Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Friday, September 27, 2013

September 27, 2013

Economics & Finance

Venezuela seeks help due to drop in reserves
President Maduro and his team went to China so seek financial assistance due to the drop in disposable international reserves, but Chinese authorities did not grant it. Disposable reserves have dropped to U$D 900 million in the last few weeks, which can only cover 6 days worth of imports. This is why the Maduro regime needs a credit that is not tied to infrastructure or agriculture projects, which is the case with the Chinese Fund and all other agreements signed with China. What the need is cash that can be used for imports. Maduro has said economic agreements entered into between Venezuela and China have been reached under the "best financial conditions possible in the market." He added that for five years China has financially supported Caracas with U$D 50 billion for the development of several projects in Venezuela. More in Spanish: (El Nacional;; and El Universal, 09-26-2013;; AVN,

15% GDP deficit is the center of the crisis
A sharp currency devaluation in the parallel market, accelerated inflation, and a scarcity of FOREX for the private sector. What is going on in Venezuela's economy? In the most recent Bank of America report, economist Francisco Rodríguez explains that the center of the crisis is that government expenses are above oil and tax income, and if you consider the entire public sector the deficit now stands at 15% of GDP. He adds that as the Central Bank prints currency it goes into buying FOREX and this pushes the parallel rate up and accelerates inflation since there is no increase in production. He says inflation equals what it would have been if the official rate were devalued to 10 Bolivares to the U$D. More in Spanish: (El Universal,

Bonds-for-chickens barter feeds debt selloff in Venezuela
Venezuela will pay for U$D 600 million of food imports including milk and live chicks from Colombia with dollar-denominated bonds, a sign the nation is running out of money to address the chronic shortages of basic goods fueling the world’s fastest inflation. Venezuela’s borrowing costs, which fell this month on speculation it would start a foreign-exchange system to boost the dollars needed to buy necessities from abroad and alleviate inflation of 45%, surged by the most in three weeks yesterday after El Nacional newspaper said China wouldn’t loan the cash intended to fund the change. (Bloomberg, 09-26-2013;

FOREX board ponders extraordinary allocation of foreign currency
Jose Khan, President of the Foreign Exchange Administration Commission (CADIVI), is saying an "extraordinary" allocation of US dollars could take place in the upcoming months in order to speed up imports. "Such decision is in the hands of the President of the Republic (Nicolás Maduro); there is a proposal and it is up to him to make the announcements," the official stated after a meeting with Vice-president Jorge Arreaza and other members of the Economy Higher Authority. The business sector claims that foreign currency shortage is the main obstacle to boost production and increase supply. (El Universal, 09-26-2013;

Unemployment rate hits 8% in August
Venezuela's unemployment rate in August 2013 stood at 8%, a small increase compared to August 2012, when unemployment hit 7.9%, according to the monthly labor report issued by the National Institute of Statistics (INE). In absolute terms, 1,133,674 people were unemployed in Venezuela last month, either because they lost their jobs, or because they were looking for their first job and did not found one. In addition, 58% of Venezuelans (7,629,436 people work in the formal sector of the economy, and 41.2% (5,342,390 people) work in the informal sector. (El Universal;


Private sector seems anxious to invest if PDVSA builds confidence
PDVSA is scrambling to increase production by enlisting the private sector and by meeting the tough new constraints on loans imposed by Beijing and major foreign oil companies. Several Venezuelans, on condition of not being quoted as they do business with PDVSA, related a consistent picture differing only in amount of detail: PDVSA has had to allow delivery of loans directly to large joint ventures (JVs) with major foreign oil companies, surrendering much operational management.  To guarantee timely payment and repatriation of profits, PDVSA delivers oil produced to a third party for marketing abroad, with proceeds put in offshore accounts with JV partners. (Americas Quarterly, 09-17-2013;

Brazil's PETROBRAS nixes refinery deal with Venezuela
Brazil's state-run oil giant PETROBRAS has scrapped a proposed partnership with its Venezuelan counterpart in the ongoing construction of a refinery in northeastern Brazil, the economic daily Valor reported Tuesday. As of November 1, the Abreu e Lima refinery will become a PETROBRAS business unit, ending bilateral talks which began more than six years ago between Brazil's ex-president Luiz Inacio Lula da Silva and his now deceased Venezuelan counterpart Hugo Chavez, Valor said. While awaiting a 40% participation by Venezuela's state-owned PVDSA oil company in the project, Brazil began building the refinery south of Recife in 2007. Venezuela's promised investments failed to materialize however. (Global Post;

Ramirez announces meeting of Venezuela-India oil companies
Oil and Petroleum Minister Rafael Ramírez says directors of Venezuelan and Indian oil companies will gather in October in Caracas to discuss the possible participation of India in oil projects at the Orinoco Oil Belt (OOB). The official noted the meeting would be held on October 7-9 in Caracas and in the Orinoco Oil Belt. (El Universal, 09-26-2013;

Land grabs aggravate food scarcities
Ciro Labarca, President of the Cattlemen Association of Colón, in Zulia state, says land grabs make food production worse since invaders sell off whatever is there, and therefore diminish the production of milk, beef, plantains and other items. He explains that those who enter forcibly have taken over 4 highly productive farms in his area, for a total 6900 hectares. "Their modus operandi is to occupy, steal all there is , sell the cattle, and then resell lots at any price". More in Spanish: (Últimas Noticias;; El Mundo,

SIDOR remains paralyzed due to lack of agreement between management and the unions. More in Spanish: (El Mundo,

International Trade

Drop in reserves lead to paying for Colombia food with PDVSA bonds
The drop in disposable reserves is so great that the Maduro regime is getting ready to pay Colombian food exporters with U$D 600 million worth of PDVSA bonds. Colombian Finance Minister Mauricio Cárdenas has explained that "there is an ongoing dialogue between Venezuela's Nutrition Ministry and Colombian businessmen...and there is a pending last discussion on the way to pay, over how PDVSA bonds will operate, as this is the device initially suggested as payment." He added: "we are waiting for a reply to a proposal made by the Colombian government." More in Spanish: (El Universal,

Venezuela promises to cut red tape on imports of essential goods
Vice-President Jorge Arreaza said the government was cutting red tape for companies willing to import food, toiletries and mechanical parts.  Arreaza also announced that the government was giving importers easier access to foreign currency. (BBC;

Logistics & Transport

Puerto Cabello's port has been overwhelmed due to deficit in ground transportation
Over 40 vessels, some of them bearing food and live cattle, have collapsed the most important commercial port in Venezuela due to a chain of events made worse by bureaucracy. The Puerto Cabello maritime terminal in Central Venezuela has a deficit in land transportation which makes it difficult to move 332 tons of backed up cargo, and ships continue to arrive with grain coming out of the harvest season. Tarek Bahsas, President of the Central Venezuela Transportation Chamber, says there is a deficit of some 2000 cargo vehicles, and that some 10% of the fleet is paralyzed due to a lack of spare parts. Offloading is slow and takes an average 8 to 15 days. Delays are extremely costly to the government as each additional day costs between U$D 10-25,000, depending on the type of cargo. Container cargo arrivals have dropped 30-35% from 2012 due to delays in FOREX allocation and other bureaucratic snags. National Assembly member Neidy Rosal called on the government to declare an emergency at this port which received 80% of all imports. She also said there are 200, 000 tons sugar and corn backed up at the port due to the inefficiency of the port authority (BOLIPUERTOS). She says there are 45 ships in the port, 27 of them waiting at bay and 18 in the process of docking. Rosal says ships take an average 72 hours to dock, offload and go through customs at most Latin American ports, and it takes over a month to do so in Venezuela. More in Spanish: (Ultimas Noticias;

Customs agents protest increase in cargo freightage
Antonio Marcano, President of the Puerto Cabello Customs Agents Association says there has been an exaggerated increase in freightage for transporting cargo. He says the increase is not 40%, which is what carriers claim, but approximately 130%. As an example he said the cost of transportation between Puerto Cabello and Valencia went up from 3,000 to 8,000 Bolivars. More in Spanish: (El Carabobeño;; Notitarde;

Maiquetía Airport’s security unit has been intervened, says Internal Affairs Minister Major General Miguel Rodríguez Torres, after French authorities reported the major drug seizure at the Parisian airport. Rodríguez Torres said all the necessary changes will be made to make sure this does not occur again. (Veneconomy, 09-26-2013;


Maduro cancels UN speech over alleged New York threats
President Nicolas Maduro canceled a trip to speak at the United National General Assembly’s annual gathering in New York because of what he called threats to his safety. One of the alleged plots could have caused violence in New York and the other could have affected his physical safety, Maduro said in a national address carried on television and radio yesterday. “The clan, the mafia of Otto Reich and Roger Noriega once again had planned a crazy, terrible provocation that can’t be described in any other way,” Maduro said, referring to two former U.S. officials he frequently accuses of plots against Venezuela. Maduro, who returned to Venezuela yesterday from a state visit to China, said he learned of the plots from “various sources” during a stopover in Vancouver and decided to return to Caracas. The State Department in March said claims by Venezuelan officials of U.S.-based plots to destabilize the South American country were “unsubstantiated and outlandish.” Foreign Minister Elías Jaua will speak instead and says "We have prepared a file outlining all ...obstacles and difficulties". (Bloomberg;; El Universal, 09-26-2013;; Latin American herald Tribune, 09-26-2013;; Reuters,; Bloomberg,; CNN,

Maduro says he will sue AIRBUS
President Nicolás Maduro says he is planning legal action against AIRBUS, after his presidential plane developed a fault. "A serious fault appeared in one of the wings of the plane after five months at AIRBUS in France - my God!" said Maduro. "With the help of an international law firm, we're preparing legal actions against AIRBUS of France." (BBC:

Beijing expands presence in Venezuelan Armed Forces
During recent meetings of China-Venezuela authorities and representatives, the Venezuelan Government entered into agreements under which China is to conduct a preliminary study for the construction of two general commands of the Bolivarian National Armed Forces (FANB) and furnish defense supplies to the Venezuelan military. (El Universal, 09-26-2013;

Venezuela, Russia sign electoral cooperation agreement
Tibisay Lucena, head of Venezuela's National Electoral Council, and Stanislav Vavilov, deputy chairman of Russia's Central Election Commission, have signed a bilateral cooperation protocol to exchange experiences relative to election affairs, particularly the alleged cutting-edge technology of the Venezuelan electoral system. (El Universal, 09-26-2013;

It is a remarkable achievement. Amid the longest oil boom in history Venezuela has in many respects the worst-performing economy in the Americas, even though it has (it claims) the world’s biggest reserves of the black stuff and gets 94% of its export earnings from it. That is the legacy of 14 years of “21st-century socialism” under the late Hugo Chávez. Inflation is over 45% a year and supermarket shelves are bare of many staple goods. Even Nelson Merentes, the finance minister, concedes that Chávez’s revolution has yet to achieve economic success. But oil revenues of U$D 90 billion a year allow Nicolás Maduro, Chávez’s successor, the luxury of debating whether or not to change course. After contracting for several months, the economy grew in the second quarter. August inflation of 3% was half the monthly rate in May. But most economists do not believe a sustainable recovery has begun. The growth spurt appears to come from a fiscal splurge; the budget deficit is probably around 10% of GDP. A decade and a half of hyper-regulation, including ever more stringent price and exchange controls, has inflicted “terrible distortions” which will be hard to correct, even given the political will, says José Manuel Puente of IESA, a business school in Caracas. Foreign exchange has been largely allocated by government fiat since 2003. On the black market, the dollar commands more than six times the official exchange rate of 6.3 Bolivares. The government handed out more hard currency in the second quarter, which may have boosted growth. Merentes is more pragmatic than his predecessor Jorge Giordani, a Utopian Marxist. Following a 32% devaluation in January there is talk of another, or even of floating the Bolívar, though Giordani, who is now planning minister, opposes this. Opportunists, who delight in the profits to be made from graft and arbitrage, are happy to go along with him. The government’s main response to the scarcity of food and other staples, such as toilet paper and toothpaste, is a conspiracy theory. It blames an “economic war” waged by the United States and its “fascist” allies in the Venezuelan opposition. On September 20th it sent the national guard to occupy a big toilet-paper factory. Officials said the “temporary” takeover was needed to check for irregularities in production and distribution. Maduro claimed recently that in meetings at the White House earlier this year a plan was hatched to engineer the “total collapse” of the Venezuelan economy in October. A huge power cut affecting 18 (out of 24) states on September 3rd was due to sabotage, he said, as was a refinery explosion last year that killed 49 people. This month he set up an army-backed task-force to tackle the supposed plot, with the help of 0800-SABOTAJE, a hot-line. Maduro has produced not a scrap of evidence for these claims. The private sector wearily promised to collaborate. After all, said one business leader, “we already face 50 to 100 inspections a month of various kinds, so what is one more?” Economists debate how long Venezuela’s foreign-currency reserves can stand the current rate of attrition. They have plummeted by around a quarter this year, thanks in part to the fall in the price of gold, of which they largely consist. Liquid reserves amount to less than a month’s imports. There could be another U$D 20 billion or so in opaque off-budget funds, but up to a third of this may be earmarked for specific projects. This week Maduro was in Beijing, where he confirmed a fresh U$D 5 billion credit line (with strings attached) and U$D 15 billion in long-term oil and mining investments. Pragmatists argue that an adjustment is unavoidable. But Maduro faces local elections on December 8th which are widely viewed as a plebiscite on his rule. IVAD, a pollster, recently found that two-thirds of those it surveyed saw the economy as being in bad shape—and they blamed the government. Less than 4% believed the official line about “sabotage”. Maduro is caught in a trap of his predecessor’s making. If he sticks to the recipes of the radicals, the economy will only worsen. If he abandons them, he risks being labeled a reformist traitor and exacerbating faction-fighting within the regime. For the moment, he is moving cautiously in the direction of reform, even as he bangs the revolutionary drum and cracks down on dissent. For the president, who recently managed to fall off a bicycle on live television, it is a tricky balancing act. (The Economist,

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.

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