October 18, 2013

Economics & Finance

Government and PDVSA bonds continue spiraling downwards, no major policy changes in sight

BARCLAYS Capital has downgraded Venezuelan bonds from "purchase" to "neutral," sending a less optimistic signal about the Venezuelan economy, and speeding up their decline. The most traded bonds -the state-run oil company Pdvsa's bond due in 2022, and the Global 2027- dropped by 3 and 3.7 points, respectively. In a report to clients, BARCLAYS's says "We have been expecting economic policy changes in Venezuela. We believed that, after losing the charismatic leadership that Chavez represented, the preservation instinct would lead the government to take a more pragmatic economic approach and make some reforms to try to ensure the sustainability of the regime. The government gave some signals of moving in that direction; however, after six months in power, no significant change has been made. The sectors inside the government that were promoting reforms are actually losing influence, which makes us think that changes, at least in the short term, are unlikely. In the absence of adjustments, the deterioration of fundamentals and economic distortions will likely continue, increasing the vulnerability of the country to a shock; however, we remain of the opinion that Venezuela still has the capacity to service its debt in the short term." (El Universal, 10-17-2013; http://www.eluniversal.com/economia/131017/venezuelan-sovereign-bonds-and-pdvsa-titles-keep-spiraling-down)

S&P maintains negative outlook on Venezuela's PDVSA, affirms ‘B’ ratings

Standard & Poor’s Ratings Services affirmed its ‘B’ foreign and local currency corporate credit ratings on Petroleos de Venezuela S.A. (PDVSA). At the same time, the agency affirmed its ‘B’ senior unsecured debt rating on the company. The outlook remains negative. The affirmation follows S&P’s regular annual review. In addition, the agency revised its stand-alone credit profile (SACP) on PDVSA to ‘b’ from ‘b+’. (Latin American Herald Tribune, 10-15-2013; http://www.laht.com/article.asp?ArticleId=1093383&CategoryId=10717)

Venezuela has the highest country risk globally

As a result, if the government needs to issue bonds abroad to obtain financing, it will have to pay a higher interest rate. If Venezuela would have issued bonds this Wednesday, it would have to pay a 10.12% point interest rate above what the United States pays. (Veneconomy, 10-17-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36789&idc=2; El Universal, 10-17-2013; http://www.eluniversal.com/economia/131017/venezuela-ranks-at-the-bottom-in-property-rights-index)

Venezuela ranks 127th out of 131 in global respect for property rights

According to the International Property Rights Index, Venezuela is one of the countries that least respects property. It came out 127th out of 131, right along Haiti, Burundi and Libya in their 2013 ranking. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131018/venezuela-en-el-lugar-127-de-131-en-respeto-a-los-derechos-de-propieda)

Central Bank reserves down to their lowest point since October 2004

Official data shows Venezuela's international reserves are down to U$D 21.463 billion, the lowest they have been since October 19, 2004 when they were U$D 21.244 billion. They have now dropped 28% from January this year when they were calculated at U$D 29.750 billion. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/reservas-en-manos-del-bcv-retroceden-al-peor-nivel.aspx#ixzz2i4IUh1Is; El Universal, http://www.eluniversal.com/economia/131018/reservas-internacionales-caen-a-su-nivel-mas-bajo-desde-2004)

Central Bank President Eudomar Tovar says the U$D 100 million a week to be auctioned by SICAD, plus dollars allocated by CADIVI are “sufficient” to service the economy, as U$D 47 billion are required a year. According to Tovar, the rest are “distortions”, including unnecessary imports. (Veneconomy, 10-17-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36787&idc=2)

Ramírez says laws to be enacted under enabling law are ready

Just one week after President Nicolás Maduro requested an enabling law, his office announced that it has already drafted the laws it will enact as soon as the National Assembly grants special ruling powers. "We have drafted a set of laws for the enabling law" says Rafael Ramírez, Vice President for Economic Affairs. He added that the reason for an enabling law is the need to fight corruption and what he called economic war. Ramírez, who is also the president of state-owned oil company PDVSA, says top priorities include battling the unofficial foreign exchange market. (El Universal, 10-17-2013; http://www.eluniversal.com/economia/131017/venezuelan-govt-bills-to-be-passed-under-enabling-law-are-ready)

Special FOREX auction system reported in the works for travelers, students and remittances

According to sources, the economic team headed by Rafael Ramírez, Vice President for Economic Affairs, has drawn up a plan which eliminates FOREX allocations to travelers, students, remittances and special cases through CADIVI. The plan, yet to be approved by President Maduro, would require individuals to obtain FOREX through means different from the SICAD auction system. CADIVI would continue to provide FOREX to 24 economic areas at 6.3 VEB to the U$D, while individuals would access a much higher rate, closer to VEB 14 to the U$D. Travelers could acquire FOREX through a yet to be designed auction system charged to their credit cards. More in Spanish: (El Nacional; http://www.el-nacional.com/)

National Assembly Finance Committee Chairman says FOREX rate will be adjusted

Ricardo Sanguino, Chairman of the National Assembly's Finance Committee, says Venezuela will "adjust" the foreign exchange rate. "Let us wait until the enabling law is passed; it will include instruments intended to improve the situation and the results of the economic activity," he added. Sanguino claims problems with FOREX sales are due to illegal activity by business people. "They started to play tricks, front companies. At some point, businesspersons requested up to U$D 80 billion," he says that reforms of FOREX-related regulations will be enacted through the enabling law. (El Universal, 10-17-2013; http://www.eluniversal.com/economia/131017/finance-committee-chair-forex-rate-will-be-adjusted)

Government blocks TELEFONICA's price hikes

Venezuela's consumer agency has blocked a move by telecoms firm MOVISTAR to raise prices, dealing a blow to Spanish parent TELEFONICA as it battles to cope with rampant inflation here. "It doesn't make any sense that on the one hand they say they will give you free seconds, minutes and messages for every top-up and on the other they increase your tariff," says Eduardo Saman, president of the INDEPABIS agency. Analysts said Telefonica's accounts would likely take a hit because of decision. "Naturally this adds risk to the business profile of this unit, namely in terms of profitability considering that TELEFONICA is not able to pass onto consumers the inflation levels it is seeing on the cost side," Espirito Santo analysts said in a note to clients. TELEFONICA, like other foreign companies operating in the country, has difficulty repatriating money made in Venezuela, where it reported revenues of 1.5 billion euros (U$D 2.02 billion) in the first half of the year. The company said its first-half results were also impacted by the devaluation of the Venezuelan currency. (Reuters; http://www.reuters.com/article/2013/10/17/telefonica-venezuela-idUSL6N0I72JZ20131017)

Oil & Energy

PDVSA grants "more autonomy" to joint ventures at the Orinoco belt

New businesses at the Orinoco Oil Belt have been slow and faced with troubles in infrastructure, execution, and procurement, among others. To date, early production volumetric targets have not been met. PDVSA now says it will grant "more autonomy" to the joint ventures operating at the Orinoco Oil Belt in order to expedite operations.  "We will set up a system for joint ventures at the Belt to have greater autonomy with a view to developing their own production operations; handling the equipment, logistics, procurement," says Rafael Ramírez, Minister of Petroleum and Mining and PDVSA President. The action also includes "further delegating on the management of joint ventures every decision in economic terms to accelerate and accomplish our production goals." (El Universal, 10-17-2013; http://www.eluniversal.com/economia/131017/pdvsa-grants-more-autonomy-to-joint-ventures-at-the-orinoco-belt)

PDVSA, REPSOL discuss U$D 1.2 billion funding for Venezuela venture

State oil company PDVSA and Spain's REPSOL are discussing a U$D 1.2 billion financing deal for a joint venture in Venezuela, says Petroleum Minister Rafael Ramirez following a visit to Caracas by REPSOL boss Antonio Brufau. The funds would go to the PETROQUIRIQUIRE joint venture, which runs mature oil fields in the east and west of the country. Ramirez says the financing is aimed at increasing the joint venture's output by 75,000 barrels per day (bpd), from a total of about 40,000 bpd currently produced at its three fields. (Reuters, 10-16-2013; http://www.reuters.com/article/2013/10/16/us-venezuela-oil-repsol-idUSBRE99F17620131016; Veneconomy, 10-17-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36791&idc=4)

Colombia and Venezuela to link oil pipelines in border zone

Colombia and Venezuela will sign an accord to link oil pipelines in an area bordering the countries, says Colombia’s Foreign Minister María Ángela Holguïn. The agreement will join the Cano Limon-Covenas pipeline, owned by Colombia’s state-controlled oil producer ECOPETROL, S.A. with PDVSA's Guafita pipeline. The accord will give Colombia more ways to export crude produced in its eastern plains. The Cano Limon-Covenas pipeline has been attacked a number of times by rebel groups in recent weeks. An explosion Oct. 5 halted transportation of oil to Colombia’s Caribbean coast. (Bloomberg, 10-16-2013; http://www.bloomberg.com/news/2013-10-16/colombia-and-venezuela-to-link-oil-pipelines-in-border-zone.html)

Commodities

TOYOTA will halt operations for two weeks at its Cumaná plant, in Sucre state, starting October 28 through November 11, due to a lack of raw materials cause by delays in FOREX allocations by the government. The Japanese car assembler will stop manufacturing some 450 vehicles during the stoppage. (Veneconomy, 10-17-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36793&idc=3; El Universal, http://www.eluniversal.com/economia/131016/toyotas-plant-to-halt-operations-in-venezuela-for-two-weeks; Reuters, http://www.reuters.com/article/2013/10/16/toyota-venezuela-idUSL1N0I61FS20131016)

Domestic wheat flour production drops 25%

Juan Crespo, President of the National Federation of Flour Workers, warns that domestic production of wheat flour has dropped 25% due to labor strife and the lack of raw materials. He says the situation is turning worse and wheat flour will disappear from stores by the end of the month. Crespo asked the government to resolve the situation at MONACA in Carabobo state, which has been paralyzed for 10 weeks due to labor conflicts, and added that "The CARGILL plant in Vargas state does not have enough wheat. The crisis is already being felt in their plant at Catia La Mar which accounts for 38% of market supply for pasta". More in Spanish: (El Universal, http://www.eluniversal.com/economia/131018/produccion-de-harina-de-trigo-registra-caida-de-25

Government to produce toilet paper by 2014

Industry Minister Ricardo Menéndez has announced that the government's Venezuelan Paper Industry will be resurfaced in order to produce notebooks and paper, a well as cement sacks and toilet paper in order to eliminate imports in these areas. He said U$D 14 million have been approved to acquire equipment and VEB 49 million for constructing facilities. More in Spanish: (El Mundo; http://www.elmundo.com.ve/noticias/economia/industrias/invepal-producira-papel-higienico-en-2014.aspx)

Caracas authorities try to bar street vendors from selling basic food products

Informal street vendors have been banned from selling such items as precooked flour, sugar, coffee, cooking oil, rice, salt, pasta, powdered milk, compotes, personal care products, toilet paper, meat chicken, fish or eggs. The resolution was taken by the Urban Control office of the Caracas mayor's office jointly with the national consumer protection agency. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/proh%C3%ADben-comerciantes-informales-vender-alimentos-cesta-b%C3%A1sica; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/alcaldia-de-caracas-prohibe-a-buhoneros-vender-pro.aspx; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/prohiben-a-buhoneros-vender-productos-de-la-cesta-.aspx)

Logistics & Transport

Customs offices are working 24x7

According to César Augusto Febres, National Customs Supervisor, customs offices at Puerto Cabello and La Guaira are working 24x7 in an attempt to speed up import procedures under a special attention program for food, medicines and priority items. More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Aduanas-trabajan-durante-las-24-horas-del-dia/2013/10/17/272543; El Carabobeño, http://www.el-carabobeno.com/impreso/articulo/80015/aduanas-de-puerto-cabello-y-la-guaira-agilizan-importaciones)

Politics

National Assembly appointed committee on Maduro special powers request

The National Assembly has appointed an 18 member special committee to analyze a request for special powers by President Nicolás Maduro. All committee members are also members of the government's United Socialist Party, and will present a report to the Assembly for the first of the two debates on the request. An Enabling Law requires a favorable vote by three fifths of the Assembly and the government is one vote short. The government claims it has enough votes to pass this law, but the opposition has closed ranks and accused government of offering their members huge amounts of money to switch sides, and also threatening judicial action against individual members. The united opposition has charged existing legislation is sufficient to curb corruption and accuses Maduro of seeking additional powers for purposes other than those stated in his request. More in Spanish: (INFOLATAM)

Latin America must press Nicolás Maduro not to use decree powers to throttle his opposition

Nicolás Maduro inherited a divided country, a wrecked economy and a corrupt system—in short, a failed revolution. Six months after narrowly winning an election that the opposition claims was marred by fraud, it is still not clear where he wants to take his country. But he must do something. The economy requires emergency treatment. Inflation is at 49%—a level unseen in any large Latin American country since the 1990s. Staples, from flour to toilet paper, are in short supply. The fiscal deficit is around 10% of GDP. Even though Venezuela is the world’s ninth-biggest oil exporter, dollars are scarce. The Central Bank’s liquid reserves are enough only for a few days’ imports. In the black market the dollar trades at seven times the official exchange rate. Maduro has asked the National Assembly for power to rule by decree. What is the real explanation for the power grab? The optimistic view is that Maduro wants to reform the economy by decree. Pessimists explain the move as low politics—part of Maduro’s continuing efforts to dominate the different factions of chavismo. Maduro has already used an anti-corruption campaign to harass the opposition (even though it is his government that is plundering the country), and he has stepped up Chávez’s slow asphyxiation of media freedom. Opponents fear he could use his new powers to rig or cancel local elections due in December, which opinion polls suggest the government might lose. If Maduro suspends or manipulates elections, Venezuela should be thrown out of Latin America’s various clubs. The person to lead this is Brazil’s Dilma Rousseff. (The Economist; http://www.economist.com/news/leaders/21588093-latin-america-must-press-nicol-s-maduro-not-use-decree-powers-throttle-his-opposition)

Venezuela and Guyana discuss mechanisms for maritime delimitation

Foreign Minister Elías Jaua and his Guyanese counterpart Carolyn Rodrigues-Birkett have agreed to "explore mechanisms within international law for the matter of maritime delimitation". A special team has been given 4 months to review the matter. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/venezuela-y-guyana-explorar%C3%A1n-mecanismos-para-abordar-delimitaci%C3%B3n-mar%C3%ADtima; El Universal, http://www.eluniversal.com/nacional-y-politica/131018/venezuela-y-guyana-acuerdan-estudiar-fronteras-maritimas; El Nacional; http://www.el-nacional.com/)

Maduro will not attend Panama summit

Venezuela has confirmed that President Nicolás Maduro will not attend the 23rd Iberoamerican Summit to be held in Panama today and tomorrow. More in Spanish: (El Nacional; http://www.el-nacional.com/)

Sports Minister admits signature was forged in million dollar FOREX fraud by race car pilots

Sports Minister Alejandra Benitez has admitted her signature was forged in a million dollar fraud within the FOREX allocation approval process for motor car sports pilots. She said her signature was forged on 60 submissions, refused to provide names in order to "respect them as athletes", but added "they were well know pilots, who paid press teams for their permanent exposure and thus justify their large requests". U$D 66 million were approved in one of the cases. Athletes obtain FOREX for travel or training abroad with the backing of the Sports Ministry. Interior Minister General Miguel Rodríguez Torres, who also heads the National Bolivarian Intelligence Service (SEBIN) confirmed the arrest of 5 pilots involved in the re-sale of dollars, including Paolo Andreasi, of the Kessel Racing team in GT3. More in Spanish: (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.