September 17, 2013

Economics & Finance

Venezuela plans new FOREX system as Bolivar slides

Venezuela will unveil a new foreign-exchange system as the Bolivar slides to a record low in black-market trading, Finance Minister Nelson Merentes says, adding that the black-market dollar is high because the currency is scarce as a result of hoarding and speculation. A new devaluation of the Bolivar “is not being considered,” he said. “We want to use this market to encourage the private sector to sell their dollars in a transparent, logical and rational way in a market as they did before,” the finance minister said, referring to the new system. The supplementary foreign-exchange auction platform introduced in March, known as SICAD, “needs to be evaluated,” he said. Shortages are stoking one of the world’s highest inflation rates as importers struggle to obtain foreign currency. The annual inflation rate accelerated to 45.4% last month from 42.6 percent in July, while the scarcity index measuring the amount of goods out of stock on store shelves reached 20%. The Minister admitted that the economy isn’t in its “best stage” and has had “a little more trouble” since former President Hugo Chavez died. Merentes denied the government is holding talks with the International Monetary Fund, and said Venezuela will seek funding from countries including Russia, China and Latin American partners. The National Assembly reconvenes today with plans to make changes to the country’s foreign exchange law. Merentes said the country would make a payment on its foreign debt this month as scheduled. (Bloomberg; http://www.bloomberg.com/news/2013-09-17/venezuela-plans-new-foreign-exchange-system-as-bolivar-slides.html)

International reserves hit nine year low

International reserves needed for imports, payment of foreign debt and currency backup, are plummeting and beginning the week at USD 21.9 billion -a 26% plunge thus far this year and the lowest since November 11, 2004. The drop is due to eroding gold prices, increased debt service, skyrocketing imports and lower income from oil exports.

Official data shows that the nation has taken up the cost of the issue of bonds in previous years to fund an expanded public spending. (El Universal, 09-16-2013; http://www.eluniversal.com/economia/130916/international-reserves-hit-rock-bottom-in-nine-years)

PDVSA bond swap anticipated in early 2014, company to underwrite FOREX market

According to official sources, authorities are considering a PDVSA bond swap in early 2014, but are aware that economic conditions must improve in order to do so. In a swap, bond holders would be offered a new bond with a later maturing date at a higher interest rate. At the same time, Ricardo Sanguino, Chairman of the National Assembly's Finance Committee, is saying PDVSA may back a new FOREX system by depositing investments received for new Orinoco oil belt projects into special dollar accounts in Venezuela. He says "this would be around U$D 7 billion to put into the FOREX market". More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/gobierno-apuesta--a-la-flexibilizacion--de-control.aspx#ixzz2f8yOt5bR; and El Nacional; http://www.el-nacional.com/)

FOREX scarcity and controls double food shortages

A report by the Central Bank of Venezuela (BCV) at the close of August 2013 shows that the scarcity of foreign currency in the private sector and delayed adjustment of regulated prices translates into significant shortages of food and personal care items. The average of all foodstuffs checked monthly by the BCV, points to 19.2% scarcity, almost double the 10% recorded in August 2012. In 16 foodstuffs, there are "serious shortage problems," above 41%. (El Universal, 09-16-2013; http://www.eluniversal.com/economia/130916/drought-of-foreign-currency-and-controls-double-food-shortage)

Inflation at 45%

Venezuela’s consumer price index rose 3% in August, slightly lower than July, but leading to an accumulated 32.9% YTD 2013 and 45.4% for the past twelve months. In terms of which sectors saw the highest inflation, Entertainment and Culture led with a 7.5% increase, followed by Clothing and Shoes, up 4.4%, Alcoholic Beverages and Tobacco, up 3.9% and Restaurants and Hotels, up 4%. The all important Food and Beverages went up less than the index, but higher than last month’s figure. Economists noted that the groups leading inflation were those that are not as controlled and regulated, showing the pressure introduced by the soaring parallel market exchange rate. (Latin American Herald Tribune, 09-16-2013; http://www.laht.com/article.asp?ArticleId=1017566&CategoryId=10717)

Stock market up 223%

Venezuela’s stock market rose 6.5% during the week ending September 13, with the Caracas Stock Index closing at 1,523,278. The leading gainer was state-owned telephone company CANTV, up 63.6% at Bs. 47.5, followed by Banco Provincial at Bs. 455, and Mercantil Servicios A and B, both up less than 1%, at Bs. 464 and Bs. 463 respectively. Property developer/papermaker Manpa was down 3% at Bs. 12 and steelmaker Sivensa lost 1.4% at Bs. 26. (Latin American Herald Tribune, 09-16-2013; http://www.laht.com/article.asp?ArticleId=1016043&CategoryId=10717)

Government talks with business appear to have been simply for effect

It has been almost 4 months since the government started meetings with businessmen from all areas in a move that seemed designed to remove obstacles and increase production. Yet instead of solving FOREX scarcities, lack of raw materials or labor conflicts, authorities are now speaking of economic sabotage and buying food abroad FEDECÁMARAS President Jorge Roig says "the talks have been less than we would have liked... it has been a dialogue of the deaf. I feel as though we are at the beginning of the show, with just the picture taken when we sit down talk but no action later" More in Spanish: (El Universal, http://www.eluniversal.com/economia/130917/gobierno-reitera-medidas-efectistas-ante-auge-de-la-escasez; and Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/jorge-roig-dialogo-con-el-gobierno-ha-sido-de-sord.aspx#ixzz2f8wZYJgh)

Commodities

Experts point to gaps in Amuay disaster report

The Center of Energy Guidance (COENER), a think tank of former PDVSA managers says the report by the PDVSA on the explosion at Amuay refinery does not include any recommendations for avoiding further accidents. It also says authorities "did not present a single piece of evidence to explain how the alleged sabotage leading to the accident took place, nor does it elaborate on the culprits or how and when they sabotaged." (El Universal, 09-16-2013; http://www.eluniversal.com/economia/130916/critiques-emerge-over-advices-not-given-in-report-on-amuay)

Venezuela oil slips to U$D 106.27

Venezuela's weekly oil basket slipped to U$D 106.27 a barrel as worries over Syria and tensions in the Middle East eased a little. According to figures released by the Ministry for Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending September 13 was U$D 106.27, down 76 cents from the previous week's U$D 107.03. (Latin American Herald Tribune, 09-16-2013; http://www.laht.com/article.asp?ArticleId=1016043&CategoryId=10717)

International Trade

Santos says PDVSA bonds could fund Venezuela-Colombia trade

Colombia plans to export about $600 million of goods to Venezuela in exchange for bonds of state oil company Petroleos de Venezuela SA. President Juan Manuel Santos told a conference of Colombian exporters Sept. 13 that he discussed the idea with Venezuelan President Nicolas Maduro. “There’s an initial demand for specific products with a value of about $600 million,” Santos said. “We’re discussing the means of payment. The method we found, and that we are discussing at the moment, is payment with bonds of PDVSA, bonds that have secondary markets.” (Bloomberg, 09-15-2013; http://www.bloomberg.com/news/2013-09-16/santos-says-pdvsa-bonds-could-fund-venezuela-colombia-trade.html)

Politics

Maduro accuses Ban Ki-moon of being at the service of a war-like strategy

President Nicolás Maduro is accusing UN Secretary General Ban Ki-moon, of being at the service of a war-like strategy against Syria. Maduro spoke right after Ban Ki-moon disclosed a report confirming the use of chemical weapons in Syria. "What a surprise that of Ban Ki-moon! Why does the UN secretary general act as if he were the prosecutor or the judge of the peoples of the world, and leave himself at the service of a war-like strategy rather than being at the service of peace?", Maduro said during a public event (El Universal, 09-16-2013; http://www.eluniversal.com/nacional-y-politica/130916/maduro-accuses-ban-ki-moon-of-being-at-the-service-of-a-war-like-strat)

Cabello claims to have enough votes to grant Maduro special powers

National Assembly President Diosdado Cabello claims several opposition legislators will agree to grant President Nicolás Maduro special legislative powers to "deal with corruption". At the same time Cabello, who is also First Vice President of the ruling United Socialist Party (PSUV) proposed that Maduro take the place of deceased President Hugo Chávez at the head of the party. Opposition leaders are charging that a move will be made this week within the National Assembly to deprive 11 opposition legislators of their parliamentary immunity in an attempt to create an apparent majority that can give Maduro additional powers. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/130917/cabello-propone-a-maduro-como-presidente-del-psuv; and Analítica, http://www.analitica.com/va/sintesis/nacionales/8509063.asp?utm_source=dlvr.it&utm_medium=twitter)

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.