June 11, 2013

Economics & Finance

Venezuela hit by fears of hyperinflation and recession. Hyperinflation is looming in Venezuela, with prices suffering their highest monthly rise on record in May, while the economy slides into recession and the popularity of Nicolas Maduro wanes. Prices rose 6.1% in May, compared with 1.6% in the same period last year, bringing accumulated inflation for the first five months of 2013 to 19.4%, almost as high as the annual figure for 2012 of 20.1%.  The sudden jump in prices, with the 4.3% rise in April already sounding alarms, has triggered fears at Goldman Sachs that Venezuela could be on the brink of hyperinflation. At present, the annualized rate of inflation in Venezuela is 35.2%. At the same time, the economy is losing steam, with 0.7% growth registered in the first quarter of 2013, compared with 5.9% in the same period last year. Analysts at London-based consultancy Capital Economics suspect that the Venezuelan economy may already be in recession, and forecast that gross domestic product will contract by 1% this year.  “The Maduro administration seems to be incapable of acting and is locked in internecine policy and power conflicts that are causing paralysis,” says Russ Dallen, managing partner at Caracas Capital Markets. (Financial Times, http://www.ft.com/intl/cms/s/0/b41fbcb4-d0f1-11e2-be7b-00144feab7de.html#axzz2VmcrDONS)

Country risk up 18% since 14 April elections

According to economist Alfredo Puerta, Venezuela´s country risk has risen 18% since President Maduro was elected, and is now at 876, above high risk nations such as Greece, Iraq or the Ukraine. These conditions render it very unlikely for new debt to be issued in the short term. More in Spanish: (El Nacional, 06-11-2013; http://www.el-nacional.com/)

New legal FOREX market under study

In a report on Venezuela BARCLAYS Capital predicts the nation's exchange system will be adjusted over the next few months. The firm says that after meetings between government representatives and the private sector, authorities have a more pragmatic attitude and that a number of steps are being taken which indicate "a shift toward moderation in economic policy". The report adds that authorities are working toward making the FOREX system more flexible, which could involve a short renewal of SICED (Ancillary FOREX System), and seeking legal means to open an unofficial but legal market. More in Spanish: (El Universal, 06-11-2013; http://www.eluniversal.com/economia/130611/se-analizan-vias-legales-para-crear-otro-mercado-de-divisas; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/barclays--gobierno-venezolano-estudia-retorno-del.aspx)

Finding scarce food and toilet paper in Venezuela _ now there’s a free mobile app for that

Harried Venezuelans who devote hours scouring supermarkets for increasingly scarce food basics and toilet paper have just received some digital help thanks to a young software developer. A free application for mobile devices written by Jose Augusto Montiel lets people notify one another where flour, sugar, milk, cooking oil and toilet paper are for sale. It has been downloaded more than 12,000 times. The app, known as ABASTECEME, or Supply Me, is Android-based and relies on Google Maps for geographic location. It leverages what is known in the tech world as crowd-sourcing, with users notifying one another where a certain product is for sale. Basic items such as wheat flour and butter have gone missing on store shelves throughout Venezuela. Economists blame government-imposed price controls, while President Nicolas Maduro says greedy merchants are hoarding goods. (The Washington Post, 06-09-2013; http://www.washingtonpost.com/world/the_americas/finding-scarce-food-in-venezuela-theres-an-app-for-that/2013/06/09/93960792-d10e-11e2-9577-df9f1c3348f5_story.html; Fox News, http://www.foxnews.com/tech/2013/06/10/finding-toilet-paper-in-venezuela-app-for-that/)

FEDECAMARAS says supply crisis will not ease soon

Jorge Botti, President of FEDECÁMARAS says the nation's economic condition "continues to be pressing", and that "we cannot expect short term improvement in the supply system". He was positive that there is "finally" an "open discussion" between private companies and the Government, but noted that despite intentions there have been "contradictions between speeches by ministers for the economy, and political discourse". He added that there have been no signs of rising confidence as "the business community cannot very well digest talk of an armed, but peaceful, labor militia". More in Spanish: (El Universal, 06-11-2013; http://www.eluniversal.com/economia/130611/fedecamaras-senala-que-el-abastecimiento-no-mejorara-en-el-corto-plazo)

Food minister seeks to avoid panic buying

Food Minister Felix Osorio said on Twitter that panic buying has caused an excessive consumption of staples, making it more difficult catch up with domestic supplies. He said that public behavior, going in masse to supermarkets to purchase more products than they need, is due to a campaign launched by some media. (AVN, 06-10-2013; http://www.avn.info.ve/contenido/food-minister-urges-prevent-panic-buying)

6.7% drop in minimum wage purchasing power for minimum wage over past eight months
Inflation has eroded the purchasing power of those who earn a minimum wage in Venezuela, despite the latest wage increase. In eight months their power to buy goods and services has fallen 6.7% in view of accelerated price increases this year. More in Spanish: (El Mundo, 06-11-2013; http://www.elmundo.com.ve/noticias/economia/laboral/en-ocho-meses-el-poder-de-compra-del-salario-minim.aspx#ixzz2Vu5h8yxe)

Commodities

GRUMA seeks ICSID arbitration vs. Venezuela

Mexican cornmeal giant GRUMA has sued Venezuela at ICSID, the World Bank's- International Centre for Settlement of Investment Disputes after three years of failed negotiations on setting up a joint venture following the expropriation of their operations here. In April GRUMA said they continued to operate their 15 plants locally, in association with authorities, as they defined the terms of nationalization ordered by the late President Chavez. More in Spanish: (El Universal, 06-11-2013; http://www.eluniversal.com/economia/130611/gruma-solicita-arbitraje-ante-el-ciadi-contra-venezuela)

SIDOR and ORINOCO Iron pellet plants paralyzed

SIDOR's pellet plant has stopped operating completely due to a lack of iron ore caused by am eight day old strike at CVG Ferrominera Orinoco, which has halted dispatches. Their stoppage hits the entire briquette industry. More in Spanish: (El Universal, 06-11-2013; http://www.eluniversal.com/economia/130611/se-paralizan-planta-de-pellas-de-sidor-y-orinoco-iron)

International Trade

Government directly controls of 45% of imports

According to Central Bank data over the past five years, imports increased by 20% but were driven by the public sector. The government went from receiving 25% of shipments in the first quarter of 2009 to 45.6% of the total, whereas 54.4% goes to the private sector. More in Spanish: (El Universal, 06-02-2013; http://www.eluniversal.com/economia/130602/el-estado-controlo-mas-del-45-de-las-importaciones)

Logistics & Transport

Cargo volumes down 35% year to date

As the drop in imports continues so has cargo brought in by carriers. Eddy Meayke, President of the Shipping Association says "It is a difficult situation; cargo volume has dropped 30-35% compared to the same time frame last year". He says the fleet is "ready and available" for the time when FOREX controls are eased so that private companies can increase volume. Eduardo Quintana, First Vice President of FEDECÁMARAS Vargas estimates there is a 75% drop in imports this year. He called the situation critical and says port operations are almost paralyzed. (El Nacional, 06-11-2013; http://www.el-nacional.com/)

Politics

Colombia suggests UN should check out Venezuelan claims

Colombia's Vice President Angelino Garzón has proposed that the UN should verify Venezuelan allegations that the opposition has purchased aircraft to attack Venezuela from Colombia. The allegations were first made by José Vicente Rangel, recently appointed as member of the Council of State, and also former Vice President, Foreign Minister and Defense Minister within the Chavez regime. More in Spanish: (El Universal, 06-11-2013; http://www.eluniversal.com/nacional-y-politica/130611/colombia-sugiere-que-onu-revise-denuncia-de-rangel)

Maduro calls the Council of State to define relations with Colombia

President Nicolas Maduro called a State Council meeting next Tuesday in order to "define" relations with Colombia. The relationship between the two countries strained after Santos received opposition leader Henrique Capriles and after the announcement of the government of Juan Manuel Santos to seek closer ties with NATO. The purpose of the meeting is to draft a document that expresses the vision of the relations between the two countries, Maduro said. More in Spanish: (CNN, 06-09-2013; http://cnnespanol.cnn.com/2013/06/09/maduro-convoca-al-consejo-de-estado-para-definir-relaciones-con-colombia/?iref=allsearch)

Santos: I did not intend to provoke Maduro when I met with opponent

Colombian President Juan Manuel Santos seeks positive relations with Venezuela and claims he had no intention to "provoke" President Nicolás Maduro when he met in Bogotá with opposition leader Henrique Capriles.
"I am a democrat and I think it is normal to meet with the government and the opposition," Santos.
"It was not my intention to provoke a friendly government with whom we have good relations, even though we are very different in many ways and have different views," the president said in an attempt to appease the Venezuela-Colombia diplomatic tensions ignited by his meeting with Capriles. (El Universal, 06-08-2013; http://www.eluniversal.com/nacional-y-politica/130608/santos-i-did-not-intend-to-provoke-maduro-when-i-met-with-dissenter)

"Audit" by Electoral Council confirms Maduro win

Venezuela’s Electoral Council has completed an audit of results from April’s bitterly contested presidential election, and as expected it confirmed Nicolas Maduro’s 1.5% victory. No government official appeared publicly to comment on the outcome, but an official at the council confirmed on Sunday a report by the state-run AVN news agency that the audit supported the official vote count. The opposition has complained that the council ignored its demand for a full recount. That would have included not just comparing votes electronically registered by machines with the paper ballot receipts they emitted, but also comparing those with the poll station registries that contain voter signatures and with digitally recorded fingerprints. (The Washington Post, 06-09-2013; http://www.washingtonpost.com/world/the_americas/audit-by-venezuela-electoral-council-confirms-presidential-win-for-chavez-heir-nicolas-maduro/2013/06/09/cf977f42-d162-11e2-9577-df9f1c3348f5_story.html; Fox News, http://www.foxnews.com/world/2013/06/09/audit-by-venezuela-electoral-council-confirms-presidential-win-for-chavez-heir/)

Maduro says he has halted plans to restrict food sales in Zulia state

President Nicolas Maduro says he has put a halt to a plan to restrict sales of 20 basic food products in Venezuela’s most populous state, a scheme critic had deemed rationing in disguise. Officials in western Zulia state had said the plan to limit sales of items such as cooking oil, flour, chicken and toilet paper — all of which are subject to price controls — could begin as early as Monday at 65 supermarkets. But they never explained exactly how it would work. Data on purchases would reside on computer servers to guarantee that individuals did not make multiple purchases of the same item in different supermarkets, they said. (The Washington Post, 06-08-2013; http://www.washingtonpost.com/world/the_americas/venezuelas-president-says-hes-asked-that-food-restrictions-not-proceed/2013/06/08/415195b6-d06c-11e2-9772-6fcf660e8c49_story.html)

Diosdado Cabello meets with Raul and Fidel Castro in Cuba

Diosdado Cabello, president of the National Assembly, met with President Raul Castro and Fidel Castro to discuss bilateral relations and challenges to Venezuela. Cabello's activities included meetings with Esteban Lazo, President of the Cuban parliament and leaders of the Communist Party. More in Spanish: (CNN, 06-09-2013; http://cnnespanol.cnn.com/2013/06/09/diosdado-cabello-se-reune-con-raul-y-fidel-castro-en-cuba/?iref=allsearch)


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.