June 04, 2013

Economics & Finance

Toilet paper-less Venezuela fueling bond sale talk

Finance Minister Nelson Merentes is planning the nation’s first overseas meetings with creditors in nine years as a scarcity of dollars exacerbates shortages of everything from toilet paper to soap. While Venezuela’s borrowing costs have fallen more than 400 basis points, or 4 percentage points, since its last sale of dollar-denominated bonds in October 2011, the 10.65% yield is double the average in emerging markets. Merentes said May 30 his trip to the U.S. and Europe this month is intended to clarify the fundamentals of the economy with investors to help lower the perceived risk in holding the oil producer’s debt. Merentes will be the first finance minister to visit investors abroad since 2004, increasing speculation Venezuela is preparing to sell bonds, according to BARCLAYS PLC. Merentes told reporters May 30 that his meetings aren’t aimed at selling debt and that he will answer questions to help reduce borrowing costs. Merentes may struggle to convince investors that Venezuela deserves lower borrowing costs, according to Siobhan Morden, the head of fixed-income strategy at Jefferies Group LLC. Kathryn Rooney, a strategist at Bulltick Capital Markets LP says: “They’re going to issue bonds this year. The question is when. The other solution is a devaluation which would ramp up inflation, which the government won’t want to do because it’s unpopular. Unless they want rioting in the streets, they’re going to have to do something.” (Bloomberg, 06-03-2013; http://www.bloomberg.com/news/2013-06-03/toilet-paper-less-venezuela-fueling-bond-sale-talk-andes-credit.html)

Liquid reserves drop as currency liquidity rises

According to the latest Central Bank report, Venezuela's disposable liquid reserves dropped 12.4% in one single month, which is beneath the amount of monthly imports registered last year.  Central Bank figures show liquid reserves dropped from U$D 3.512 billion at the end of March to U$D 3.076 billion at the close of April. Average monthly imports in 2012 are U$D 4.9 billion. At the same time, Bolivars being pumped into the market continue to grow: Latest official estimates indicate monetary liquidity is now 783.842 billion Bolivars, which is a 63% increase over the past year. These numbers are set against a backdrop of low productivity and slow growth, with manufacturing dropping 3.6%. More in Spanish: (El Mundo, 06-04-2013; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/reservas-operativas-caen-y-la-liquidez-monetaria-s.aspx#ixzz2VFC7lZOW)

Barclays estimates a 2% economic drop in this quarter

BARCLAY's estimates Venezuela's economy will shrink 2% during this quarter, and projects a GDP reduction of 1.4% in 2013. Their report says "with a lack of policies to resolve the flow of foreign exchange, inventories could continue to drop during the second quarter, worsening scarcities which we believe have sent the economy into recession during this quarter". The firm estimates s 9.7% contraction for the year. More in Spanish: (El Universal, 06-04-2013; http://www.eluniversal.com/economia/130604/barclays-calcula-una-caida-de-2-de-la-economia-este-trimestre)

GDP up 0.7% in Q1 2013

The Central Bank (BCV) reports that the gross domestic product climbed 0.7% in the first quarter of 2013, compared to the same period last year. The bank attributed the result to the increases of 2.0% and 0.3% in the gross value added (GVA) of the public and private sectors, respectively. "With the rise in GDP at the beginning of year, we have recorded 10 consecutive quarters of growth in the productive activity," the bank said in a statement. (El Universal, 05-31-2013; http://www.eluniversal.com/economia/130531/venezuelas-gdp-up-07-in-the-first-quarter)

Commodities

Oil exports down amid higher domestic demand

Distortions in the oil domestic market increasingly send out ominous signs on the impact of Venezuela's domestic demand. Balance of payments results for Q1 2013 show that oil exports fell 13% as sales of oil and byproducts hit U$D 21.3 billion. According to the Central Bank, the 7.2% slice in the value of the Venezuelan oil basket, which slipped from U$D 111.99 to U$D 103.7) is one of the driving forces behind the drop in exports, yet the magnitude of the slowdown is also attributed to a 5.6% reduction of the exported volumes in order to meet domestic demand. (El Universal, 06-03-2013; http://www.eluniversal.com/economia/130603/venezuelan-oil-export-down-amid-higher-domestic-demand)

OPEC maintains joint production ceiling at 30 million barrels per day

The Organization of Petroleum Exporting Countries (OPEC) has decided to maintain the ceiling of their joint production of crude oil unchanged, that is 30 million barrels per day (mbd), fixed in December 2011. (AVN, 05-31-2013; http://www.avn.info.ve/contenido/opec-maintains-joint-production-ceiling-30-million-barrels-day)

PDVSA y and China's Development Bank sign U$D 4.015 billion financing agreement, in order to expand the SINOVENSA joint venture's ability to increase production from 140,000 to 330,000 BPD More in Spanish: (PDVSA, 06-04-2013; http://www.pdvsa.com/)

U$D 800 million are being invested for maintenance at the Paraguaná Refining Complex, in the Cardón, Amuay and Bajo Grande plants in Falcón State, according to their manager Jesús Luongo. He said maintenance work at the second largest refining complex in the world will generate over 98,000 direct jobs in 2013-2019. More in Spanish: (Notitarde, 06-04-2013;; http://www.notitarde.com/La-Costa/Invierten-al-ano-800-millones/2013/06/03/195405)

Strike paralyzes iron ore deliveries

Railroard workers at the CVG Ferrominera Orinoco mines at San Isidro, Cerro Bolívar and Altamira have gone on strike because the industry did not pay several back debts to them. Delivery of raw material to the processing areas was paralyzed, but has not yet hit provisions to industries such as SIDOR. More in Spanish: (El Universal, 06-04-2013; http://www.eluniversal.com/economia/130604/huelga-paraliza-despachos-de-mineral-de-hierro)

International Trade

Venezuela, Nicaragua to increase trade, cooperation

During a meeting with his Nicaraguan counterpart Daniel Ortega, President Nicolas Maduro says there will be a change in the relationship with Nicaragua and that there will be more cooperation in matters of energy, food, finance, trade and tourism between the two nations. (AVN, 06-03-2013; http://www.avn.info.ve/contenido/venezuela-nicaragua-enhance-commercial-cooperation)

Ecuador and Venezuela agree to cooperate on supplies

The Foreign Ministers of both nations, Ricardo Patiño and Elías Jaua, have signed agreements on cooperation in supplies and reinforcing productive capacity in both nations. Through this agreement Ecuador will export 12,700 vehicles and foodstuff to Venezuela. More in Spanish: (AVN, 06-04-2013; http://www.avn.info.ve/contenido/ecuador-y-venezuela-firmaron-este-lunes-convenios-cooperaci%C3%B3n-abastecimiento; El Universal, http://www.eluniversal.com/economia/130604/ecuador-ayudara-a-reactivar-produccion-industrial-local; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/ecuador-suministrara-alimentos-y-vehiculos-a-venez.aspx)

Politics

Capriles says Maduro's government will collapse. Opposition leader Henrique Capriles says President Nicolas Maduro's government will "cave in" under the pressure of growing economic troubles, in-fighting and a belief by many Venezuelans that it stole the April election. Capriles is still disputing the election, which he lost to Maduro by a narrower-than-expected 1.5 percentage points. But if, as expected, the fraud claims get nowhere in Venezuela's courts, Capriles says other forces may sink the successor to the late socialist leader Hugo Chavez. "I think this government, in the current conditions of illegitimacy added to a deep economic crisis it's showing no intention of addressing, is going to cave in," Capriles, the governor of Miranda state, told Reuters. "What does that mean? Well, all the mechanisms are in the constitution: referendum, new election, resignation. But ... don't ask me for ways out that are not in the constitution. Our fight is a peaceful one," he added in an interview. Some opinion polls show Capriles a few points ahead of Maduro should a presidential election be repeated. "This is the only government that took over and did not go up in the polls," Capriles said. (Reuters, 06-02-2013; http://www.reuters.com/article/2013/06/02/us-venezuela-capriles-idUSBRE95109K20130602)

Elections Board claims vote audit shows 0.02% errors, Board member claims delays feed suspicion. Tibisay Lucena, the pro-Government president of the National Elections Board claims recent audits of the 14th April Presidential elections reflect "minimum discrepancies" between the vouchers and the minutes, with a 0.02% margin of error and 95% of polling stations audited. Former Presidential candidate Henrique Capriles have impugned the elections as a fraud and abstained from taking part in the audit as it did not verify voter logs with each of citizen's signature and fingerprints. Lucena termed Capriles' request "impractical" and beyond legal requirements for "citizen verification".  At the same time Vicente Díaz, the sole independent member of the Board, demanded the reversal of a decision by the majority to refuse opposition requests for a report on incidents within the system, as well as an audit on duplicate fingerprints and dead people voting. More in Spanish: (El Universal, 06-04-2013; http://www.eluniversal.com/nacional-y-politica/130604/vicente-diaz-demoras-del-cne-solo-alimentan-las-dudas; and INFOLATAM)

Cabello: should the opposition declare war, then it must forget truce. Assembly Speaker Diosdado Cabello has again accused the opposition of plotting at home and abroad against President Nicolás Maduro. "I want to warn the Venezuelan people that the yellow bourgeoisie has been claiming that this government will be over in three months. What? Are you going to stage a coup d'état? Are you going to rise up? Then do it, but do not call for truce. Those rising up against the government must face their responsibilities. Should you declare war, then you should deal with war," Cabello warned. (El Universal, 05-31-2013; http://www.eluniversal.com/nacional-y-politica/130531/cabello-should-the-opposition-declare-war-then-it-must-forget-timeouts)

State Department calls for dialogue in Venezuela. Roberta Jacobson, US Assistant Secretary of State for the Western Hemisphere says she doesn't "know for sure if one or another clause in the OAS Inter American Democratic Charter has been violated, or whether it is the specific matter we should consider when we speak about Venezuela. I think it is legitimate to ask whether the Charter comes into play in this cas, and how to put the very polarized situation behind us in Venezuela". More in Spanish: (El Universal, 06-04-2013; http://www.eluniversal.com/nacional-y-politica/130604/departamento-de-estado-hay-que-buscar-dialogo-en-venezuela)

...as does Uruguay's Mujica. Uruguayan President José Mujica deplores the conflict between government and opposition supporters in Venezuela, and believes that for a left wing movement to be democratic, such as "chavismo", it must learn to live with an opposition. Mujica told an interviewer: "It is an evolution in maturity of societies. Social changes cannot go against democracy."  More in Spanish: (El Nacional, 06-04-2013;; http://www.el-nacional.com/)

Venezuela will insist on changes at the OAS, opposition calls for applying the Democratic Charter. Foreign Minister Elías Jaua says Venezuela will insist on changes within the OAS during the General Assembly taking place in Guatemala. He made his statement as several opposition groups submitted a letter with 10,000 signatures demanding support from the organization in applying the Inter American Democratic Charter. Venezuela has often criticized the OAS, and last year decided to withdraw from the Human Rights Agreement, the Human Rights Commission and the Inter American Human Rights Court. More in Spanish: (INFOLATAM)

Cuba says Venezuela's spat with Colombia could hurt peace talks. Cuba expressed support for its ally Venezuela in a row with Colombia, which Havana suggested could hurt peace talks it has been hosting to end Colombia's long war with leftist rebels. Cuban Foreign Minister Bruno Rodriguez declared in a statement Cuba's "unvarying position of solidarity with Venezuela and of recognition of the legitimate government of President Nicolas Maduro." Rodriguez accused Venezuela's opposition leader Henrique Capriles of working with power groups in the United States to destabilize Venezuela. "These actions and any direct or indirect help hurt the unity of Latin America and the Caribbean, diminish independence and hurt the efforts of Venezuela and other states in favor of peace," he said. The talks are on a break until June 11 after the announcement of a landmark agreement on agrarian reform that is a critical step toward a peace accord. (Reuters, http://www.trust.org/item/20130602045127-1ps4q/)

Maduro asks his FM "rebuild" relations with Colombia

President Nicolás Maduro said his government is assessing the means to reset relations with Colombia, and reports that Foreign Minister Elías Jaua has "instructions" to take steps for the "reconstruction of relations with Colombia." (El Universal, 06-01-2013; http://www.eluniversal.com/nacional-y-politica/130601/maduro-asks-his-fm-to-take-steps-to-rebuild-relations-with-colombia)

Capriles believes gov't reaction to his visit to Colombia is a smokescreen

Opposition leader Henrique Capriles believes the government's reaction to his visit to Colombia is merely a "smokescreen" to avoid discussing and taking responsibility for the country's serious problems. ""They want to hide the economic crisis, food shortages, lack of housing, poor public services, daily blackouts, the increase in the price of food, insecurity. However, people are not stupid and will not fall for these traps." (El Universal, 06-01-2013; http://www.eluniversal.com/nacional-y-politica/130601/capriles-believes-govt-reaction-to-his-visit-to-colombia-is-a-smokescr)


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.