point for the Latin American currencies, as it cuts out a lot of the USD’s noise.

Against the CAD, the Colombian peso long tracked other currencies in the region, particularly the Peruvian nuevo sol and the Chilean peso. 

This first chart shows currencies against the CAD from 1 Jan 2010 to 1 Oct 2014. The Colombian peso (COP) is the red dotted line, green is Peru, navy blue is the Mexican peso, and fucsia is Chile. Up top, you see the Brazilian real and the Argentine peso doing their wacky and devaluatory deeds in red (solid line) and purple.

Here’s what the same currencies have looked like over the past calendar year:

This time, Argentina is down there with Peru and Chile, actually appreciating against the Canadian dollar. Mexico is drifting weaker, and Colombia is suddenly tracking Brazil in a big, painful devaluation. The are both big oil producers whose state-controlled companies were once stock market darlings. They are both economies that were overhyped circa 2011, and are now probably in an excessive backlash.

The upshot:

Here’s the 5-year chart. Colombia has detached from its usual peers and is devaluing mightily.

The upshot for me, as a consumer of Colombian Harina P.A.N. precooked corn flour in Canada, is that a kilogram of this white powder has dropped from CAD 4 to CAD 3.3 over the past year.

Given what we already saw in 2014, I suspect Colombia will get a competitive advantage in the production of other white powders. Next year’s coca production reports will likely show Colombian output surging.

 

Odebrecht — Just a Brazilian issue?

Marcelo Odebrecht, head of Brazil’s biggest engineering and construction company, is in jail in Brazil on allegations of kickbacks in the procurement of oil industry materials to Petrobras. Without prejudging his guilt or innocence, I think it’s fair to say he isn’t doing himself any favours with e-mails like this:

Brazilian police said on Wednesday they intercepted a note from the jailed chief executive of Odebrecht SA to his lawyers asking to “destroy email,” after he became the highest-profile executive arrested in Brazil’s largest ever corruption investigation.

The handwritten note, reproduced by Federal Police and posted in court documents online, says “destroy email drilling rigs.”

Marcelo Odebrecht, head of Brazil’s largest engineering and construction conglomerate, was arrested Friday in a sweeping investigation into a kickback scheme at the state-run oil company Petrobras. [ID:nL1N0Z50JB]

Dora Cavalcanti, a lawyer for Odebrecht, called the publication of the note “an act of extreme bad faith by the police,” and said there was nothing criminal about its contents or Odebrecht’s intent.

“That phrase ‘destroy email’ meant ‘explain’ or ‘refute’ the allegations about the email,” Cavalcanti told Reuters, adding that it was one of seven points in Odebrecht’s notes for his plea for habeas corpus, or release from unlawful imprisonment.

Yes, clearly, he was only saying that the e-mail needed to be destroyed metaphorically. I’m all for metaphoric destruction. When you growl “I will destroy you” of course you don’t mean that you will put someone in a meat grinder. Rather, you mean you will harm the person’s reputation. Something Mr. Odebrecht is learning all about, now that I think of it.

Joking aside, the question is, does Odebrecht have operations in other oil-producing countries? With an ostensibly weak compliance regime in Brazil, might there be something to investigate in other countries? Happily, the answer is no. Because Odebrecht operates only in strictly controlled, low-corruption jurisdictions:

Odebrecht Oil & Gas offers integrated solutions for the upstream oil and gas industry in Brazil, and selectively, in Angola, Venezuela, Argentina and Mexico, both during the investment as well as the operations phase.

Oh good, nothing to worry about.

Update a few minutes later: I see the NY Times does Angola today:

Corruption Is Killing Children in Angola

This is a video report that I’ll never be able to do again. It’s about Angola, an oil-rich and fabulously corrupt country that also happens to be thedeadliest place in the world to be a child.

Angola, naturally, doesn’t welcome journalists. It took me about five years to get a journalist visa to get into Angola, and after my reporting I doubt I’ll get another visa as long as the current regime remains in power. So at The Times, we poured a lot of time and effort into the story of what corruption does to a country.

For me, the most compelling moments are those of rural Angola, the villages where people live without any access to doctors or dentists. We simply drove down a highway for hours, and then twice took small dirt roads quite randomly to see where they would lead, and then stopped in villages and chatted with people. It’s pretty heartbreaking to see kids suffering untreated from disease and unable to attend school, or to meet a mom who has lost 10 children — and it’s not just sad, but infuriating when you see it in a country that is rich with oil and diamonds. Then you remember that the Angolan president’s daughter is a billionaire, that Western governments are buddying up to the president — and, well, you feel you owe it to the villagers you met to tell their story in their own words. So we shot some videos to run with my columns. May this add pressure on the government to spend its oil wealth not just on Porsches and Champagne for the leaders, but also on health and education for ordinary Angolans.

Go watch Kristof’s video if you can stand it. And don’t worry about Odebrecht because I’m sure they had nothing to do with any of this.

China plans huge Brazil-Peru rail link

The new road climbing out of the Amazon into the Andes

Story here.

Chinese premier Li Keqiang is to push controversial plans for a railway through the Amazon rainforest during a visit to South America next week, despite concerns about the possible impact on the environment and on indigenous tribes.

Currently just a line on a map, the proposed 5,300km route in Brazil and Peru would reduce the transport costs for oil, iron ore, soya beans and other commodities, but cut through some of the world’s most biodiverse forest.

The six-year plan is the latest in a series of ambitious Chinese infrastructure projects in Latin America, which also include a canal through Nicaragua and a railway across Colombia. The trans-Amazonian railway has high-level backing. Last year, President Xi Jinping signed a memorandum on the project with his counterparts in Brazil and Peru. Next week, during his four-nation tour of the region starting on Sunday, Li will, according to state-run Chinese media, suggest a feasibility study.

 

The criticisms are similar to those that met the Interoceanic Highway project along the same general route a decade ago. When I traveled that road in 2011, when it was mostly paved but still missing a couple final links, I found that the most of the predictions of doom had failed to come true, while there were some clear benefits from the road construction. However, the bad news may have been bubbling away, and I haven’t been back to see if things stayed so positive once the road was fully open.

Time to go back!

Oops, Goldman fails to shift Pdvsa debt to Portuguese taxpayers

A tweet by the Devil alerted me to this remarkable WSJ story.

It says Goldman Sachs, via an entity called “Oak Finance Luxembourg SA,” loaned $835 million to Banco Espírito Santo just weeks before the Portuguese bank collapsed. That is remarkable because Goldman also owned more than 2% of the bank.

The loan was meant to cover a risky loan that Espíritu Santo had made to Wison Engineering of China and Venezuelan state energy company Petróleos de Venezuela SA, as they upgraded the Puerto la Cruz refinery.

When Espíritu Santo collapsed, Portuguese authorities broke it up into a good bank and a bad bank. The bad bank kept the bad name and the bad assets. Goldman’s loan had gone over to the good bank, where it could have been repaid in full. But

The Bank of Portugal decided … the loan should … remain at the “bad bank” that kept the Banco Espírito Santo name and its worst assets… Goldman Sachs and its clients could lose hundreds of millions of dollars from investments in Oak Finance notes backed by the loan…

Reuters goes to the outlaw mines in the middle of nowhere

Yeah, read it, really. The pictures alone make it worth the click.

To get to another mine we had to cross a river that was 196ft (60 meters) wide, with water up to the waist. The clearing made by the miners made it look as if someone had taken a bite out of the jungle. Some people were cutting trees while others, several feet below, were blasting away the jungle floor with a high pressure water hose. They were riding the hose as if trying to tame a wild anaconda.

The hose is very dangerous. Its pressure and its metal nozzle turn it into a lethal weapon for the miners who work barefoot, sunk in the mud. There are no doctors or medical assistance anywhere nearby. In recent weeks two miners died here in the morning and their colleagues were only able to recover their bodies by the next morning. Mudslides, snake bites and tropical diseases are frequent.

Pave–I mean save–the Earth!

Go read Quasecarioca as he points out the hypocrisy built into the carbon-spewing mess that is the UN’s upcoming climate change summit.

The Rio Centro convention center is a hallmark icon of the disastrous, planet-warming, urban-planning-done-wrong that Rio+20 is supposed to be working to counteract. Rio Centro is located in the rapidly expanding Barra da Tijuca suburb that turns the walkable, pedestrian-friendly center of Rio completely on its head with a maze of highways, shopping malls, parking lots and gated communities.

I only add that what he says is new only in degree, not in kind. The first Rio summit, in 1992, was held in an equally remote conference centre for “security” reasons. Heads of state flew around in helicopters and zipped through the city in motorcades as nervous camo-covered teens with M-16s guarded every overpass. The simultaneous NGO summit in 1992 was at least transit-accessible, but as I have mentioned before, I was the only person there to arrive by bicycle. The whole professional activist and climate-bureaucrat world is one of the more infuriating realities for those of us who ride bikes and eat local vegetarian food as we try to limit our carbon footprints. A single climate change bigwig, be s/he from the UN or NRDC or WWF or Nature Conservancy, can swamp a lot of the good done by those of us who try to live lower-impact lives. As David Brower said, “Conservationists have to win again and again and again. The enemy only has to win once.”

Anyway, read Quasecarioca. He’s smarter than me and is actually informed and stuff. Yes, you — why haven’t you clicked yet? Click it.

Chevron responds in kind to Brazil accusations

This is pretty funny. As our cousin Lungs of the Earth reported here, Brazil has been eager to go after Chevron and beat up on the evil Yankee while ignoring any possible screwups by hometown hero Petrobras.

Yesterday, Petrobras CEO Maria das Gracas Foster says Chevron must “provide the official response to a lawsuit over last month’s offshore oil spill at a field in which the two companies operate as partners,” Dow Jones reported.

Today, Chevron responded — in its own sly way. As Bloomberg puts it, “Petroleo Brasileiro … reported a seep … near the Chevron Corp. (CVX) field where 3,000 barrels leaked into the Atlantic Ocean in November. Drops of crude were detected coming out of the seabed at the Roncador area… Chevron discovered the oil seep at the Roncador field, operated by Petrobras, on April 7 while examining the ocean floor near its Frade project and determined it was outside its concession area.”

Funny response. And yes, everyone agrees that this appears to be a seep, and oil seeps exist all over the world, and there’s a big difference between a few drops of oil and 3,000 barrels. But still. If 3,000 barrels of oil is worth an $11 billion fine, that works out to, um, wow: $87,000 a gallon. Somehow I doubt the regulators will hit Petrobras with such a fine. Happy to be proved wrong!

BP spill lessons for Latin America?

Three weeks ago I was snorkeling over some of the best live coral I’ve ever seen at Puinare, a half hour in motorboat off the beach in Puerto La Cruz, Venezuela. I was in awe at the tens of thousands of blue minnows, the plentiful parrot fish, the little christmas-tree-shaped organisms that disappeared in a blink with the slightest disturbance in the water. In March, 131 oil tankers loaded up with cargo in Puerto La Cruz and the adjacent port of Jose and steamed out to sea. Thirty miles offshore, PDVSA just completed its second and third wells in the Mariscal Sucre natural gas development project. And in waters almost as lovely, a few thousand km south, Petrobras and partners are drilling the biggest oil find in decades, in conditions similar to the Gulf of Mexico.

The big BP oil spill in the Gulf of Mexico is a reminder of what can happen when oil and water mix. This is the same kind of drilling that is supposed to be the future of Brazil. Shallower-water offshore reservoirs are under development or exploration not just in Venezuela but in Colombia, Guyana, Suriname, Argentina, Chile and Peru — that is to say, every South American independent state with a coastline, other than Ecuador — plus Mexico. You also find talk, if not much action, about offshore drilling in Cuba, Aruba and Barbados, among other islands.

So what’s the lesson here? Obviously, the U.S. screwed up its regulation and control. Is there anything that South America and the Caribbean can learn from that error?

The U.S. has a big, widespread and powerful environmental movement with the money and technology to monitor water quality independent of the government. This is generally absent in Latin America.

The U.S. has laws allowing independent environmental lawsuits against polluters, without the cooperation or even notification of state authorities. I’m not aware of anything like that here.

Oil companies operating in the U.S. are private, while all of the biggest explorers in South America and Mexico are state-controlled.

Given these differences, I’d say that the biggest lesson is probably the need for extreme independence of environmental authorities and protection for whistle-blowers. Not likely to happen.

One advantage in South America and Mexico is that private oil companies are used to being pushed around, while in the U.S. they are used to having control. Maybe state oil companies should be treated the same way.

Aw rats, another $1 billion debt

These things just keep turning up. From Correo del Caroní‘s generally reliable Natalie Garcia. Workforce now to be cut from 2,000 at beginning of year to 1,200:

More firings announced in third bridge project

The Brazilian construction company Norberto Odebrecht, in charge of the project Bridge III over the Orinoco, which will connect Bolívar state and Guárico, made the decision to fire 500 laborers in coming days for lack of budget, union sources say… 300 fathers and mothers were tossed off the jobsite at the beginning of 2010 for the same reason.

Norberto Odebrecht, the Brazilian company in charge of the project, has run into financial problems since 2008 because the Public Works and Housing Ministry doesn’t release the required money.

Up to now, the state owes the contractor, $250 million from 2009 and $750 million corresponding to the 2010 budget, for a total of $1 billion, just for this project.

Odebrecht is also … developing part of the Caracas metro, the El Diluvio reservoir in Zulia… Union officials doubt the bridge can be inaugurated on time in 2012… In addition the Alumunim City and the train are suffering delays for lack of budget.

Assuming this report is right: I don’t get is how the government can remain behind on so many payments with oil above $80, even as foreign reserves fall. Is it all part of a clever and sustainable plan, in which human needs get covered before corporate greed? Or is this a pyramid scheme collapsing?

Why are my lungs burning?

Countries across Latin America and the Caribbean are figuring out that slashing the sulfur content of their diesel fuel can be good for people. Curacao is the latest to shift to 500 ppm (0.05%) diesel while in Chile one can buy diesel with as little as 50 ppm — a policy that it started in 2004 in Santiago and is extending the length country. (And the breadth, but that’s easier.) In Colombia, the nationwide maximum is now 500.

Governments have set 50 ppm limits in some cities in Argentina, Brazil, Peru and Colombia, Liisa Kiuru, executive director of the International Fuel Quality Center, said today in a phone interview. Her organization tracks fuel quality standards worldwide.

In Venezuela, we don’t need no stinkin rules. We pay with our lungs, rather than our wallets.

Venezuela has the world’s cheapest diesel, at 2.8 cents a gallon*, less than 1% of U.S. prices. This probably helps with economic development, to a point — imagine being able to take a 12-hour ride in a privately owned luxury bus with high air conditioning half-way across the country for $10. However, it also has a host of less desirable effects, including the lack of an incentive to cut truck traffic by using trains or proximity. And people use diesel generators rather than conservation in order to reduce demand on the power grid.

Perhaps the most insidious problem with the country’s diesel price is that it leaves Venezuelans breathing much lower-quality air. Our diesel is 0.5% sulfur, or 5000 parts per million. That’s 10 times higher than in Colombia, and 100 times higher than in Santiago de Chile. Most of the time you don’t notice the stench, even in Caracas, where a steady wind out of the east flushes our toxic cloud out to El Junquito and beyond. It’s only when trying to ride a bike or run on Francisco de Miranda or Urdaneta or Fuerzas Armadas, the big bus-choked avenues, that you realize just how thick the sooty, sulfrous cloud can be. Flying out of Caracas, you can see the plume from the Tacoa generating station, which burns not only diesel but 3%-sulfur fuel oil. I’ve seen the plume extend 75 miles (more than 100 km) to Valencia.

I’ve had construction going on next to my house for months. Now that I’m freelancing and home during labor hours, I have the pleasure of experiencing the toxic gas cloud from the steam shovel all day long. My lungs burn. It’s frustrating to know that the technology and money exists to clean this up, with benefits that range from lower public health costs to, who knows, maybe more Olympic medals — but it doesn’t happen.

* (5.4 bolivar cents/liter) * (3.78 liters/gallon) / (7.3 bolivar cents/U.S. cent) = 2.8