Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Thursday, February 4, 2016

February 04, 2016


International Trade

 

Panama seeks to renew negotiations on Venezuela’s debt

Panama is seeking to renew negotiations with Venezuela over the repayment of a multimillion dollar debt by local importers with Panamanian companies, including exporters in the Colón Free Trade Zone. Negotiations over the debt – which is over US$ 1 billion according to official Panamanian data – began in August 2013 and have stretched out for different reasons. Panamanian Trade and Industry Minister Augusto Arosemena reports his government has asked Venezuela’s Finance Ministry to renew talks on repayment. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Panama-reactivar-negociacion-Venezuela-empresas_0_787121326.html)

 

 

Oil & Energy

 

Venezuela has been importing US oil since the second quarter of 2015

Crude oil imports from the United States to Venezuela "is nothing new, because Venezuela has been purchasing light oil since the second quarter of 2015, not only from that country, but also from Nigeria and Algeria," says economist and oil expert Rafael Quiroz. "Regrettably, Venezuela is still dependent on oil (...) If our production declines, we just enter into crisis," he added. Quiroz explained that regular oil production in Venezuela, which is based on light, medium, and heavy oil, "is dropping, and the only production that is growing is that of the oil found in the Orinoco Oil Belt, which is extra heavy”, and said explained that Venezuela does not have enough light oil to mix it with extra heavy oil, which is a required procedure to upgrade and use that heave crude oil. (El Universal, http://www.eluniversal.com/economia/160203/expert-venezuela-imports-oil-since-the-second-quarter-of-2015)

 

Russia's ROSNEFT, Venezuela's oil minister discussed coordination to stabilize oil markets

Igor Sechin, the head of Russia's top oil producer ROSNEFT, and Venezuelan oil minister Eulogio Del Pino have discussed this week possible joint efforts aimed at global oil markets stabilization, ROSNEFT said in a statement. It also said they had discussed cooperation in oil marketing within the existing contracts between ROSNEFT and Venezuela's state-run oil company PDVSA. (Reuters, http://www.reuters.com/article/russia-rosneft-venezuela-idUSR4N15C00R)

 

 

Commodities

 

POLAR reports their corn production is at 100%, other plants are failing

POLAR’s CEO Lorenzo Mendoza reported that POLAR’s corn production is at 100%, but that out of 32 plants nationwide some are down to 0% productivity and “we see supply failures on the horizon which must be resolved by the government by allocating FOREX”. He said paralyzed plants include a tuna producing facility in Mariguitar (Sucre state), the tuna can production plant in Valencia (Carabobo state), which also affects the Yukery fruit juice operation; the Las LLaves soap and detergent plant is also paralyzed. “There are many plants but the list of those out of service is growing and the only thing we are lacking are basic supplies. Some productive facilities are at 30% and 70% capacity, but we seek lack of supplies on the horizon”. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/mendoza-asegura-que-plantas-de-maiz-de-empresas-po.aspx#ixzz3z6JJeVXN)

 

OREO stops tracking Venezuela sales over economic mess

Venezuela's chaotic economy is crushing the company that makes America's best-selling cookies. OREO-maker Mondelez reported US$ 778 million losses on Wednesday from its business in Venezuela. The business climate there is so chaotic that Mondelez said it will continue to sell oreos and other products in Venezuela but has written off that business. In other words, it won't count any of Venezuela sales in its results going forward. Mondelez isn't alone. In October, PEPSI reported US$ 1.4 billion losses in Venezuela and also wrote off its business there, even though it plans to continue selling its drinks and snacks in the country. It's not just snacks and sodas either. FORD, CITIGROUP, ORACLE, IBM and AMERICAN AIRLINES have all noted the tough business climate and their exposure to Venezuela's currency collapse in the past year. (CNN: http://money.cnn.com/2016/02/03/news/economy/venezuela-oreos-mondelez-loss/)

 

Venezuela is unprepared to face “El Niño” climate impact

According to Saúl Salas, coordinator of Venezuela’s Society of Agronomic Engineers, the nation is unprepared to anticipate, prevent and lessen the impact of “El Niño” on agriculture here, and could aggravate food scarcities in the country. He challenged the official claim that scarcities are due to “El Niño”, and said the country has not made proper use of its water due to a lack of public policies and investment in infrastructure such as dams, reservoirs, irrigation systems, and others. He adds that “40% of the population does not receive water on a regular basis”. More in Spanish. (Ultima Hora Digital; http://ultimahoradigital.com/venezuela-no-esta-preparada-para-frenar-impacto-del-fenomeno-el-nino/)

 

 

Economy & Finance

 

Black-market bolivars crash past 1,000 per dollar in Venezuela

Venezuela’s bolivar fell past 1,000 per U.S. dollar in the black market as world’s fastest inflation erodes the value of the nation’s currency. That means that the country’s largest denomination note of 100 bolivars is now worth less than 10 U.S. cents. The currency has declined 16.9% in the past month to 1,003 bolivars per dollar, according to dolartoday.com, a website that tracks trading in street markets where Venezuelans go to skirt limits on foreign-exchange purchases. The government maintains official rates of 6.3, 13.5 and about 200 bolivars per dollar for authorized purchases of items deemed essential. The bolivar is collapsing because the government keeps printing more money and the slump in oil prices means Venezuela is running out of dollars. The amount of cash in circulation or held in bank accounts in Venezuela has doubled from a year earlier, spurring the threat of hyperinflation. The country may face a US$ 38 billion shortfall in its dollar income this year, analysts at Credit Suisse Group AG wrote in a note to clients on Wednesday, meaning a default on government debt is a real possibility this year. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-03/venezuela-bolivar-falls-through-1-000-per-dollar-in-black-market)

 

Inflation-wrought Venezuela orders bank notes by the planeload

Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar. The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals. And the Venezuelan government isn’t finished. In December, the central bank began secret negotiations to order 10 billion more bills, five of these people said, which would effectively double the amount of cash in circulation. (The Wall Street Journal: http://www.wsj.com/articles/inflation-wrought-venezuela-orders-bank-notes-by-the-planeload-1454538101

 

National Productive Economy Council considering FOREX, gasoline and price adjustments

Former Chavez Finance minister Rodrigo Cabezas, who is part of the newly created National Productive Economy Council, says the group is considering matters such as the exchange rate, gasoline price, prices controls and import substitutions, and adds it is essential that the opposition Democratic Unity Conference should put forth it’s proposal for a new economic model. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/cabezas-en-los-proximos-dias-anunciaran-medidas-fi.aspx#ixzz3z6J7Hdld)

 

BOFA fears next economic steps by Venezuela will not be enough

Bank of America/Merrill Lynch expects the government here to take a number of economic steps within the next few days, but believes they could be insufficient to view of the nation’s huge economic imbalances. “We expect the government to announce some economic policy adjustments, including an increase in domestic gasoline prices and an important devaluation in the official exchange rate within the next few days. Although such changes can surprise the market in a positive way, it is unlikely these steps will approach the main economic changes necessary to stabilize Venezuela’s economy”, it said in a report to clients. The report says “incomplete” adjustments will fuel further inflation and that economic contraction will persist until more important economic policy changes are undertaken. More in Spanish:  (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/bank-of-america-teme-que-medidas-para-venezuela-se.aspx#ixzz3zC8PRGjc; Últimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/bank-of-america-teme-que-medidas-para-venezuela-se.aspx)

 

Oil woes could make Venezuela restructure China debt

Venezuela may need to restructure its oil-linked Chinese debt before undertaking any similar move with its international bondholders, BARCLAYS said in a report on Tuesday. The nation is widely believed to be headed for a credit event thanks to the dramatic tumble in oil prices, which has wreaked havoc on the Venezuelan economy. BARCLAYS said Venezuela is falling short of the daily oil shipments to China that it uses to repay loans from Beijing, as the fall in prices has raised the number of barrels needed. At current prices the country needs nearly 800,000 barrels a day to satisfy its loan payment, Barclays said - sharply up from the roughly 228,000 needed when oil was at US$ 100 per barrel.  "A restructuring of Chinese fund debt could be supportive for Venezuela," BARCLAYS analysts wrote. (Reuters, http://www.reuters.com/article/venezuela-debtrenegotiation-china-idUSL2N15H0YZ)

 

Venezuela may have `accidental' default this year, NOMURA says

The absence of decision-making capacity in Venezuela’s government is so acute that the country is likely to default by accident later this year, according to NOMURA International. The country’s cash shortage means it would need to cut imports by US$ 32 billion to almost zero this year in order to avoid running out of money, Siobhan Morden, the head of Latin American fixed-income strategy at NOMURA, wrote in a note to clients. The nation is dependent on imports for most consumer goods and it relies on oil exports to pay for those purchases. Should crude remain below US$ 30 a barrel, Venezuela won’t have enough money to meet the US$ 6.3 billion of bond payments the country and state-owned Petroleos de Venezuela SA have coming due in the second half of the year, according to Morden. She calculates that the minimum breakeven oil price for Venezuela is US$ 65 a barrel. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-02/venezuela-may-have-accidental-default-this-year-nomura-says)

 

POLAR’S Mendoza says the “current crisis can be overcome with private investment

Lorenzo Mendoza, CEO of POLAR, the nation’s largest food producer, has proposed seven basis steps to restore the nation’s productivity: Renew access to international supplies and basic goods, obtain international financing, bolster domestic production, adjust price controls, make state run companies produce, assist vulnerable groups within the food system, and strengthen agricultural production in staples where Venezuela is competitive.  He adds that in a relatively short time Venezuela can again become self-sufficient in coffee, white corn, cocoa, rice, and sugar, among others. Mendoza said economic affairs in Venezuela are “a disaster”. He says public policies should not exclude social contributions and called for a “market economy” so that all Venezuelans may have equal opportunities according to their ability. He called on companies here to sacrifice and “bring patience” to reconstructing the economy. Mendoza added that Venezuela's economic issues need to be tackled in a transparent manner, focusing on plummeting agriculture production, hurdles to imports, and the search for new funding sources. He stressed that there are excellent farmers in the states of Portuguesa, Guárico, Aragua, Cojedes, Barinas, and Anzoátegui who used to provide Polar with large amounts of corn, one of the main raw materials the company requires. "All that went downhill and nowadays, almost 40% of the corn consumed has to be imported. We depend on imports carried out by the State," he commented. The government’s Planning and Knowledge Minister Ricardo Menéndez quickly retorted that Mendoza had not been included in the National Productive Economy Council because “he has a double standard.” (El Universal, http://www.eluniversal.com/economia/160203/ceo-of-polar-highlights-importance-of-venezuelan-farmers); and more in Spanish:  (El Universal, http://www.eluniversal.com/economia/160203/la-actual-crisis-se-supera-con-inversion-privada; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/lorenzo-mendoza-presento-propuestas.aspx; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/menendez-al-consejo-de-economia-fueron-invitados-a.aspx#ixzz3zCA3FAzN; El Nacional, http://www.el-nacional.com/economia/Mendoza-tiempo-ciudadano-quiere-comida_0_786521561.html; http://www.el-nacional.com/economia/Lorenzo-Mendoza-propone-economia-mercados_0_787121469.html)

 

 

Politics and International Affairs

 

Former Chavez ministers seek probe into US$ 300 billion in lost oil revenue

Two former cabinet ministers under late President Hugo Chavez are seeking an investigation to trace the fate of some US$ 300 billion allegedly embezzled during the past decade through a complex currency control system. Hector Navarro, who ran five ministries under Chavez's rule, will ask a state ethics council to review the operations of the 13-year-old exchange control mechanism that opposition leaders have described as a "corruption machine." Navarro and Jorge Giordani, a former finance minister who was Chavez's closest economic adviser during his 14-year rule, have made calculations showing the government cannot account for how it spent nearly a third of the US$ 1 trillion that entered its coffers in the past decade.  "A gang was created that was only interested in getting their hands on financial resources, on (the country's) oil revenue," Navarro, who helped found the ruling Socialist Party but was expelled in 2014, said in an interview. "Thieves have no ideology," said Navarro, who continues to describe himself as a revolutionary despite his open criticism of the ruling party.  He did not elaborate on who was responsible for the funds having gone missing and or who might have embezzled them.  Navarro and Giordani are seeking an investigation by an agency known as the Republican Moral Council, which is made up of the chief prosecutor, the state ombudsman and the national comptroller. The three are widely considered to be close to the ruling Socialists. Opposition leaders have echoed many of Navarro and Giordani's criticism but also have pilloried them for helping create and maintain the state-led economic model that is now struggling with soaring inflation and chronic product shortages. (Reuters: http://www.reuters.com/article/us-venezuela-politics-idUSKCN0VB26F)

 

Economic authorities fail to appear in Congress

The authorities of the Central Bank of Venezuela (BCV), National Center for Foreign Trade (CENCOEX), and the Finance Ministry have again failed to appear at the National Assembly (AN). The Standing Committee on Foreign Policy of the Assembly reported that these authorities requested their visits to be rescheduled, without providing further details. The purpose of their appearance was to discuss the delays in the delivery of FOREX to Venezuelan students abroad, who have complained about this situation for the past few years. (El Universal, http://www.eluniversal.com/nacional-y-politica/160203/venezuelan-economic-authorities-fail-to-appear-in-congress)

 

National Assembly rejects tax proposal by SENIAT

The National Assembly’s Finance Committee has rejected a request by the SENIAT tax authority to adjust the Tax Unit used for measuring taxes, rates and fines at 177 VEB. Committee Chairman Alfonso Marquina said the proposal was sent back because it does not comply with the rules set for establishing the Tax Unit, which requires an official publication of inflation and price indexes for the entire 2015, by the Central Bank and the National Statistics bureau. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/an-devuelve-al-seniat-propuesta-para-nueva-tasa-de.aspx#ixzz3zC9pCSLH)

 

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

 

Tuesday, February 2, 2016

February 02, 2016


International Trade

 

Venezuela, Brazil talk about reviving bilateral trade

Foreign Minister Delcy Rodríguez has met with her Brazilian counterpart Mauro Vieira to request his country’s help in overcoming the "emergency" the Venezuelan economy is going through. In press conference where questions were not allowed, both ministers said they would discuss several agreements to re-establish bilateral trade, which decreased US$ 3.7 billion in 2015 from around US$ 5 billion annually some years ago.
In Vieira's view, "there has been a significant drop in recent years" in bilateral trade, and said Brazil is willing to assess methods to revive it.
(El Universal, http://www.eluniversal.com/economia/160201/venezuela-brazil-to-revive-bilateral-trade)

 

Oversized pieces come to Puerto la Cruz refinery

A total of eleven oversized pieces were offloaded at the Guanta port in Anzoategui state, to be used in the expansion of the Puerto la Cruz refinery. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/llegan-piezas-sobredimensionadas-para-refineria-de.aspx#ixzz3yuXzo7tJ)

 

Cargo that has arrived at Puerto Cabello:

  • 30.000 tons of rice
More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/llegan-piezas-sobredimensionadas-para-refineria-de.aspx#ixzz3yuXzo7tJ)

 

Cargo that has arrived at La Guaira:

13 vessels have arrived at the various ports of the country with containerized goods such as food, medicines and hygiene products. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/llegan-piezas-sobredimensionadas-para-refineria-de.aspx#ixzz3yuXzo7tJ)

 

 

Oil & Energy

 

Venezuela tries to convince oil nations to cut production

Venezuela’s Oil Minister Eulogio Del Pino faces an uphill battle persuading Russia and Saudi Arabia to cooperate in cutting oil production amid a supply glut that has pushed prices down more than 30% in the past year. Concern that U.S. shale producers would benefit from any increase in prices after a potential cut is one factor that may keep Saudi Arabia and Russia from agreeing to reduce output. Iran’s plan to boost crude exports now that sanctions have ended is another complication. Del Pino is to meet Russian Energy Minister Alexander Novak in Moscow Monday before traveling to Qatar, Iran and Saudi Arabia, the world’s largest oil exporter. “There’s a minimal chance the Venezuelans will get them to agree to anything,” Robin Mills, chief executive officer of Dubai-based oil consultant Qamar Energy, said by phone on Sunday. “I don’t think the conditions are there for an agreement.” (Bloomberg, http://www.bloomberg.com/news/articles/2016-01-31/venezuela-seen-facing-uphill-battle-getting-oil-nations-to-cut; Reuters, http://www.reuters.com/article/us-opec-venezuela-idUSKCN0V72RD; El Universal, http://www.eluniversal.com/economia/160201/venezuela-russia-discuss-downward-trend-in-oil-prices)

 

Venezuela oil price bounces off 14-year low

The price Venezuela receives for its mix of heavy oil bounced this week as prices around the world rose on prospects of talks on coordinated cuts between OPEC and Russia. According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending January 29 was US$ 24.16, up US$ 2.53 from the previous week's US$ 21.63. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2404596&CategoryId=10717)

 

 

Commodities

 

Pharmaceutical Federation head seeks WHO help in providing medicines

Freddy Ceballos, President of Venezuela’s Pharmaceutical Federation, has asked the World Health Organization (WHO) and other international organizations to send medicine here and says the government should not oppose receiving such “humanitarian assistance”. “Patients are dying due to the humanitarian crisis we are going through”, he says, and estimates scarcities in medicine are around 80%, adding that the government owes the industry “around US$ 4 billion.” Venezuela lacks 70% of the 150 medicines identified by the WHO for mandatory access. Las month Health Minister Luisana Melo said scarcities are due “to irrational use of medication”” More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/01/gremio-farmaceutico-venezolano-pide-a-oms-el-envio-de-medicinas/)

 

10% drop in food production reported

Venezuela’s Food Industry Chamber (CAVIDEA) reports production by affiliate companies has dropped 10% over the past 4 months due to lack of FOREX, default by local industry on their debts to foreign providers, prize freezes and lower labor productivity. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/negocios/empresas/cavidea-reporta-10--de-caida-en-la-produccion-de-a.aspx#ixzz3ycuKo4MC; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/cavidea-reporta-10-de-caida-en-la-produccion-de-al.aspx; El Nacional, http://www.el-nacional.com/economia/Agroindustria-crisis-paralizada-produccion-alimenticios_0_783521901.html

 

Venezuela produces only 30% of the beef it consumes

Ramón García, President of the National Farm and Cattle Producer’s Association (CONFAGAN) reports the nation is producing 4 million liters of milk daily out of the 10 million it needs; and also says in the best case it produces only 30% of the 640,000 tons it needs domestically. More in Spanish: (Ultima Hora Digital; http://ultimahoradigital.com/el-pais-produce-30-de-la-carne-que-se-consume/)

 

Governor Falcón proposes reverting expropriations

Lara State Governor Henri Falcón has asked President Nicolás Maduro to revert expropriation of companies and farms that have not been productive, He mentioned AGROISLEÑA as an example of a company that had over 60 branches nationwide and provided financing to over 20,000 farmers, and guaranteed 70% of all inputs for agriculture. He adds that in Lara state the government took over more than 130 farms, for more than 11,789 hectares, which grew over 1.7 million tons of sugar cane, for 60% of the nation’s total production – “and are now down to under 20%”, More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160201/gobernador-falcon-plantea-revertir-las-expropiaciones)

 

 

Economy & Finance

 

Venezuela is on the brink of a complete collapse

The only question now is whether Venezuela's government or economy will completely collapse first. Both are well into their death throes. Indeed, Venezuela's ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it's hard to see that getting any better for them any time soon—or ever. Incumbents, after all, don't tend to do too well when, according to the International Monetary Fund, their economy shrinks 10% one year, another 6% the next, and inflation explodes to 720%. It's no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt. How? Well, a combination of bad luck and worse policies. Chavez turned the state-owned oil company from being professionally-run to being barely run. People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn't go in. Specifically, oil production fell 25% between 1999 and 2013. Even triple-digit oil prices weren't enough to keep Venezuela out of the red when it was spending more on its people but producing less crude. So it did what all poorly-run states do when the money runs out: it printed some more. The result of all this money-printing is that Venezuela's currency has, by black market rates, lost 93% of its value in the last two years. The idea was that it could stop inflation without having to stop printing money by telling businesses what they were allowed to charge, and then giving them dollars on cheap enough terms that they could actually afford to sell at those prices. The problem with that idea is that it's not profitable for unsubsidized companies to stock their shelves, and not profitable enough for subsidized ones to do so either when they can just sell their dollars in the black market instead of using them to import things. That's left Venezuela's supermarkets without enough food, its breweries without enough hops to make beer, and its factories without enough pulp to produce toilet paper. The only thing Venezuela is well-supplied with are lines. And it's only going to get worse because Socialist president Nicolas Maduro has changed the law so the opposition-controlled National Assembly can't remove the central bank governor or appoint a new one. Not only that, but Maduro has picked someone who doesn't even believe there's such a thing as inflation to be the country's economic czar. "When a person goes to a shop and finds that prices have gone up," the new minister wrote, "they are not in the presence of 'inflation,'" but rather "parasitic" businesses that are trying to push up profits as much as possible. If past hyperinflations are any guide, this will keep going until Venezuela can't even afford to run its printing presses anymore—unless Maduro gets kicked out first. (The Washington Post: https://www.washingtonpost.com/news/wonk/wp/2016/01/29/venezuela-is-on-the-brink-of-a-complete-collapse/)

 

The coming mess in Venezuelan debt

Venezuela has a large debt stock of about US$ 125 billion, with about a quarter of that coming due in the next few years. A payment of US$ 10 billion is due this year. Some estimates suggest that because of low oil prices, Venezuela will raise only about US$ 20 billion from oil sales this year. Half of that money is already pledged to bondholders, so the country will continue to struggle to balance its budget, especially given that the budget was not balanced even when the price of oil was at US$ 100 a barrel. Compounding financial woes, inflation in Venezuela is rather high, to put it mildly. The minister of the economy, Luis Salas, declared an "economic state of emergency" as Venezuela struggled with falling oil prices and a worsening crisis at home. According to the data service provider MARKIT, spreads on credit default swaps on Venezuela were trading north of 6,200 basis points last week, as compared with about 19 basis points for the United States or even 1,100 basis points for Greece. No wonder the country’s debt is trading at a big discount to face value. The question is, how can Venezuela buy itself some time? A workout with its creditors would seem to be a good start, but there will be challenges. First, the debt has been issued both by the country and by the state-controlled oil company. That sets up the potential for inter-creditor disputes about who should get paid when, and who should suffer when the debt is restructured. Second, it has been reported that the outstanding debt does not contain “collective action clauses.” Because Venezuela’s debt lacks these clauses, any workout is subject to being sideswiped by litigation in New York. And that might make bondholders hesitant to work with Venezuela in the first place. Why agree to take a “haircut” if some other bondholder will get more by litigating? And the country has some assets outside the country, especially those tied to oil production, that might make litigation even more attractive than it was in the case of Argentina. Finally, it all comes back to politics. Venezuela is now a split country, with the president from one party and the Legislature from another. If there is going to be a deal with bondholders, they will have to work together. That seems unlikely. In short, it sure seems like we are heading for a mess. (The New York Times, http://www.nytimes.com/2016/01/29/business/dealbook/the-coming-mess-in-venezuelan-debt.html?_r=2)

 

Economic Council: Venezuela needs international funding

Foreign funding and tax reform are the two main steps that must be taken to change the characteristics of the current economic situation in Venezuela, says the head of the National Economic Council, Efraín Velásquez. "The issues of FOREX unification, fuel, among others are secondary, for they will have no real effect if implemented before these two (measures)," he explained. "We need a credible and sustainable economic strategy (...) (Currency) devaluation is unavoidable," he added. Velázquez further said the country's problem is related to foreign funding. In this sense, he pointed out that Venezuela must pay the debt with international suppliers, resume bilateral relations with all countries that may cooperate "in this funding process," and turn to international markets "presenting our funding needs." Should this fail, "the International Monetary System has an ultimate lender, which is the Monetary Fund." (El Universal, http://www.eluniversal.com/economia/160201/economy-council-venezuela-needs-international-funding)

 

Agriculture Minister says the situation of expropriated estates is under revision

The issue of estates expropriated by the government is under revision, says Minister of Agriculture Production and Lands Wilmar Castro Soteldo. "Livestock was more hit by seizures: some for strategic reasons, and some others I will not mention. Most of them are under revision and legal procedures," the minister added. Castro further recalled that President Nicolas Maduro has instructed authorities to track the status of such estates. "Those seizures were not monitored in technical terms, which led to shortage of spare parts and consumables required to exploit them properly." (El Universal, http://www.eluniversal.com/economia/160201/castro-soteldo-situation-of-expropriated-estates-is-under-revision)

 

In an effort to drain liquidity in the market, the Venezuelan Central Bank (BCV) placed Bs.15 billion in extraordinary buyout operations last Friday, January 29. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46824&idc=2; El Universal, http://www.eluniversal.com/economia/160201/venezuelan-central-bank-drains-veb-15-billion-in-liquidity)

 

 

Politics and International Affairs

 

Venezuelan opposition ups efforts to oust President Maduro

Venezuela's newly empowered opposition is intensifying efforts to find a legal means to oust President Nicolas Maduro, whose mandate runs until 2019. The opposition MUD party thrashed Maduro's socialists in December's parliamentary election, winning 112 of the 167 National Assembly seats - giving it a constitutional majority. But Maduro maneuvered to have three of the MUD legislators suspended for possible electoral fraud. The move was backed by Venezuela's Supreme Court, which is packed with loyalists to the late socialist President Hugo Chavez. Stripped of a straightforward path to removing Maduro, the opposition is searching for other constitutional or legislative means, as the country's economic turmoil continues to deepen. "Someone said we should let the government finish its term so it can stew in its own juice," the opposition speaker of congress, Henry Ramos Allup said. "That would be irresponsible." Options for the multi-faction opposition include demanding Maduro's resignation, forcing a recall referendum, which is allowed half-way through his term, or reforming the constitution to trigger a new presidential election. Maduro is not likely to resign, and for now the opposition is short of their constitutional majority. A recall referendum appears to be their best bet, as Maduro will reach the half-way point of his six-year term in April. "I don't want this to last three more years, going from bad to worse," Ramos said. "If you can treat an illness before it kills you, then you obviously apply the treatment." Former presidential candidate Henrique Capriles believes Venezuela's opposition must define within weeks its strategy for ending Nicolas Maduro's presidency. Options for the multi-faction coalition include demanding his resignation, forcing a recall referendum as allowed half-way through his term, or reforming the constitution to trigger a new presidential election. "We have to find a common position. The clock is ticking ... We can't wait longer than the first quarter," Capriles says. A recall referendum is not without pitfalls, as the Maduro-backed judiciary and electoral institutions could delay the process into 2017, paving the way for his vice president to take over rather than there being a new election if he lost the vote of confidence. (Reuters, http://www.reuters.com/article/us-venezuela-politics-capriles-idUSKCN0V71PD; Deutsche Welle, http://www.dw.com/en/venezuelan-opposition-ups-efforts-to-oust-president-maduro/a-19013650)

 

Economic and political crises will collide in the second half of 2016

With Venezuela’s oil basket now trading at around $20 per barrel and economic distortions growing, the government will announce changes to the foreign exchange regime and a hike in the gasoline price, along with other measures aimed at increasing local production and exports. This is similar to the strategy employed by the government in the past, but is less sustainable in the current economic reality.  Even if there is a debate about the best path forward, none of the groups within chavismo is advocating for major changes to the country’s price or foreign exchange controls. Instead, the debate is between a light adjustment - FX devaluation and simplification, along with a gradual gasoline price hike versus a continuation of the current policy mix and a deepening of controls. However, the principal problem facing the economy is a dire lack of foreign exchange (oil exports fell by around 50% in 2015, with income falling from US$ 65 billion in 2014 to $US 35 billion in 2015, according to ECOANALITICA). Moreover, its impact will likely be eroded relatively quickly by inflation, which is already running at around 275% according to the IMF, and is unlikely to diminish as long as the government continues printing money. The government will however, continue to pay for as long as it can, which includes the February maturities (US$ 2.3 billion between PDVSA and the sovereign).  Thus the government will continue to liquidate assets in order to service debt until they can’t. To this end, the government is reportedly shipping gold reserves out of the country to conduct more swaps (they had US$ 11 billion in gold as of end November, according to the central bank). The government also has US$ 4 billion in its off-budget funds, according to ECOANALITICA, and US$ 15.5 billion in reserves overall. The IMF SDR reserve balance is now just US$ 800 million (from a total allocation of US$ 3.6 billion) and there are no other PETROCARIBE members who could execute a debt-buy back that would have a significant impact. A CITGO sale is unlikely to generate significant amounts of cash given its own debts and the government is unlikely to receive fresh loans from China, given their frustration with Maduro and their own shifting priorities. The timing and nature of a credit event will also be shaped by political dynamics, which are on their own collision course that looks likely to culminate in the second half of the year. (The Eurasia Group: http://www.eurasiagroup.net/)

 

Maduro insists on the Supreme Court as arbitrator to resolve conflicts

President Nicolas Maduro said he only recognizes the authority of the Supreme Court (TSJ) as an arbitrator to resolve conflicts in the country, as he lauded efforts towards building an “independent” justice system. “There is only one power for arbitrating all conflicts and tensions that come up, only one that I recognize as head of the state – the TSJ,” Maduro said at the opening session of Judicial Year 2016. He also lauded the “enormous effort” towards creating a truly independent judicial power. Judicial power “must be independent from the economic powers, from the bourgeois republic, from corruption, transnational companies,” Maduro explained. During the same event, TSJ head Gladys Gutierrez said: “Supremacy by definition excludes the possibility of challenging a superior body, thus the Supreme Court has full power to review the actions of other constitutional bodies.” Gutierrez’s stress on the powers of the judicial body comes as it gears up for a year of confrontations with the parliament, which, since it came to be controlled by the opposition from Jan. 6, has questioned the independence of the highest court and the Executive. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2404587&CategoryId=10717)

 

Latin America shows no sympathy for Venezuela

When Venezuela's head of state arrived in Quito, Ecuador, last week for the Community of Latin American and Caribbean States summit, his pitch was almost unrecognizable. Gone were the encomiums to 21st-century socialism and the late President Hugo Chavez's set-piece barbs against yanqui imperialism. In their place were contrition and beseeching. "Venezuela is in a very difficult situation; I've come to hold a series of meetings with our brother countries, brother presidents," President Nicolas Maduro said on Jan. 27, prior to the opening of the regional meeting. "I've come to propose a series of possible measures for Latin America to respond to Venezuela's economic emergency, to boost free trade, to increase complementarity and solidarity."  Later that day, Maduro enjoined leaders to embrace "a common plan" to confront "the current economic crisis" facing the region, but there was little doubt which country he wanted embraced. (Bloomberg, http://www.bloombergview.com/articles/2016-02-01/latin-america-shows-no-sympathy-for-venezuela)

 

Venezuela’s Ambassador to the UN Rafael Ramírez says he is not concerned over the possibility of being indicted as part of the US investigations on an alleged bribe of over US$ 1 billion that would have taken place at PDVSA while he chaired it. He discarded cooperating with the American authorities. Ramírez has just taken over as President of the UN Security Council. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46836&idc=4)

 

79% of Venezuelans polled believe their conditions worsened during 2015

According to pro regime polling firm HINTERLACES 79% of all Venezuela polled believe they were worse off in 2015 than in 2014, and only 15% say it has improved. 28% believe the situation is “very serious”, 25% say it is “serious” and 43% consider it “serious but can be overcome”.  More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/01/un-79-de-venezolanos-cree-que-su-situacion-empeoro-en-2015-segun-encuesta/)

 

Colombia investigates reported border incursion by Venezuelan armed forces

The government of Colombia is investigating a reported entry of a Venezuelan Armed Forces patrol in Arauca department, says that nation’s Foreign Ministry, which reports that have made contact with Venezuelan authorities to clear up what happened. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160201/colombia-investiga-presunta-incursion-de-fanb)

 

 
The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

Thursday, January 28, 2016

January 28, 2016


International Trade

 

Money to pay debt to Uruguayan dairy producers is in China, according to Uruguayan Deputy Jaime Trobo. He explained the agreement signed between the two nations established Banco de Desarrollo, BANDES-Uruguay, was to open a trust to pay for food products sold to Venezuela, but Uruguay did not inform producers BANDES could give the money the use it would see fit. (Venecomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46767&idc=2)

 

 

Oil & Energy

 

World Bank predicts oil prices will drop further in 2016, and remain low

The World Bank predicts the average price of a barrel of crude oil may drop further to US$ 37 during 2016 due to weak emerging economies and increased supply as Iran comes back into international markets. Barely 3 months after its previous projection, which had oil price averaging US$ 51 per barrel, the Bank has sharply cut back its estimates to a US$ 37 average, and warns this trend will hold “for some time.” More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Banco-Mundial-Crudo-internacional-profundizara_0_782321809.html)

 

Venezuela oil group seeks incentives to lure more foreign money

Venezuela’s main hydrocarbon association has proposed measures aimed at attracting more investment from international oil companies as prices drop to the lowest in more than a decade. Incentives would include reducing royalties and extraction taxes to 20% from 30-35%, applying a single exchange rate for the oil industry and granting more decision-making powers to joint venture partners. The measures, presented yesterday to the President’s National Council for Productive Economy, are needed to support oil-sector investments, according to a document outlining the proposals. “There have to be changes in the oil sector, and not just a more competitive exchange rate for the sector,” Asdrubal Oliveros, director of consulting firm ECOANALITICA, said during a meeting yesterday with foreign press at Bloomberg’s office in Caracas. “Until we have a collapse and change in this model, we will not see more oil sector investments.” (Bloomberg, http://www.bloomberg.com/news/articles/2016-01-26/venezuela-oil-group-seeks-incentives-to-lure-more-foreign-money)

 

Oil minister to visit OPEC, non-OPEC countries

Venezuela's oil minister will tour OPEC and non-OPEC countries in a bid to drum up support for joint action to stem the tumble in crude prices, President Nicolas Maduro announced on Tuesday night. "I've given the order to minister Eulogio del Pino for him to immediately start a tour of OPEC and non-OPEC countries," the leftist leader said in a televised broadcast. The Organization of the Petroleum Exporting Countries is considering a request from cash-strapped Venezuela to hold an emergency meeting to discuss steps to prop up prices, and Venezuela has called for a meeting of OPEC and non-OPEC nations in February. "We must stop this madness," a solemn-faced Maduro said about oil prices, urging "clear, consequential and coordinated" action. (Reuters, http://www.reuters.com/article/us-opec-venezuela-idUSKCN0V5035)

 

Former Chavez Finance Minister calls for revising credits to PETROCARIBE and other nations

Rodrigo Cabezas, who served as Finance Minister under the late President Chávez, says that in view of the current fiscal situation the country must review each one of its agreements, “soft” credit and subsidies to other nations in the region and with multilateral arrangements such as PETROCARIBE. He called such actions “absolutely pertinent” within fiscal restrictions. Cabezas also said a “default” scenario is “undesireable”. More in Spanish: (El Universal, http://www.eluniversal.com/economia/160127/plantean-revisar-creditos-en-petrocaribe-y-otros-paises)

 

 

Commodities

 

Sugar production has dropped 44% over the past year, according to the President of the National Federation of Cane Growers, José Ricardo Álvarez, who says the situation has never been as grave over the past 60 years. “It is now better for growers to leave sugar cane fallow in the fields than harvest it, because one loses less”, he says – and reports sugar growers produced 83,797.64 tons in January 2015 and only 46,177 tons so far this year due to price controls. More in Spanish: (El Nacional; http://www.el-nacional.com/economia/Produccion-azucar-cayo-ano_0_782921977.html)

 

 

Economy & Finance

 

IMF sees inflation explosion here, 18% contraction

According to the IMF: “In Venezuela, longstanding policy distortions and fiscal imbalances were already having a deleterious effect on the economy before the collapse in oil prices. These problems worsened as falling oil prices triggered an economic crisis, with an expected fall in output of almost 18% over 2015 and 2016 (the third sharpest decline in the world). A lack of hard currency has led to scarcity of intermediate goods and to widespread shortages of essential goods—including food—exacting a tragic toll. Prices continue to spiral out of control, and we expect inflation to rise to 720% this year, from a world-high inflation of about 275% in 2015.” (IMF: http://blog-imfdirect.imf.org/2016/01/22/latin-america-and-the-caribbean-in-2016-adjusting-to-a-harsher-reality/)

 

NOMURA says economic transition in Venezuela is “irreversible

The latest report from Japan’s NOMURA firm says “economic transition is irreversible” in Venezuela, and explains the drop in commodity prices is aggravating imbalances. It warns economic distortions cannot be solved by reducing imports or a default on foreign debt, either of which can only “aggravate stagflation”.  It says cash flow is shrinking daily “amid a slow political and economic transition”. The firm says the next moves are up to the opposition in their bid for leadership, but the risk remains that the Maduro regime could “make them draw back”.  More in Spanish: (El Nacional: http://www.el-nacional.com/economia/Nomura-transicion-economica-irreversible_0_782921984.html)

 

Venezuela plans to transition away from oil-dependent economy

Venezuela’s Economic Council has presented measures to transition away from an oil-dependent economic model, Vice President Aristobulo Isturiz said Tuesday.  The council, which was created in January, presented its first proposals to the government, which recently announced an emergency decree to battle the economic situation here.  Isturiz said the council’s working groups have been supported by local businessmen.  He said that the state guarantees the production of raw materials, credit and other facilities to domestic producers.  The vice president stressed that the government's priority is to fund social benefits in education, health, food, housing, among others, as well as revitalize the economic and productive engine of the country. He said the council’s roundtables began discussing three of the 11 strategic economic areas—telecommunications, tourism and petrochemicals—began Monday.  Other key areas tapped to reinvigorate the productive economy include food processing, mining, information technology, construction, export, forestry and industry. (TELESUR: http://www.telesurtv.net/english/news/Venezuela-Plans-to-Transition-Away-from-Oil-Dependent-Economy-20160126-0011.html)

 

Government creates centralized procurement system

President Nicolas Maduro has signed a decree under which Centralized and Standardized System of Government Procurement is established for all the bodies of public administration, effective from Monday, February 1. The president noted that he had received from the National Council of Productive Economy all the proposals brought forward at the work sessions of the nine economic engines. Maduro said he would study all the proposals during the IV Summit of the Community of Latin American and Caribbean States (CELAC). (El Universal, http://www.eluniversal.com/economia/160127/venezuelan-govt-creates-procurement-centralized-system)

 

Venezuela’s economic, social indicators speak for themselves

The country is starting to show cracks everywhere and is reaching boiling point. Several economic indicators more than tell about that situation. Among issues affecting the nation’s economic sphere: Venezuela has the highest inflation rate in the world. Venezuela’s inflation hovered near 300% in 2015, and may reach 720% in 2016, according to the International Monetary Fund. Shortages of food items, medicines and capital goods exceed 80%. The income of citizens slips through their fingers as their purchasing power has been reduced to nothing. Besides becoming desperate and helpless for not finding the essential foodstuff and/or medicines for them or any member of their family. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2404207&CategoryId=10717)

 

Inflation of the food basket goes up 1% daily since December 2015, according to the Venezuelan Teachers’ Federation’s Social Documentation and Analysis Center (CENDAS-FVM). It is the first time such a high is recorded. At the end of December, the food basket was VEB 139,273.68, up 361.5% from December 2014 when it was VEB109,096.86. (Venecomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46770&idc=2; http://www.veneconomy.com/site/index.asp?ids=44&idt=46768&idc=2)

 

6.2 minimum wages are now needed to buy the basic food basket

In average, 4.77 minimum wages were needed to cover the basic food basket between 1999 and 2014. However, this changed at the end of 2014 when 6.2 minimum wages were required to cover it until it reached the 14.4 minimum wages at the end of December 2015, according to the CENDAS-FVM. According to CENDES, not even the basic salary of a Major General is sufficient to acquire the basic food basket, A sargeant can only purchase 9.8% of the same basket. (Venecomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46769&idc=2; and more in Spanish: (El Nacional, http://www.el-nacional.com/economia/salario-basico-general-canasta-basica_0_782321994.html)

 

 

Politics and International Affairs

 

National Assembly President says economic crisis will sink Maduro

National Assembly President Henry Ramos Allup doubts President Nicolas Maduro will serve out his six-year term in view of the acute economic crisis here. He adds that his exit could even take place this year. “In this situation I don’t believe he will serve out his term…..he is being swallowed up by the crisis”. Ramos adds that for the nation to be rid of the highest inflation in the world, economic recession and scarcities, Maduro and his cabinet must step aside. “If they insist – as they are doing – on continuing applying a model that his failed in every sense, the reply is obvious: those who are so insisting in this crisis must leave, otherwise we will not overcome it”. And he adds: “We have insisted that the way out of this crisis must be democratic, constitutional, peaceful and elective. None other.” The opposition coalition has signed an agreement to seek a way out of this situation within six months, and Ramos says they are already working at it because “to wait for the crisis to become worse is an irresponsible political gambit”. More in Spanish: (Infolatam: http://www.infolatam.com/2016/01/26/crisis-economica-de-venezuela-hundira-a-maduro-segun-el-presidente-de-la-asamblea/)

 

Maduro to ask CELAC aid in economic emergency

Upon his arrival in Quito, Ecuador to attend the IV Summit of Heads of State and Government of the Community of Latin American and Caribbean States (CELAC), President Nicolás Maduro said that he would propose some ideas to tackle the economic emergency in Venezuela with the help of Latin American countries. The president said he would meet with his CELAC counterparts to address the economic crisis in his country and "foster fair trade, complementarity, and solidarity. Venezuela comes with a proposal, as always, to find our own solutions and our own path by ourselves." (El Universal, http://www.eluniversal.com/nacional-y-politica/160127/venezuelas-maduro-to-ask-celac-aid-in-economic-emergency)

 

Chavez's dream of unity stumbles ahead of Latin American summit

Before he died, Venezuela’s late president, Hugo Chavez, had a dream to unite Latin America and the Caribbean against the dark forces of the U.S. empire. It’s not working out like he planned. As presidents and prime ministers from the regional group CELAC meet Wednesday in an attempt to knit closer ties, President Nicolas Maduro, Chavez’s hand-picked successor, finds himself fending off attacks from the nation’s former ally, Argentina. “Why does a country have to put up with the whole onslaught of right-wing governments,” Maduro said Saturday after Argentina’s newly-elected president, Mauricio Macri, criticized his government’s human-rights record. “I’m going to the summit of Latin America and the Caribbean nations in Quito with everything. No one is going to shut me up.” (Bloomberg, http://www.bloomberg.com/news/articles/2016-01-27/chavez-s-dream-of-unity-stumbles-ahead-of-latin-american-summit)

 

Garrulous Maduro has addressed Venezuela for 500 hours

President Nicolas Maduro has spent more than 500 hours addressing Venezuela since gaining power nearly three years ago, demonstrating a loquacity reminiscent of his late predecessor Hugo Chavez, according to a watchdog. The tally, from the local Citizens' Monitor group which is critical of the government, was based on Maduro's so-called "chain" speeches, when all local broadcasters are required to transmit his words live. Counting other speeches, carried only by state TV, the 53-year-old former bus driver and foreign minister has in fact spent far more time giving public addresses.

"In the first few weeks of this year, he surpassed 500 hours," the group said this week in a blog. "Every time the presidency holds a 'chain', they are denying Venezuelans their control over freedom of information and entertainment." (Reuters, http://www.reuters.com/article/us-venezuela-maduro-idUSKCN0V42A8)

 

Electoral body issues reply on Amazonas contested deputies

The National Electoral Council (CNE), headed by Tibisay Lucena, has issued an "administrative response" to the Supreme Tribunal of Justice (TSJ) regarding the contested election of three deputies for Amazonas state and one indigenous representative. The information was aired by the First Vice-President of the National Assembly, Simón Calzadilla, who heads the parliament committee that studies the case. Deputy Calzadilla said that Lucena refused to reveal the content of the documents that were sent to the TSJ. (El Universal, http://www.eluniversal.com/nacional-y-politica/160127/electoral-body-issues-reply-on-amazonas-contested-deputies)

 

Freedom House: Democracy faces challenges in Venezuela

Freedom in the world declined in 2015. Even though Latin America as a whole showed some improvement, democracy in Central America and Venezuela faces serious challenges, according to the annual report released by Freedom House on Wednesday. The organization that advocates freedom and democracy highlighted that democracy and freedom are at risk in El Salvador, Guatemala, Honduras, and Venezuela. In the latter, Freedom House reported "persecution" against the opposition. The Latin American country with the worst score in freedom and democracy is Venezuela, considered "partially free" with a score of 35 out of 100, followed by Haiti (41) and Honduras (45). (El Universal, http://www.eluniversal.com/nacional-y-politica/160127/freedom-house-democracy-faces-challenges-in-venezuela)

 

 
The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.