February 12, 2013

Economics & Finance

Devaluation is insufficient; further adjustments will be needed

Pressured by a growing fiscal imbalance, the Government has devalued the currency over 32%, taking the official exchange rate from VEB 4.30 to VEB 6.30 per US dollar. This step falls short and further adjustments are expected in the midterm. Luis Vicente León, economist and director of DATANÁLISIS, explains that "with the exchange rate at VEB 6.30 per US dollar, demand for foreign currency will continue to be huge. Consequently, the Government has two choices: either burning a lot of international reserves by selling cheap US dollars or causing shortages." (El Universal, 02-10-2013; http://www.eluniversal.com/economia/130210/devaluation-is-insufficient-further-adjustments-will-be-needed)

Only FOREX board is to manage US dollar sales in Venezuela

Pro-government legislator Ricardo Sanguino, Chairman of the National Assembly Finance Committee, says only the FOREX Administration Commission (CADIVI) will assign dollars to all imports. As for the possibility of creating another mechanism for selling foreign exchange, Sanguino said authorities would await results after the new decisions. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/only-forex-board-is-to-manage-us-dollar-sales-in-venezuela)

Devaluation raises Venezuela's debt burden to 70% of GDP

The move to devaluate creates negative effects on public finances and raises the debt burden. The increased debt burden means that the market perception of risk worsens and the country has to pay higher interest rates for new financing. Also, the government will have to pay higher amounts for current principal and interests. This will absorb most of the budget and limit funds available for areas such as health, education and infrastructure. Economist and Central University professor Jose Guerra, who has researched Venezuelan debt trends along with Luis Oliveros, says devaluation dilutes the Bolivar denominated debt as fewer petrodollars will be needed to repay domestic debt, but the move also shrinks the economy, that is, GDP, and leaves foreign currency debt remains unchanged. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/devaluation-raises-venezuelas-debt-burden-to-70-of-gdp)

Opposition slams Venezuela devaluation, shoppers fret

Opposition leaders derided another currency devaluation by President Hugo Chavez's government as evidence of economic incompetence, while some anxious Venezuelans hit the shops on Saturday in fear of price increases. Although Chavez has not been seen in public since cancer surgery two months ago in Cuba, ministers said he personally ordered the fifth devaluation of the Bolivar in a decade of socialist economics - this time by 32%. Seen as an imperative by economists but widely unpopular among Venezuelans, the measure is the biggest test yet for Vice President Nicolas Maduro, who has been in charge of the government since Chavez's December 11 operation. (Reuters, 02-09-2013; http://www.reuters.com/article/2013/02/09/us-venezuela-economy-idUSBRE91807920130209)

Venezuelan bonds gain after Bolivar devaluation

Venezuelan government bonds rallied, with benchmark yields falling to a five-year low, after the government devalued the Bolivar, helping cut the budget deficit by generating more local currency from its oil exports. The yield on the dollar-denominated bonds maturing in 2027 dropped eight basis points, or 0.08 percentage point, to 8.61% at 1:40 p.m. in New York, according to data compiled by Bloomberg. The yield on state-owned Petroleos de Venezuela SA’s securities due in 2017 slid two basis points to 8.41%. (Bloomberg, 02-11-2013; http://www.bloomberg.com/news/2013-02-11/venezuela-pdvsa-bond-yields-fall-on-devaluation-caracas-mover.html)

Commodities

PDVSA admits it raised debt to sustain dollar sales system

In June 2010, the Venezuelan Government eliminated the swap market and ordered the Central Bank of Venezuela (BCV) to create a system to sell US dollar-denominated bonds in order to put an end to "speculation."  Thirty-two months after its creation, the Transaction System for Foreign Currency Denominated Securities (SITME) was eliminated. Authorities claimed the system failed to meet its goals. While operational, however, SITME forced state-owned oil company PDVSA to increase its debt. When the SITME began, BCV chairman Nelson Merentes said it would be used to meet US dollar demand and tackle "speculation." He also emphasized the system had been created in a way that it could feed back itself; "therefore, it may last 50-100 years." The goal was only partially accomplished,
and fed on bond sales by banks, particularly state-run banks, and PDVSA. Based on official data, the largest numbers of US dollar bonds were issued by the oil company. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/pdvsa-concedes-it-raised-debt-to-sustain-dollar-sales-system)

International Trade

Colgate-Palmolive sees "extraordinary losses" over devaluation in Venezuela

Multinational company Colgate-Palmolive said Monday that due to the devaluation of the Venezuelan currency, it will record extraordinary losses at U$D 120 million, or U$D 25 cents per share, in the first quarter of 2013.
Colgate expects a reduction in its earnings per share of some U$D 5-7 cents per quarter in 2013, because of the conversion of the financial statements to the new Venezuelan exchange rate.
However, the devaluation will have no impact on the company's results or financial position in 2012, said the New York-based firm, according to Reuters. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/colgate-palmolive-sees-extraordinary-losses-over-devaluation-in-venezu)

BBVA, Telefonica exposed to Venezuela devaluation

Venezuela's currency devaluation is likely to take a heavier toll on Telefonica and BBVA than other Spanish companies, shrinking the value of their dividends and assets in the country by as much as a third. Both are major players in Venezuela, which said on Friday it was devaluing the bolivar to 6.3 per U.S. dollar from 4.3 per dollar from Feb. 13 in an attempt to shore up government finances. (Reuters, 02-11-2013; http://www.reuters.com/article/2013/02/11/spain-venezuela-idUSL5N0BBAF720130211)

Logistics & Transport

Port charges to rise 46.5% with new FOREX rate

Devaluation will have an immediate impact on the cost of importing. Although the Government says US dollar requests by some sectors prior to the announcement of the new foreign exchange rate (6.30) will be processed at VEB 4.30 per US dollar, seaport services and charges will go up next Wednesday. As per Article 4 of Official Gazette 40,078, dated December 26, 2012, port charges and services are based on an updated schedule set by the port authority Bolivariana de Puertos (BOLIPUERTOS), which applies the official exchange rate to calculate tariffs and services. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/venezuelan-seaport-tariffs-to-hike-465-upon-new-forex-rate)

Politics

After 2 months without Chavez, Venezuela's government voices optimism but some expect new vote

Two months have passed since President Hugo Chavez climbed the stairs of the presidential jet, blew kisses to his supporters and flew to Cuba to undergo his fourth cancer-related surgery. Chavez hasn’t been seen or spoken publicly since that departure to Havana on Dec. 10, and the mystery surrounding his condition has deepened while the government’s updates have remained optimistic but have lately offered few specifics. (The Washington Post, 02-10-2013; http://www.washingtonpost.com/world/the_americas/after-2-months-without-chavez-venezuela-government-voices-optimism-but-some-expect-new-vote/2013/02/10/bfda3c4a-7396-11e2-9889-60bfcbb02149_story.html; More in Spanish: CNN, http://cnnespanol.cnn.com/2013/02/09/chavez-sin-voz-y-deprimido-no-podra-volver-a-presidir-venezuela-segun-el-diario-abc/?iref=allsearch)

VP: Chávez is going through a slow recovery process

Executive Vice-President Nicolás Maduro said Friday that President Hugo Chávez is going through a "slow" recovery and is "in a battle, clinging to Christ." Maduro said the Venezuelan people are "ready to face difficulties, whatever they are." "None of us is Chávez, but we all together are Chávez, if we are united." (El Universal, 02-09-2013; http://www.eluniversal.com/nacional-y-politica/130209/vp-chavez-is-going-through-a-slow-recovery-process; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=678193&CategoryId=10717)

Foreign Minister says Chavez in charge and making decisions

Upon meeting with his Brazilian counterpart Antonio Patriota, Foreign Minister Elias Jaua said the president is in charge of government and making decisions. "The president is in charge and making decisions for the economic and productive development of the nation," said Jaua and added that he has held meetings with president Chavez in which he has approved resources for the the Housing Mission and a soybean production project that is being developed jointly with Brazil. (AVN, 02-09-2013; http://www.avn.info.ve/contenido/chavez-charge-and-taking-decisions-country039s-development)

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.