July 05, 2013

Economics & Finance

Venezuela to boost dollar supplies through FOREX system revamp

Venezuela has revamped the currency exchange system to increase the flow of dollars into the economy and ease nagging product shortages, a move that further devalues the local currency and may aggravate spiraling inflation. Changes to the SICAD foreign exchange system, which operates in parallel with a decade-long currency control mechanism, will include holding at least two dollar auctions per month and loosening restrictions that business leaders had called cumbersome. But the system will provide greenbacks at a rate weaker than the official exchange rate of 6.3 bolivars per dollar, further weakening the currency after devaluation in February helped push annualized inflation above 35%. (Reuters, 07-03-2013; http://www.reuters.com/article/2013/07/03/venezuela-currency-idUSL2N0F91YS20130703)

Chavez’s 70% gold bet unravels as reserves plunge

The bet on gold that former Venezuelan President Hugo Chavez made in the final years of his life is collapsing at the wrong time for his country. Chavez, who argued that Venezuela should move away from the “dictatorship of the dollar,” stockpiled more than 70% of Venezuela’s foreign reserves in gold by 2012, the highest percentage among all emerging-market countries and more than 50 times that held by neighbors Colombia and Brazil, according to the World Gold Council. (Bloomberg, 07-04-2013; http://www.bloomberg.com/news/2013-07-04/chavez-s-70-gold-bet-unravels-on-reserves-plunge-andes-credit.html)

SPECIAL REPORT: PETROCARIBE : a financial hemorrhage

According to figures from the Central Bank member countries of PETROCARIBE owe Venezuela over U$D 22 billion in unpaid petroleum bills, and it is becoming increasingly clear that this debt will never be paid. PETROCARIBE is an organization created in 2005 by the late President Hugo Chavez to supply subsidized oil to Caribbean countries. Terms are extremely generous: 40% of the cost can be paid back in goods and services, including bananas, black beans, khaki trousers and the like. The cash portion is paid in 17-25 years, with two years grace and an interest rate of 1%, practically a giveaway. Paradoxically the amount owed Venezuela by PETROCARIBE member countries is very similar to the amount owed by Venezuela to China, for loans received during the last five years. For all practical purposes Venezuela has been borrowing money from A to give it away to B, C, etc. With Chavez now dead, the new leaders of the regime have suddenly realized that this extreme prodigality cannot go on. But the solution proposed recently seems to be too little too late: raising the interest rate on the unpaid portion of the bill from 1% to…. 2%, or even, up to 4%. Since payment is dubious, this rise in interest rates will mostly have a negative psychological impact on the organization, as the real payment from the countries to Venezuela has not been in cash but in political loyalty. Through PETROCARIBE Venezuela has essentially bought the vote of the 18 member countries in the OAS and/or the U.N. This strategy has allowed the authoritarian Venezuelan government to escape action from these organizations. Especially in the OAS the votes of the Caribbean block have been decisive to put to rest attempts by other countries to penalize the Venezuelan regime for their constant human rights violations and abuse of power. As reality catches on with the Venezuelan regime one of the early casualties could be PETROCARIBE. (Las Armas de Coronel Blogspot; http://lasarmasdecoronel.blogspot.com/2013/07/petrocaribe-financial-hemorrhage.html?m=1)

Commodities

Small explosion hits Venezuela's Amuay oil refinery

A small explosion and fire hit the flexicoker unit of Venezuela's 645,000 barrel per day Amuay refinery on Wednesday, but no one was hurt and firemen brought the blaze under control. The oil workers union at the huge facility said the flexicoker unit had been stopped a day earlier due to a fault. "A pipeline broke and caused an explosion and fire, which is now under control. The (flexicoker) plant was stopped yesterday because of a fault in its compressor," said Ivan Freites, president of the workers union at the refinery. State oil company PDVSA confirmed the small explosion and said the fire had been extinguished. It said no one had been hurt. (Reuters, 07-03-2013; http://www.reuters.com/article/2013/07/03/refinery-operations-pdvsa-amuay-idUSL2N0F923H20130703)

International Trade

Grain imports down 71% year to date

Data from the National Statistics Institute indicates that during the first half of 2013 cereal imports have dropped 71.5% from last year. 2.43 million tons of cereals were imported during last year's first semester, and this amount dropped to 692,574 tons during the same time frame this year. Rice imports dropped 88-37% during the same time period. At the same time processed white rice imports grew 121.2%, from 10,066 tons to 22,268 tons. Corn imports fell by 78.7%, from 1.44 million tons to 308,434 tons. No sorghum imports were reported for the first half of 2013. These reductions do not mean domestic production has increased: Instead, they reflect obstacles placed on imports. More in Spanish: (El Universal, 07-04-2013; http://www.eluniversal.com/economia/130704/importaciones-de-cereales-cayeron-71-en-primer-semestre

US trade deficit with Venezuela up to U$D 1.5 billion

The US Commerce Department reports the US trade deficit with Venezuela, mainly due to oil imports, stands at U$D 1.5 billion, a slight decrease from April. The overall US trade deficit with Latin America soared 24% in May to U$D 6.3 billion amid reports of higher imports from Mexico. (El Universal, 07-04-2013; http://www.eluniversal.com/economia/130704/us-trade-deficit-with-venezuela-accounts-for-usd-15-billion)

Politics

The Carter Center calls for impartial institutions in Venezuela

A preliminary report by Carter Center on Venezuela's presidential election on April 14 focuses on the need for clear rules pre election rules and "impartial" institutions. The final report will not be released until Venezuela´s Supreme Tribunal renders a ruling on actions contesting the April 14 vote and as long as Election Board authorities refuse to disclose the results of the audit of fingerprint duplication. The Center insisted that "no voting system in and of itself can guarantee the confidence of the population in the process and outcomes. Whether manual or automated, confidence in elections is built by clear rules, transparency in all aspects of the process, (and) impartial institutions to administer elections and adjudicate disputes." (El Universal, 07-04-2013; http://www.eluniversal.com/nacional-y-politica/130704/the-carter-center-notes-need-for-impartial-institutions-in-venezuela; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=837363&CategoryId=10717)

Maduro again reviews relations with Spain: Barely three weeks since Foreign Ministers Elías Jaua (Venezuela) and José Manuel García Margallo (Spain) met in Madrid in an attempt to patch up diplomatic relations, President Nicolás Maduro is now saying he will revise relations with Spain after the episode enacted by Bolivian President Evo Morales as he transited through Europe to La Paz. Bolivia says Spain initially allowed them landing rights and then reversed the decision, an action Maduro has condemned in the harshest terms: "What the Spanish Government has done is infamous, seeking to search the aircraft of a South American president. ¿What does this President Rajoy think: that we South Americans are your slaves?". Rajoy has called the entire debate "artificial". Paradoxically, Maduro did not specifically mention Portugal and France, nations which actually revoked Morales' transit permit, as he had recently visited these countries and signed several agreements with them on infrastructure, technology and industrial development. (INFOLATAM)


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.