April 19, 2013

Economics & Finance

Venezuelan bonds do the collapse

It’s been a rough few days for Venezuelan bonds. Since peaking on April 10 ahead of this past weekend’s elections to replace Hugo Chavez as president of that Latin American nation, a 10-year government bond has dropped 5.3% and is down 8.7% since its high on Mar. 5. And now the once popular bonds are also losing their appeal to strategists and investors, as close elections raise questions about the stability of the county. Venezuela’s bonds were once much loved by investors. With their big coupons and the country’s capacity to pay thanks to hefty oil revenues, many bond managers found them more appealing than those of other high-yielding nations like Ukraine and Argentina. (Latin American Herald Tribune, 04-17-2013; http://www.laht.com/article.asp?ArticleId=750431&CategoryId=10717)

Fitch: Close Venezuelan election fails to dispel uncertainty

The unexpectedly close election outcome in Venezuela’s presidential race has created a more dynamic and uncertain political situation, which could influence the new government’s approach to economic policy and its ability to govern effectively, according to Fitch. President-elect Nicolas Maduro’s failure to capture a clear electoral mandate could complicate the task of making policy adjustments to rebalance the Venezuelan economy. This could slow progress toward the reduction of fiscal and external vulnerabilities that could undermine growth and erode sovereign creditworthiness. (Latin American Herald Tribune, 04-17-2013; http://www.laht.com/article.asp?ArticleId=750342&CategoryId=10717)

Commodities

Russian oil giant ROSNEFT to participate in Orinoco Oil Belt development

Russian oil company ROSNEFT will participate in blocks Carabobo 2 north and Carabobo 4 west in the Orinoco Oil Belt, Venezuela. ROSNEFT's share is 40% while PDVSA holds 60%. The agreement is for construction of a refinery with annual total output estimated at ten million tons to enhance the quality of the oil extracted for export 2 oil reserves total 40 billion barrels approximately. (El Universal, 04-18-2013; http://www.eluniversal.com/economia/130418/russian-oil-giant-rosneft-to-participate-in-orinoco-oil-belts-activiti)

Fire lashes refinery in Northwest Venezuela

A fire was reported at Cardón refinery in Northwest Venezuela, after midnight on Wednesday. The incident seems due to a leak in one of the plant's pumps. No one was reported injured but damages extend to a large part of the plant's MEK de-waxing unit (MDU). Iván Freites, Executive Secretary of the United Federation of Venezuelan Oil Workers (FUTPV) explained that a defective seal in pump G-18 caused a leak of oil transferred to furnace A-18 in the MDU. He said fire destroyed nearly 70-80% of the unit which " needs to be rebuilt." (El Universal, 04-18-2013; http://www.eluniversal.com/economia/130418/fire-event-lashes-refinery-in-northwest-venezuela)

Venezuela says OPEC may hold special meeting

Members of the Organization of Petroleum Exporting Countries are discussing holding a special meeting following the recent drops in international oil prices, Venezuela Oil Minister Rafael Ramirez told reporters Thursday. "We're watching the price of oil, and we're being careful," Mr. Ramirez said at the central office of state energy company Petroleos de Venezuela SA, which is also headed by the minister. "We've been in discussions over whether or not they are going to call a special meeting of OPEC. We've maintained that there is oversupply of oil in the market," said Mr. Ramirez, repeating his government's frequent calls to hold a "floor" of $100 a barrel. (Fox Business, 04-18-2013; http://www.foxbusiness.com/news/2013/04/18/venezuela-says-opec-may-hold-special-meeting/#ixzz2QrBgeN8b)

Politics

Conceding to opposition, election council to audit Venezuela vote

Government supporters began filling the streets of Caracas today to celebrate the inauguration of Nicolás Maduro, even as opponents greeted officials’ surprise announcement they will accept an audit of the disputed vote that handed a narrow margin of victory to the heir of late President Hugo Chavez. Opposition candidate Henrique Capriles said the audit announced late last night will prove he won the presidency, but officials appear to be confident there will be no reversal of the result when the count is finished, long after Nicolas Maduro is legally sworn in for a new term as president. Still, the audit was a sudden reversal for a government that insisted all week that there would be no review of Sunday’s vote and took a hard line against the opposition that included allegedly brutal treatment of protesters. The announcement appeared to be the result of pressure from at least some of the South American leaders who called an emergency meeting in Lima, Peru, Thursday night to discuss Venezuela’s electoral crisis — and wound up endorsing Maduro’s victory. Even if it leaves the vote standing and calms tensions in the country, the recount will strengthen the Venezuelan opposition against a president whose narrow victory left him far weaker than his widely popular predecessor Chavez, analysts said. That will complicate Maduro’s effort to consolidate control of a country struggling with steep inflation, shortages of food and medicines, chronic power outages and one of the world’s highest homicide and kidnapping rates. Venezuela’s National Electoral Council said just before the start of the meeting in Lima that it would audit 46% of the vote not already scrutinized on election night. An electoral official told The Associated Press that the new process, to start next week, would replicate the one from election night. (The Washington Post, 04-18-2013; http://www.washingtonpost.com/world/the_americas/post-election-venezuela-crackdown-deemed-worst-in-years/2013/04/18/df5f153a-a88f-11e2-9e1c-bb0fb0c2edd9_story.html)

JP Morgan: Signs of a negotiated solution

New developments overnight suggest an attempt at a negotiated solution to the political crisis that followed the narrow victory of the government candidate Nicolas Maduro over opposition leader Henrique Capriles. Currently with 99.2% of votes counted the CNE has given Maduro 50.75% of the valid vote, compared to 48.98% for Capriles -- a difference of some 262k votes.  Last evening, in chronological order: 1. Venezuela's electoral authority (CNE) announced that it would grant a full audit of the 46% of ballot boxes that were not audited immediately after April 14.  This does not entail a full vote-by-vote recount; rather a relevant sample of the paper receipts of each ballot box will be compared with the official electronic tabulation.  The CNE said this process will take 30 days and they would provide regular updates every 10 days. 2. Henrique Capriles held a press conference in which he said he was satisfied with the CNE's response and confident that his concerns over irregularities would be revealed in the 46% of remaining ballot boxes. Capriles said he was prepared to go to a regional UNASUR presidential summit last night to discuss the crisis, but he stayed in Caracas to respond to the CNE ruling. He also called for calm and "no anarchy" at today's inauguration, which his supporters should peacefully protest by banging pots and pans (cacerolazo) and blaring salsa music. 3. The UNASUR summit in the early morning hours of Friday issued a declaration recognizing Maduro's election but praising the CNE's audit decision, and calling on all sides to respect the CNE's final conclusions. The summit declaration also deplored the violence that followed the result and agreed to send a commission to follow the investigation into those events. In our view, the way the events unfolded suggest some kind of negotiated solution took place yesterday. In sum, regional leaders agreed to recognize Maduro, but only on the condition of the CNE conceding the vote audit. For his part, Capriles would agree to recognize the CNE results and not disrupt Maduro's inauguration today. The successive timing of these announcements yesterday night (1. CNE, 2. Capriles, 3. UNASUR -- with all the presidents up well after midnight) suggests this agreement was to some degree negotiated beforehand and coordinated, which should help reinforce its goal in easing the crisis. Indeed, barring some unexpected twist we think the immediate crisis should ease, and the immediate risks that the crisis will escalate into outright institutional breakdown are lower. Market focus should gradually shift to analyzing Maduro's relative political strength going forward and his ability to address economic concerns. We think there are still major questions surrounding both issues, and will watch for signals in the coming days to hopefully provide more clarity. (JP Morgan Latin America Emerging Markets Research; https://markets.jpmorgan.com/research/EmailPubServlet?action=open&hashcode=-c9n0tnb&doc=GPS-1099819-0.html)

Opposition legislators to refrain from attending presidential inauguration

Venezuelan opposition legislators announced they will not quit the National Assembly although Speaker Diosdado Cabello has barred from speaking those who have not recognized Nicolás Maduro as newly elected president of Venezuela. Opposition deputy Leomagno Flores says ruling party legislators simply seek the withdrawal of opposition deputies from the National Assembly to freely appoint representatives in the National Electoral Council, judges in the Supreme Tribunal of Justice, the Comptroller, among others. (El Universal, 04-18-2013; http://www.eluniversal.com/nacional-y-politica/130418/opposition-legislators-to-refrain-from-attending-presidential-inaugura)

Maduro trades barbs with U.S. over Venezuela election

Venezuela's opposition leaders feared persecution over post-election protests while the U.S. government backed their calls for a recount and said on Wednesday it was still deciding if it would recognize President-elect Nicolas Maduro.

The narrow victory by Maduro in Sunday's presidential vote has been rejected by his rival, Henrique Capriles, who is alleging thousands of irregularities at polling centers and wants a full audit of the ballots. Washington said it had not decided whether to recognize Maduro, a former bus driver-turned-foreign minister who was picked as successor by the late socialist leader Hugo Chavez. (Reuters, 04-17-2013; http://www.reuters.com/article/2013/04/18/us-venezuela-election-idUSBRE93F0RU20130418)

Kerry Encourages Venezuela Recount

Secretary of State John Kerry said Wednesday that Venezuela should hold a recount of votes cast in its presidential election, which the country’s electoral authorities say was narrowly won by a protégé of former President Hugo Chávez. Mr. Kerry, in comments to a House committee, said, “We think there ought to be a recount.” He added that he had not yet evaluated whether Washington would recognize Mr. Maduro’s victory. (The New York Times, 04-17-2013; http://www.nytimes.com/2013/04/18/world/americas/kerry-encourages-recount-in-venezuela.html?_r=0)

HRF calls for peaceful solution of Venezuela's political crisis

Following the political crisis arising from the results of the presidential election held in Venezuela on April 14, the Human Rights Foundation has called on Venezuelan authorities and opposition leaders to come to terms.

The organization also expressed in its statement its rejection to reported physical aggressions against opposition deputies Julio Borges and William Dávila by Government's supporters. (El Universal, 04-18-2013; http://www.eluniversal.com/nacional-y-politica/130418/hrf-calls-for-peaceful-solution-of-venezuelas-political-crisis)

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.