Chavez increases Russia ties - Benefits emerging markets
August 9, 2006

On August 4, the U.S. State Dept. issued sanctions against seven foreign companies it said were selling technology to Iran that could be used to develop weapons of mass destruction. Two of the firms, Sukhoi and Rosoboronexport, were involved with Russia’s deal last week with Venezuela. The Russian Foreign Ministry said the sanctions were retaliation for the deal, which President Bush publicly criticized.

On July 25, Russia agreed to sell Venezuela $1 billion worth of Sukhoi SU-30 jets, military helicopters, assault rifles, and the rights to build a Kalishnikov manufacturing plant in
Venezuela. The SU-30 is a long-range, multi-role jet that is superior to the F-16’s that the U.S. sold Venezuela in years past. Chavez says he needs them to defend himself from the U.S., which allegedly staged a coup to unseat him in 2002.

The agreement also invited Russian energy firms Lukoil and Gazprom to help expand Venezuela’s energy sector. Lukoil would develop oil reserves in the Orinoco River, which Chavez alleges has 270 billion barrels of reserves -- more than Saudi Arabia. Gazprom will help build the $20 billion gas pipeline from Venezuela to Southern Argentina. This project is also being supported by the Mercosur members. Finally, President Putin backed Venezuela’s bid as a non-permanent member of the U.N. Security Council.

The agreement was part of a tour Chavez made to Belarus, Vietnam, Qatar and Iran. This was after his attendance at the Mercosur Trade Summit, which was hosted by Argentina. Mercosur is a trade alliance formed in 1991 between Brazil, Argentina, Paraguay, and Uruguay. Chile and Bolivia are associate members. At the summit, Venezuela was admitted as a member, and a trade agreement was signed between Mercosur and Cuba.

What It Means:
Alliances are growing between countries that are growing in economic power and are unfriendly to U.S. policies. Trade between these countries is strengthening, while the U.S. is imposing sanctions that will restrict trade. Foreign companies will benefit, while U.S. companies will suffer. For example, Boeing's contract with Sukhoi to develop private commercial aircraft could be canceled as a result of the sanctions.

Action Steps:
Continue to maintain your investments with emerging markets. Make sure they are in the section of your portfolio dedicated to the long-term, such as Roth IRA’s. Althugh these funds may see a market correction in the next few years, they will provide the long-term growth needed for a robust retirement portfolio.

Source: Voice of America web site, State Department web site, President of Russia web site.

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