August 09, 2013

Economics & Finance

Worries after Venezuela skips bond payment

Creditors of a nationalized Venezuelan steel company say they are surprised the firm defaulted on an interest payment last month and are asking the government to explain the situation in a case that some see jeopardizing the country's access to foreign capital markets. Up to now, Venezuela always honored payments to bondholders. It was that track record, in addition to high yields, that kept bond investors coming back. But on July 20, the government failed to make a coupon payment on about U$D 74 million in outstanding 10% coupon 2016 bonds issued by Siderúrgica del Turbio SA, or SIDETUR. The default could trouble Venezuela's standing in overseas debt markets at a time when Finance Minister Nelson Merentes is seeking to reduce the country's borrowing costs, which rank among the highest in the developing world. Mr. Merentes says a "technical analysis" conducted by the attorney general's office concluded that the debt was from its private owners and therefore not the responsibility of the government. He said officials would nevertheless create a trust fund "to have as a guarantee while the situation is cleared up" but didn't offer further details. Lawyers representing a SIDETUR bondholders committee requested that proceeds from the trust fund be used to honor the debt obligations, according to a letter sent to the Finance Ministry last week, but haven't received a response. The case of Sidetur "seems to be a one-off, but the signal isn't positive," said Credit Suisse economist Casey Reckman. (The Wall Street Journal; http://online.wsj.com/article/SB10001424127887323838204579000750478323112.html)

Lower gold prices drive down Central Bank gains

According to Central Bank data, the institution's results have been impacted by fluctuating gold process and a drop in FOREX income. Data published yesterday reveals gains fell from VEB 17.187 billion in December 2012 to VEB 7.851 billion in June this year, a 54.3% drop. VEB 6.673 billion must be turned over to the Treasury, VEB 7.936 billion less than December last year. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/precio-del-oro-es-una-de-las-causas-de-la-caida-de.aspx#ixzz2bT4QGmru; El Universal, http://www.eluniversal.com/economia/130809/banco-central-registra-caida-de-30-en-las-reservas-liquidas)

FOREX allocation depends on dropping reserves, demand growing

Venezuela's economy depends entirely on CADIVI and SICAD as purveyors of the foreign exchange needed for it to operate, and to make matters worse both systems  - aside from being slow and complicated - are subject to the flow of international reserves that are a product of oil exports. Central Bank data shows reserves were at U$D 23.3 billion, the lowest level since May 2007, due to a drop of U$D 6.5 billion since December 2012. Mauricio Tancredi, President of the Trade Federation (CONSECOMERCIO) says that the amounts provided in SICAD auctions are not enough to supply the market. ECONOMÉTRICA Director Ángel García-Banchs says the demand for FOREX will continue to rise making an additional devaluation necessary. He says "The story of devaluations is only just beginning". He points to the fact that liquidity has jumped 60% YTD in 2013. He adds that although conditions call for an exchange adjustment the decision will be delayed due to impending elections. More in Spanish:  (Tal Cual; http://www.talcualdigital.com/index.html; El Universal, http://www.eluniversal.com/economia/130809/sin-aumento-el-monto-de-divisas-para-sector-privado and http://www.eluniversal.com/economia/130809/afirman-que-presion-cambiaria-crecera-en-proximas-semanas)

Dollars sold in auction sale not yet delivered to buyers

Jesús Irausquín, President of the Nueva Esparta State Federation of Trade and Industry Chambers (FEDECÁMARAS), says authorities have not yet turned over the US dollars companies purchased by companies –seeking to pay foreign suppliers – during the second auction sale by the Ancillary Foreign Currency Administration System (SICAD). "We have not been able to pay providers yet," Irausquín said after a meeting with FEDECÁMARAS board in Caracas. (El Universal, 08-08-2013; http://www.eluniversal.com/economia/130807/dollars-sold-in-auction-sale-still-not-delivered-to-buyers)

Venezuelan businesses owe U$D 1.2 billion to Panama's Colon Free Trade Zone exporters

Venezuela's business community owes some U$D 1.2 billion to exporters from Panama's Colon Free Trade Zone, as sales to Venezuela have dropped U$D 600 million over the past year. Free Trade Zone Manager Leopoldo Benedetti informed the Panamanian Congress and reported that talks will begin among both sides to determine responsibilities and establish repayment procedures. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/venezuela-adeuda-1-200-millones-a-zona-libre-de-co.aspx#ixzz2bT3191Uk; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/venezuela-adeuda--1-200-millones-a-zona-libre-de-c.aspx)

Wages shrink 7.6% in real terms in one year

Upon releasing its Salary Value Index for the second quarter 2013, the Central Bank has admitted, "The measures adopted to protect workers' purchasing power failed to cope with the increase in prices of goods and services during the same period." (El Universal, 08-08-2013; http://www.eluniversal.com/economia/130808/wages-shrink-76-in-real-terms-in-one-year-in-venezuela)

International Trade

Venezuelan oil shipments to the US down to 30% of total exports in July

According to data from the US Department of Energy, Venezuelan oil exports to the United States continue to decline. Preliminary figures on US crude oil purchases from Venezuela in July show that the US imported some 728,000 BPD of crude oil, Venezuela currently exports 2.45 million BPD, are shipments to the United States are only 30% of oil exports. (El Universal, 08-08-2013; http://www.eluniversal.com/economia/130808/venezuelan-oil-shipments-to-the-us-down-to-30-of-total-exports-in-july)

CVG says it has exported 33,000 tons of briquettes

Carlos Osorio, CVG President and Minister for the Southern Region, met with private sector representatives in the steel and iron sector and announced that the state enterprise has exported a first shipment of 33,000 tons of briquettes into the international market, directly, with no intermediaries. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/petroleo/mineria/cvg-coloco-33-000-toneladas-de-briquetas-en-el-mer.aspx#ixzz2bT6ZQof7; El Universal, http://www.eluniversal.com/economia/130809/la-cvg-intenta-retomar-alianzas-con-empresarios)

Politics

Supreme Court dismisses opposition presidential vote challenge, fines Capriles

Venezuela’s Supreme Court on Wednesday upheld the results of the April presidential election, ruling that a challenge by opposition leader Henrique Capriles and similar lawsuits were “inadmissible.” Supreme Court Chief Justice Gladys Gutierrez said the opposition did not present sufficient evidence to prove the alleged irregularities about which it had complained. It also fined Capriles $1,700 for what it called a “disrespectful” filing and asked the attorney general to prosecute the opposition leader for filing the petition. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=925254&CategoryId=10718; Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=35790&idc=1; The Washington Post, http://www.washingtonpost.com/world/the_americas/venezuela-high-court-nixes-challengers-attempt-to-void-april-presidential-elections/2013/08/07/bd4bc94a-ff9a-11e2-8294-0ee5075b840d_story.html)

Capriles will take Venezuelan situation to the UN, Inter-American Human Rights Commission

Henrique Capriles Radonski, leader of Venezuela's opposition and Miranda State Governor, says he will take the situation in Venezuela to international levels, such as the Inter-American Human Rights Commission and the United Nations, and perhaps even MERCOSUR and UNASUR. In an interview he said it is certain that President Nicolás Maduro will not remain in office for six years, and emphasized that "there will be a change" in Venezuela. "We Venezuelans will opt for a democratic change. He are building a democratic change here". More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/130809/capriles-denunciara-situacion-venezolana-ante-onu-y-cidh)

Opposition charges raid and arrest order for Capriles aide signals new repression wave

Authorities ordered the arrest of a close aide to opposition leader Henrique Capriles and military agents removed documents, computers and cellphones from the man’s apartment Wednesday, the opposition said. It called the action proof of a new wave of political repression. (The Washington Post, 08-07-2013; http://www.washingtonpost.com/world/the_americas/venezuela-opposition-arrest-order-for-top-opposition-aide-signals-new-repression-wave/2013/08/07/a9035742-ffcb-11e2-8294-0ee5075b840d_story.html; Fox News, http://www.foxnews.com/world/2013/08/07/venezuela-opposition-says-authorities-order-arrest-top-aide-to-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.