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, January 19, 2017

January 19, 2017


Oil & Energy

PDVSA claims operations at Venezuela oil terminal 'recovered' after oil spill
Shipping operations at one of three docks of Venezuela's main crude exporting port have "recovered" after a "minor" oil spill occurred over the weekend, state oil company PDVSA said on Wednesday, without saying how big the spill was. A spill occurred while loading a vessel bound for India at Jose port's eastern dock and also affected other tankers close to the very large crude carrier (VLCC) Nave Quasar, chartered by India's Reliance Industries, which is among PDVSA's main customers. It receives crude from the Orinoco Belt, and in some cases pays for that oil by shipping refined products to Venezuela. (Reuters: http://www.reuters.com/article/us-venezuela-oil-spill-idUSKBN1521W5)

 

Economy & Finance

Maduro announces 20 new exchange houses to open on border, failure predicted
President Nicolas Maduro has announced that 20 new government-backed foreign exchange houses will open on the border between Colombia and Venezuela, in order to try to bring down the bolivar’s parity on the parallel market. Most observers, including the president of the country’s principal business organization, FEDECÁMARAS, predict the move will fail to bring curb Venezuela’s currency devaluation as it is not an in-depth solution to the problem, nor the solution business hopes for. FEDECAMARAS President Francisco Martínez says: “Exchange houses should exist throughout the nation and should exist to trade any currency in the world. You cannot open some exchange houses and say you have found the solution to all problems”. He adds that the Maduro regime is responsible for current inflation. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/economia/2017/enero/18/182453=abriran-20-nuevas-casas-de-cambio-en-la-frontera-en-los-proximos-dias; http://www.noticierovenevision.net/economia/2017/enero/17/182317=fedecamaras-cree-que-la-apertura-de-casas-de-cambio-no-solucionara-problematica-de-las-divisas)

Hyperinflation renders Venezuela a nation of broke millionaires
Venezuela may now be the country in the world with the most millionaires. There is, however, a caveat. That money isn’t worth much anywhere else in the world. Amid rampant inflation, widespread shortages of everything from toilet paper to medicine and a failing economy, the Venezuelan government recently introduced three new bank notes into the market ranging from 500 to 20,000 bolivars. But while somebody in Caracas can now carry 1 million bolivars in his billfold, in terms of U.S. currency those 50 bank notes are only worth only about US$ 300 on the country’s black market and one bill is valued at less than US$ 6. “That won’t get you very far,” Chris Sabatini, a professor at Columbia University’s School of International and Public Affairs, told FoxNews.com. “It’s like the government has almost given up. They are just adding zeros to the end of these bills and they don’t mean anything … There’s going to come a time when they’re going to run out of space on the bill for all those zeros There is clearly no strategy in Venezuela but to surrender,” Sabatini said. Despite government assertions that the new currency is meant to combat smuggling, many Venezuelans appear are skeptical. Since global oil prices plunged in 2015, Venezuela hasn’t had the funds to import basic goods such as food and medicine, creating acute shortages and stirring anger toward Maduro. Adding to the overall misery are a drastic rise in violent crime, especially in the capital city of Caracas, rolling blackouts and widespread and often bloody protests against the government. There have been casualties and deaths on both sides of the protests and accusations from the international community of human rights abuses and political oppression. “The pressure that Venezuelans face every day is tremendous because of all the uncertainty,” Sonia Schott, the former Washington, D.C., correspondent for Venezuelan news network Globovisión, told FoxNews.com. “Nobody knows what will happen the next day.” (Fox News: http://www.foxnews.com/world/2017/01/18/hyperinflation-renders-venezuela-nation-broke-millionaires.html)

 

Politics and International Affairs

Maduro calls for "mediation" in conflict with Parliament, but again attacks legislature
President Nicolas Maduro says “I want the dialogue to process this conflict in which the National Assembly has entered, as it has been sequestered. We need to get it back. Venezuela needs a new AN” He said he would ask the former presidents who act as mediators in government-opposition talks “to deal with the situation of the Parliament (...) for the conflicts and conspiracies to cease.” Maduro insisted that he maintains the call to the opposition to take part in the government-opposition talks. “We offer our hands to all sectors. We are still reaching out to these sectors that are why we ratify the dialogue, which is why the former presidents are here.” At the same time, he claimed the opposition-led National Assembly has “self-destructed” and called for a new legislature. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelas-maduro-ask-for-meodiation-conflicts-with-parliament_635907); and more in Spanish: Noticiero Venevision: http://www.noticierovenevision.net/politica/2017/enero/18/182504=maduro-planteo-la-necesidad-de-buscar-espacios-de-entendimiento-en-la-mesa-de-dialogo; Infolatam: http://www.infolatam.com/2017/01/18/maduro-espera-lograr-nuevo-parlamento-actual-esta-destruido/


Maduro reneges on pledge to free opponent Lopez
President Nicolas Maduro is backing out of a pledge to free opponent Leopoldo Lopez now that President Barack Obama has commuted the sentence of a Puerto Rican independence activist whose release the embattled socialist has long promoted. In 2015, Maduro said he would release Lopez the day that Obama freed Oscar Lopez Rivera. When asked Wednesday at a press conference about that pledge, Maduro said he'd been joking. He also went one step further and accused Lopez of being a CIA spy not worthy of being compared to Lopez Rivera, who was serving out a long sentence for his role in a violent struggle for the U.S. island territory's independence. Lopez is serving a 14-year sentence for allegedly inciting violence against the government during a wave of anti-government unrest. (Associated Press: https://www.yahoo.com/news/venezuela-president-reneges-pledge-free-opponent-lopez-201247279.html)


Opposition to march on January 23rd, demanding elections
Julio Borges, Speaker of the National Assembly, has announced that the opposition will march toward all Nation Elections Board headquarters, in Caracas and at all state capitals, demanding a schedule for elections this year. January 23rd marks the anniversary of the overthrow of dictator General Marcos Pérez Jiménez in 1958. Borges says: “January 23rd is the best date on which we can show the Venezuelan people how it was done 60 years ago, a united Venezuelan people, a determined Venezuelan people, a fearless Venezuelan people that are fighting for their freedom will march to the National Elections Board this January 23rd and show that we will united achieve change in this country.” Former presidential candidate and Miranda state governor Henrique Capriles, along with the Executive Secretary of the Democratic unity opposition coalition, Jesús Torrealba, and all major opposition political groups have also made the call to march next Monday. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/politica/2017/enero/18/182452=julio-borges-expreso-que-oposicion-marchara-al-cne-el-23-e-para-exigir-cronogramas-para-elecciones)

 January 23rd: Will Venezuela become Trump’s first big foreign crisis?

The embattled government of Nicolas Maduro called for a counterdemonstration on January 23rd against an opposition march calling for elections, scheduled on the 59th anniversary of the toppling of the last military dictatorship in Venezuela -- setting the stage for another big street confrontation in the oil rich country only three days after Donald Trump’s Inauguration. In calling for the “chavista” demonstration, pro-Maduro lawmaker Captain Diosdado Cabello said the march would be both “happy” and “combative” while also ruling out general elections, a recall against the President or even the possible end of the Bolivarian Revolution started by Hugo Chavez in 1998.
There will be no general elections here. What there will be here is revolution and more revolution,” Cabello said Tuesday during a press conference. “On January 23rd we will be in the streets, with certainty the revolutionary forces will be there, once again defending the revolution”. Cabello said the “chavista” march would include the opposition-dominated National Assembly in its path, making a street confrontation almost unavoidable. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2429305&CategoryId=10717)

 

OAS meets Venezuelan opposition legislators

The Organization of American States (OAS) mission in Caracas met with Venezuelan opposition congressmen. The deputies who marched to their headquarters to ask that the OAS demand of the Venezuelan government that it respect the right of Venezuelans to vote, and to publish in the upcoming days the election schedule of 2017.
We reaffirm that the only solution in Venezuela is to vote. The best dialogue is 20 million Venezuelans talking through vote,” said National Assembly Speaker Julio Borges at OAS headquarters here.
(El Universal, http://www.eluniversal.com/noticias/daily-news/oas-welcomes-venezuelan-opposition-deputies_635848)

 

Congressman Luis Florido says pressure will be intensified

Deputy Luis Florido has been ratified as chair of the Foreign Policy, Sovereignty and Integration Committee of the Venezuelan National Assembly. He announced that they are ready to begin and consolidate a process of world parliamentary union to “press the Venezuelan Government and rescue democracy.” “We will intensify the national and international pressure for the rescue of democracy; we will continue acting firmly in this historical fight of the Venezuelan people. Parliamentary diplomacy around the world will deepen with a clear strategy in defense of Venezuelans aiming to block the dictatorship of Nicolás Maduro,” says Florido. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelan-deputy-luis-florido-will-intensify-pressure_635912)

 

Machado: The remarkable dignity of Venezuela's women

It was barely mentioned in the recent U.S. presidential elections, but Venezuela is suffering the consequences of being under the boot of one of the most atrocious and enduring Socialist dictatorships of our time. In fact, at the end of the first U.S. presidential debates, Venezuela received a minute of attention when Hillary Clinton mentioned a former Venezuelan beauty queen to spite Donald Trump, the former owner of the Miss Universe Organization. Interestingly, Venezuela leads in winning Miss World contests and is second in Miss Universe pageants.  And while Venezuelan women are particularly beautiful, they have also proven to be extremely valiant and resilient. Mothers across the country are struggling and forfeiting their own well-being to feed their babies. Today, as the health system collapses in Venezuela, giving birth to a child can frequently become a ruthless calamity. Hospitals, destitute of 90% of the medicines they routinely use, are congested and have no choice but to stop relying on modern emergency procedures. Many surgery rooms are dysfunctional and many hospitals are literally struggling not just to save lives but to stay open. Clean water and electrical shortages are frequent, not to mention the scarcity of basic detergents to clean hallways and hospital rooms. Mothers have had to give birth on the steps of hospitals due to overcrowding. Diseases, which were once kept in check – and in some cases, had vanished in Venezuela, such as Malaria and Diphtheria – are reappearing at alarming rates due to the lack of preventive measures threatening both mothers and their newborns in hospitals and throughout the national health system. Premature births and miscarriages, which are expected to diminish as countries develop, are increasing exponentially in Venezuela, often due to maternal malnutrition during pregnancy. The serious economic crisis, the hardships and expenses of finding traditional contraceptive methods are forcing many desperate women in Venezuela to contemplate being forced into sterilization. Some of them are doing this at an early age, relinquishing their hopes of becoming mothers. Over the past few weeks, there have been many reports about Venezuelan women bartering anything, including selling their hair at the Colombian border in return for basic supplies. Many Venezuelan women have resorted to abandoning their children because they feel they have no other choice. In the best scenarios, they might desert their children leaving them with a relative, or a neighbor.  There is also the option of state agencies and charities, which have seen a surge in the number of parents begging for help.  Yet in some extreme cases, mothers simply abandon their children on the streets of our towns and cities. Last month a baby boy –a few months’ old– was found inside a paper bag in a relatively affluent area of Caracas.  A few weeks later a malnourished one-year-old baby was found abandoned in a cardboard box in the eastern city of Ciudad Guayana. Moreover, more and more Venezuelan women are resorting to prostitution. A recent report revealed that the border city of Cúcuta has become a center for prostitution. Teenage girls can make more money in a weekend in Cúcuta from prostitution than they can in a year on the minimum wage in Venezuela. Many lactating mothers are malnourished because they cannot find basic foods, or pay the black market prices, not to mention things like essential vaccines. One frequently sees long lines of mothers with their screaming babies in their arms waiting in front of a supermarket or a pharmacy. Sometimes they spend four or five hours in a queue. They are waiting for milk or diapers. The moment the word is spread (and it spreads like wildfire) that a lorry-load of diapers or milk has been seen arriving at a given address, there is mayhem.  By the time you arrive at the address, if supplies have lasted, the chances are you can’t even afford to buy your quota of what you require at government controlled prices.  For Venezuelan women, it is permanent crisis mode. Yet the women of Venezuela are courageous and resilient. You will find them at every demonstration, at every protest.  Women of all ages standing bravely, often in the line of fire, for their freedom; for their dignity. Article by María Corina Machado, is one of the current leaders of the movement for democracy in Venezuela, former member of the National Assembly of Venezuela and leader of Vente Venezuela. (Fox News: http://www.foxnews.com/opinion/2017/01/18/remarkable-dignity-venezuelas-women.html)

 

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, December 29, 2016

December 29, 2016


International Trade

Food and construction material have arrived at El Guamache port from Jamaica

503 tons of food in 24 containers bearing rice, pasta, oil, lard, wheat and sauces have arrived from Jamaica into El Guamache port in Anzoátegui state; along with 77 containers bearing 1774,43 tons of construction material, and another 44 containers with miscellaneous products. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34877)

 

Cuba says economy shrank this year in tandem with Venezuela crisis

Cuba's economy shrank 0.9% this year in tandem with the crisis in key trading partner Venezuela, President Raul Castro told the National Assembly in a closed-door speech, predicting a slightly brighter outlook for 2017. The figure suggests sharp economic contraction in the second half after the cash-strapped government slashed imports, investment and fuel in response to lower exports and a drop in cheap oil deliveries from Venezuela. "Restrictions in cash and in the provision of fuel worsened in the second half," Castro said. "Financial tensions and challenges that might intensify again in certain circumstances will persist, but we hope that gross domestic product (GDP) will grow moderately, by around 2% (in 2017)." Key ally Venezuela has slashed its provision of cheap oil and the drop in global commodities prices is punishing Cuban exports of nickel, refined oil products and sugar. (Reuters: http://www.reuters.com/article/us-cuba-economy-idUSKBN14G1E0)

 

Oil & Energy

 
PDVSA to cut oil production, reduce sales volume to its clients

State oil company Petroleos de Venezuela (PDVSA) has announced that the volume of sales stipulated in main crude oil sale contracts would be reduced by January 1, 2017 “in compliance with the terms and conditions of their valid contracts.” According to PDVSA’s official website, the decision is grounded on the production cut of 95,000 barrels per day (bpd) approved by the Organization of Petroleum Exporting Countries (OPEC) last November 30 in Vienna. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelas-pdvsa-reduce-sales-volume-its-clients_632933; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427960&CategoryId=10717)

 

Oil Minister claims CITGO still belongs to Venezuela

Eulogio del Pino, Oil Minister and President of state oil company Petroleos de Venezuela (PDVSA), has denied that PDVSA has pledged its US subsidiary CITGO, and explained that it had only used it as collateral for bond swap operations. On December 23, a report showed that PDVSA had mortgaged CITGO to Russian oil company ROSNEFT.
Minister Del Pino says PDVSA used 51% of CITGO’s capital as a collateral to motivate bondholders in bond swap operations. The remaining 49% was used for new financing. (El Universal, http://www.eluniversal.com/noticias/daily-news/citgo-belongs-venezuela-oil-minister-confirms_632928; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427926&CategoryId=10717)

 

Commodities

 
Venezuela military trafficking food as country goes hungry

President Nicolas Maduro has turned to the military to manage the country's diminished food supply, putting generals in charge of everything from butter to rice. But instead of fighting hunger, the military is making money from it. With much of the country on the verge of starvation and billions of dollars at stake, food trafficking has become one of the biggest businesses in Venezuela. And from generals to foot soldiers, the military is at the heart of the graft. As a result, food is not reaching those who most need it. The U.S. government has taken notice. Prosecutors have opened investigations against senior Venezuelan officials, including members of the military, for laundering riches from food contracts through the U.S. financial system. When people responded to scarcity with violent street protests, Maduro handed the generals control over the rest of food distribution, and the country's ports. The government now imports nearly all of Venezuela's food, and corruption is rampant, jacking up prices and leading to shortages. The Food Ministry's annual report shows significant overpayments across the board, compared to market prices. And the prices the government pays for imported foods have been increasing in recent years, while global food prices remain stable. Internal budgets from the ministry obtained by AP show the overpayment continues. By putting the military in charge of food, Maduro is trying to prevent soldiers from going hungry and being tempted to participate in an uprising against an increasingly unpopular government. However, it also opened the door to widespread graft and further squeezed the food supply. The three largest global food traders — U.S.-based Archer Daniels Midland Co., Bunge Ltd. and Cargill — have stopped selling to the Venezuelan government, largely due to concerns of corruption following the government's takeover of the food industry, A major scam involves the strict currency controls that have been a hallmark of the administration. The government gives out a limited amount of coveted U.S. currency at a rate of 10 bolivars to the dollar. The holders of licenses to import food are among the select few who get to buy dollars at the vastly cheaper rate. Some officials distribute these much-desired licenses to friends. The friends then use only a fraction of the dollars to import food, and share the rest with the officials. Some contracts go to companies that have no experience dealing in food or seem to exist only on paper. From time to time, the government carries out raids of warehouses holding smuggled goods and arrests lower-ranking military officers accused of graft. And yet the corruption persists from the port to the markets. Sometimes the officials who control access to the docks keep ships waiting until they are paid off. After ships unload their cargo, customs officials take their share. Bribes are also required for any missing paperwork. Rotting food is also a problem even as 90%t of Venezuelans say they can't afford enough to eat. In some cases, partners buy food that is about to expire at a steep discount, then bill the government for the full price. When the food is no longer usable, the military tries to get rid of it quietly. Just as bribes are needed to get food into the port, they are also required to move food out, truckers said. The roads near the port are lined with trucks waiting to be let in. When the food is finally loaded onto the trucks, soldiers come by to take a cut. On the roads, truck drivers face an obstacle course of military checkpoints. Truckers say soldiers at about half the checkpoints demand bribes. The surest way to move food through the network of checkpoints is to transport it under military guard. For a percentage of the product's value, military officers on the take will assign a moonlighting soldier to ride along in the truck. Sugar and flour are among the items most in demand because they have become virtually impossible to find legally, and some businesses, like bakeries, cannot function without them. The theft extends to the very end of the food supply chain. At one market in Valencia, the military members who were appointed in August to stop contraband confiscated vendors' produce. They said the vendors did not have the right permits. The food was piled in an olive-green cargo truck. In Puerto Cabello, hungry residents said it feels like corrupt soldiers are taking food off their children's plates. (Associated Press: https://apnews.com/64794f2594de47328b910dc29dd7c996/Venezuela-military-trafficking-food-as-country-goes-hungry)

 

Economy & Finance

 
Private sector lost 1 million jobs during 2016, another half million jobs at risk

According to the National Workers Union (UNETE), one million private sector jobs were destroyed during 2016 due to the government’s erratic economic and labor policies. UNETE’s coordinator Servando Carbone says “uncertainty remains that due to worsening conditions in 2017 more companies and businesses will close, placing another 500,000 jobs at risk”. More in Spanish: (El Nacional, http://www.el-nacional.com/noticias/economia/sector-privado-perdio-millon-empleos-2016_73028)

 

Venezuela must pay out US$ 6.4 billion due in debt service during 2017

TORINO Capital estimates that Venezuela must pay out US$ 6.4 billion in debt service during 2017, and will required US$ 6.6 billion in outside financing. They believe that renewing part C of the China-Venezuela Mixed Fund, US$ 5 billion, would get “most of the job done”. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/economia/estiman-que-amortizacion-2017-destinara-millardos-pagos-bonos_633019)

 

Politics and International Affairs

 
OAS asks Maduro regime not to interfere in Congress board appointment

Luis Almagro, Secretary General of the Organization of American States (OAS), has called on the Maduro regime not to interfere in the appointment of the opposition-led Congress authorities, warning that it would be “one more step towards the consolidation of an authoritarian regime.” “Any interference in the appointment of the AN (National Assembly) by the Executive Office or the Judiciary means full disregard of the essential principles of democracy, namely separation and independence of powers,” Almagro said in a communiqué. According to the document, interference from other powers in the Congress internal procedures would put “aside the legitimacy the Venezuelan people granted to the AN.” (El Universal, http://www.eluniversal.com/noticias/daily-news/oas-asks-venezuelan-govt-not-interfere-congress-board-appointment_632931)

 

Maduro regime says it will continue dialogue in 2017, will not tolerate opposition “violence

Downtown Caracas Mayor Jorge Rodríguez, one of the Maduro regime’s representatives at the Vatican sponsored talks with the opposition, says that pro government representatives will maintain the political dialogue during 2017 and will not tolerate acts of “violence” by the Democratic Unity (MUD) opposition coalition. The MUD has notified the Vatican that there are no conditions for a dialogue once the government reneged on commitments made during the past session. New meetings had been scheduled for January 13th.  More in Spanish: (Infolatam: http://www.infolatam.com/2016/12/28/chavismo-dice-seguira-dialogo-2017-no-permitira-violencia-opositora/)

 

Maduro calls on the military to set up a new “intelligence” system in 2017

President Nicolás Maduro has called on the armed forces here to set up a new “strategic, proactive and popular” intelligence system to counteract threats and attacks before they occur, and accused paramilitaries and criminals of causing recent food riots at several locations. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/politica/maduro-llamo-fan-construir-sistema-inteligencia-2017_633003)

 

U.S.-Venezuela relations will probably deteriorate under Trump. Ask ExxonMobil why.

President-elect Donald Trump recently nominated ExxonMobil CEO Rex Tillerson to be secretary of state. That company and Venezuela have been hostile toward each other over the past decade — which means Tillerson’s nomination suggests that the United States and Venezuela have a tense relationship ahead. In 2007, Venezuela tried to buy majority stakes in all oil ventures within its borders. Although most corporations accepted the deals offered by the government, ExxonMobil and ConocoPhillips rejected them. When the government offered to pay ExxonMobil the book value for its assets, the company asked for what it considered the market value. As a result of the disagreement, Chávez sent state oil workers, along with members of the military, to seize ExxonMobil facilities that May. ExxonMobil had transferred its Venezuelan holdings to a subsidiary based in the Netherlands. And so ExxonMobil sought international arbitration based on a bilateral investment treaty between the Netherlands and Venezuela, within the World Bank’s International Center for Settlement of Investment Disputes. In October 2014, ICSID ordered Venezuela to compensate ExxonMobil for US $1.6 billion. Because ExxonMobil had requested nearly US$ 15 billion, Venezuela claimed a victory. Less than a year later, ExxonMobil directly confronted the Venezuelan government in Guyana. For more than 100 years, the Venezuelan and Guyanese governments had both claimed the territory known as the Essequibo, which borders both countries — and for decades, no oil companies explored it. But in May 2015, ExxonMobil announced that it had discovered oil reserves off the coast of the disputed region and would work with the newly elected Guyanese president, David Granger, to extract the Essequibo’s resources. Maduro announced that ExxonMobil was trying to destabilize peace in the region by siding with Guyana, and the Venezuelan military began to hold exercises along the disputed border. In an interview in July 2015, Maduro asserted that there: “is a brutal campaign against Venezuela, financed by ExxonMobil. It’s a campaign to corner Venezuela, to lead it to high-intensity conflict [with Guyana], to undermine the policy of peace that we have implemented.” For its part, ExxonMobil has repeatedly complained about the Venezuelan government to U.S. diplomats stationed around the globe. Given Tillerson’s background at ExxonMobil, we can expect the Trump administration to take an aggressive stance toward Venezuela. This may include sanctions on more Venezuelan state officials and even an end to high-level diplomatic meetings. Expect more friction over the next few years. (The Washington Post: https://www.washingtonpost.com/news/monkey-cage/wp/2016/12/29/u-s-venezuela-relations-will-likely-deteriorate-under-trump-ask-exxonmobil-why/?utm_term=.f074ac99eb31)

 

Venezuelans hawk snacks on Dominican streets as revolution dies

This is not the life Edgar Leon hoped for when he voted for the socialist revolution of Hugo Chavez in Venezuela -- standing on a street corner in the Dominican Republic selling snacks and lemonade out of a bucket to support his wife and children back home. “We were a rich nation,” said Leon. “This is an embarrassment. I never wanted to leave my country.” He’s one of the record number of Venezuelans who arrived in the Dominican Republic this year, escaping chronic shortages and spiraling prices back home. But these latest emigrants aren’t the Venezuelan doctors, lawyers and university students of the kind who can be found working in cities from Santiago to Miami. The streets of Santo Domingo are hosting a new group of emigrants -- the very people who were meant to benefit from subsidized food, cheap housing, labor protection and free education guaranteed by Chavez’s government. (Bloomberg, https://www.bloomberg.com/news/articles/2016-12-28/venezuelans-hawk-snacks-on-dominican-streets-as-revolution-dies)

 

Hunger is driving up crime in Venezuela as violence hits new highs

Venezuela’s violence hit new peaks in 2016 amid a breakdown in the law enforcement and judicial systems and a spike in hunger-related crimes. According to the Observatory of Venezuelan Violence, or OVV, this country saw at least 28,479 violent deaths this year for a total of 91.8 deaths per 100,000 residents. If the number proves accurate, Venezuela would have the second-highest homicide rate in the world after El Salvador and ahead of Honduras. In its annual report, the group said that Venezuela’s judiciary had shed all vestiges of independence and was being used as a political bludgeon. In addition, increased poverty and shortages “had promoted increased violence in the country.” Also, for the first time, the group said it had observed “the presence of hunger-related generalized violence.” With the nation suffering from both hyperinflation and food shortages, looting of supermarkets and food trucks has become almost a regular occurrence. In addition, criminals are becoming more brazen, using hand grenades and military-issue automatic weapons in their crimes, the report found. Police have been particularly hard hit by the violence. In the capital alone, there was an average of 2.5 police murders each week, the report found. “At the same time, we’ve observed an increased number of police who are involved in crimes,” the study added. The Miami Herald: http://www.miamiherald.com/news/nation-world/world/americas/venezuela/article123341959.html#storylink=cpy

 

In Venezuela, lynching kills one person every three days

Roughly one person is being lynched in crisis-ridden Venezuela every three days as frustrated residents take revenge on suspected criminals, a monitoring group said on Wednesday. The Venezuelan Observatory of Violence (OVV), which monitors crime, said mob killings have become a generalized phenomenon across the country, with 126 deaths reported in 2016 versus 20 last year. "Due to being repeated victims of crime for more than a decade, and the feeling of not being protected, many people have decided to take justice into their own hands," the OVV said in its latest annual report. In the past, it said, lynching of suspected murderers and rapists were relatively uncommon, but this year angry crowds have increasingly attacked petty criminals too, with police often turning a blind eye. The OVV, a group of academics who compile data from police sources and the media, said Venezuela, with an estimated 28,479 homicides this year - or more than three killings per hour - was the world's second most murderous nation after El Salvador. That would represent 91.8 murders per 100,000 inhabitants this year, up from 90 in 2015, it said. The OVV put the homicide rate at more 140 per 100,000 people in Caracas, making it one of the murder capitals of the world.  President Nicolas Maduro's socialist government rejects the OVV figures as inflated for political reasons. Whatever the right statistics, crime remains an all-pervasive worry for Venezuelans, especially in poor slums that are run by gangs and rife with guns. Numerous state security plans and disarmament drives have failed to curb the problem. "Violence is killing the future of our country," opposition leader Henrique Capriles said during a visit on Wednesday to rescue services in the Miranda state, which he governs. "The government has spent 17 years without resolving the problem," he added, referring to Maduro and his predecessor Hugo Chavez's rule since 1999. (Reuters: http://www.reuters.com/article/us-venezuela-violence-idUSKBN14H1PJ)

 

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, December 22, 2016

December 22, 2016


International Trade

Venezuela reopens Colombia, Brazil border crossings

Thousands of Venezuelans crossed into Colombia to buy food and medicine after their government partially reopened the border following a messy crackdown on what it called currency hoarders. But while foot traffic was permitted, trucks carrying needed goods remained blocked. Venezuela also reopened its main border crossing with Brazil after talks between officials at the Brazilian embassy and Venezuela's foreign ministry, officials in Brasilia said in a statement. The crossing is open for pedestrians, but only within limited hours for vehicles. (AFP: https://www.yahoo.com/news/venezuela-reopens-border-crossing-colombia-215620846.html; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427571&CategoryId=10717)

 

Colombia's Santos asks more collaboration from Venezuela against smuggling

Colombian President Juan Manuel Santos has basked Venezuelan authorities to collaborate more in the fight against smuggling on the common border, which was re-opened after eight days of shutdown ordered by the government of Nicolás Maduro.  We need more collaboration from both parties to fight against smuggling, because this problem is not convenient for anyone,” President Santos asserted in a speech in the bordering city of Cúcuta, Colombia, where he met with regional authorities and representatives of several sectors. “Let’s strengthen the supervision in the trails that are still not under control,” added President Santos. He said that he had conveyed that message to his Venezuelan counterpart Maduro in a telephone conversation on Monday. (El Universal, http://www.eluniversal.com/noticias/daily-news/colombias-santos-asks-more-collaboration-from-venezuela-against-smuggling_632196)

 

Argentina says Venezuela will return to MERCOSUR when it complies with rules

Argentine Foreign Minister Susana Malcorra says Venezuela will return to MERCOSUR once it complies with all the organization’s rules. She said Venezuela “has ceased participating in MERCOSUR” and expects it will “comply with agreements and join in once more”. About dialogue between the Maduro regime and the opposition here, Malcorra said: “there is no formula that is not within Venezuelans”, since “there are no miracles from the outside”, nor any enemies abroad. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/internacionales/2016/diciembre/20/179559=susana-malcorra-senalo-que-venezuela-volvera-a-mercosur-cuando-cumpla-las-reglas)

 

Food, medicine and personal care products have arrived at La Guaira in 300 containers from Colombia. The shipment includes 238 containers bearing food, 38 with personal care products, and 24 with medicine, according to the local port authority. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34860)

 

Oil & Energy

Secrecy and confusion surround Venezuela’s latest oil deals

Venezuela’s newly created and military run oil and mining company CAMIMPEG has formed a joint venture with UK-based Southern Procurement Services (SPS) to reactivate shut-in wells in Lake Maracaibo in Zulia state. The deal has raised eyebrows, given its scale and the relative inexperience of the parties involved. A source with knowledge of developments and who has operations in the lake told NewsBase the well count could approach 1,500. Given their lack of experience, questions have been asked about whether the JV partners have the requisite personnel or capital to pull off the work. Indeed, the fact the companies have even been allowed to team up is startling. SPS and CAMIMPEG, which was created in February to protect petroleum installations belonging to state-run PDVSA, recently formed CAMIMPEG-SPS to “improve the oil and gas production process for PDVSA,” the JV tweeted last week. In the most recent of only three press releases available in the news section on its website, England-based SPS, which is part of the SCZ Group financial group, reported that it was engaged in activities to supply “electric submersible pumps” as part of trade initiatives. CAMIMPEG was also created in part to provide oilfield services to PDVSA, with a view to it replicating the activity of companies like SCHLUMBERGER, HALLIBURTON or WEATHERFORD. But President Nicolas Maduro is believed to have created the rookie company, which is run by the armed forces, to keep the military happy and loyal as Venezuela’s economy collapses. CAMIMPEG-SPS also recently signed a deal to acquire a fleet of vehicles that will be used to maintain a constant presence over PDVSA’s operating areas. Financing for both deals is likely to come from SCZ Group, which provides “special financing mechanism that allows customers to pay for purchases of oil products, petrochemical industries and basic industries,” according to statements on its website. The CAMIMPEG-SPS deal mirrors a similar agreement that was struck recently between PDVSA and US-based drilling contractor Horizontal Well Drillers (HWD). That deal saw the latter company make its debut in Venezuela, despite its lack of experience in hostile environments and insufficient cash flow to finance its activities without funding from another company. The deals with both CAMIMPEG-SPS and HWD come as hundreds of companies there with years of operating experience in Venezuela are struggling to get paid by PDVSA. Many have pared back their operations, while others have simply given up and exited the country. The secrecy and confusion surrounding the deals exemplify the state of Venezuela’s oil industry. (Oil Price: http://oilprice.com/Latest-Energy-News/World-News/Secrecy-And-Confusion-Surround-Venezuelas-Latest-Oil-Deals.html)

 

Two Die in Fire at Oil Complex in Western Venezuela

Two workers were killed and a third was injured in a fire at an oil complex in Valmore Rodriguez, a city in the western state of Zulia, state-owned Petroleos de Venezuela (PDVSA) said on Tuesday. The fire started at 7:50 pm Monday in a generator in the power generation section of the Lamargas-Lago Complex. Workers put out the fire and officials activated the emergency protocols and appointed a commission to investigate the accident, PDVSA said.
(Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427586&CategoryId=10717; El Universal, http://www.eluniversal.com/noticias/daily-news/research-task-force-established-after-fire-oil-complex-north-venezuela_632062)

 

Venezuela to sell fuel on the border with Colombia in pesos

President Nicolás Maduro has announced that Venezuela will charge the gasoline sales on the border with Colombia in pesos. He added that a payment mechanism would be implemented to allow Colombians to pay for gasoline through their local banking system, including bank cards. Later on, other products sold on the border would be paid through this mechanism, according to state-run news agency AVN. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-sell-fuel-the-border-with-colombia-pesos_632297)

 

Commodities

FORD halting Venezuela production until April

FORD Motor Co halted auto production in Venezuela last week and will not resume it until April, a company executive said on Tuesday, in another blow to the crisis-wracked country's manufacturing sector.  "It is a measure to adjust production to demand in the country," Lyle Watters, FORD's president for South America, told reporters at an event in São Paulo, adding that the plant affected by the shutdown employs 2,000 workers. Watters said the production freeze would not affect FORD's consolidated results as operations in Venezuela are reported separately. Beginning in the first quarter of this year, Venezuela became the only wholly owned FORD unit with operating results that are excluded from the full company's income statement.  In January 2015, FORD took a charge related to its Venezuelan operations that cut fourth-quarter net profit by US$ 700 million. FORD is the only automaker still mass producing cars in Venezuela, even on a limited scale. Vehicle production in recession-hit Venezuela is less than 8 cars a day, as per figures provided by the national automakers organization CAVENEZ. FORD produced 2,253 units out of a paltry national total of 2,768 in the year through November. In mid-2015, FORD's major U.S. rival, GENERAL MOTORS stopped making vehicles in Venezuela altogether. GM had one plant in Venezuela. (Reuters: http://www.reuters.com/article/us-ford-motor-venezuela-idUSKBN149266)

 

Maduro regime raises prices over 200% for coffee, corn flour, and sugar

The Maduro regime’s price control agency, SUNDEE, has published new prices on sugar cane, corn flour, white and yellow corn, coffee grains, green coffee and sugar in all its forms. The price of pre-cooked corn flour was raised 236.3%, and remains beneath adjustments sought by private industry here. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/establecidos-nuevos-precios-para-caf%C3%A9-harina-ma%C3%ADz-y-az%C3%BAcar; El Universal, http://www.eluniversal.com/noticias/economia/ajustan-precios-harina-precocida-cafe-azucar_632289; El Nacional, http://www.el-nacional.com/noticias/economia/sundde-publico-lista-nuevos-precios-del-cafe-azucar-harina-maiz_72241 http://www.el-nacional.com/noticias/economia/gobierno-subio-2363-harina-maiz_72330)

 

Economy & Finance

FEDECAMARAS sees no economic improvement next year

The nation’s leading business organization, FEDECAMARAS, says there is “no improvement” in sight here next year. “For three years running we are ending in crisis and recession. The government’s refusal to implement corrections to rescue the nation is bordering on irresponsible”. “Excessive controls and a growing distance from democratic principles has brought about the destruction of the nation’s productive system”. FEDECAMARAS says companies are operating at 35% capacity, annual inflation is close to 500% and basic product scarcity is above 80%. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/economia/2016/diciembre/20/179602=fedecamaras-no-avizora-ninguna-mejoria-para-el-proximo-ano-en-el-pais)

 

Maduro says second currency shipment of 500 bolivar bills arrived, threatens to arrest bankers

President Nicolás Maduro says a second aircraft bearing 12 million 500 bolivar bills arrived here on Tuesday. Central Bank vice president José Khan confirmed that a Russian aircraft bearing 11 million 500 bolivar bills has arrived. He added that 3 currency shipments have arrived: The first one on Friday, with 76 million 50 bolivar bills; a second load on December 18th, with 13.5 million 500 bolivar notes; and then this third shipment. Maduro also says that local bankers who “sabotage” services will be arrested. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/politica/2016/diciembre/20/179616=presidente-maduro-anuncio-el-arribo-al-pais-del-segundo-lote-con-billetes-de-500-bolivares)

 

Why Venezuela should default

Venezuela continues to pay foreign bondholders despite an economic crisis that would have stymied other sovereign borrowers long ago. Although reallocating funds from debt service to the importation of much-needed food and medicine is tempting, the government fears that subsequent lawsuits could leave less money for imports. Venezuela already faces the typical costs of sovereign default, such as the loss of access to international credit markets and a decline in foreign direct investment, even though it remains up to date on its debt service. With a default seemingly inevitable, the country must eventually confront any other consequences, which are unlikely to include the dreaded seizure of Venezuelan oil tankers at sea. Venezuelan oil exports cannot be immediately seized. Instead, a legal cat-and-mouse game would ensue upon default. If creditors try to confiscate tankers of oil, Venezuela will ensure that, contractually, that oil is the property of the buyer before it leaves Venezuela. If creditors go after the money paid for that oil, Venezuela will reroute that money through China to evade them. Venezuela could also sell more oil through joint ventures and to China to further complicate matters for plaintiffs. Litigation would surely take a long time. Considering Venezuela’s dire economic situation, a United States court is unlikely to grant any immediate preliminary relief to hedge funds ahead of a lengthy proceeding on the merits. In the meantime, Venezuela would save around US$ 10 billion in annual debt service, an amount sufficient to restock empty supermarket shelves by funding an estimated 50% increase in imports. By alleviating shortages, these funds would give the current government, or a future government, some breathing room to enact economic reforms that would spur growth and assure long-term viability, reforms that have so far proved politically elusive. Venezuela may eventually have to pay what it owes, but that will be easier than overpaying now. Despite the government’s extraordinary efforts, creditors are not being treated fairly. While short-term creditors are paid in full, long-term creditors may not be paid at all. Every time the country pledges assets as collateral or sells the rights to natural resources, it subordinates and dilutes the claims of typically unsecured long-term creditors. Now is the worst time to sell Venezuela’s natural resources, considering the uncertain political and economic environment. Once the country stabilizes, the government can offer a restructuring that includes a maturity extension and deferral of interest payments in return for warrants that pay when oil prices rise, allowing bondholders to share in the upside. Incentives for litigation for hedge funds would be few if the restructuring were fair. Both the country and its creditors would be better off in this scenario than in a continued fire sale of Venezuela’s remaining assets. (The New York Times Op-Ed: http://www.nytimes.com/2016/12/21/opinion/why-venezuela-should-default.html?_r=0)

 

What do investors need to understand about Venezuela’s economy?

President Nicolás Maduro says that to combat smuggling and currency manipulation, the 100-bolívar note must be retired. He is correct when he claims the bill is popular with those who violate the country’s price and currency controls, but it's also popular with everyone else: its value fluctuates between two and four U.S. cents at the widely used black market currency exchanges, but it is the largest-denomination bill currently in circulation, and using lower-denomination bills is almost impossibly burdensome. To make using cash easier, new bills of up to 20,000 bolivars will be printed. What is wholly without logic is the original timeline for this plan. When it was first announced, the government said that the use of the 100-bolívar bills would be prohibited in three days, and that there would be a ten-day period for the six billion notes already in circulation to be traded in for new coins. It also said it would only allow bills being held in Venezuela to be traded in, and it even closed the borders with Colombia and Brazil to prevent currency smuggling, effectively confiscating the wealth of all holders of the bill abroad. The implementation of this scheme was never even remotely feasible, and this weekend government has extended the deadline, as well as the border closings, until January 2. Immediately before this plan was announced, it seemed like the situation in Venezuela could barely get worse: the country is undergoing a major currency crisis, it has the both the world’s highest inflation and the world’s deepest recession, it is seeing serious shortages of basic goods, including food, and there is a looming constitutional dispute that threatens the long-term viability of the government. (Forbes: http://www.forbes.com/sites/nathanielparishflannery/2016/12/21/what-do-investors-need-to-understand-about-venezuelas-economic-crisis/#101d38c27ace)

 

ODEBRECHT acknowledges it paid US$ 98 million in bribes in Venezuela alone.

Brazilian construction giant ODEBRECHT has signed the largest anticorruption settlement in history Wednesday with authorities on three continents, following a two-year investigation that landed its chief executive and dozens of other powerful figures in prison. The deal represents a landmark in Brazil’s so-called Operation Car Wash, which has unearthed what is widely seen as the most sprawling graft scheme ever exposed and triggered a political crisis that led to the impeachment of President Dilma Rousseff. ODEBRECHT paid nearly US$ 800 million in bribes related to more than 100 projects in 12 countries, including Angola, Venezuela and Mexico, as per U.S. court documents. Court documents indicate ODEBRECHT paid out US$ 98 million in bribes in Venezuela alone. ODEBRECHT doesn’t dispute any of the allegations and says it is cooperating with authorities. (The Wall Street Journal: http://www.wsj.com/articles/odebrecht-to-pay-2-6-billion-to-settle-bribery-claims-1482325309)

 

U.S. charges Florida men with laundering money for Venezuelan officials

A Florida construction equipment exporter's owners were arrested on Wednesday on charges they illegally transferred over US$ 100 million from businesses largely in Venezuela to U.S. and foreign bank accounts belonging to Venezuelan government officials and others. Luis Diaz Jr., 74, and his son, Luis Javier Diaz, 49, were charged in a criminal complaint filed in Manhattan federal court with conspiring to commit money laundering and operate an unlicensed money transmitting business. Both men, who run Miami Equipment & Export Co, according to their firm's website, were arrested in Miami, said a spokesman for Manhattan U.S. Attorney Preet Bharara. The case came amid U.S. Justice Department investigations that have focused on individuals tied to the Venezuelan government and their suspected roles in various bribery and drug-trafficking s schemes. As per the complaint, the family's company, beginning in 2010, facilitated hundreds of hundreds of transmissions of funds into the United States on behalf of an unnamed large consortium of Venezuelan construction companies. At the consortium's request, they also transmitted money to unnamed Venezuelan government officials, including one who oversaw the award of certain contracts on which the Venezuelan companies bid, the complaint alleged. the complaint said. During the period in question, a Portuguese shell company controlled by the individual linked to Venezuelan officials received at least US$ 17 million, the complaint said. The case is U.S. v. Diaz, et al, U.S. District Court, Southern District of New York, No. 16-mj-8150. (Reuters: http://www.reuters.com/article/venezuela-usa-crime-idUSL1N1EG1OB)

 

Politics and International Affairs

Unrest continues as protests reach Caracas and the Miraflores Presidential palace

Protests are nothing new in Venezuela and the country suffered months of unrest in 2014. This latest cycle of protests however began after President Nicolas Maduro announced he was withdrawing the country’s highest denomination banknote “in 72 hours.” The President later recanted, when he realized he had no new bills to replace the money with, promising to let the Bs 100 circulate until at least January 2nd, but to no avail: savage protests rocked the nation, resulting in 450 businesses looted and 405 arrested, according to figures offered by the Interior Ministry and the Fedecamaras private-sector guild. In a east Caracas, a crowd trying to buy price-controlled foodstuffs received buckshot instead, while a group of opposition lawmakers led a protest asking for the resignation of President Nicolas Maduro right outside the Miraflores Presidential Palace. This is Venezuela, after one week of continuous, deadly protests that have so far left seven dead. Opposition party leaders along with scores of ordinary citizens announced the beginning of “a new stage” of civil disobedience, during which they will occupy the streets to demand the resignation of President Nicolas Maduro. Three political parties – Voluntad Popular (VP), Alianza Bravo Pueblo (ABP) and Vente Venezuela – called for people to come join the protest and invited other parties of the MUD opposition alliance to take part in “the struggle” for a “beautiful Venezuela.” “We’re demonstrating across the country... We’re not calling for anything that violates the constitution,” David Smolansky, mayor of the Caracas municipality of El Hatillo, told reporters. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427530&CategoryId=10717; http://www.laht.com/article.asp?ArticleId=2427600&CategoryId=10717)

 

OAS Calls for 'Restoration of Institutional Order' in Venezuela

The General Secretariat of the Organization of American States (OAS) expresses its solidarity and unconditional support for the people of Venezuela in relation to the recent wave of violence, looting, and desperation sparked by the monetary measures adopted by the government that restrict the circulation of cash and as a corollary prevent the purchase of the most basic needs. At the same time, the General Secretariat calls for calm and the reestablishment of civic coexistence. The situation has led to serious incidents of public disorder in at least 12 states, with reports of demonstrations, disturbances, and/or looting in 27 cities. Added to this is the alarming and ongoing situation of the denial of civil and political rights, institutional rupture and social and humanitarian crisis. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427490&CategoryId=10717)

 

Venezuela unsafe for Americans and its own

The situation continues to go from bad to worse in Venezuela, so much so that the U.S. State Department has warned Americans that its dangerous to live in or even visit that country. The State Department’s Security Advisory Council last week sent the following message via Twitter: “Travel Warning: If the security climate worsens, U.S. citizens should be aware that they are responsible for making arrangements for their exit from Venezuela.” The advisory also said Americans should not travel here because crime and social instability have exploded. The State Department also emphasizes that the political and security situation in Venezuela is unpredictable, a moment-to-moment exercise. In the past, Venezuelan authorities have arrested U.S. citizens with no evidence that they committed crimes. These red alerts are no surprise. The economic crisis has created a situation of precariousness and anguish among the population — and among the hundreds of thousands of Venezuelans who live in exile in South Florida. Today, Venezuela is a place of mass despair. Street protests occur at any time and without warning. They can be peaceful or turn violent. The homicide rate has also skyrocketed, highlighting the social turmoil and the inability of the authorities to stop criminal activity. As for Americans, the State Department has already indicated that traveling to Venezuela is dangerous. And the warning should be taken seriously. Venezuela is a country on the edge. (The Miami Herald: http://www.miamiherald.com/opinion/editorials/article122130799.html#storylink=cpy)