May 10, 2013

Economics & Finance

April inflation hits 3-year high of 4.3%%

Consumer prices rose in April at their fastest rate in three years, the central bank said on Thursday, presenting a growing economic challenge for recently elected President Nicolas Maduro. Inflation last month reached 4.3%, with the annualized rate hitting 29.4%, driven by a 6.4% rise in food and non-alcoholic drinks. The figures will make tough reading for Maduro, who won election last month by a narrow margin of 1.5 percentage points but is constantly accused of economic mismanagement by opposition leader Henrique Capriles. (Reuters, 05-09-2013; http://www.reuters.com/article/2013/05/09/venezuela-inflation-idUSL2N0DQ33W20130509; Bloomberg, http://www.bloomberg.com/news/2013-05-09/venezuela-inflation-soars-toward-30-as-maduro-cuts-dollar-sales.html)

Maduro cuts dollar sales

The government introduced a complementary currency system this year, after a February devaluation, that auctioned $200 million on March 27. The system, known as SICAD, has not auctioned any foreign currency since. Finance Minister Nelson Merentes said May 2 that 85% of the country’s economic problems would be solved “soon.” Fewer dollars for importers make it harder to buy goods abroad, exacerbating shortages. The scarcity index, which measures the amount of goods that are out of stock on the market, rose to 21.3% last month, the highest since the central bank started tracking the measure in April 2009, according to the central bank report. (Bloomberg, 05-09-2013; http://www.bloomberg.com/news/2013-05-09/venezuela-inflation-soars-toward-30-as-maduro-cuts-dollar-sales.html)

Scarce food staples leads to lines, rationing

Scarcities are strongest in flour, milk, margarine, oil, sugar and other staples in the Greater Caracas area, and consumers must wait in long lines to obtain them. In addition, many stores are selling only one to four units to buyers in order to make sure there is enough to go around. More in Spanish: (El Mundo; http://www.elmundo.com.ve/Noticias/Economia/Industrias/Escasez-de-alimentos--basicos-pone-a-la-gente-a-ha.aspx)

New labor law may increase business costs by 39.2%

Asdrúbal Oliveros, director of the ECOANALÍTICA economic think tank is estimating that the newly enacted Labor Law will take a heavy toll on the economy and is particularly harmful to small and medium enterprises. He says that according to their projections the cost of labor will rise around 39.2% due to a return to retroactive compensation, increased vacation bonuses, a reduction in working hours, among others; and adds that the impact in the area of trade is 53%. More in Spanish: (El Universal, 05-10-2013 http://www.eluniversal.com/economia/130510/estiman-que-lottt-incremento-los-costos-laborales-en-392)

BANDES murky operations estimated at U$D 33 million

US authorities have unveiled a fraud by a New York based brokerage firm, Direct Access Partners (DAP), bribed the way for the Economic and Social Development Bank of Venezuela (BANDES) to sell FOREX cheaply and buy it dearly, leaving behind a handsome return. DAP would pay bonds and sell them afterwards to BANDES at higher prices. Also, whenever BANDES needed to sell a share of its bonds, it would offer them to DAP much lower than market prices. (El Universal, 05-09-2013; http://www.eluniversal.com/economia/130509/murky-operations-for-usd-33-million-at-bandes; Bloomberg, http://www.bloomberg.com/news/2013-05-07/venezuelan-offical-u-s-broker-dealers-charged-in-bribe-scheme.html; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=772712&CategoryId=10717; http://www.laht.com/article.asp?ArticleId=772127&CategoryId=10717; The Washington Post, http://www.washingtonpost.com/business/venezuelan-banking-official-and-2-miami-broker-dealers-charged-in-5-million-ny-bribery-case/2013/05/07/f9b256d6-b771-11e2-b568-6917f6ac6d9d_story.html)

Commodities

PDVSA is the fifth largest oil company in the world, according to Petroleum Intelligence Weekly (PIW). The largest global company is Saudi Arabia's ARAMCO, followed by Iran's NIOC, US firm EXXON MOBIL and China's CNPC. More in Spanish: (AVN, 05-10-2013; http://www.avn.info.ve/contenido/pdvsa-se-ubica-como-quinta-petrolera-m%C3%A1s-grande-del-mundo)

BRASQUEM and ODEBRECHT will build an urea plant in Venezuela, according to a statement by President Nicolás Maduro following his meeting with Brazilian President Dilma Rousseff. The plant is expected to produce 1.5 million tons of fertilizer per year, to supply the local market and Northern Brazil. He said Venezuela is a supplier of green coke to Brazil. More in Spanish: (El Universal, 05-10-2013; http://www.eluniversal.com/economia/130510/brasil-participara-en-construccion-de-planta-de-urea)

REPSOL says no gas production at Cardón IV until 2014

REPSOL has announced there will be no gas production at the Cardón IV bloc until 2014. CARDON IV is a joint venture by REPSOL and Italy's ENI, along with PDVSA, to develop a field which has 9.51 cubic foot reserve and 182 million condensed barrels. More in Spanish: (El Universal, 05-10-2013; http://www.eluniversal.com/economia/130510/repsol-reitera-que-gas-de-cardon-iv-no-llegara-antes-de-2014)

International Trade

Maduro gets firm Brazilian backing, trade; signs agreements with Argentina and Uruguay

President Nicolas Maduro got strong backing from Brazil on a tour of South American allies to cement his legitimacy as political heir to the late Hugo Chavez. The endorsement will strengthen Maduro's grip on power following his contested election. "We wish you great success with your presidential mandate and your government," Brazilian President Dilma Rousseff said after a meeting in which she promised Venezuela food supplies, expanded trade and cooperation in the oil and gas sector. Maduro announced that Brazilian construction and engineering conglomerate ODEBRECHT will build a 1.5-million-ton-a-year urea plant in Venezuela. He said Brazil and Venezuela agreed to strengthen military ties. In private, though, Rousseff was expected to advise Maduro to tone down his aggressive rhetoric against his opponents for the sake of political stability, said a diplomat who was briefed ahead of the meeting. Venezuela is the second largest market after Argentina for Brazilian manufactured goods, and its trade with Venezuela that has expanded seven-fold in the last decade to U$D 6 billion last year. Maduro previously visited Argentina, where he signed 12 agreements with President Cristina Kirchner; and Uruguay, where he signed in the agreements in areas of energy, defense, science and technology with President José Mujica. Maduro told Rousseff he is "building a government for all, for those who voted with us and for those who did not". (REUTERS, 05-10-2013; http://uk.reuters.com/article/2013/05/10/uk-brazil-venezuela-maduro-idUKBRE94900920130510); AVN, 05-09-2013; http://www.avn.info.ve/contenido/venezuela-argentina-ink-12-agreements; El Universal, http://www.eluniversal.com/nacional-y-politica/130509/venezuela-argentina-presidents-ratify-bilateral-alliance; The Washington Post, http://www.washingtonpost.com/world/the_americas/venezuelan-president-rivals-tour-south-america-seeking-allies-after-contested-election/2013/05/08/ffb8f0d0-b83e-11e2-b568-6917f6ac6d9d_story.html; Fox News, http://www.foxnews.com/world/2013/05/08/venezuelan-president-rivals-tour-south-america-seeking-allies-after-contested/ and more in Spanish: El Universal, http://www.eluniversal.com/nacional-y-politica/130510/maduro-aseguro-a-rousseff-que-gobierna-para-todos)

Politics

The Economist: As political and economic crises deepen, the army waits in the wings

With a narrow and disputed election victory last month and an accelerating economic crisis, the man who succeeded Hugo Chávez as Venezuela’s president got off to an inauspicious start. Now Nicolás Maduro’s efforts to establish authority are making matters worse at home, and setting alarm bells ringing abroad. Food shortages are worsening and inflation is nearing 30%. Falling oil prices have eroded foreign reserves, roughly 70% of which consist of gold, another tumbling commodity.. But without a change of course, Venezuela is heading for social unrest. Diosdado Cabello, the speaker of the Assembly and a former army lieutenant, is seen as Maduro’s main rival within the chavista movement. Many on the radical, civilian left view him as a dictator-in-waiting. His contemporaries in the army are now generals. Some fear that Cabello is trying to engineer violence that would leave him holding the whip hand. Maduro appears to have little room for maneuver. In contrast to Chávez’s one-man show, government decisions are taken by a shadowy junta known as the “political-military command”. For the first time, analysts are speaking of a split in the armed forces. Rocío San Miguel of Citizens’ Control, a think-tank, says street violence requiring army intervention “could oblige the armed forces to take a [political] position”. The government says this is alarmist talk put about by the opposition and Venezuela’s foreign enemies. But the crisis seems ever more real. (The Economist, http://www.economist.com/news/americas/21577392-political-and-economic-crises-deepen-army-waits-wings-cry-havoc)

Peru seeks UNASUR meeting on Venezuela

Peruvian Foreign Minister Rafael Roncagliolo has announced that as pro tem chair of UNASUR, the Peruvian government has begun "consultations" for a regional position on Venezuela. More in Spanish: (El Universal, 05-10-2013; http://www.eluniversal.com/nacional-y-politica/130510/peru-gestiona-reunion-de-unasur-por-caso-venezolano)

Colombia's Congress analyzes motion on Venezuela

Colombia's Congress is considering a formal statement over Venezuela after hearing a report from Venezuelan legislator María Corina Machado on attacks on opposition legislators and denial of their right to speak at the National Assembly. More in Spanish: (El Universal, 05-10-2013; http://www.eluniversal.com/nacional-y-politica/130510/congreso-colombiano-evaluara-mocion-sobre-venezuela)

MERCOSUR legislators seek to suspend Venezuela

Legislators from Argentina, Paraguay and Uruguay have asked the chairman of MERCOSUR' s parliament to call a special meeting to analyze the presence of Venezuela in the regional grouping. They seek to analyze events in Venezuela during 2013 following April 14th presidential elections in light of the Ushuaia Protocol democratic clause. The request says "many instances lead to this request. Among them, the troubling situation coming out of elections, the beating of opposition legislators, persecution of critical media and charges of severe violations of human rights.". More in Spanish: (El Nacional, 05-10-2013; http://www.el-nacional.com/)

US vice-president urges Venezuelan president to dialogue

The US administration called on President Nicolás Maduro to open "genuine dialogue" to overcome the crisis Venezuela has been going through due to the "profound division" of society following the narrow results of the April 14th presidential election. US Vice-President Joe Biden saidany Venezuelan Government has a key responsibility regardless of the election's winner: to allow freedom of expression and assembly, protect citizens from violence, and engage in a genuine dialogue in a country that is profoundly divided. (El Universal, 05-08-2013; http://www.eluniversal.com/nacional-y-politica/130508/us-vice-president-urges-venezuelan-president-to-open-dialogue; http://www.eluniversal.com/nacional-y-politica/130508/the-us-laments-no-dialog-to-resolve-polarization-in-venezuela)

US imposes sanctions on a Iran-Venezuela bank

The US Treasury Department has placed sanctions on the Iran-Venezuela Binational Bank (IVBB) for being ac financial "representative" of the Iran's Development Bank. More in Spanish: (El Mundo, 05-10-2013; http://www.elmundo.com.ve/Noticias/Actualidad/Internacional/EEUU-condena-a-banco-binacional-Iran-Venezuela.aspx)

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.