May 21, 2013

Economics & Finance

Venezuela faces less growth, increasing shortages and higher inflation

Prices soar meteorically, basic commodities vanish from supermarket aisles, and the economy plunges into recession and reduced growth. Just what is going on? The epicenter of this tremor is none other than the government, which in the midst of elections throughout 2012 and the ones held last April opted to unleash public spending to create a sense of bonanza. Economist Miguel Ángel Santos notes that public spending in 2012 was the highest ever in real terms per capita. The State dished out the equivalent of 51% of the GDP while the rest of Latin America averaged 30%. And spending in the first quarter of 2013 continued to expand. (El Universal, 05-18-2013; http://www.eluniversal.com/economia/130518/venezuela-faces-less-growth-increasing-shortages-and-higher-inflation)

Finance Ministry and Central Bank are adjusting SICAD, domestic debt estimated around U$D 53 billion

The reactivation of SICAD - Ancillary FOREX System - is been further delayed as the Finance Ministry and the Central Bank continue to review it, thus confining FOREX allocation to CADIVI. After meeting with food industry representatives, Central Bank President Edmée Betancourt said "the outflow from SICAD has been slow, and this is what we are trying to improve". Central Bank Director and CADIVI VP José Khan added that "there will be no auction this week". According to ECOANALITICA consulting firm, ECOANALÍTICA, the government would have to disburse U$D 53 billion to meet domestic obligations: U$D 16 billion for expropriations; some U$D 12 billion in dividend repatriations spanning several years, and some U$D 9.5 billion in CADIVI's backlog. On top of this there are U$D 16 billion which PDVSA owes its suppliers and contractors. More in Spanish: (El Universal, 05-21-2013; http://www.eluniversal.com/economia/130521/finanzas-y-bcv-hacen-ajustes-al-sicad-y-dilatan-su-reactivacion and GRUPOSOLUCIONES).

Government seeks private support to reduce shortages

The government has resorted to the private sector to fight widespread shortage of staples. Meetings are beginning this week between the business sector and the government in order to overcome hurdles to production. Finance Minister Nelson Merentes has conceded that delays in the apportionment of foreign currency at the official exchange rate are among the causes for shortages. (El Universal, 05-20-2013; http://www.eluniversal.com/economia/130520/socialism-trapped-at-this-moment-in-time)

An agro-industrial state struggles with food production

The first four months of the year show a 16.24% inflation in foods and a 21.3% shortage in basic staples as food demand soars above supply constrained by restricted access to currency, labor strife and 20 month old price controls on several items. Although the government warns that it will not allow companies to lower production, the truth is that the Venezuelan agro-industrial sector, which had prices climb 20% in 2013, is not only in the hands of private businesses. Luis Vicente León, director of consulting firm DATANÁLISIS, explains that in October 2012 the government, particularly Minister Jorge Giordani (then head of the Planning and Finance Ministry) "significantly deepened its economic revolution. Giordani felt it was time to take control of the economy and reacted to what he deemed impossible, imports reaching U$D 59 billion, not being required by the economy because resources are deviated and inefficiency and corruption abound." (El Universal, 05-18-2013; http://www.eluniversal.com/economia/130518/an-agro-industrial-state-struggles-with-food-production)

Commodities

Venezuela may allow oil joint ventures to manage funds

Petróleos de Venezuela SA will allow joint ventures with China National Petroleum Corp. and Chevron Corp. to manage U$D 6 billion in loans designed to reverse oil output declines, said a PDVSA official. The state-owned producer reached agreements on terms of a U$D 2 billion credit from Chevron for the PETROBOSCAN venture and a U$D 4 billion loan from China Development Bank for SINOVENSA, said the official who was briefed on the negotiations. The transactions probably will be signed by the end of June, said the person, who isn’t authorized to speak publicly. PDVSA is allowing the joint ventures to handle the funds directly for oil infrastructure rather than being channeled through the state company or the government, said the official. PDVSA is also working on arrangements with oil service providers to pay as much as U$D 2 billion in overdue payments and for new cash flow mechanisms. Venezuela, which channels oil earnings into social programs and regional fuel subsidies, is depending on the ventures with foreign partners to tap more of the world’s largest oil reserves. PDVSA is in talks for similar funding with companies including REPSOL and Royal Dutch Shell Plc as it targets output capacity of 3.5 million barrels a day by the end of 2014 from about 3 million at the end of 2013, the official said. PDVSA reported daily oil and natural gas liquids production of 3.03 million barrels last year from 3.13 million in 2011. (Bloomberg; 05-17-2013; http://www.bloomberg.com/news/2013-05-17/venezuela-said-to-allow-oil-joint-ventures-to-manage-fund.html)

20% price increases for chicken, beef, milk and cheese are now official, due to a joint resolution by the Nutrition, Agriculture and Land, Trade, and Finance Ministries. The resolution says the Government aims to "attain strategic supply levels and compensate disadvantages present in agriculture". More in Spanish: (AVN, 05-21-2013; http://www.avn.info.ve/contenido/publicados-gaceta-oficial-nuevos-precios-del-pollo-carne-leche-y-queso; El Universal, http://www.eluniversal.com/economia/130521/regularon-cortes-de-pollo-sazonados-y-la-carne-molida)

Caracas water service to be restored

Water service should be restored today after a three-day outage in parts of Caracas, the state news agency AVN said.

A water pipeline failure that the state company HIDROCAPITAL said was caused by valves at La Guairita treatment plant cut supplies to southeast and northeast areas of the nation’s most populous city for much of the weekend. Water supplies yesterday were 37% lower than normal, HIDROCAPITAL said in a website statement.(Bloomberg; 05-20-2013; http://www.bloomberg.com/news/2013-05-20/venezuela-capital-water-service-to-be-restored-after-three-days.html)

International Trade

Brazil trapped by Argentina and Venezuela economic mismanagement

Under the heading of “Brazil and the neighbors’ crises, just next door” columnist Sergio Leo exposed growing concern and disenchantment in the cabinet of President Rousseff with the economic situation of Argentina and Venezuela, MERCOSUR partners. “Ideology sympathy was strong, geopolitical proximity also but what sends the shivers down the backs of President Rousseff and her advisors and inspires the recent good-will gestures towards Argentina and Venezuela is the economic deterioration of the two countries with which Brazil has its largest trade surpluses in Latinamerica”, writes Leo. Regarding Venezuela, he says there is no positive climate for Brazilian investors since many Brazilian corporations have cancelled their operations and projects in the country. “As the Brazilian authorities cautioned the Venezuelans, Maduro will need a less troublesome political climate, to at least begin to attempt a reduction of the non functionalities of the Venezuelan economy” says Leo and recalls the meeting of Dilma with Chavez successor, during his first official round of MERCOSUR member countries visit. “Forced to revert some of the decisions that made Chavez popular, to avoid a recession of the economy, Maduro is appealing to rhetoric in an effort to minimize the impact on his not so popular public image. In Brasilia however there was satisfaction with the slight change in the tone of Maduro’s speeches, still full of triumphalism rhetoric and conspiracy theories, but now also with calls for conciliation including with business people and the business community”. (MERCOPRESS; 05-20-2013; http://en.mercopress.com/2013/05/20/brazil-trapped-by-argentina-and-venezuela-economic-mismanagements)

Minister says 26,000 tons of food arriving daily

Nutrition Minister Felix Osorio says a average of 26,000 tons of food has been arriving daily since last week, in order to strengthen reserves, thanks to agreements made with Uruguay, Argentina and Brazil. Osorio said that among other staples arriving next week there is: edible oil, powdered milk, beef, chicken, tuna and sugar. More in Spanish: (AVN, 05-20-2013; http://www.avn.info.ve/contenido/26000-toneladas-alimentos-llegan-diariamente-venezuela-para-fortalecer-reserva; El Universal, http://www.eluniversal.com/economia/130521/ejecutivo-abastece-supermercados-para-atender-la-escasez; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/26-000-toneladas-de-alimentos-llegan-a-diario-a-ve.aspx)

Politics

Opposition: Audio suggests Cuba meddling, conspiracies

Venezuela's opposition has released an audio recording that it said contains a prominent member of the ruling party discussing political strategy with a Cuban intelligence officer. Opposition lawmaker Ismael Garcia said Monday that the recording captures a phone conversation between state TV personality Mario Silva, a staunch government ally, and a Cuban identified as Lt. Col. Aramis Palacios. At a news conference, Garcia didn't say when the conversation was recorded or how he obtained it. In it, a man identified as Silva is heard discussing a split in the ruling socialist party between parliament leader Diosdado Cabello and President Nicolas Maduro, the late President Hugo Chavez's successor. The man says he worries that Cabello, a former army officer, is conspiring against the president, who narrowly defeated Capriles in an April 14 election that the opposition refuses to accept, claiming fraud. For example, the voice says, Maduro's opponents in the party want to remove Defense Minister Diego Molero. Silva first dismissed the recording on Twitter as a "montage" and suggested U.S. and Israeli intelligence agencies were behind it, and pledged his support to both Maduro and Cabello. However, he later announced he will take leave of absence from his TV show for health reasons. Cabello also dismissed the recording, calling on the opposition to present real evidence, "not a show." In a speech broadcast Monday on state TV, Maduro called for an end to "intrigues" against his administration and the armed forces but didn't specifically mention the recording. Capriles had urged his supporters to pay attention to the news conference in which the recording was released. "Every corrupt and illegitimate government always implodes!" he tweeted later Monday. (ABC NEWS, 05-20-2013; http://abcnews.go.com/International/wireStory/venezuela-opposition-audio-suggest-cuban-meddling-19219169#.UZuXQ7W1HHR; and more in Spanish: El Universal, http://www.eluniversal.com/nacional-y-politica/130521/cabello-califico-de-fiesta-mal-hecha-audio-presentado-por-opositores, and http://www.eluniversal.com/nacional-y-politica/130521/mario-silva-dice-ponerse-a-derecho-de-la-justicia-para-investigaciones)

Venezuela says it is taking steps to restore U.S. diplomatic ties

Venezuela's recent designation of an acting head of its diplomatic mission in the United States shows it's desire to restore full diplomatic relations, says Foreign Minister Elías Jaua. "This is a message for U.S. politicians so they understand Venezuela's desire to normalize relations ... via the designation of the highest diplomatic authorities," he said. "Why? Because the United States remains our top trade partner." (Reuters, 05-19-2013; http://www.reuters.com/article/2013/05/20/venezuela-usa-idUSL2N0E101X20130520; El Universal, 05-20-2013; http://www.eluniversal.com/nacional-y-politica/130520/venezuela-wants-to-reinstate-ambassadors-with-the-us)

State Dept. report notes increase in anti-Semitism in Venezuela

The State Department released its 2012 annual report on religious freedom around the world, stating expressions of anti-Semitism by government officials, religious leaders were of great concern, particularly in Venezuela, Egypt and Iran. At times, such statements led to desecration and violence, the report said. The report mentions the "numerous" anti-Semitic statements in government controlled media against opposition Presidential candidate Henrique Capriles, a Catholic of Jewish ancestry. "The government harassed and intimidated critical religious groups", and expresses "special concern" over "instances of anti-Semitism in government controlled media". More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/130521/washington-dice-que-el-gobierno-acoso-a-grupos-religiosos; The Washington Post, 05-20-2013; http://www.washingtonpost.com/politics/state-dept-report-notes-increase-in-anti-semitism-special-envoy-named/2013/05/20/9e271e86-c16d-11e2-9aa6-fc21ae807a8a_story.html)

Government releases ex-general jailed in post-election crackdown on opposition

Authorities have released a dissent ex-general who was jailed on charges of inciting unrest after the country’s disputed presidential election. Retired Gen. Antonio Rivero said he would “take care of my health” as he was freed late Friday. Opposition leaders said he was hospitalized Saturday with a respiratory infection and digestive problems following a 16-day hunger strike he undertook to protest his arrest. (The Washington Post, 05-18-2013; http://www.washingtonpost.com/world/the_americas/venezuela-releases-ex-general-jailed-in-post-election-crackdown-on-opposition/2013/05/18/2231e880-c008-11e2-b537-ab47f0325f7c_story.html; Fox News, http://www.foxnews.com/world/2013/05/18/venezuela-releases-ex-general-jailed-in-post-election-crackdown-on-opposition/)

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.