April 09, 2013

Economics & Finance

With elections Sunday, Venezuela's next leader inherits headaches

As acting President Nicolás Maduro and opposition leader Henrique Capriles prepare to face off in elections on April 14, many analysts and economists say the victor will inherit a country with a toxic mix of inflation, government overspending and a shortage of hard currency that is rapidly becoming unsustainable. In one effort to stem the problems, the government created a new foreign-exchange agency that will auction dollars in an effort to reduce shortages of basic goods, as a dollar liquidity squeeze has depreciated the value of the local currency on the country's black market to about a quarter of its official fixed exchange rate. But analysts say the new exchange mechanism, launched in March and jointly administered by the central bank and the Finance Ministry, is little more than a band-aid for the country's economic woes. The lack of transparency and the limited access to the new exchange system also raised concerns that it will be unsuccessful in meeting the dollar needs of a local economy that relies heavily on imports. The economy will run into major problems with inflation if the new president keeps his foot on the gas, analysts say. But the economy could slow sharply if there is a pullback in state expenditures. Annual inflation is above 22% and could top 30% this year, analysts say, after the government devalued the Bolívar in February. Analysts speculate that if Mr. Maduro wins he will replace the country's finance minister, Jorge Giordani, a devoted Marxist and one of the main architects of Venezuela's economic system. Former finance minister José Alejandro Rojas, seen as more pragmatic than Mr. Giordani, is one person who could replace him, according to several people close to the government. (The Wall Street Journal, 04-06-2013; http://online.wsj.com/article/SB10001424127887323646604578402972929434996.html)

Venezuela to hold new dollar auction after election this month

Venezuela will hold a second dollar auction on a complementary currency system created last month after presidential elections are held on April 14, Oil Minister Rafael Ramirez told reporters yesterday during an interview. The government won’t publish the exchange rate used in future auctions, he said. It will publish a set schedule and plans to make it easier for importers to participate in the process, Ramirez, who sits on a new currency supervising board, said from his Caracas office. “Companies involved in the process know the parallel exchange rate does not represent the economy,” Ramirez said. “The first dollar auction was a test run.” (Bloomberg, 04-08-2013; http://www.bloomberg.com/news/2013-04-08/venezuela-to-hold-new-dollar-auction-after-election-this-month.html)

Commodities

Ramírez says crude, liquids output stable at 3.12 million bpd

Venezuela's production of crude and natural gas liquids has stabilized at 3.12 million barrels per day after state oil company PDVSA halted a decline in output from the OPEC nation's second-most-productive region, Oil Minister Rafael Ramirez said in an interview on Monday. Ramirez told Reuters that PDVSA has found new reserves of 1 billion barrels of light crude in the eastern Monagas region, where production had been slowly but steadily declining since last year.

"Production is going up, particularly in the (central) Orinoco oil belt. The situation in the east has been solved and output there will continue to rise following the discovery we've made in El Furrial," he said in a telephone interview. (Reuters, 04-08-2013; http://www.reuters.com/article/2013/04/08/us-venezuela-oil-idUSBRE9370WA20130408)

Oil sales to the US down in January

Venezuelan oil exports to the Unites States in January 2013 averaged 898,000 barrels per day (bpd). Although the figure is actually higher (19.7%) than in the same period in 2012 (750,000 bpd), it is 5.6% below the average reported in 2012 (952,000 bpd), according to the US Department of Energy. The figure recorded in January 2013, is also a below the second half of 2012, when oil exports to the US exceeded 950,000 bpd. According to 2012 reports by the Ministry for Petroleum and Mining, oil exports to the US in 2012 dropped by 15% to 990,000 bpd as against 2011 (1.16 million bpd).(El Universal, 04-08-2013; http://www.eluniversal.com/economia/130408/venezuelan-oil-sales-to-the-us-down-in-january)

Venezuela spends 5.5% of GDP on fuel subsidies, according to a report on 176 nations prepared by the International Monetary Fund (IMF) found in a report prepared with a database of 176 nations. Latin America and the Caribbean were 7.5% of the energy global subsidy in 2011, which was U$D 1.9 trillion or 2.5% of the world GDP. The IMF highlighted that energy subsidies (oil, gas, electric power and coal) in Venezuela and Ecuador exceeded 5% of national GDP. (El Universal, 04-06-2013; http://www.eluniversal.com/economia/130406/venezuela-spends-55-of-the-gdp-for-fuel-subsidy)

International Trade

Shipments to PETROCARIBE rose 14% in 2012, according to reports from Venezuela's Petroleum and Mining Ministry- for an average 108,000 barrels per day (bpd) of hydrocarbons, a 14% hike above 95,000 bpd in 2011.(El Universal, 04-06-2013; http://www.eluniversal.com/economia/130406/shipments-to-petrocaribe-up-14-in-2012)

Politics

Analysis: Venezuela's Maduro faces tricky post-Chavez panorama

Acting President Nicolas Maduro may struggle to advance the late Hugo Chavez's socialist policies if he wins Venezuela's election on Sunday, lacking both his predecessor's iron grip on a disparate ruling coalition and the robust state finances that cemented his rule. Widely liked among Chavez supporters but lacking his mentor's charisma, the former bus driver and union organizer may also have trouble controlling "Chavismo," a movement ranging from military officers and oil executives to slum community organizers and ideologues. "Chavez was a barrier to a lot of the crazy ideas that occurred to us," said Diosdado Cabello, a powerful party leader seen by many Venezuelans as a potential rival to Maduro. "He imposed his leadership, his prudence and his conscience, and in many cases ensured we did not carry on." Cabello has considerably greater sway than Maduro in important areas such as the military, the legislature and state governorships, and Maduro could come under pressure from inside the coalition. Despite maintaining his late boss's shrill rhetoric - including calling foes heirs of Hitler - Maduro is unlikely to maintain Chavez's torrid pace of nationalizations, his regular confrontations with private enterprise, or the diplomatic run-ins with the United States and its allies. (Reuters, 04-08-2013; http://www.reuters.com/article/2013/04/08/us-venezuela-election-maduro-idUSBRE9370PZ20130408)

Plots and sabotage: Chavez candidate spins conspiracy theories ahead of Venezuelan election

Salvadoran mercenaries are plotting with Venezuela’s opposition candidate to assassinate interim President Nicolas Maduro. But wait, the plot thickens. Central American agents, along with former U.S. diplomats, are also plotting to kill the opposition candidate, Henrique Capriles. Those are just two of the conspiracy theories that Maduro has put forth ahead of Sunday’s election to replace Hugo Chavez. Maduro, who is running as Chavez’s hand-picked successor, also says the government has launched an investigation to determine if someone — U.S. agents, he has hinted — inoculated Chavez with the cancer that killed him March 5. (The Washington Post, 04-08-2013; http://www.washingtonpost.com/world/the_americas/plots-and-sabotage-chavez-candidate-spins-conspiracy-theories-ahead-of-venezuelan-election/2013/04/08/2696601a-a07b-11e2-bd52-614156372695_story.html; Fox News, http://www.foxnews.com/world/2013/04/08/plots-and-sabotage-chavez-candidate-spins-conspiracy-theories-ahead-venezuelan/)

Opposition holds huge rally in Venezuelan capital

Hundreds of thousands of Venezuelan opposition supporters rallied in a staunchly pro-government part of the capital on Sunday, answering a call by their candidate Henrique Capriles and showing strength a week before the presidential election. "Today the streets of Caracas are full of happiness and hope, confirming what will happen next Sunday," Capriles, the 40-year-old governor of Miranda state, told the crowd. (Reuters, 04-08-2013; http://www.reuters.com/article/2013/04/08/us-venezuela-election-idUSBRE93600G20130408; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=738179&CategoryId=10717; The Washington Post, http://www.washingtonpost.com/world/the_americas/venezuelan-opposition-floods-streets-of-capital-in-show-of-support-for-candidate/2013/04/07/e658fa30-9fb7-11e2-bd52-614156372695_story.html)

Capriles: "Do not leave polls on April 14"

Opposition candidate Henrique Capriles Radonski urged his supporters to remain at polling centers after voting, saying they "need to be there for the auditing procedures. If each of you fulfills this task, there will be no cheating that can defeat us next Sunday. Remember that Elections Board is against us". More in Spanish: (El Universal, 04-09-2013; http://www.eluniversal.com/nacional-y-politica/130409/capriles-no-me-abandonen-las-mesas-de-votacion-el-14a)

The Carter Center will attend elections, after accepting an invitation from the Elections Board. More in Spanish: (El Universal, 04-09-2013; http://www.eluniversal.com/nacional-y-politica/130409/centro-carter-enviara-delegacion-para-las-votaciones)

Guyana confirms concession at Venezuelan Atlantic front

Guyana's Finance Minister Ashni Kumar Singh confirmed that the concession for the Stabroek oil block, partly located off Venezuela's Atlantic front, has been renewed. The minister said, "The acquisition of new marine 3D seismic data by CGG Veritas at the prospecting area licensed to Esso-Shell commenced in November 2012 and new oil prospecting licenses were issued or renewed for further work at several locations including the Takutu Basin, the deepwater Stabroek block, and the Corentyne block." (El Universal, 04-08-2013; http://www.eluniversal.com/nacional-y-politica/130408/guyana-confirms-concession-at-venezuelan-atlantic-front)

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.