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.

Friday, September 19, 2014

September 19, 2014

International Trade

New cargo arrivals reported at Puerto Cabello
  • 681 tons of beef from Brazil, for state agency CASA and others.
  • 538 tons of wheat flour, for CASA
  • 490 tons of long lasting PARMALAT milk from their Uruguay operation,
  • Over 306 tons of margarine, for CASA
  • 284 tons of chicken, for CASA
  • 265 tons of spaghetti, for CASA
  • Also auto parts, motorcycles and electronic material.

MAERSK sells Venezuela cargo boat business
Danish shipping conglomerate A.P. Moller-Maersk has announced the sale of its cargo boat business in Venezuela, saying it is a "minor part" of its business. The unit is made up of 10 cargo boats under contract in Lake Maracaibo. More in Spanish: (Ultimas Noticias,

Oil & Energy

Barclay's estimates CITGO value at US$7-9 billion
Barclays Capital estimates the value of CITGO somewhere between US$ 7-8 billion, despite the fact that other firms indicate its value could be at US$ 10 billion. More in Spanish: (El Universal;; El Nacional,

Sale of CITGO causes PDVSA default insurance to increase
Five-year bond insurance contracts known as credit default swaps (CDS) on Venezuela's state oil company Petroleos de Venezuela S.A. (PDVSA) widened 16% over the past week, according to international ratings agency Fitch.
PDVSA CDSs widened 31% during the past month, significantly underperforming Fitch Solutions' Global Oil & Gas CDS Index, which had firmed 5% during the same period. The one- and five-year CDSs referencing PDVSA have inverted, indicating that the market is pricing in higher credit risk at the shorter end of the curve. (Latin American Herald Tribune,

'Zombie' Hovensa refinery could live again due to shale
The mothballed Hovensa refinery, once the largest in the Western hemisphere, could be the latest "zombie refinery" to come back to life, revived by the U.S. shale boom. Hess Corp and Venezuela's state-run Petroleos de Venezuela (PDVSA) have found an interested buyer for their 350,000 barrel per day (bpd) Hovensa refinery in the Virgin Islands, sources close to the deal told Reuters, confirming a local news report that said the plant would use U.S. crude. Refining at the plant has been halted since 2012, but its owners have been using it as a terminal. The Virgin Islands government has sought a buyer who will return the plant to its former status as an active refinery. (Reuters,;; El Universal,


Mitsubishi halts Venezuela plant due to imports snag -union
The assembly plant for Mitsubishi autos in Venezuela has halted operations due to a delay in the import of parts for assembly, a union official said. Like other private businesses here, carmakers have been complaining that the socialist government's complicated currency controls and bureaucratic processes are slowing imports of essential products. The assembler of Mitsubishi in Venezuela, MMC Automotriz, which belongs to Japan's Sojitz Corporation, began a month-long stoppage on Monday, says union official Jahaziel Bolivar. "We're waiting for materials to arrive," he said, adding that they were held up at a port in western Venezuela. (Reuters,

Economy & Finance

Venezuelan bonds slide after S&P lowered credit rating
Venezuela’s bonds sank to a 17-month low after Standard & Poor’s lowered the country’s credit rating, citing an economic slowdown and soaring inflation. The nation’s benchmark dollar bonds due 2027 slid 4.23 cents to 68.85 cents on the dollar today, the lowest since April 2013, after S&P cut Venezuela’s long-term rating by one step to CCC+, seven levels below investment grade and just one notch above war-torn Ukraine, and said the outlook is negative. “These guys are operating on fumes,” says Marco Santamaria, a money manager at Alliance Bernstein LP, which has reduced its holdings of Venezuelan bonds in recent months, “I think the situation’s quite grim.” S&P says Venezuela’s economy will contract 3.5% this year after growing 1% in 2013. Annual inflation accelerated to 63.4% in August, the fastest since 1997 and the highest among countries tracked by Bloomberg.  “The downgrade is based on continued economic deterioration, including rising inflation and falling external liquidity, and the declining likelihood that the government will implement timely corrective steps to staunch it,” S&P analyst Sebastian Briozzo said in the statement. “The government could come under greater strain to service its rising level of external debt.” S&P’s rating is in line with the Caa1 ranking from Moody’s Investors Service, which cut Venezuela’s grade in December. (Bloomberg,

Default naysayers undermined by S&P downgrade

Declining gold price increases Venezuela's reserve contraction
73% of Venezuelan international reserves are held in gold, which has dropped down to US$ 1216 an ounce, its lowest price since January 2nd. The Central Bank valued gold reserves at US$ 15.240 billion on August 7th, a 24% drop from December 2012. More in Spanish: (El Universal,

Government expenditures have risen 150% above 2013
According to reports presented to the National Assembly, in almost nine months the legislature has authorized an additional VEB 313.2 billion for extraordinary expenses, which is 150% more than approved during the same time frame in 2013.  More in Spanish: (El Universal,

FOREX allocation will contract during the last quarter of this year as public imports continue increasing, says economist Jesús Casique. He explains it is extremely difficult for the country’s productive sector to acquire dollars and at an overvalued exchange rate of VEB 11.70/US$1 (SICAD I), and demand will be infinite. (Veneconomy,


Maduro orders investigation into international media reporting virus in Aragua state
President Nicolás Maduro says media outlets CNN en español, NTN24, and the Miami Herald have launched an international campaign claiming "the state of Aragua had been hit by a virus that had killed thousands of Venezuelans in recent hours at Maracay (Central) Hospital, and that it was unknown whether Ebola was the virus involved."
Maduro claimed the reports intended to cause "panic or psychological terror." Fever cases notified to the Venezuelan Health Ministry have almost quadrupled from last year’s August. Only in the 32nd epidemiologic week 50,442 cases were reported, Venezuelan Society of Infect logy issued a press release in which they pointed out “an exponential increase in the number of cases of fever ailments in recent weeks have been unleashed without any concrete explanation as to the cause.” (El Universal,;; Bloomberg.; Veneconomy,;; El Universal,

Venezuelan cartoonist says fired for health satire
A Venezuelan cartoonist said she was fired from her newspaper for a caricature that used the late socialist leader Hugo Chavez's signature to satirize the state of healthcare. "I was informed of my sacking from El Universal over this caricature and my awkward attitude over graphic satire," veteran cartoonist Rayma Suprani said via Twitter. There was no confirmation from the newspaper. The cartoon, which ran on El Universal's editorial page on Wednesday, showed a normal-looking electrocardiogram under the heading "health" with another one merging Chavez's signature into a flat-lining heartbeat line under a title "health in Venezuela." (Reuters,; Veneconomy,

Government seeks to revoke actress María Conchita Alonso's nationality
Venezuela’s Internal Affairs, Justice and Peace Ministry began procedures to revoke the Venezuelan nationality of actress and singer María Conchita Alonso. Minister Miguel Rodríguez Torres appointed attorney Douglas Camero to file such a motion before the corresponding judicial bodies for alleged treason, claiming Alonso asked American President Barak Obama’s intervention in Venezuela. (Veneconomy,; El Universal,

Colombia's NTN24 reports Venezuela blocks its' web page
Colombian international news channel NTN24 reports that its' web page was blocked by Venezuela starting last Tuesday, with no prior notice. Johnattan Bilancieri, director for Digital Platforms at NTN24 says: "The level of sophistication of this form of censorship reflects the viciousness of the Venezuelan regime against freedom of expression and its resolve to restrict the right of Venezuelans to be informed". Colombia's Foreign Ministry says it "hopes the some regions of due to technical problems and not...censorship through technological blocking". More in Spanish: (El Universal,

Venezuelan and Colombian FMs to meet in the US next week on border closing
Colombia's Foreign Minister María Angela Holguín announced that she will meet in New York with her Venezuelan counterpart, Rafael Ramírez in the context of the United Nations (UN) General Assembly. They intend to evaluate the issue of border smuggling, and also to express "diplomatically our disagreement with the border closure". President Nicolás Maduro ordered on August 11 the closure of the Colombia-Venezuela border on a daily basis, including a military deployment, from 10 pm to 5 am. Colombia is the main market for Venezuelan food, basic goods, and fuel sold at the border in Venezuela. (El Universal,

Venezuelan protesters appear to discuss explosives in video
Two Venezuelan activists recently deported by Colombia have surfaced in a video that purportedly shows them discussing plans to stockpile weapons and launch attacks on government targets in apparent attempt to destabilize President Nicolas Maduro’s rule. The video, which aired on a TV program known for battering the government’s foes, apparently contains excerpts from a Skype video conference Lorent Saleh and Gabriel Valles had with an unidentified third person, whose voice is distorted. It’s not clear when the recording took place or how it was obtained. Its veracity could not be independently confirmed, but in it the two students, apparently speaking from inside Colombia, freely boast of all sorts of covert plans. (The Washington Post)

Venezuelan FM rejects recent US report on drugs
The Venezuelan government refuted "conclusively" a drug report released on Monday by US President Barack Obama, whereby Venezuela is accused of not fulfilling its international commitments to counter-narcotics efforts. Venezuela "rejects conclusively a report on drugs issued by the US government on Monday, August 15," the Venezuelan Foreign Office said in a press release where Washington is accused of "meddling" in the country internal affairs. (El Universal,

Milwaukee man gets 7 years for selling military parts to Venezuela
A former Milwaukee man will spend the next seven years in prison for conspiring to sell parts for a military fighter jet to the Venezuelan Air Force. Ronald Dobek was sentenced last week following his conviction in a trial by a jury which found him guilty on all three counts of the indictment that charged him with conspiring to violate U.S. export laws and unlawfully exporting F-16 parts to Venezuela in December 2007 and December 2008. According to the indictment, Dobek sent F-16 canopy seals to Venezuela, in violation of federal law. (Milwaukee Journal Sentinel,

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, September 16, 2014

September 16, 2014

International Trade

Cargo arrivals at Puerto Cabello:
  • Over 1,454 tons of chicken and beef from Argentina to state agency CASA.
  • Over 1,214 tons of frozen chicken from Brazil to CASA.
31 ships remain at bay awaiting dock assignment, 12 of them bearing food. More in Spanish: (Notitarde;

Venezuelan fuel sold at US$ 6.36 per liter at the Colombian border, around 100,000 BPD are being smuggled
Illicit gasoline trade near the Venezuela-Colombia border is under no one's control. Purchase and sale of gasoline is carried out in daylight in front of everybody. The difference between the subsidized gasoline prices in Venezuela and the price of gasoline in Colombia encourages resale and fuel smuggling. Border communities practically live out of gasoline and food illegal trade. Gasoline is sold at the border at as much as VEB 400-800 (US$ 63.6-127) per every 20 liters. Those engaged in the sale of fuel pay VEB 1.94 (US$ 0.30) per every 20 liters and earn VEB 40 (US$ 6.36) on average per liter. PDVSA President Eulogio del Pino estimates around 100,000 BPD are being smuggled out of Venezuela. (El Universal,; and more in Spanish: AVN;án-siendo-contrabandeados; El Mundo,; Ultimas Noticias,; El Universal,

Oil & Energy

Venezuela’s export barrel, down to lowest level in two years, averaged $90.19/bbl., according to official figures published by the Ministry of Mining and Oil this Friday. (Veneconomy,

Venezuelan oil sales to the US down to 747,000 bpd in June
Venezuelan exports of oil and byproducts to the United States plummeted 17% in June, according to figures disclosed by the US Department of Energy. The numbers showed Venezuelan state-run oil company PDVSA and its partners sold 747,000 barrels per day (bpd) in June, down from 899,000 bpd a year earlier. In May, the drop in oil exports was reported at 3.2%, totaling 772,000 bpd. (El Universal,

CHEVRON weighs the purchase of one of CITGO's refineries
The government has lowered the sale price of CITGO, a US-based subsidiary of Venezuelan oil giant Petróleos de Venezuela (PDVSA), as the nation is faced with repayment of significant debt obligations in the next few months. Sources of the Venezuelan Ministry of Petroleum and Mining told Argus Media that the government expects to receive some US$ 8-10 billion from the sale of the three CITGO-owned refineries located in the US. CITGO's assets have been valued at US$ 15 billion. CHEVRON is one of the international companies that have been evaluating CITGO's assets, and might be interested in buying the Corpus Christi refinery, with a capacity to process 165,000 bpd of crude oil. (El Universal,


TOYOTA renews production at Cumaná plant
TOYOTA has renewed production at its Cumaná plant in Eastern Venezuela, after negotiations were begun with striking workers. More in Spanish: (AVN;á-reanudó-operaciones; El Universal,

Irregular situations reported at the Orinoco Oil Belt by Wills Rangel, head of the Bolivarian Socialist Workers’ Federation (CBST, in Spanish). Rangel said they had detected different irregular situations in oil operations at the Orinoco Oil Belt, as well as in the operational system, shifts, labor structures of drills and violations to the collective bargaining agreement. (Veneconomy,

Economy & Finance

FEDECÁMARAS says current GDP equals that of 40 years ago
FEDECÁMARAS Vice President Francisco Martínez says Venezuela's current GDP has dropped down to its own levels 40 years ago (1974), due to "lack of productivity". FEDECÁMARAS is the nation's main private business organization. More in Spanish: (El Universal,

Imbalances in government accounts trigger inflation
In July the Central Bank of Venezuela (BCV) issued 41.9 million units of VEB 100 bills, an increase by 153% over the volume of bills issued during the same month in 2013. This is due to the loss of purchasing power of money in circulation, which in turn leads to a need for higher-value bills to be issued. Imbalances eating away at purchasing power - to the extent that the highest-denomination bill is not enough to pay for half a kilo of cheese - arise from asymmetry in government accounts. Efraín Velásquez, the president of the National Economic Council, explains that to cover expenditures that are soaring above oil revenue and tax collection the government creates more debt and seeks the aid of the Central Bank, which responds by creating more bolivars to fund the government. (El Universal,

Venezuela bond rout
Venezuelan bonds came under pressure this week as talk of a potential default spooked the markets, causing the sovereign's curve to plunge several points before buying interest returned. The country's 2024s fell about 3.5 points to 65.00-66.00 on Monday, marking a five-point drop in four days. It was a similar story for bonds issued by state-owned oil company PDVSA, whose 2024s touched a low of 52.50-53.00 on the same day. The rout was triggered by an article written by two Harvard academics - a former Venezuelan minister and an ex advisor for the opposition - questioning whether the government should service its international bonds when it is not honoring other commitments at home and has left citizens scrambling for basic goods. (Reuters,

Maduro threatens Harvard professor for default comment
President Nicolas Maduro instructed the attorney general and public prosecutor to take “actions” against Harvard Professor Ricardo Hausmann, saying the economist sought to destabilize the country by suggesting the government default on its debt. Maduro lashed out at Hausmann during a televised address last night, calling him a “financial hitman” and “outlaw” who forms part of a campaign “that has been initiated around the world against Venezuela .” He didn’t specify what actions he had asked the attorney general and prosecutor to take. (Bloomberg,


US Presidential Determination for major drug producing and transit countries includes Venezuela
Under the Foreign Relations Authorization Act (FRAA), the President is required each year to notify Congress of those countries he determines to be major illicit drug-producing countries or major drug-transit countries that “significantly affect the United States.” This year the President has identified twenty-two countries as major illicit drug-producing or drug-transit countries. Of these twenty-two, the President has determined that three countries, Bolivia, Burma, and Venezuela, “failed demonstrably” during the last twelve months to make sufficient or meaningful efforts to adhere to the obligations they have undertaken under international counternarcotics agreements. In accordance with provisions of the FRAA, the President has determined that support for programs to aid Burma and Venezuela remains vital to the national interests of the United States and therefore grant Burma and Venezuela National Interest Waivers. (State Department,

Capriles’s party believes anti-Chavistas can win 2015 parliamentary elections
Venezuela’s Primero Justicia (PJ) party of two-time presidential opponent Henrique Capriles has announced that for the first time in 15 years since the first triumph of the late president Hugo Chavez, the opposition could win parliamentary elections scheduled for October 2015. “It will be the first time in 15 years when we will have the opportunity to have the country’s most important institution in service of people, and not the government,” PJ Secretary General Tomas Guanipa said Sunday in reference to in the National Assembly (AN, parliament). The triumph of the opposition will allow “the changes which the country demands,” Guanipa said in statements to journalists. The party must win not less than two-thirds of the seats in the NA single chamber, he explained. (Latin American Herald Tribune,

TalCual: Where is the Government taking Venezuelans?
What does the Venezuelan government come up with when it deals with a serious issue such as that of general shortages of goods and services? Well, nothing but closing the borders and putting fingerprint scanners in markets, supermarkets and other food retailers. It is impossible stop a hemorrhage with plain Band-Aids. The logical thing to do would be to restructure the nation's debt, renegotiate it with the support of the IMF, and extend the payment deadlines. But the Government is never going to do that, so the fate of Venezuela is unknown. (Latin American Herald Tribune,

Venezuelan FM: We are heading for a revolutionary State
Rafael Ramírez, recently appointed Vice-President for Political Affairs and Minister of Foreign Affairs, has pledged all of his support to President Nicolás Maduro in making the necessary changes within the so-called "shakeup" including his departure as president of state-run oil holding PDVSA. "I am honored to take on the task of representing our country in the world," says the new Foreign Minister. "I see it (the switchover in jobs) as a natural way, for the oil industry has always been tied to our foreign policy," he added. (El Universal,

Best and brightest for export
Approximately 90% of those who have emigrated from Venezuela in the last 15 years are highly skilled professionals. More important, according to researcher Tomás Páez, they take away with them their expertise and ability to create jobs and wealth. (El Universal,

Egyptian president thanks Venezuela for its solidarity with Palestine
Egypt's president Abdel Fattah el-Sisi expressed Sunday his gratitude to the Venezuelan people and his counterpart Nicolas Maduro due to their humanist actions and solidarity with Palestine, through medicine and food. (AVN,

Aragua State Governor denies existence of a fast-acting deadly virus
A Venezuelan governor denied that eight people were killed by a deadly, fast-acting virus at a hospital in the north-central city of Maracay and accused the head of the local medical association of deliberately attempting to sow panic among the local population. “I must start by categorically denying the existence of some virus or bacteria on the premises of the Maracay Central Hospital that is putting the lives of patients at risk,” said Tarek el Aissami, governor of the north-central state of Aragua, whose capital is Maracay. El Aissami refuted reports by the head of Maracay’s medical association, Angel Sarmiento, who on Thursday said an unknown fatal illness at one of the state’s public hospitals was claiming the lives of its victims in as few as 72 hours. (Latin American Herald Tribune,

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.

Friday, September 12, 2014

September 12, 2014

International Trade

Venezuela extends night closure of Colombia border to stop smuggling
Venezuela says it will extend an overnight closure of its border with neighboring Colombia for another three months in a campaign to stop widespread fuel and food smuggling. The measures to stop traffic crossing between 10 p.m. and 5 a.m., and limit the movement of cargo vehicles during the day, were introduced in mid-August to combat the lucrative business in smuggling heavily subsidized Venezuelan products. "We are going to pursue and punish smugglers with double severity," President Nicolas Maduro said, announcing the three-month extension. "They are looting the republic." (Reuters,

MELIÁ planning five hotels in Venezuela
MELIÁ Hotel International will be managing five new hotels in Venezuela under the Innside By Melia brand in the coming years, the company announced. The hotels will be developed together with investor Franco Biocchi Zurita. “This framework agreement is a major landmark in the consolidation of the Innside brand as a market leader for urban hotels in cities with strong growth and development potential in Latin America, while also strengthening our strategic alliance with Franco Biocchi to develop extraordinary and successful hotel projects in Venezuela,” said Gabriel Escarrer, CEO of MELIÁ Hotels International. Melia said the first hotel would be the Innside Punto Fijo Hotel in the state of Falcon, which is slated to open in 2016. (Caribbean Journal,

Oil & Energy

PDVSA seeks bids for CITGO in potential US$ 10 billion deal
Venezuela's state-run oil company PDVSA is seeking preliminary offers for its U.S. unit CITGO Petroleum Corp by the end of September a deal that could fetch up to US$ 10 billion, according to two people familiar with the matter. Venezuela is selling CITGO in part due to a cash crunch stemming from repaying debts to Beijing with oil, rather than selling the crude to generate revenue, analysts say. The government denies a cash-flow problem exists. Within President Nicolas Maduro's government, the potential sale is controversial and seen as a privatization that would contradict years of socialist policies, including a nationalization of the oil industry in 2006 and 2007. Investment bank Lazard Ltd, which is running the sale process for CITGO on behalf of PDVSA, has sent offering materials to potential buyers, the people said in recent days, asking not to be named because the matter is not public. PDVSA also has a 50% stake in the Chalmette refinery in Louisiana alongside Exxon Mobil Corp, which owns the remainder. The Venezuelan oil company has tapped Deutsche Bank separately to explore a sale of its stake in that refinery. A sale, if it were to come to fruition, would be Venezuela's biggest pullback ever from the U.S. refining market. (Reuters,


Steel: Venezuela’s showcase city becomes symbol of economic meltdown
Long before Hugo Chávez launched his socialist revolution, government planners came to Ciudad Guayana on Venezuela’s eastern frontier, where the Orinoco and Caroni rivers converge, and envisioned an industrial workers’ paradise. A half-century later and 15 years after Chávez came to power, Ciudad Guayana’s factories are crippled, starved for investment and riled by labor disputes. The workers’ standoff with President Nicolás Maduro – Chávez’s successor and a former union leader himself – has turned Ciudad Guayana into a crucial battleground for the socialist government as it faces economic meltdown and political infighting. When it was founded, Ciudad Guayana and its state-run heavy industries were Venezuela’s best hope for breaking the country’s overwhelming dependence on crude oil exports. It had the raw materials on hand: iron ore, bauxite and gold; timber and farmland; and huge rivers to supply cheap hydropower for smelters and factories.  The steelmaking company at the core of the Ciudad Guayana project, SIDOR, produced a record 4.3m tons before it was nationalized by Chávez in 2008. Today, most of its furnaces sit cold, deprived of raw materials, new technology and reliable labor. The last contract for its 14,000 steelworkers expired four years ago. National Assembly president Diosdado Cabello – Venezuela’s second-most-powerful figure after Maduro – has denounced union adversaries at SIDOR as “mafias” in the service of US “imperialism”, offending many of the workers who consider themselves Chávez loyalists and true patriots. In private, government officials say SIDOR will need to produce 250,000 ton of steel a month just to break even. Its current output is closer to 70,000 tons. Closing the gap will require hundreds of millions in new investments. One official close to the SIDOR negotiations who was not authorized to speak publicly said it makes little sense for Venezuela to sink more money into inefficient steelmaking. “We could let SIDOR die and import all the steel we need,” he said. “And there would still be enough to pay the workers’ salaries.” (The Guardian,

Detergent plant is paralyzed for lack of supplies
A powdered detergent plant owned by Alimentos POLAR has been paralyzed for the past 15 days for lack of supplies. Some 400 workers at the plant were on protest to ask the government to release a sodium sulfate load that has been held up at Puerto Cabello since August 22nd. More in Spanish: (El Universal,

Toyota’s plant in Cumaná remains closed by workers one week after they began a conflict with the assembler’s board of directors, due to differences over salary raises and the elimination of quota assignments to workers to purchase cars at cost price. (Veneconomy,

Economy & Finance

Maduro says Venezuela can pay debt, blasts default fears, orders legal action against economists
President Nicolas Maduro said Venezuela could meet all its obligations to bondholders, as he sought to quell market fears that the Socialist-run country may opt to default when US$ 5 billion of its foreign debt falls due for repayment next month. Fears of a possible default heightened, with bond yields spiking, after the publication of an article by a former planning minister and a pro-opposition economist that suggested an orderly default could ultimately help Venezuela's slumping economy. "We're prepared to meet our international obligations in their entirety," Maduro declared on Wednesday night. "Down to the last dollar." He said Harvard economist Ricardo Hausmann - who recently wrote the government should prioritize its debt to the Venezuelan people above international bond holders - is a "bandit" and added: "I have ordered the Solicitor and spoken to the Prosecutor so that we can start action against you..key advisor to all those groups that want to harm Venezuela...and work as financial hit men for those forces at the IMF and oligarchies" (Reuters,; Bloomberg,; and Noticiero Digital:

Specter of default looms over Venezuela despite oil reserves
Venezuela is struggling to meet its international bond payments, raising the specter of an Argentine-style default despite the country’s massive oil reserves. Yields on Venezuelan bonds, the third-largest constituent of JPMorgan’s global emerging bond index, have risen since Caracas put CITGO, the country’s US refining operation, up for sale and scrambled to reassure investors it can refinance US$ 7 billion coming due this year on its more than US$ 80 billion of sovereign debt. A Venezuelan default could be widely felt. The country accounts for 7% of emerging market benchmarks, meaning a default could force redemptions of other investments by passive index-tracking funds. As Morgan Stanley wrote in a research report late last year: “Venezuela may affect your . . . portfolio, even if you don’t own it.” Until recently, bond investors drew comfort from Venezuela’s US$ 85 billion annual oil exports. But confidence was shaken this week as yields on short-dated bonds issued by PDVSA, the state owned oil company, shot above 25%. Venezuelan credit default swaps also rose to levels comparable to Argentina. “The [Venezuelan] government is clearly exploring any and all options to generate additional cash in order to stay afloat, with an eye on short term fixes,” comments Risa Grais-Targow, Latin America analyst at Eurasia, the risk consultancy. Venezuela’s public finances certainly look tight. Despite US$ 21 billion of reserves, less than US$ 3 billion of these are liquid. The government also has about US$ 9 billion in obscure off-budget funds, plus eventual proceeds from CITGO’s sale. “The difference between Argentina defaulting and Venezuela is that Argentina had nothing to lose,” says Luis Vicente León OF DATANALISIS, a local pollster. “By contrast, Venezuela has substantial foreign assets under risk – from CITGO, to oil shipments, to PDVSA receivables . . . That makes default risk devastating.” On Wednesday, BNP Paribas recommended buying Venezuelan bonds. Other investment banks also said Venezuela had enough funds to meet import needs and short-term debt payments, although to continue doing so it needed to embrace politically costly reforms. “I don’t think Venezuela is going to default, although the probability has greatly increased,” said Russ Dallen of Caracas Capital Markets. “It is a case of the ‘devil you know versus the devil you don’t’. And the problem is we don’t know.” (Financial Times, 

Venezuelan bonds recover slightly
Venezuelan bonds value recovered slightly following President Nicolás Maduro's remarks stating that the country is capable of honoring its international debts which slightly exceed US$ 5 billion in bonds maturing next month.
Venezuelan bonds plummeted last week amid investors' concerns about short supply of dollars in the country, which has hit its economic variables and worsened shortages of staples. However, President Maduro said on Wednesday that his administration was prepared to meet its foreign liabilities. "Despite greater risk of non-payment to domestic sectors, namely airlines, automobile, pharmaceutical, and food, (Venezuelan) authorities will continue to honor their financial debt and international obligations," says Diego Moya-Ocampos, analyst at IHS, referring to the multi-million outstanding debt caused by delays in foreign currency supply. (El Universal,

The Central Bank (BCV) corrected the annualized inflation rate on Wednesday, a day after it had presented the figures, using the new “methodology.” Now, inflation in June was 4.4%, 4.1% in July and 3.9% in August for an annualized rate of 62.2% and not 60.5% as initially reported between June 2013 and June 2014. (Veneconomy,; El Universal,;;; Bloomberg,

Retailers report sales plunged 52% in the second quarter
According to a poll conducted by the National Trade and Services Council (CONSECOMERCIO) up to 52.2% of retailers report sales plummeted in the second quarter, "Rather than improve, the numbers have slipped," says CONSECOMERCIO's president, Mauricio Tancredi. He says high inflation, insecurity, low stocks, and price regulations are the main obstacles facing the commercial sector. (El Universal,

Food inflation climbs 210% in 24 months in Venezuela
The government has implemented a price regulation policy for many products, managed a large network of agro-industrial companies, and held thousands of hectares in the agricultural sectors. However, their results are below the expectations. According to figures disclosed by the Central Bank (BCV), the average price of food and non-alcoholic beverages skyrocketed 210% in August 2012 - August 2014. (El Universal,

DATÁNALISIS: 84% describe the current economic situation as negative
DATANALISIS Director Luis Vicente Leon reports that 84% of all Venezuelans consider the current economic situation is negative and 53% doubt this government is able to solve economic problems. More in Spanish: (El Mundo,


Maduro claims his regime is set to win 2015 legislative elections
President Nicolás Maduro claims his United Socialist Party (PSUV) is getting ready for "a great victory" in parliamentary elections set for October 2015 to teach those have "sabotaged the economy" a "lesson". He added that "the shakeup is only beginning... we are going after the remainder of the bourgeois state". More in Spanish: (Infolatam)

Opposition leader Leopoldo Lopez on trial September 22
One of Venezuela's main opposition leaders, Leopoldo Lopez, again appeared in court in Caracas and the next hearing has been set for September 22nd. He is accused of inciting violence during anti-government demonstrations earlier this year and has been in custody since 18 February, when he handed himself in to the authorities. He denies all the charges. Dozens of people gathered outside the courthouse to demand his release. The prosecution was expected to present more evidence against him. Lopez, who is the head of the Popular Will Party, has accused the government of President Nicolas Maduro of jailing Venezuelans for seeking democratic change. Other opposition activists detained during the protests earlier this year have also appeared in court in Caracas. The authorities accuse Lopez of inciting violence and encouraging demonstrators to vandalize government buildings. Only two of the four witnesses summoned for this fourth hearing showed up and according to López’ defense they “irrefutably” determined there was no arson at the Attorney General’s Office building last February 12 which is one of the charges against Voluntad Popular leader and the four students, Marco Coello, Christian Holdack, Ángel González and Demian Martin. (BBC,; Veneconomy,; El Universal,; Latin American Herald Tribune,

US is concerned over the "lack of due process" for opposition leaders here
US State Department spokesperson Marie Harf referred to opposition leaders imprisoned after protests began in February, including Leopoldo López, and mayors Enzo Scarano and Daniel Ceballos, saying: "The US is deeply concerned by the lack of due process and guarantees in procedures against those detained over protests in Venezuela". More in Spanish: (Diario 2001,

BLOOMBERG View: Colombia does Venezuela's dirty work
How to parse Colombia's decision to hand over two young Venezuelan fugitive dissidents to the Bolivarian thought police? One theory: To seal a peace deal with the Revolutionary Armed Forces of Colombia (FARC), Juan Manuel Santos, Colombia's president, is again pandering to the autocrat next door. It's no secret that Venezuela has long been in the corner of the Colombian insurgents, who have been waging terror and mayhem against Colombia’s government for the last half-century, often with a wink and a nod from their Venezuelan patrons. That toxic bond had estranged Colombia and Venezuela for most of the previous decade, with the hawkish Alvaro Uribe pitted against the chief Andean tub-thumper, Hugo Chavez. Since Santos was first elected in 2010, he has gone out of his way to end the Andean Cold War, infuriating Uribe, many Colombians, and the entire Venezuelan opposition besides. Exhibit A: his 2011 extradition of suspected Venezuelan drug-trafficker, Walid Makled, then in a Colombian jail. Not to the U.S., where Makled was wanted for a farrago of felonies, from running cocaine to abetting the FARC, but to Venezuela, where his trial has yet to be concluded. Two years on, peace is still elusive, but Santos has kept courting the Chavistas. Gabriel Valles, aged 27, and Lorent Saleh, 26, are members of an organization protesting the government of Venezuelan President Nicolas Maduro, but they aren't exactly hardened criminals, much less game changers in the peace parley. Both had slipped over the border to evade the Venezuelan courts, where they face charges of troublemaking during antigovernment street protests, including "inciting public disorder," spreading "false information," and a Bolivarian gem called "public uncertainty," which is Chavista-speak for anything their men in red want it to be. Since they were first hauled into Venezuelan court, they'd been under orders to report every few weeks to the police and were barred from traveling abroad. So effectively, their offense was skipping probation. Venezuela hadn't even issued an extradition request when Colombia handed the two over to Venezuelan intelligence last week. More tellingly, perhaps, Saleh and Valles were reported to be close to former president Uribe, Santos's archenemy, and had criticized the Santos administration in speeches, adding a note of potential political payback to the surrender. (Bloomberg,

Brownfield slams Venezuela's lack of cooperation on narcotics
US Assistant Secretary of State of the Bureau of International Narcotics and Law Enforcement Affairs William Brownfield says drug traffic through Venezuela has increased considerable due to lack of cooperation with the US and other countries in the Hemisphere. "When I arrived in Venezuela as Ambassador in 2004 we had some sort of cooperation....when I left almost all cooperation had ended. This creates an opportunity for drug traffic and creates the problem we now have". More in Spanish: (El Universal,

Venezuela gains support to sit on the UN Security Council
According to Amín Cruz, a Dominican Republic diplomat who chaired a closed door meeting of Latin America and Caribbean representatives at the UN on July 23rd, the decision was taken there to support Venezuela's candidacy to a term on the UN Security Council. The last time Venezuela attempted to gain a seat on the Council - in 2006 - it was torpedoed by the US, which has not spoken on the issue at this time. More in Spanish: (El Universal,

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, September 9, 2014

September 09, 2014

International Trade

FOREX agency causes delay in imports
In 2013, the government created the Venezuelan Foreign Trade Corporation (CORPOVEX) to conduct imports and supply of goods to the public-private sectors. During 2014, the corporation has been the intermediary for different sectors requiring imports, yet the process has been slow. But business considers CORPOVEX has delayed imports as foreign suppliers have not been paid on time. The official figures show that out of the US$ 4.3 billion approved by the Ancillary Foreign Currency Administration System (SICAD 1) so far this year, only US$ 1.2 billion (28%) has gone through CORPOVEX. (El Universal,

Import decline indicates recession
The Central Bank of Venezuela (BCV) has failed to publish the latest GDP figures; but there are growing signs that the country has fallen into recession. In its latest report on Venezuela, Bank of America says the decline in imports in the first semester resembles that recorded in times of severe economic adjustments in Venezuela. The National Statistics Institute (INE) reports imports were US$ 17.3 billion in the first semester this year, a 22% drop compared to the same period in 2013. Francisco Rodríguez, an analyst at Bank of America, explains that if imports keep their downward trend in 2014, they will decline by 35.5% compared to 2012. This would translate into the fourth biggest downturn in imports here since 1946. (El Universal,

Oil & Energy

Andres Oppenheimer: Obama’s plan to counter Venezuela’s oil clout 
Venezuela’s oil industry is in a free fall and Venezuelan oil-dependent Caribbean countries may soon find themselves in a major crisis, while U.S. energy production is booming, and is seeing an opportunity to come to the rescue of energy-strapped Caribbean Basin countries. Vice President Joe Biden visited Trinidad and Tobago and met with Caribbean leaders to discuss greater energy cooperation. In June, Biden visited the Dominican Republic, and announced that the United States would launch a “Caribbean Energy Security Initiative” to help the region become more self-sufficient in energy. The Sept. 3 U.S.-Grenada energy cooperation provides greater details about the plan. U.S. officials describe it as a “pilot program” to help Caribbean Basin countries change their energy laws and improve their infrastructure to encourage private and international financial institutions to invest in wind, solar, geo-thermal, natural gas and other energy sources. A recent Atlantic Council report entitled “Uncertain Energy: the Caribbean’s gamble with Venezuela” warns that the Obama administration’s evolving plans to help Caribbean Basin countries develop their own renewable energy industries is a good long-term strategy, but won’t help much in the near term. With relatively little money — as little as US$ 30 million per country, according to a recent Inter-American Development Bank study — Washington could help build re-gasification technology and off-loading facilities in the Caribbean. That’s very little money, would help Caribbean Basin countries reduce their dependence from Venezuela, and would do more than a thousand speeches to improve U.S.-Caribbean Basin ties. (The Miami Herald,

PDVSA, ANCAP agree to drill oil
Uruguayan state-run oil company ANCAP has signed US$ 50 million oil drilling agreement with Petróleos de Venezuela (PDVSA). The deal will help resume drilling in an area located at 200 kilometers of the Orinoco Oil Belt, in partnership with an unspecified private company. (El Universal,


Mitsubishi halts Venezuela plant due to imports snag
Japanese automaker Mitsubishi's subsidiary in Venezuela has halted operations due to a delay in the import of parts for assembly. Mitsubishi's local unit, MMC Automotriz, began a month-long stoppage on Monday, says union official Jahaziel Bolivar. "We're waiting for materials to arrive," he said, adding that they were held up at a port in western Venezuela. (REUTERS,

Striking TOYOTA union has paralyzed production
Striking union workers at the TOYOTA production plant say they will continue to keep operations at a standstill until an agreement is reached with the company. More in Spanish: (El Universal,; El Mundo,

SIDOR workers have resumed their strike in rejection of a collective bargaining agreement signed by some with the government, without the consent of union leadership. Union (Sutiss) Claims Secretary Leonardo Azócar conditioned SIDOR’s operations to resuming the discussion on the labor agreement. (Veneconomy,; and more in Spanish: (El Universal,

State owned companies operating in the red for 5 years
Official reports show state controlled industries in steel, aluminum, cement, food and the automotive industry have been running in the red for up to 5 years due to financial limitations, lack of supplies, transportation and equipment deficiencies, and lack of training - with lowered operational capacity and negative results. More in Spanish: (El Universal,

Economy & Finance

Venezuela bonds are collapsing
Venezuela bond prices are collapsing as oil prices weaken, investors feel the government has postponed steps to stabilize the economy, and a meager contribution into the newly created Reserve Fund intensifies doubts on the ability to meet high debt service payments due in October. This means the nation must pay high interest rates on international financing at the same time it has cut back on FOREX supply to the private sector at an artificially low rate of VEB 6.30/US$1. The Global 27 dropped 3.5 points to 68.8% and has fallen 8.5 points over the past week; the PDVSA 22 fell 5.5 points and has sharply dropped 10.5 points in the last 6 days, to 82.5% of its value. More in Spanish: (El Universal,; Ultimas Noticias,

A default is suggested by Harvard economists
As Venezuela racks up billions of dollars of arrears with importers that are fueling the worst shortages on record, one of the nation’s top economists is questioning the government’s decision to keep servicing its foreign bonds. A “massive default on the country’s import chain” is part of what has allowed the nation to keep paying its foreign bonds, says Ricardo Hausmann, a former Venezuelan planning minister who is now director of the Center for International Development at Harvard University in Cambridge, Massachusetts. “I find the moral choice odd. Normally governments declare that they have an inability to pay way before this point.” (Bloomberg, FULL ARTICLE REPRINTED BELOW

Pro government legislator says economic actions have not been ruled out
The president of the Parliament's Finance Committee, Ricardo Sanguino, says the economic steps that former Economy Vice-president Rafael Ramírez had been working on have not been ruled out but postponed. The steps included FOREX conversion, flexibility on price regulations, and a revision of gasoline prices. More economic sectors will be included into the Ancillary Foreign Currency Administration System (SICAD 1), says the lawmaker. (El Universal,

Extreme poverty doubles in six Venezuelan states
The Venezuelan National Statistics Institute (INE) reveals that the poverty rate in 2013 did not rise only in the Capital District; in the rest of the country, the problem got worse. The poverty rate measured by income shows that rising prices deteriorate Venezuelan quality of life. Inflation at the end of 2012 was 20.2%, and 25.4% of the population could not afford buying the basic food basket. One year later, inflation jumped to 56.2% and poverty reached 32.1% of Venezuelans. Official data also shows increasing extreme poverty. In one year-term, the percentage of people unable to buy the food basket went from 7.1% to 9.8%. (El Universal,


Should Venezuela default?
Will Venezuela default on its foreign bonds? Markets fear that it might. That is why Venezuelan bonds pay over 11 percentage points more than US Treasuries, which is 12 times more than Mexico, four times more than Nigeria, and double what Bolivia pays. Last May, when Venezuela made a US$ 5 billion private placement of ten-year bonds with a 6% coupon, it effectively had to give a 40% discount, leaving it with barely US$ 3 billion. The extra US$ 2 billion that it will have to pay in ten years is the compensation that investors demand for the likelihood of default, in excess of the already hefty coupon. Venezuela’s government needs to pay US$ 5.2 billion in the first days of October. Will it? Does it have the cash on hand? Will it raise the money by hurriedly selling CITGO, now wholly owned by Venezuela’s state oil company, PDVSA?

A different question is whether Venezuela should pay. Granted, what governments should do and what they will do are not always independent questions, because people often do what they should. But “should” questions involve some kind of moral judgment that is not central to “will” questions, which makes them more complex. One point of view holds that if you can make good on your commitments, then that is what you should do. That is what most parents teach their children. But the moral calculus becomes a bit more intricate when you cannot make good on all of your commitments and have to decide which to honor and which to avoid.

To date, under former President Hugo Chávez and his successor, Nicolás Maduro, Venezuela has opted to service its foreign bonds, many of which are held by well-connected wealthy Venezuelans. Yordano, a popular Venezuelan singer, probably would have a different set of priorities. He was diagnosed with cancer earlier this year and had to launch a social-media campaign to locate the drugs that his treatment required. Severe shortages of life-saving drugs in Venezuela are the result of the government’s default on a US$ 3.5 billion bill for pharmaceutical imports.

A similar situation prevails throughout the rest of the economy. Payment arrears on food imports amount to US$ 2.4 billion, leading to a substantial shortage of staple goods. In the automobile sector, the default exceeds US$ 3 billion, leading to a collapse in transport services as a result of a lack of spare parts. Airline companies are owed US$ 3.7 billion, causing many to suspend activities and overall service to fall by half. In Venezuela, importers must wait six months after goods have cleared customs to buy previously authorized dollars. But the government has opted to default on these obligations, too, leaving importers with a lot of useless local currency.

For a while, credit from foreign suppliers and headquarters made up for the lack of access to foreign currency; but, given mounting arrears and massive devaluations, credit has dried up. The list of defaults goes on and on. Venezuela has defaulted on PDVSA’s suppliers, contractors, and joint-venture partners, causing oil exports to fall by 45% relative to 1997 and production to amount to about half what the 2005 plan had projected for 2012. In addition, Venezuela’s Central Bank has defaulted on its obligation to maintain price stability by nearly quadrupling the money supply in 24 months, which has resulted in a 90% decline in bolivar value on the black market and the world’s highest inflation rate. To add insult to injury, since May the Central Bank has defaulted on its obligation to publish inflation and other statistics. Venezuela functions with four exchange rates, with the difference between the strongest and the weakest being a factor of 13.

Unsurprisingly, currency arbitrage has propelled Venezuela to the top ranks of global corruption indicators. All of this chaos is the consequence of a massive fiscal deficit that is being financed by out-of-control money creation, financial repression, and mounting defaults – despite a budget windfall from $100-a-barrel oil. Instead of fixing the problem, Maduro’s government has decided to complement ineffective exchange and price controls with measures like closing borders to stop smuggling and fingerprinting shoppers to prevent “hoarding.” This constitutes a default on Venezuelans’ most basic freedoms, which Bolivia, Ecuador, and Nicaragua – three ideologically kindred countries that have a single exchange rate and single-digit inflation – have managed to preserve.

So, should Venezuela default on its foreign bonds? If the authorities adopted common-sense policies and sought support from the International Monetary Fund and other multilateral lenders, as most troubled countries tend to do, they would rightly be told to default on the country’s debts. That way, the burden of adjustment would be shared with other creditors, as has occurred in Greece, and the economy would gain time to recover, particularly as investments in the world’s largest oil reserves began to bear fruit. Bondholders would be wise to exchange their current bonds for longer-dated instruments that would benefit from the upturn.

None of this will happen under Maduro’s government, which lacks the capacity, political capital, and will to move in this direction. But the fact that his administration has chosen to default on 30 million Venezuelans, rather than on Wall Street, is not a sign of its moral rectitude. It is a signal of its moral bankruptcy. (Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Professor of the Practice of Economic Development at Harvard University, where he is also Director of the Center for International Development; Miguel Angel Santos is a senior research fellow at Harvard’s Center for International Development and Associate Professor at Venezuela's leading business school IESA.)

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.