October 29, 2013

Economics & Finance

Parallel exchange rate shoots up as Ramírez says correction will take "50 years or more"

Economist Alejandro Grisanti says the parallel FOREX rate shot up to new record heights due to uncertainty over specific policies to rein in scarcity and inflation, as well as the supply of foreign currency. A recent statement by Rafael Ramírez, Vice President for Economic Affairs, that "it will take 50 years or more to straighten market imbalances" has set alarms off in markets. Grisanti says that Ramirez's terrible communications have created negative expectations. "I don't know who is advising him, but it is clearly not working because the parallel exchange rate has not stopped rising". Another cause for the rise is growth in liquidity, which is currently at VEB 1 billion according to the Central Bank. "There is too much cash circulating due to increased public spending, expenditures for the December 8th elections, and Christmas bonuses being paid to government employees in November", says economist Asdrúbal Oliveros. More in Spanish: (El Nacional; http://www.el-nacional.com/)

VP for Economic Affairs declares "war" on parallel FOREX market

Rafael Ramírez, Minister for Petroleum and Mining, and Vice President for Economic Affairs, has again said FOREX sold via the Foreign Exchange Administration Commission (CADIVI) is feeding the black market, and says, "we have declared the war on the parallel market." "There are large sectors that get US dollars, increase prices, and boost costs, or do not use the dollars. The parallel dollar is not a people's invention. We are trying to detect what sectors can accumulate such an amount of money to create this disturbance, which is intended to destabilize the economy". He claims an alternative FOREX system and FOREX budget are in the works. (El Universal, 10-28-2013; http://www.eluniversal.com/economia/131028/venezuelan-economy-vp-declares-war-on-parallel-forex-market)

Central Bank increases funding for PDVSA and fuels inflation

Prices in Venezuela have skyrocketed over the past two months, amid increasing demand and a higher exchange rate in the unofficial FOREX market. Paradoxically, both the Central Bank of Venezuela (BCV) and state-owned oil company PDVSA play a major role in the imbalance. Excess liquidity is caused by the Central Bank, as it prints banknotes without any backup in order to fund PDVSA and other state-run companies. Official data indicates that from 16 August through 18 October, the Central Bank has printed around VEB 59 billion (U$D 9.3 billion) to help PDVSA and other state-run companies overcome liquidity problems. Currency injected into the economy in 2013 to date stands around VEB 303.6 billion (U$D 48.29 billion). (El Universal, 10-28-2013; http://www.eluniversal.com/economia/131028/central-bank-increases-funding-for-pdvsa-and-fuels-inflation)

The Central Bank (BCV) increased mandatory bank reserves to 19%, up two percentage points. DATANALISIS Director Luis Vicente León says it is a correct yet insufficient move to curb liquidity, a situation which the bank itself has created. (VENECONOMY, 10-25-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36911&idc=2; Reuters, http://www.reuters.com/article/2013/10/25/us-venezuela-centralbank-idUSBRE99O0ZZ20131025; and more in Spanish: Luis Vicente Leon ‏@luisvicenteleon)

Public sector has been running a fiscal deficit for six years

Official data shows that despite booming oil prices and higher indebtedness, the Venezuelan public sector has been running a financial deficit for six years. According to the annual report by the Ministry of Finance to the US Securities and Exchange Commission (SEC), the public sector, including the central government and state-run oil company Petróleos de Venezuela (PDVSA), closed 2012 with a 15.6% deficit of Gross Domestic Product (GDP). The figure does not include balances of state-owned enterprises, as have been excluded government accounts since 2010. (El Universal, 10-26-2013; http://www.eluniversal.com/economia/131026/venezuelan-public-sector-accrues-six-years-of-fiscal-deficit)

Central Bank shows disregard for price controls has doubled

Each month, the Central Bank monitors prices for controlled food, medicine and personal care products and compares results to official guidelines. By the end of September prices on regulated products were 138.4% above what controls say they should be. The figure also shows that disregard for controls have doubled from September 2012, when it averaged 57.5%. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131029/bcv-registra-que-se-duplico-desacato-al-control-de-precios

The Central Bank has called a new SICAD FOREX auction, that will offer U$D 93 million in PDVSA 2035 bonds to companies involved in importing Christmas seasonal foods and toys. Companies that produce medicine and medical supplies are included among those that qualify. More in Spanish: (AVN; http://www.avn.info.ve/contenido/bcv-convoca-nueva-subasta-del-sicad; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/bcv-subastara-93-millones-para-empresas-y-7-millon.aspx; El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/-7-millones-oferta-esta-semana-el-sicad-para-las-p.aspx; http://www.elmundo.com.ve/noticias/economia/banca/bcv-convoca-nueva-subasta-del-sicad-por--100-millo.aspx)

Oil & Energy

PDVSA's debt likely to close 2013 at U$D 43 billion

In a report on Venezuelan oil policy, economic research firm ECOANALÍTICA estimates PDVSA's indebtedness could close this year at U$D 43.6 billion, above the U$D 40 billion recorded in 2012. The oil giant's financial debt will be impacted by loans PDVSA has negotiated with other oil companies and the likely sale of additional bonds. ECOANALÍTICA explains that Rafael Ramírez, Minister for Petroleum and Mining and PDVSA President, has taken steps to raise funds in order to boost output in joint ventures, particularly in the western part of the country. In this context, Venezuela is to receive loans of U$D 4 billion from China National Petroleum Corporation (CNPC), U$D 2 billion from CHEVRON, U$D 1.5 billion from Schlumberger, and U$D 500 billion from China Development Bank. (El Universal, 10-28-2013; http://www.eluniversal.com/economia/131028/pdvsas-debt-likely-to-end-at-usd-43-billion-in-2013)

VEB 6.3/U$D exchange is insufficient to meet PDVSA cash flow necessary to meet payroll, suppliers, social projects and investments, according to DATANALISIS Director Luis Vicente León. (More in Spanish: Luis Vicente Leon ‏@luisvicenteleon)

Venezuelan oil falls U$D2.14 a barrel

Venezuela's weekly oil basket continued falling below the country's desired U$D 100 a barrel floor as easing worries over strife in Syria and the Middle East and the US budget shutdown fiasco reduced demand for oil. According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending October 25 was U$D 95.76, down U$D 2.14 from the previous week's U$D 97.90. According to Venezuelan government figures, the average price in 2013 for Venezuela's mix of heavy and medium crude is now U$D 102.20 for the year to date. According to the US Department of Energy, the US imported 728,000 barrels a day from Venezuela in July and averaged about 731,000 barrels a day for the year through July. In 2012, US oil imports from Venezuela averaged 906,000 barrels a day. (Latin American Herald Tribune; http://www.laht.com/article.asp?ArticleId=1123138&CategoryId=10717)

PDVSA tests drones to watch for oil spills

State oil company PDVSA says it is testing unmanned aircraft to monitor energy installations and watch for spills in the country's crude heartland around Lake Maracaibo. A series of oil spills in recent years have put pressure on the government and heightened concerns about the industry's impact on the environment of the nation. The current monitoring system has relied upon human observers riding in costly three-hour helicopter flights every day. (Reuters, 10-25-2013; http://www.reuters.com/article/2013/10/25/venezuela-spills-drones-idUSL1N0IF0Y220131025)

Commodities

Paper scarcity may be overcome

Trade Minister Alejandro Fleming met with Tania Díaz, Vice chairperson of the Media Subcommittee in the National Assembly, representatives of regional media and the printing industry to plan a broad approach to the ongoing paper supply crisis. Opposition legislator Biagio Pilieri says "there is already a commitment by the legislature to the nation's editors to seek a solution to paper scarcity, and it must be honored. We hope it can materialize this week". In many states media have closed or have lowered the number of pages due to a lack of paper. More in Spanish: (El Nacional; http://www.el-nacional.com/)

International Trade

Brazil pressures Venezuela to settle debt over food imports

The Brazilian Government is demanding that Venezuela pay for imports of Brazilian imports, mainly food. In some instances there are 4 month delays in payment for exports by Brazilian companies to Venezuela, according to Folha de Sao Paulo daily newspaper. Brazil has sent its Trade and Industry Minister Fernando Pimentel and Marco Aurelio García, International Affairs Advisor to President Dilma Rouseff to Caracas to discuss the matter of payment while reinforcing their willingness to help overcome the ongoing supply crisis in Venezuela. (El Universal, 10-28-2013; http://www.eluniversal.com/economia/131028/brazil-pressures-venezuela-to-settle-debt-over-food-imports)

Politics

A majority doubts Maduro will deal with major problems

The latest poll by IVAD shows a majority of Venezuelans spontaneously identify crime, scarcities, inflation, unemployment and power outages as the main problems facing them today. The poll show a majority doesn't believe President Nicolás Maduro can solve these problems, and among those who say he can a majority will not grant him more than 12 months to do so. Five out of 10 respondents are convinced the Maduro regime cannot solve the problem of crime. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/131029/mayoria-no-cree-que-maduro-acabe-con-la-inseguridad)

Samán blames private sector for lowered productivity

Eduardo Samán, president of the national consumer protection agency (INDEPABIS) says the "economic warfare" the government must now face is more difficult because the enemy is covert. He says it is a situation "similar to that of 2002, with the difference that this time it is not declared". He says that rather than hire more people, business chose to cut down on working hours and "thus diminish productivity". More in Spanish: (El Universal; http://www.eluniversal.com/economia/131029/saman-responsabiliza-a-los-privados-de-bajar-la-produccion)

Colombia charges guerrilla is taking refuge in Venezuela

Colombian Defense Minister Juan Carlos Pinzón has asked for increased cooperation by Venezuelan authorities at several border areas in order to prevent his nation's FARC guerrillas from committing crimes in Colombia and hiding in Venezuelan territory. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/131029/colombia-reclamo-que-la-guerrilla-se-refugia-en-venezuela)

Russian strategic bombers fly to Venezuela as part of military exercise

Two Russian strategic bombers have flown to Venezuela as part of a military exercise. Russia's Defense Ministry said that the two Tu-160 supersonic long-range bombers took off from Engels air base near the Volga River city of Saratov in the country's southwest. The bombers, which are capable of carrying nuclear-tipped cruise missiles, landed at Maiquetia airport near Caracas. (Fox News, 10-28-2013; http://www.foxnews.com/world/2013/10/28/russian-strategic-bombers-fly-to-venezuela-as-part-military-exercise/)

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.