February 22, 2013

Economics & Finance

Recession feared as Giordani blocks easing exchange controls

Experts at the Central Bank fear a recession starting in this quarter, due to the absence of alternate access to foreign exchange. Around 12% of all imports were processed through SITME, now abolished, and are not being met by the Currency Administration Commission, which is now empowered to approve all FOREX requests. They also say that that even if all requests were approved, the Central Bank does not have sufficient international reserves to meet dollar demand. In the meantime, Finance and Planning Minister Jorge Giordani has not yet approved alternate means for allocating FOREX legally, along with the Foreign Exchange Commission (CADIVI), arguing this would mean further devaluation of the Bolivar. Two options remain under study: dollar auctions through the financial system or through the Public Stock Exchange. More in Spanish: (El Nacional, 02-22-2013; http://www.el-nacional.com/)

Reserves down U$D 2.36 billion to date this year

Venezuela's international reserves plunged 8% (U$D 2.36 billion) during the first seven weeks this year, to U$D 27.37 billion on February 19. Reserves are mainly gold, so there is far less cash available for companies to obtain U$ dollars for imports. SINTESIS FINANCIERA reports that Venezuela's liquid or cash reserves are U$D 4.30 billion. Even if authorities thoroughly review FOREX authorizations in an attempt to avoid over-invoicing, available reserves are not enough for an adequate flow of imports or for curbing basic food shortages. (El Universal, 02-21-2013; http://www.eluniversal.com/economia/130221/venezuelas-reserves-down-usd-236-billion-so-far-this-year)

Venezuela among nations holding greatest gold reserves in the world, according to data from the World Gold Council, which indicates it is among the 13 countries with the greatest gold inventories in the world. More in Spanish: (El Mundo, 02-22-2013; http://www.elmundo.com.ve/Noticias/Economia/Industrias/Venezuela-entre-los-paises-con-mas-reservas-de-oro.aspx)

Central Bank sends financial aid to state enterprises... which operate at 50% capacity

The Central Bank is not just aiding PDVSA, it is also funding state enterprises to the tune of VEB 16.9 billion through the end of January, and this financial support rises 9% each month. The bank is printing currency to support the enterprises and cover public sector deficits. In the meantime, according to Roberto León Parilli, President of the National Consumers Alliance, state companies processing precooked corn and rice are either paralyzed or at 50% capacity due to lack of raw material and labor difficulties derived from the new Labor Law. More in Spanish: (El Nacional, 02-22-2013; http://www.el-nacional.com/ and El Universal, http://www.eluniversal.com/economia/130222/crece-la-asistencia-financiera-del-bcv-a-las-empresas-estatales)

Minimum wage purchasing power down 10% due to inflation

According to a report by ECONOMETRICA, prices have risen swiftly since October last year and are eating up the base salary's purchasing power. The report shows an 11.2% jump in inflation from October to January, which means purchasing power at minimum wage levels is down 10%, and says the decrease will rise to 16% by April. More in Spanish: (El Universal, 02-22-2013; http://www.eluniversal.com/economia/130222/inflacion-redujo-10-capacidad-de-compra-del-salario-minimo)

Key legislator denies plans to raise VAT tax, or tax bank withdrawals

National Assembly’s Finance and Economic Development Committee Chairman Ricardo Sanguino discards the possibility of raising the Value Added Tax (IVA, in Spanish) or a tax on bank withdrawals. (Veneconomy, 02-20-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=33804&idc=2)

Venezuela has the worst business climate in the region

Venezuela's business climate is the worst in Latin America, according to a joint report produced by Brazilian Getulio Vargas Foundation and the University of Munich. In an Economic Climate Indicator for Latin America dated January, Venezuela made only 1.5 points, below the region's average (5.5 points) and way below ratings for Paraguay and Peru, 7 points. Venezuela's indicator is less than it was at third quarter 2012, when it rated 3.4 points. (El Universal, 02-21-2013; http://www.eluniversal.com/economia/130221/venezuela-with-the-worst-business-climate-in-the-region)

Commodities

VENALUM paralyzed, declares "force majeure"

CVG VENALUM, the state owned aluminum company has been paralyzed for the past 15 days, receiving no metal, due to labor strife that has closed down the administrative area of this industry. The company has declared "force majeure", admitting their inability to meet supply contracts with their clients; and this has in turn paralyzed private sector processing industries such as PIANMECA and SURAL. Metal dispatches stopped on February 7th. More in Spanish: (El Universal, 02-22-2013; http://www.eluniversal.com/economia/130222/venalum-declara-fuerza-mayor-ante-paralizacion)

Debate starts on domestic gasoline prices

Several Cabinet members have called for a public debate on the use and price of gasoline, which remains the same since 1996 and is sold for U$D 0.01 per liter, an amount President Chavez himself termed "ridiculous". At current prices, a cup of coffee is 1,000 times more expensive and a bottled water is 700 times more than a gallon of "premium" 95 octane gasoline. Economists believe the government is preparing to raise gasoline prices in order to reduce the fiscal deficit, estimated at 14-16% of GDP. More in Spanish: (Ultimas Noticias, 02-22-2013; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/se-abre-debate-para-aumento-de-precio-de-la-gasoli.aspx; El Mundo, http://www.elmundo.com.ve/Noticias/Economia/Politicas-Publicas/Analisis---Gobierno-venezolano-rompe-tabu-y-abre-d.aspx)

PDVAL supplies 61% of national food consumption

PDVAL Vice President for Food Production and Distribution, Heber Aguilar, claims "PDVAL dispatches at least 50,000 tons of food monthly, which is 61% of the basic food basket and serves 17 million people nationwide." More in Spanish: (AVN, 02-22-2013; http://www.avn.info.ve/contenido/pdval-abastece-61-del-consumo-nacional-alimentos)

Chavez brother slams "irrational" use of energy

Argenis Chavez, president of Venezuela's National Electrical Corporation (CORPOELEC), points to "an irrational use of energy" in the country, which he attributes to increased demand that puts pressure on the National Electric System (SEN). "We waste much energy in the country. We lack an energy saving culture," Chávez said. (El Universal, 02-21-2013; http://www.eluniversal.com/economia/130221/top-official-reports-irrational-use-of-energy-in-venezuela)

International Trade

Fuel imports from the US rose in November

Data from the US Energy Information Administration reveals US crude and oil derivate exports to Venezuela rose from 2.588 million to 3.338 million barrels in November 2012. The figure does not include information for December. More in Spanish: (El Mundo, 02-22-2013; http://www.elmundo.com.ve/Noticias/Petroleo/Industria/Venezuela-elevo-compras-de-combustible-a-EEUU-en-n.aspx)

Politics

Chavez respiratory infection persists, and tendency is unfavorable

Information Minister Ernesto Villegas announced that President Chavez remains under treatment, saying "the respiratory insufficiency which arose after his operation is persisting and the tendency has not been favorable, so it continues to be treated". More in Spanish: (AVN, 02-22-2013; http://www.avn.info.ve/contenido/ministro-villegas-presidente-ch%C3%A1vez-contin%C3%BAa-tratamiento-sin-efectos-adversos; El Universal, http://www.eluniversal.com/nacional-y-politica/130222/persiste-insuficiencia-respiratoria-del-primer-mandatario)

Venezuela accuses US of meddling...

Venezuela's government is criticizing the U.S. State Department for comments about a possible transition in the country, calling a spokeswoman's remarks an attempt by Washington to meddle in Venezuela's affairs.  U.S. State Department spokeswoman Victoria Nuland referred to the possibility of a new presidential election in Venezuela when asked on Tuesday about ailing President Hugo Chavez's return from Cuba. Nuland noted that if Chavez should "become permanently unavailable to serve, our understanding is that the Venezuelan Constitution requires that there be an election to seek a new president." Ms. Nuland has replied her statement was misinterpreted, saying she was "spelled out what we understand the Venezuelan Constitution says. That's different from whether the president can serve during his term". (Fox News, 02-20-2013; http://www.foxnews.com/world/2013/02/20/venezuela-accuses-us-meddling-with-state-department-comments-about-possible/#ixzz2LZat7ESi; AVN; http://www.avn.info.ve/contenido/venezuela-rejects-us-government-meddling; and more in Spanish: El Universal, http://www.eluniversal.com/nacional-y-politica/130222/nuland-dice-que-venezuela-interpreto-mal-sus-declaraciones)

... and yet, Ecuador's Correa says Maduro could run Venezuela if Chavez resigned

Ecuador's President Rafael Correa says Hugo Chavez is recovering from cancer surgery, but if he had to step down Vice President Nicolas Maduro would be "extremely capable" of running the nation. Correa told Reuters he thinks Maduro is the right person to take over in Venezuela if the socialist leader needs to step down. "Regardless of who may take charge, my main concern is that Chavez recovers ... but in case he cannot be in charge, Vice President Maduro is extremely capable," Correa told Reuters in an interview. (Reuters, 02-21-2013; http://www.reuters.com/article/2013/02/21/venezuela-chavez-correa-idUSL1N0BL9FQ20130221; El Universal, 02-20-2013; http://www.eluniversal.com/nacional-y-politica/130220/ecuadorian-president-rafael-correa-to-visit-chavez)


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.