August 23, 2013

Economics & Finance

Government says Venezuela's economy rebounds from slow first quarter, food production up

Venezuela's economy rebounded in the second quarter from tepid growth in the previous three months, the Central Bank said on Thursday, but growth was still far below 2012 due to slower government spending. Government officials said growth of 2.6% compared with the same period last year was evidence that the country's economy was on solid ground after lackluster growth of 0.5%. Bright spots included 24.3% growth in the financial sector, 5.7% in manufacturing, and 6.7% growth in communications. But the construction sector shrank by 6% percent, while activity in the mining sector contracted a whopping 22%. Maduro's government targeted 6% growth in GDP this year and a 15% increase inflation, but Merentes said those figures will be updated in the coming weeks. Though figures showed a notable expansion in the manufacture of food, consumers complain regularly they cannot find products, including wheat flour and corn flour, and the central bank's scarcity index remains near historic highs. Data presented shows food production rose 9.2% April to June, in areas such as 9% in wheat milling and 23% in overall bakery products; edible oils, 24%; non alcoholic beverages, 33.6%; and 1.9% in dairy products. The announcements were made at a joint press conference by Central Bank President Eudomar Tovar, Finance Minister Nelson Merentes and Planning Minister Jorge Giordani. Merentes remarked that GDP could hit 3% this year if the growth trend continues, particularly in construction. (REUTERS; http://www.reuters.com/article/2013/08/22/venezuela-economy-idUSL2N0GN0Z120130822; and more in Spanish: El Universal; http://www.eluniversal.com/economia/130823/produccion-de-alimentos-subio-92-entre-abril-y-junio; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/merentes--economia-venezolana-puede-crecer-3--este.aspx#ixzz2cn3lk9t6; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/econom%C3%ADa-venezolana-creci%C3%B3-23-segundo-trimestre-2013;)

The Bolívar may suffer new devaluation between December 2013 and February 2014, according to economist José Guerra. This new 42-50% devaluation would take the rate to between Bs.9:$ and Bs.9.50:$. Guerra says Venezuela faces a serious problem of foreign currency flow and also a low level of reserves and this is worsened by the fact that oil is the only activity that generates foreign currency. (VENECONOMY, 08-21-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=35967&idc=2)

New bond issue could depend on China negotiations

British investment firm BARCLAYS Capital keeps forecasting that the Venezuelan government is expected to issue additional bonds in foreign currency in the last quarter of 2013; however, the investment firm believes bond issuance depends on funding negotiations with China. BARCLAYS Capital says that given the current liquidity in the Venezuelan financial system and in order to avoiding exchange rate risk, part of the additional indebtedness may be issued in the domestic market. It also forecast that the government and state-run oil company Petróleos de Venezuela (PDVSA) could issue bonds worth USD 6 billion in the fourth quarter of 2013, but added that recent negotiations between Venezuela and China over a new U$D 5 billion loan might lower the need for issuing debt in the international market. (El Universal, 08-21-2013; http://www.eluniversal.com/economia/130821/venezuelan-govt-to-issue-bonds-worth-usd-6-billion)

Tangled FOREX system, rising non-official rate

BCV has announced a new SICAD (Complementary Exchange System) dollar auction for U$D330 million. FOREX supply could now take a couple of months to reach the market because the Central Bank will sell PDVSA bonds it currently holds in the international market and transfer the proceeds to the auction winners’ international suppliers once proof of delivery has been obtained. PDVSA made a private placement of these bond to BCV last year for a total of U$D 3 billion, of which U$D1.3 billion were sold through SITME. BCV could still have U$D1.7 billion of this bond in addition to other bonds that it could have bought in the secondary market and could sell through SICAD in coming auctions. When the government decided to close SITME last February, it held it was unsustainable to maintain a system that demanded recurrent bond issuances to operate. The operation of SICAD has been worse than SITME, which at least had a stable daily supply of U$D30-40 million. The irregularity in the supply of dollars does not help the government control the depreciation of the non-official FX rate, which jumped from U$D/VEB 32 to U$D/VEB 37 in the last two weeks. The change of the president of BCV and the poor results obtained by SICAD in containing the non-official exchange rate depreciation reportedly has begun a debate on the bank’s board about the frequency of the dollar auctions and even consideration of other alternatives to providing dollars to the private sector. (Special report from ECOANALITICA; and Reuters, 08-21-2013; http://www.reuters.com/article/2013/08/21/venezuela-currency-idUSL2N0GM01U20130821; El Universal, http://www.eluniversal.com/economia/130821/next-sicad-auction-sale-to-offer-usd-330-million; more in Spanish: Fox News Latino, http://latino.foxnews.com/latino/espanol/2013/08/21/venezuela-convocan-cuarta-subasta-por-330-millones-de-dolares/)

Commodities

Yellow alert at the Paraguaná Refining Center

Jesús Luongo, general manager of Paraguaná Refining Center (CRP), reported that a yellow alert was triggered last week at the site composed of Amuay, Cardón and Bajo Grande refineries. "Plotting sabotage and making it look like an accident, an act of God, is very easy," the official said. (El Universal, 08-21-2013; http://www.eluniversal.com/economia/130821/yellow-alert-activated-in-paraguana-refining-center; http://www.eluniversal.com/economia/130821/accident-in-funnel-of-amuay-refinery-under-control)

Refining center authorities reject report on Amuay's accident

Representatives of the Paraguaná Refining Center (CRP), in Falcón state (northwest Venezuela), refused to receive a report prepared by a commission of National Assembly opposition legislators and oil experts, following the accident registered on Amuay refinery on August 24, 2012, which caused 48 deaths. Deputies William Dávila, María Corina Machado, Gregorio Graterol, Eliécer Sirit, Leomagno Flores, José Manuel González, Juan Pablo García, and Américo De Gracia met with the Public Affairs and Legal Affairs Officers of the CRP at the front desk. The managers said that they were not authorized to receive the paper. (El Universal, 08-21-2013; http://www.eluniversal.com/economia/130821/refining-center-authorities-reject-report-on-amuays-accident)

International Trade

Government imports up 25%, private imports down 9,6%

According to Central Bank data Government imports continue growing while private sector is repressed. Total imports in 2Q 2013 rose by 3.3% to U$D 13.5 billion due to government purchasing abroad which increased by 25.1% in such items as chemicals and refined products for the oil industry, food, medicine, medical supplies, aircraft and electric industry products. At the same time, private sector imports dropped by 9.6%. More in Spanish: (El Universal, 08-23-2013; http://www.eluniversal.com/economia/130823/importacionespublicas-suben-25-y-las-privadas-caen-96)

China slowdown could hit Venezuela

Venezuela will likely be hit most among Latin America's energy markets by a slowdown in China’s economy, experts say. As concerns rise about an economic slowdown in China, how would Latin America's energy sector be affected? Here are some highlights:

• R. Evan Ellis, associate professor at the Center for Hemispheric Defense Studies in Washington says it "depends on whether a 'China slowdown' simply means below 7 percent GDP growth or whether the Chinese banking system, burdened by an excess of marginal loans, is pushed into a crisis. Populist oil producers such as Venezuela, already slipping ever deeper into debt, could face a revenue crisis."
• Sun Hongbo, associate professor at the Institute of Latin American Studies of the Chinese Academy of Social Sciences in Beijing adds: "China's energy cooperation with Latin America will continue to maintain a stable and rising profile... Chinese oil companies expect to tap into the Mexican oil industry while they strengthen their commercial presence in different forms in Venezuela, Ecuador, Brazil, Colombia and other countries."
• William J. Norris, professor of Chinese foreign and security policy at the Bush School of Government and Public Service at Texas A&M University says: "The downturn will be most acutely felt in nations for which Chinese trade demand represents the largest percentage of the nation's total energy exports. While Brazil and Argentina are much bigger economies that may be better able to weather the downturn, smaller nations that rely heavily on Chinese energy demand (in particular, Venezuela) are in for a rough ride."
• Philip Andrews-Speed, principal fellow at the Energy Studies Institute of the National University of Singapore says: "In the unlikely event that China enters a sustained period of very low growth (below 4%), then the effect on overseas investments and on oil imports could be dramatic." (Inter-American Dialogue Latin America Advisor; http://latinvex.com/app/article.aspx?id=887)

Panamanian business seeks U$D 1 billion payment from Venezuela

Panama´s Colon Free Trade Zone has presented the Venezuelan Government with a U$D 1.097 billion bill for commercial debts, and Panamanian businessmen continue to wait on repayment options offered by Venezuela. The information was provided by Marco Antonio Téllez, Vice President of the Colon Free Trade Zone Client Associations, who said Venezuela is still reviewing the paperwork provided. More in Spanish: (El Carabobeño, 08-23-2013; http://www.el-carabobeno.com/impreso/articulo/72930/empresarios-panameos-exigieron-a-venezuela-pago-de-ms-de-mil-millones-de-dlares; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/empresarios-panamenos-piden-a-venezuela-el-pago-de.aspx; El Universal, http://www.eluniversal.com/economia/130823/venezuela-adeuda-a-empresarios-de-panama-1-millardo)

Logistics & Transport

Germany complains over Venezuela's port delays

The German government has complained to the Venezuelan Foreign Ministry that detention of over 170 containers at different ports here hurts the operations of German companies. Germany is aware that when local customs authorities suspended PANALPINA, which provided transport and logistical services, it stopped processing cargo at different ports, including containers from German companies. The German Embassy's "verbal note" complains that the situation has a negative impact on the operations German companies in Venezuela, under contract with the public and private sector. More in Spanish: (El Universal, 08-23-2013; http://www.eluniversal.com/economia/130823/alemania-se-queja-ante-venezuela-por-retrasos-en-puertos)

... transport operators also report port delays

Julio Abreu, President of the Bulk Workers Front at Puerto Cabello says an outage in internet system for weighing lorries at BOLIPUERTOS, along with stop and go operations by the Automatic Customs System (SIDUNEA) has been delaying operations. He pointed to over 9 hours delays in offloading, and said: "they told us the systems were fast and efficient, and we are suffering them because we have pending 8 vessels loaded with bulk cargo, plus a ship loaded with sugar, not to mention 500 dump trucks waiting to load sugar, on top of 2,000 vehicles that load bulk and normally operate at the local terminal." More in Spanish:  (El Carabobeño, 08-23-2013; http://www.el-carabobeno.com/impreso/articulo/72890/transportistas-de-carga-pesada-denunciaron-retrasos-en-el-puerto)

Politics

Maduro backs off debate, seeks added powers in any way, hints at Constitutional Assembly

President Nicolás Maduro says the single vote he needs to enact the Enabling powers act at the National Assembly are "the people in the streets". He said a debate on corruption he previously proposed to the opposition "was already held by the people in the streets, and the people know what they want". Maduro warned he would go to the National Assembly escorted by "legislator 99" (the people), and added that "if they (special powers) are refused, we will take other routes". In the same speech he referred to opposition proposals seeking a new constitutional assembly, saying "I like that battle. If they choose to battle in that field, we are encouraged. We even may suddenly all of us hurl ourselves into a constituent assembly. We will not stop being president or ministers, because the people gave us power and I am going to hold it for six full years. And you will decide if I continue for six more, afterwards....a constituent assembly is all-powerful." More in Spanish: El Universal, 08-22-2013; http://www.eluniversal.com/nacional-y-politica/130822/maduro-hasta-de-repente-nos-lanzamos-todos-a-la-constituyente; El Nacional, http://www.el-nacional.com/politica/Maduro-diputado-pueblo-calle_0_250175214.html)

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.