February 15, 2013

Economics & Finance

Economists say dollar shortage remains key problem

Venezuela devalued its currency on Wednesday amid questions about how the government can get a grip on 22% inflation and satisfy growing demand for dollars to pay for imported goods. Some economists predict that the devaluation won’t solve problems such as a dearth of dollars for imports and shortages of some staple foods. The country’s fifth devaluation in a decade established a new government-set rate of 6.30 bolivars to the dollar, replacing the previous rate of 4.30 bolivars. Venezuela also has a flourishing black market in which bolivars are being traded for more than three times the new official rate. Economist Jose Guerra said he doubts that the Central Bank and government currency agency will be able to meet heavy demand for dollars, especially now that officials have eliminated a state-run bond trading system that had provided dollars at a second-tier rate. (The Washington Post, 02-13-2013; http://www.washingtonpost.com/business/venezuela-devalues-currency-while-economists-warn-that-shortage-of-dollars-remains-big-problem/2013/02/13/d6faf57c-7643-11e2-b102-948929030e64_story.html; Fox News, http://www.foxnews.com/world/2013/02/13/venezuela-devalues-currency-while-economists-warn-that-shortage-dollars-remains/)

Black-market Bolivar slides to record

Venezuela’s bolivar plunged to a record low in unregulated trading after last week’s devaluation of the official rate failed to increase the supply of dollars. The currency weakened 10%, according to Lechugaverde.com, a website that tracks the country’s currency in the black market. (Latin American Herald Tribune, 02-13-2013; http://www.laht.com/article.asp?ArticleId=683395&CategoryId=10717)

IMF praises Venezuela's devaluation, calls for further correction

IMF spokesman Gerry Rice says the institution celebrates "economic policies announced last week as they will help correct macroeconomic imbalances", and added "our perspective is that more can be done, and we exhort authorities to continue doing away with all distortions in the foreign exchange system". He also said "we also hope authorities take more steps to reduce economic vulnerability and improve the business climate, in order to achieve sustained economic growth and employment." More in Spanish: (El Universal, 02-15-2013; http://www.eluniversal.com/economia/130215/fmi-elogia-devaluacion-aplicada-por-el-gobierno-venezolano)

FEDECAMARAS says private international credit is closed

FEDECAMARAS President Jorge Botti says there is U$D 8.8 billion payments pending with foreign suppliers and doubts there will be enough FOREX to meet these obligations at the prior 4.30 exchange rate. He warns that as a consequence private sector credit abroad is cancelled, which hits operations. He says controlled products should be the first to revise prices, and regrets devaluation was not decided along with other policies designed to protect purchasing power. More in Spanish: (Últimas Noticias, 02-15-2013; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/fedecamaras-lineas-de-credito-internacionales-esta.aspx; El Universal, http://www.eluniversal.com/economia/130215/alertan-que-cadivi-no-podra-atender-a-todas-las-empresas)

FITCH Ratings says devaluation is not enough to dissipate economic uncertainty and calls for "increased coherence and transparency" in economic policies. In a statement the agency says it is not clear how the government will allocate the "unexpected income from devaluation" in light of spending trends that could remain high "due to the growing probability of presidential elections". The agency believes the Venezuelan government will continue to be tempted to issue more debt in order to "meet the excess demand for FOREX", and its "challenge is still how to manage FOREX on an efficient, timely and transparent basis". More in Spanish: (El Mundo, 02-15-2013; http://www.elmundo.com.ve/Noticias/Economia/Internacional/Fitch-Ratings--Devaluacion-no-es-suficiente-para-a.aspx)

Giordani claims currency exchange administration is working properly

Planning and Finance Minister Jorge Giordani says the foreign exchange administration commission CADIVI is working perfectly normally. "CADIVI workers have been working hard all these days and the system is running smoothly as we had expected," he said in a press conference. (AVN, 02-13-2013; http://www.avn.info.ve/contenido/currency-exchange-administration-works-properly; El Universal, http://www.eluniversal.com/economia/130213/venezuelan-government-formalizes-changes-in-foreign-exchange-policy; http://www.eluniversal.com/economia/130213/venezuelan-minister-economic-moves-seek-financial-sustainability)

Central Bank believes new exchange rate will not bring food price increases

Economist Julio Viloria, of Venezuela´s Central Bank, explains food and medicine prices will not increase because payments pending up to January 15 will stand at 4.30 bolivars per dollar. "Devaluation shall not cause price increases as it is not the only aspect in the cost structure which influences prices," Viloria said. (AVN, 02-13-2013; http://www.avn.info.ve/contenido/new-exchange-rate-shall-not-influence-food-price-increase)

Industries call for boost in domestic production

Venezuela's Industrial Confederation (CONINDUSTRIA) says devaluation will not result in higher domestic production per se. "It is important to stress that actions taken in foreign exchange policy will not be enough to boost domestic production. It is vital to guarantee the proper flow of US dollars so that companies can keep up with their operations. This will also ensure consumers' access to goods and services". (El Universal, 02-13-2013; http://www.eluniversal.com/economia/130213/industries-call-for-further-steps-to-boost-domestic-production

Fitch affirms Banco Provincial ratings

Provincial's financial profile, as reflected in its Viability Rating (VR), drives the bank's long-term IDR. Provincial's IDRs are at the same level as Fitch's Sovereign ratings for Venezuela (foreign and local currency IDRs 'B+'; Outlook Negative). (Reuters, 02-13-2013; http://www.reuters.com/article/2013/02/13/idUSWNB0034L20130213)

Commodities

ROSNEFT to pay Venezuela U$D 1.1 billion bonus, seeks new deals

Venezuela will receive a U$D 1.1 billion bonus payment from Russian oil company ROSNEFT for a joint venture crude oil project in Venezuela, Energy Minister Rafael Ramirez said on Wednesday. The state oil company PDVSA has partnered with ROSNEFT to develop projects in the Orinoco extra-heavy crude belt. Last month, ROSNEFT's powerful chief executive, Igor Sechin, visited Caracas to discuss more investments in Venezuela. Ramirez told reporters ROSNEFT would pay PDVSA a U$D 1.1 billion bonus for its involvement in the PETROVICTORIA project, and would separately provide financing of U$D 1.5 billion. "This is a joint venture that has an important amount of reserves, enough to produce 400,000 barrels per day," he said. (Reuters, 02-13-2013; http://www.reuters.com/article/2013/02/13/venezuela-rosneft-idUSL1N0BDBLM20130213; Fox Business, http://www.foxbusiness.com/news/2013/02/13/rosneft-to-pay-venezuela-11-billion-in-oil-jv/)

PDVSA announces U$D 25 billion investments in 2013

Oil and Mining Minister Rafael Ramírez has announced that PDVSA will invest around U$D 25 billion during 2013 in developing oil and gas exploration, production and refining. This would be an increase of 13.6% above 2012. He said a large part of the funds will go to expansion of the Orinoco Oil belt through joint ventures; and said they have set a goal of providing gas to the entire electric sector, and are investing over U$D 1.5 billion in gas pipeline networks. More in Spanish: (AVN, 02-15-2013; http://www.avn.info.ve/contenido/pdvsa-ejecutar%C3%A1-inversiones-25-mil-millones-d%C3%B3lares-2013)

Baker Hughes sees U$D 25 million hit from Venezuela devaluation

Baker Hughes Inc believes Venezuela's devaluation of its currency will result in a loss of about U$D 25 million this quarter, according to the oilfield services company's annual report filed on Wednesday. The U$D 25 million represents 9% of the average net income estimate for Baker Hughes in the first quarter, according to Thomson Reuters. (Reuters, 02-13-2013; http://www.reuters.com/article/2013/02/13/bakerhughes-venezuela-idUSL1N0BDLM420130213)

Cabello calls for debate on gasoline prices

National Assembly Chairman Diosdado Cabello, who is also first Vice President of the ruling PSUV party, is calling for "a debate" on gasoline prices "in the streets" to see whether the people agree with raising prices. More in Spanish: (El Nacional, 02-15-2013; http://www.el-nacional.com/)

International Trade

Giordani expects imports to go down 29%

Planning and Finance Minister Jorge Giordani says FOREX must be assigned to priority areas and estimated the national economic system requires only U$D 40 billion. His thinking is reflected in the decision to tighten up on exchange policies and create the Entity for Optimizing the Exchange System - which joins his Ministry, the Central Bank and the Oil and Mining Ministry - in order to further condition FOREX allocations in line with the "Socialist Plan". More in Spanish. (El Universal, 02-15-2013; http://www.eluniversal.com/economia/130215/para-giordani-las-importaciones-tienen-que-disminuir-en-29)

Logistics & Transport

Port operations cost to rise with devaluation

Antonio Landaeta, Chairman of FEDECÁMARAS Carabobo says surface use by grain carriers, which is around U$D 6 per ton will now go up 46%, and says "all port services are collected in dollars, which is the official currency at all maritime terminals in the world. Obviously, port costs will increase significantly with devaluation." He adds this is of great concern because Venezuela imports 70% of all it consumes." More in Spanish: (El Carabobeño, 02-14-2013; http://www.el-carabobeno.com/impreso/articulo/49668/costos-de-operaciones-portuarias-se-incrementaron-un-46.5-tras-devaluacin-de-la-moneda)

Politics

With Chavez away for months, big changes roil Venezuela

What can happen in a country while the president is gone for more than two months? A lot. Just ask Venezuelans. President Hugo Chavez hasn't appeared in public or on national television since he went to Cuba for cancer surgery in December. Allies maintain that he's running his country from Havana, while critics say that the country is in limbo without a leader. Chavez's lengthy absence from Venezuela hasn't stopped his government from making some significant changes. The latest one -- devaluing the country's currency -- starts Wednesday. It's a significant move that stands to affect global businesses and everyday Venezuelans. (CNN, 02-14-2013; http://edition.cnn.com/2013/02/13/world/americas/venezuela-chavez-absence/index.html?iref=allsearch)

Capriles: Venezuela needs no devaluation, should stop handouts

Opposition governor and former presidential candidate Henrique Capriles Radonski says the government has started to implement a "red package" (new government economic policies), by imposing a 46.5% devaluation.
In his twitter account, Capriles said rather than devalue; the Government should "put an end to handouts to other countries." The opposition leader stressed that during his presidential campaign he explained that there was no need to devaluate the currency. Capriles also said expropriations "finished off" domestic production. He added that some 80% of the products currently consumed in Venezuela are imported. (El Universal, 02-13-2013; http://www.eluniversal.com/nacional-y-politica/130213/capriles-venezuela-needs-no-devaluation-but-stopping-handouts)

Washington imposes sanctions on Venezuela's CAVIM for support to Iran

The United States Government on Monday sanctioned Venezuela's Military Industries Company (CAVIM), as well as other 12 foreign companies, including four Chinese firms, for the sale of arms and military technology to Iran, North Korea or Syria. According to the US State Department, the companies violated the Iran Non-Proliferation Act of 2000, to which were added later Syria (2005) and North Korea (2006). The instrument aims to prevent any of these countries from acquiring weapons of mass destruction (WMD). The sanctions will be in effect for a period of two years and will expire in February 2015. (El Universal, 02-12-2013; http://www.eluniversal.com/nacional-y-politica/130212/washington-imposes-sanctions-on-venezuelas-cavim-for-support-to-iran)

VP now says Chavez undergoing "complementary therapy" in fighting spirit

According to Vice President Nicolás Maduro, President Hugo Chavez is undergoing "complementary therapies" which will, gradually, allow him "to close the cycle of his illness". "He is undergoing (the treatment) with fighting spirit." Maduro said. (AVN, 02-14-2013; http://www.avn.info.ve/contenido/chavez-complies-complementary-therapies-fighting-spirit; El Universal, http://www.eluniversal.com/nacional-y-politica/130213/vp-maduro-chavez-is-undergoing-complex-hard-treatments; Reuters, http://www.reuters.com/article/2013/02/14/us-venezuela-chavez-idUSBRE91C1NA20130214; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=683318&CategoryId=10717)

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.