CAP's Back As of 12 midnight tonight, Carlos Andres Pérez - the first Venezuelan president ever to have been impeached and convicted - will be a free man once again. While the two and a half years of incarceration in his La Ahumada residence have hardly kept the vociferous ex-President quiet, his re-emergence on the political scene is likely to cause more than a ripple. To the consternation of the party that has done its utmost to disable him, CAP has announced his determination to regain his seat in the Senate, and wrest control of AD.

Charged with the misappropriation of Bs.250 million of government 'secret funds,' CAP was unceremoniously hauled from office in May 1993. He then found himself the hapless victim of a justice system in which rule of law is subjugated to political expedience. In May this year, with no real evidence against him, the Supreme Court finally found CAP guilty of misappropriation and condemned the now 73- year-old ex-president to two years and four months under house arrest.

It could have been worse, however. Apparently originating from maneuvering by Alfaro Ucero, a move was afoot to sentence CAP for gross misappropriation, a crime which carries a four-year jail sentence. Under Venezuelan law, any public servant sentenced to more than three years is prohibited from holding public office. So, the final sentence of less than three years meant that CAP narrowly escaped a political clubbing. Though saved from that disgrace, CAP suffered further humiliation when the Senate voted, on the strength of the conviction, to strip him of his senator-for-life title in July. And then AD banished him from the party on the same grounds.

Coinciding with AD's 55th anniversary, the prospect of CAP's return to the arena has ignited some fierce debate and provoked serious questions over the future of the party. There is a possibility that CAP's return may elongate, or entirely rip into two, the growing tears in the party fabric. It looks like the battle is about to begin for AD's grass roots support. However bitter CAP may or may not be, he does not intend to shun the party that turned its back on him. Rather, he says he wants to democratize AD, and to rescue it from an ever-steepening decadence. This would involve ousting the current leadership and assuming control himself.

And CAP may stand a chance. He counts on very strong rank and file support. But, he also faces some very fierce opposition, particularly in the form of arch-rival Alfaro Ucero, who will fight tooth and nail to keep control. But the conflict could split the party, with some migrating to the CAP camp, and others sticking with Alfaro Ucero. A weakened AD would level the playing field for 1998, possibly opening the way for one, or a combination of the smaller parties thus far consigned to wither in the political hinterlands, to seize power.

This power struggle may in turn lead to a bidding war over a 1998 presidential candidate. Claudio Fermín, a former AD presidential candidate and dynamic reformer, is tipped as a front runner for the AD candidacy this time around. Although he shares CAP's ideological principals, Fermin has been courted by Alfaro Ucero, whose pragmatism would force him to back the candidate most likely to win, over one of his long- serving party side-kicks such as Lewis Pérez.

Just how much political support CAP really has, however, is impossible to say, and CAP has admitted as much himself. His ability to right the wrongs of the last few years and exonerate himself has obviously been limited. His only form of escape and contact with the outside world has been through visitors to his house, and surfing the net. But, while it is still too early to asses the depth of political support for CAP, it is certain that many feel, politics aside, that CAP was unfairly dealt with.

CAP has said that he will not have to exculpate himself because history will do it for him. That aside, on gaining his liberty, CAP is sure to want to remedy some of those injustices. Testing the political waters will begin on Friday in Táchira, CAP's home state; the first stop in a lobbying campaign to win back what he still believes to be his party.

GRINDING THE WRONG AXE: The Comptroller General continued its relentless attacks on those current and former officials who were involved in granting financial assistance to failing banks back in 1994. This time the Comptroller is saying that only 20% of the assistance granted reached depositors, implying that the remaining 80% was missappropriated by bankers, with the acquiesance of the officials involved. While there is no question that part of the money was missappropiated by corrupt bankers, the proportions claimed by the Comptroller are unrealistic. He has failed to recognize that the financial assistance was used not only to cover obligations registered on the balance sheets of those banks, but also to cover many off balance sheet items. As usual, the Comptroller is picking on the monkey instead of the organ grinder.

SKELETONS IN THE CLOSET: The New Yorker magazine has uncovered a corruption scandal that dates back to Caldera's first administration in the '70's. According to an article by Edward Jay Epstein, due to be published on September 23, a payment of $3 million was made to Venezuelan government officials by Armand Hammer, then-president of the company Occidental Petroleum, to change regulations governing oil exploitation.

FINANCE
DEBT RESCUE FUND: If the creation of the fund is authorized by Congress this year, it would begin operations with about $3 billion, including a $2.1 billion oil windfall, according to the deputy director of the Finance Ministry's Public Finance Directorate. In the meantime, the unexpected revenues will be kept aside in a special account at the Central Bank. It is not yet clear which type of debt will be repaid and how. However, the Finance Minister has already proposed to use part of the extraordinary revenues to pay state liabilities with the pension and social security systems, a proposition that has already been attacked by other ministers and independent analysts, arguing that those institutions would first have to be restructured before any additional money was allocated to them. Needless to say that a better solution would be to use that money to establish a private pension fund system.

VENEZUELA DM650 MILLION BOND ISSUE (seven years, bullet maturity) was sold out the same day it went to the market last Thursday. Yield to maturity is 10.25%.

DECENTRALIZATION: A new regulation defining the responsibilities of each level of government (i.e., national, state and municipal levels) in terms of urban public works was published in the Sept. 13 Gaceta Oficial.

BCV may revise (possibly downwards) the 1.5% monthly rate of crawl of the exchange rate band's central parity as a result of better-than-expected external accounts.

CAF (Andean Development Corporation) will grant Venezuela three loans totaling $132 million for environmental and mining projects.

TEMS: Bs.10 billion were auctioned on Sept. 11 to yield 28.16% for 181 days (as calculated by InvestAnalysis), down 4.6% from last week. Two additional lots, worth Bs.5 billion each, for 272 and 363 days were sold to yield 32.46% and 34.84%, respectively.

PAR BOND PRICE closed yesterday at 67.25/68.13%, up 1.59% on the week. The yield to maturity is 9.98%.

THE DOLLAR strengthened a fraction (-0.05%) in free market trading in the week ending yesterday, closing at Bs.476.25:$ bid and Bs.476.75:$ asked.

STOCK PRICES: Following better-than-expected oil prices for the Venezuelan basket, the Caracas Stock Exchange Index soared to an all-time high, closing yesterday at 4,864.90 (up 6.02% on the week). The Exchange's financial stock index closed at 5,780.59 (up 6.01%), and the non-financial stock index closed at 4,593.84 (up 6.03%).

FOGADE ON THE SPOT: Congress will open an investigation to determine whether there has been any negligence in the sale of the assets that Fogade has sold thus far.

FOGADE APPOINTMENTS: Roberto Manuel Cuahonte was appointed Principal Director in place of Roberto Castillo Dupuy who was fired from the post following his criticisms of the way the sale of Banco de Venezuela was handled.

BANCO DE VENEZUELA: According to Carlos Bernárdez, Banvenez and FIV's former president, the Republic should assume responsibility to settle any current or future legal actions against Banco de Venezuela, to help ensure the bank's successful privatization. No one in his right mind is going to pay what Banco de Venezuela is really worth if there are potential legal conflicts.

BANK CAPITALIZATION FUND: The administration decided against creating the fund, arguing that the financial crisis was over. However, the fact remains that many banks are either under-capitalized or highly inefficient, and that the regulatory bodies are not strong enough to monitor properly the whole financial system. Perhaps part of the $200 million granted by CAF to create the fund could be used to strengthen bank supervision and to establish a centralized credit bureau and so improve the system's overall transparency.

BANCO PROVINCIAL declared two dividends against first half 1996 results: Bs.8/share in cash plus one-for-five in stock.

INSURANCE VIOLATIONS: The Insurance Superintendency issued public admonishments of Seguros Canarias de Venezuela y Seguros La Federacion for not having submitted relevant information on time. Seguros Caracas was also fined Bs.3.8 million for not having fulfiled genuine claims against their policies.

NEW CREDIT RATING AGENCY: Sorincorp 1994, C.A. was authorized to operate by the National Securities Commission. Its president is Eduardo Recio.

CORIMON shareholders approved the corporation's new by-laws and elected Francisco Layrisse as President of the board and CEO. The new president announced that he would seek immediately the lifting of the suspension of the shares from trading.

LATINOAMERICANA DE VIDA: As part of the ongoing liquidation of this insurance company, the Finance Ministry revoked its authorization to operate. (Sept. 11 Gaceta Oficial)

ENSAL: Sucre state's Comptroller General rejected charges of alleged irregularities in the determination of the base price used for the auction of the salt company concession.

CANTV: The procedure to register CANTV shares with the U.S. Securities and Exchange Commission began last Friday. A final decision is expected shortly.

LAV'S PRIVATIZATION transparency was questioned on Monday by El Nacional. The paper published the registered names of the owners of Alas de Venezuela. According to the Public Registry, Alas de Venezuela shareholders are Inversiones Griesbach and a 37-year-old lady called Haydhelen Velasquez Morales. However, Inversiones Griesbach is also fully owned by Ms. Velasquez M., and not by a consortium formed by American, British and Venezuelan investors, as was originally announced. Who is behind this lady is still an open question? The report also questioned the technical expertise and the financial strength of LAV's new owners.

BANCO REPUBLICA: Four consortiums formed by foreign and domestic investment banks are competing for the right to handle the sale of Fogade's 99.99% stake in Banco Republica, which is expected to take place in the first quarter of 1997. The consortiums are Salomon Brothers-Bancaracas, Societe Generale Securities Corporation-Inverunion, Credit Commercial de France-Multinvest, and Banque Paribas-Valores Valfesa.

FOGADE PRIVATIZATIONS: On Sept. 26 Foagade will auction its 49% stake in UNIFOT II (with a base price of Bs.534.1 million), two seats at the Caracas Stock Exchange (b.p. Bs.76.5 million each) and

MANOVECA (100% stake with a b.p. of Bs.360 million).

SEGUROS BANVALOR: Interested parties have until Sept. 27 to register for access to the company's data room ahead of its privatization.

GENERAL DE SEGUROS: According to Banco Consolidado president Luis Hinestrosa, this insurance company will be privatized in October.

MONTE CLARO COUNTRY CLUB: Banco Latino will auction off 273 shares on Oct. 15. Base price per share is Bs.250,000.

MARGARITA'S ELECTRIC ASSETS privatization hit the wall once again, as the island's mayors rejected the FIV's plan to offer the companies assets as a concession. They argue that under such a scheme, the eventual concessionaires would be under contract only to national, and not local government.

APPOINTMENT: Tabeila Brizuela de Fleszczynski was appointed Venezuela's alternate governor to the IMF.

TONY LLOYD, Labour Party Foreign Affairs Spokesman on the Americas, will address a Venezuelan- British Chamber luncheon today. 12:30 p.m. at the Hotel Tamanaco.

MARGARITA ELECTRICITY PRIVATIZATION will be analyzed at a two-day forum sponsored by the island's governor and chamber of commerce, FIV and Corpoven. Oct. 17-18, at the Hotel Isla Bonita.

BUSINESS AND TRADE CARUACHI POWER PROJECT: The CVG has pre-qualified four bidders for the construction and installation of the Caruachi dam and electricity generation plant - Atkinson-Hochtief-Dell'Acqua-Somor, Consorcio Bajo Caroni, Consorcio Caruachi and Consorcio Dragos-Vialpa-Ica. The project's estimated cost is $1.8 - $2.1 billion, $500 million of which has been provided through an IDB loan. The first stage of the project should come on stream in 2003.

COLOMBO-VENEZUELAN exports have felt the blow of Venezuela's economic adjustments. A Colombian financial institutions association (Anif) projected that Colombian exports to Venezuela would drop by 25% in 1996 to $700 million, versus $935 million in 1995 as a result of the devaluation of the bolivar and the contraction of the non-petroleum sector.

MERCOSUR: The Andean Pact nations have been meeting in Peru to discuss pursuing a block entry into the Southern Cone trade pact. However, ahead of the meeting Venezuela's position had been that it was happy to pursue membership of Mercosur independently and ahead of its Andean partners.

BUS STRIKE: representatives of Caracas' suburban bus drivers, who called a stoppage on routes last week, are meeting with the MTC in an effort to resolve the problem. Drivers halted services on suburban routes last week in protest against MTC approved fare increases. Drivers want an additional 20% increase over the 30% authorized by the ministry. The MTC's agreement to meet with the drivers' union averted the threat of a national strike.

FAA looks set to keep Venezuela in category two in recognition of the efforts the country is making to improve its aviation standards and procedures. After meeting with the U.S. transport secretary last week, MTC Minister Moises Orozco Graterol said that a downgrade to category three has become remote. The FAA have yet to issue an official statement regarding Venezuela's rating. The program of measures to get Venezuela back to level one standards is expected to take 18-24 months to complete. Bs.2.2 billion has been approved to fund the improvements program.

PARMALAT bought a small fruit processing company in Carabobo to increase supply sources to Frica, its juice and nectars company. Parmalat reportedly also intends to use the plant's output to boost exports of fruit concentrates.

SOL MELIA hotel group will cede control of its hotels in Puerto La Cruz and Caraballeda to Corpoturismo over the next three months, in preparation for the privatization of the hotels.

CONSUMPTION levels have begun to normalize, following a sharp contraction in the aftermath of the economic measures taken in April and May, according to Cavidea, the grocery industry chamber. Cavidea undertook a campaign to help to promote consumption. The first phase saw TV ads aiming to develop price competition amongst small grocery stores through encouraging consumers to shop around for the best offers.

AIRCRAFT OPERATION NORMS contained in Gaceta Oficial Extra No. 5,092 (dated Sept. 3) applies to all Venezuelan-flag aircraft no matter where they might be plus any foreign-flag planes entering into Venezuelan air-space.

AIRPORT PRIVATIZATION is one option under consideration, according to MTC Minister Orozco Graterol, who discussed the future possibilities for Venezuela's airports during a meeting with the World Bank last week. The privatization, or offering of concessions to run Venezuela's airports would remove a financial burden from the government and could help to improve the standard of airports, so positioning Venezuela as an airline gateway into Latin America.

FIAT has proposed a novel marketing plan which helps out the government and the environment to boot. According to a report in El Universal, Fiat's trade director, Regulo Orozco, has suggested that the government pay off the workers it makes redundant with a brand new taxi that can run on natural gas. And guess what, it just so happens that Fiat manufactures such a taxi. The logic works, the government would be directing its former workers towards new employment; studies have shown that Venezuela falls short on international norms for taxis per capita; and most of the nation's existing taxis are old and dilapidated and are polluting the atmosphere.

ANPACT FLOATING BANDS were revised (Sept. 11 Gaceta Oficial) for whole milk, pork, chicken, wheat, barley, white and yellow corn, rice, soy beans and oil, palm oil, as well as raw and white sugar.

PEDRO VALLENILLA, Venepal president, was awarded the 1996 Entrepreneur of the Year distinction by the business magazine AmericaEconomia.

FIFTY VENEZUELAN EXPORTERS are expected to particiapte in a trade show Nov. 1-4 at Quito's Hotel Colon.

PETROLEUM
LAGOVEN/MOBIL signed yesterday a memorandum of understanding to produce and upgrade 100,000 b/d of heavy crude from the Cerro Negro field in the Orinoco Faja. The strategic association, which represents a $2.3 billion investment, will be signed after the deal receives congressional approval. The memorandum includes an agreement that Lagoven will buy a 50% stake in Mobil's 180,000 b/d Chalmette refinery in Louisiana. The refinery will carry out the final stage of upgrading of the joint venture's output. Production from the field is expected to begin in 1999, with an initial output of 50,000 b/d which will be increased after 2002.

LUBRICANTS: Mobil has also teamed up with Venezuela's Industrias Venoco to buy a lubricants plant in Honduras. The plant, which will be run as a 50:50 joint venture, will produce some 100,000 b/d of finished lubricants.

NON-TRADITIONAL PETROLEUM products will receive $1.5 billion of investment via 11 projects managed by Proesca (a special products company overseen by Maraven). The investment will fund the production and marketing of 1.7 million mty of high-yield, value-added, non-traditional products from Maraven's Cardon refinery, such as solvents, tar, propylene and polymers. The projects will include private sector investment.

MARAVEN is negotiating a supply and processing agreement with TransTexas Corp. for its TARC refinery in South Louisiana.

CATATUMBO, one of the two fields which received no bids in PDVSA's oil opening bidding round in January, may go back on the bidding block before year end, according to CVP president Juan Szabo.

ENRON-INELECTRA will begin exploration in November in the East Paria Gulf field, which it won rights to in January's oil opening round. The initial exploration investment commitment is $30 million, but PDVSA's projections put the total long term investment at some $1.2 billion.

PENNZOIL-VINCCLER, who have the operating contract for the East Falcon marginal field, have reactivated the field, which is currently producing some 200 b/d.

STEMMING THE GROWTH: Crude oil prices fell Monday for the first time in several weeks, after Baghdad announced that it would stop firing on U.S. war planes.

OPEC OIL BASKET average price rose to $21.97/bbl. in the week ending Sept. 13, $0.87 over the previous week. The year-to-date average is $19.14, $2.21 over the same period in 1995.

VENEZUELAN OIL BASKET averaged $20.74/bbl. in the week ending Sept. 13, up $0.94 from the previous week. The year-to-date average stands at $17.35/bbl., $2.46 over the 1995 equivalent period.

POLITICS
POLICE BRUTALITY has escalated over the last few months, according to human rights group, Provea. The three-monthly survey reports 44 human rights violations during April, May and June, with 28 deaths at the hands of the police. That compares to 16 assassinations committed by the police in the previous 3 months.

AD is still the most popular party, despite leadership wrangling. According to the latest Latinobarometro survey, 16% of those questioned would vote AD, a 10% lead over its closest rival, Copei. The fact that none of the parties score particularly well (MAS and Convergencia each score a miserable 3%) serves to illustrate how disillusioned the electorate has become, and does not augur well for the 1998 elections.

AD'S PARIS MONTESINOS was elected vice president of the International Socialist organization at last week's meeting in New York, during which 34 new members joined, bringing the membership up to 143. Of the 25 vice presidents in the organization's history, 6 have been Latin American. Also attending the congress, Lewis Perez - a possible AD presidential candidate - announced that neo-liberalism has brought nothing but trouble for Venezuela, serving only to deepen the crisis.

PASSPORT FRAUD: Many of the 'Venezuelan' immigrants currently under investigation in Canada are apparently not even Venezuelan. According to the Venezuelan Embassy there, a considerable number of those facing deportation are actually from Asia and Central America, and entered Canada as political refugees on forged Venezuelan passports.

HITCHING A LIFT: Minister Arrieta has received some harsh criticism for giving Matos Azocar and his family a lift to the States in a PDVSA jet whilst on his way to an IMF meeting last August 14. The minister says he assumes all responsibility, adding that the extra passengers didn't cost the state a penny more. That may be true, but investigations into Arrieta's wanderlust prompted by the incident have revealed that Arrieta's trips are costing the State more than a pretty penny. In the first three months of 1994 alone, his trips abroad cost the government $850,000, according to Alvaro Ramon Badilla, ex-commissioner of the Petroleos de Venezuela Assembly.

TAX PRIVILEGES: Venezuela's diplomatic representatives to the U.S. must now pay sales and other taxes in the U.S. The reason: Venezuela's (Seniat's) failure to honor its Treaty of Vienna commitment whereby other nation's diplomatic representatives are exempt from paying Venezuelan taxes. The loss-of- priviledge does not apply to members of the Venezuelan diplomatic mission to the United Nations.

HUMAN RIGHTS seminar opens today at the Ateneo de Caracas and will run through to Friday. The three day session is organized by the Venezuelan chapter of Amnesty International, along with other human rights groups.

SOCIAL PROTECTION AGENDA follow-up commission is headed by Monsenor Jorge Urosa. Other members include Lilia Arvelo, Isolda Salvatierra, Ivan Gutierrez, Edgar Mata, Miguel Lopez Ruiz, Nelson Carrasquero and Carmen Cardozo de Gomez (representing Congress), Gen. Gilberto Jose Ferrer Ruiz (for the Ministry of Defense), Ramon Adolfo Illaramendi (Min. Family), Norma Ramones (Cordiplan), Martin Ramos (Ocepre), Gustavo Rodriguez (national food council), Jorge Serrano (Fedecamaras), Luis Ramos (CTV), Mons. Jose Hernan Sanchez Porras (Episcopal Conf.), Nora Uribe (the media), Didalco Bolivar (state governors) and Flora Aranguren (mayors).

NEW AMBASSADORIAL APPOINTMENTS include Luis Xavier Grisanti (Belgium and the European Union) and Jocelyn Henriquez de King (Sri Lanka, in addition to India).

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