November 29, 2013

Economics & Finance

Central Bank admits GDP growth falls short of goals

Central Bank President Eudomar Tovar admitted the economy will not attain the 6% goal set as a goal for 2013, as the YTD rate holds around 1.4%. "Undoubtedly we are not going to grow 6% this year... but we will grow. Growth is possible if we strengthen construction, oil and manufacturing. Rest assured that the economy tends to grow", he said, adding that the country faces "ferocious economic warfare".  He also defended the government's forcing stores to lower prices: "One must understand that there is a strong speculative trend in Venezuela which had to be cut short, it was in fact developing a bubble, an increase in prices which was creating distortions." More in Spanish: (INFOLATAM)

.... denies gold swap transactions

Central Bank President Eudomar Tovar also denied the institution is carrying out transactions with Wall Street banks, a day after a senior government source said it was evaluating a swap agreement involving its gold reserves. Opposition leaders and local media reported that Venezuela is seeking to boost availability of hard currency through transactions with Goldman Sachs (GS.N) and Bank of America (BAC.N). "With respect to the institutions you've mentioned, the central bank ... is not carrying out any operations with these institutions," Central Bank President Eudomar Tovar said at a press conference. "There are some considerations out there which have come out, but these are unofficial positions, if you will." Asked again by a reporter, he said: "There has been no activity done by the central bank with Goldman Sachs or any institution." (Reuters, 11-28-2013; http://www.reuters.com/article/2013/11/28/us-venezuela-economy-idUSBRE9AR0JG20131128; http://www.reuters.com/article/2013/11/27/venezuela-economy-idUSL2N0JC13G20131127; El Universal, http://www.eluniversal.com/economia/131128/central-bank-of-venezuela-denies-any-swap-with-gold-reserves; Bloomberg. http://www.bloomberg.com/news/2013-11-27/goldman-to-bofa-pitch-venezuela-deals-to-drum-up-dollars.html)

Minister Ramírez claims 2014 will bring "growth and prosperity"

Rafael Ramírez, who is Venezuela´s Vice President for Economic Affairs, Minister for Oil and Mining and President of state owned oil company PDVSA, is saying 2014 will bring "growth and prosperity" to the nation. More in Spanish:  (PDVSA, http://www.pdvsa.com/; El Universal, http://www.eluniversal.com/economia/131129/ramirez-dice-que-evolucion-del-pib-es-satisfactoria)

FEDECAMARAS President Jorge Roig says 2014 will be "precarious and complicated"

In contrast, Jorge Roig, President of the country's main business organization, FEDECÁMARAS, says the economic situation is "serious" and that prospects for 2014 are "complicated". Roig calls current conditions "precarious" and that the current economic model shows "clear signs of failure" with the highest rate of inflation in the Hemisphere, a 24% scarcity index, disposable FOREX reserves that can meet only one week worth of imports despite, that ten years of price controls during which time the cost of food has increased 1953%. Roig points out that only 2% of businesses in Venezuela receive FOREX from the Currency Board (CADIVI) and the process for obtaining FOREX means delays of "up to 700 days". He says CADIVI owes the pharmaceutical industry U$D 1.8 billion, the automotive industry U$D 2 billion, U$D 385 million to distributors of medical equipment; U$D 2.356 billion to international airlines; U$D 515 to the chemical area; and another U$D 400 million to the printing industry. Roig also points out that state run companies run at 50% capacity, less than 2% of land taken over by the government is productive and 10 out of 16 sugar mills are operating at 40% capacity. "They have the dollars and the plants and are not capable of producing, they prefer to import products". He calls buying after forcing lowered consumer prices a "drunken spree" which will result in a "hangover" in the first quarter 2014. He says business is "cautious" about replacing inventories, and "several have said they will not reopen". More in Spanish: (El Universal: http://www.eluniversal.com/economia/131129/fedecamaras-cree-que-inicio-de-2014-sera-precario-y-complicado; El Mundo, http://www.elmundo.com.ve/noticias/economia/gremios/asignacion-de-divisas-a-empresas-privadas-ha-caido.aspx#ixzz2m1yQfSk2; http://www.elmundo.com.ve/noticias/economia/gremios/fedecamaras--retraso-de-liquidaciones-de-divisas-a.aspx; El Universal, http://www.eluniversal.com/economia/131129/fedecamaras-cree-que-inicio-de-2014-sera-precario-y-complicado)

Maduro vows stricter business inspections, threatens Roig for saying 2014 will be "precarious"

President Nicolas Maduro said a stricter wave of inspections for suspected price-gouging would begin on Saturday in an aggressive pre-election "economic offensive" aimed at taming the highest inflation in the Americas. He said price irregularities were found in nearly 99% of 1,705 businesses inspected so far this month. He says "capitalist parasites" are trying to wreck Venezuela's economy and force him from office. "The inspections are continuing daily and have let us see into the under-world of capitalism," Maduro said in his latest speech to the nation. He also said 100 retailers have been arrested but his chief prosecutor puts that at around 30.  Maduro also announced a new decree to limit monthly rents for commercial properties. He accused the nation's main business organizations: FEDECÁMARAS, CONSECOMERCIO and VENAMCHAM of "ratifying their economic warfare on the nation" and warned FEDECÁMARAS President Jorge Roig: "Mr. Roig dont' say later that you are being persecuted politically. You have declared economic warfare on the nation. Be ready to meet legal consequences." During the same speech Maduro swore in authorities to lead the Foreign Trade Corporation and the National Foreign Trade Corporation, to be headed by the Commander of Venezuela's Air Force. (Reuters; and more in Spanish: Globovision, http://globovision.com/articulo/nicolas-maduro-anunciara-este-viernes-acciones-para-recrudecer-y-acelerar-la-batalla-economica)

Oil & Energy

PDVSA, Russia sign agreement to increase oil production

State oil company PDVSA and Russian bank GAZPROMBANK, have signed a U$D 1 billion agreement to finance the increase of crude production of PETROZAMORA company, on the east coast of the Maracaibo Lake, in Zulia state. The agreement calls for development of oilfield services to boost production levels from mature fields of PETROZAMORA. (AVN, 11-28-2013; http://www.avn.info.ve/contenido/venezuela-russia-sign-agreement-increase-oil-production; El Universal, http://www.eluniversal.com/economia/131128/venezuela-russia-sign-agreement-to-boost-crude-oil-output)

PDVSA seeks U$D 1.2 billion from REPSOL

Rafael Ramírez, President of PDVSA says a U$D 1.2 billion financing agreement with Spain's REPSOL will be signed in the first half of December. The funds are to be invested in the PETROQUIRIQUIRE joint venture in the Orinoco Oil Belt. He said additional deals have been struck with China's CNPC for U$D 4.5 billion; US CHEVRON for U$D 2 billion and Italy's ENI for U$D 1.76 billion. (El Universal, 11-28-2013; http://www.eluniversal.com/economia/131128/pdvsa-seeks-funding-for-usd-12-from-repsol)

Venezuela says OPEC should maintain production limits

Oil Minister Rafael Ramírez says OPEC should maintain its current production levels at next week's meeting, and that any easing of sanctions on Iran will let the group reorganizes itself. "Inventories are growing and are above all averages. There's too much oil, over 2 million barrels that need to be collected," he says. (Reuters, 11-28-2013; http://www.reuters.com/article/2013/11/28/venezuela-opec-idUSL2N0JD0V920131128; Bloomberg, http://www.bloomberg.com/news/2013-11-27/venezuela-sees-reasonable-oil-sales-to-u-s-more-to-asia-1-.html)

International Trade

Venezuela received over 200 tons of household appliances

Over 200 tons of household appliances such as kitchens, ovens, and TV sets have been imported China as part of the stock replenishment recently announced by the Executive Office, daily newspaper NOTITARDE reported. In addition to household appliances, some 180 tons of food have been imported from Brazil, and both two tons of milk and 337 tones of toilet paper from the United States. Similarly, state-run companies Pequiven and Pdvsa have received nearly 152 tons of pipes to develop some of their projects. (El Universal, 11-28-2013; http://www.eluniversal.com/economia/131128/venezuela-receives-over-200-tons-of-household-appliances)

300 buses arrive from China

Land Transport Minister Haiman El Troudi says they were imported as a part of the Special China-Venezuela Fund agreement, and added another 800 buses will arrive in December. More in Spanish: (El Carabobeño; http://www.el-carabobeno.com/impreso/articulo/85372/unos-300-autobuses-provenientes-de-china-arribaron-a-puerto-cabello)

Politics

Violence enters election campaign

An opposition city council candidate was gunned down in the western state of Zulia. Jose Chirinos, who was seeking a seat on the council in Baralt, Zulia, was shot Tuesday night by two assailants on a motorcycle as he left a radio station after an interview, the MUD opposition alliance said. A radio host and a young woman were wounded in the attack, but are listed in stable condition at a nearby hospital, says the Democratic Unity Conference (MUD). (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1233493&CategoryId=10717)

Elections Council Director charges government unfair advantage practices are escalating

Vicente Díaz, the lone independent director on Venezuela's National Elections Council (CNE), has complained over the escalating unfair advantage being carried out by the government in the electoral campaign. The official says Venezuelans are fully aware of the imbalance official mass media networks, an added that the behavior of some public officials is not consistent with the laws banning such conduct. (El Universal, 11-28-2013; http://www.eluniversal.com/nacional-y-politica/131128/director-of-electoral-council-warns-about-escalation-of-govt-advantage)

Venezuela elections: Empty shelves and a skyscraper squat

Venezuelans go to the polls in local and regional elections on 8 December that are being widely seen as a referendum on the six-month presidency of Nicolas Maduro. Opponents accuse him of leading the country to economic ruin, but he insists his reforms are essential and popular. It is quite common these days to see queues outside shops where there has been a fresh delivery of milk or toilet paper - basic goods that many Venezuelans no longer take for granted. The left-wing populist government tries to offset the notion of a crisis by running heavily discounted food and produce markets - counteracting, it says, the actions of profit-hungry private companies. Two weeks ago, President Maduro ordered a chain of electronic stores called Daka to slash their prices, accusing it of defrauding ordinary people. The ensuing rush for cut-price TVs made some happy and the government warned it would extend the policy to other sectors. But at Daka the shelves are now empty and it is difficult to see what such policies do for business confidence. Critics say Venezuela is now becoming ungovernable. One stark example is the Tower of David. This oil-rich country once had plans to build Wall Street in the heart of Caracas. But in 2007, homeless squatters invaded an unfinished financial centre and more than 1,000 families now live in the Tower of David. The residents of "Torre David" live beyond Venezuelan society and beyond the reach of the law. (In the past the community was said to be a haven for drugs dealers and former criminals.) With official inflation figures running at around 50% (unofficially it is probably much higher) the opposition accuses President Maduro of leading Venezuela to the abyss and of fomenting a Zimbabwean-style class war in South America. Corruption is endemic here and almost everyone admits to having paid a bribe to a policeman or public official at some point. Henrique Capriles, the main figure in the opposition movement, says: "Venezuela is heading in the wrong direction and I think we will pay a huge price for that". (BBC Special Report: http://www.bbc.co.uk/news/world-latin-america-25141809)

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.

Caracas, November 26, 2013

Economics & Finance

Special CNN Report: How to ruin your economy in 5 easy steps: Follow this link: https://www.youtube.com/watch?v=kz6dJbVKab8

Venezuela oil rut makes dollars even more scarce

Lost revenue is adding to concern over Venezuela’s creditworthiness. The slump in Venezuelan oil prices is depriving the nation of its main source of revenue and threatening bondholders already suffering the worst losses in emerging markets. Average prices of Venezuelan crude exports, responsible for 95% of the nation’s foreign currency earnings, fell to a 16-month low this month and ended last week at U$D 93.98 a barrel. Each U$D 1 dollar decline in a barrel of oil costs Venezuela about U$D 700 million per year. Venezuela’s debt securities have declined 7% this month as borrowing costs touched a 22-month high of 14.56%, according to JPMorgan Chase & Co. “With this reduction in oil income, the government won’t be able to maintain spending levels,” says Barclays Plc analyst Alejandro Grisanti. The difference between oil prices this year and last year has so far reduced income by $3 billion, Grisanti said.  “Oil prices in the low $90s would leave Venezuela with a current account deficit,” says Ben Ramsey, an economist at JPMorgan Chase & Co. The New York-based bank cut its recommendation on Venezuela bonds to neutral from overweight in a report dated Nov. 12. The consequences of lower oil prices could include devaluation, spending cuts and tighter monetary policy, “raising risks of a social and political backlash,” according to Ramsey. The extra compensation that investors demand to own Venezuelan bonds instead of U.S. Treasuries has risen to 11.52 percentage points this month, the highest in emerging markets, according to JPMorgan. “Venezuela’s oil basket is declining primarily due to declines in heavy oil prices,” says Ruth Krivoy, an oil analyst from Sintesis Financiera, the consultant firm for GlobalSource Partners. TransCanada Corp.’s proposed Keystone XL pipeline may displace Venezuelan crude, pushing prices even lower, because the project would allow U.S. refineries to source more Canadian oil, says Roger Tissot, a consultant in British Columbia. NuStar Energy LP on Nov. 8 canceled a long-term agreement with PDVSA for 30,000 barrels a day of crude. “If the Canadians go ahead with the Keystone Pipeline to export heavy oil from Canada to the U.S. Gulf Coast, that would cut off that little window of opportunity that is left for Venezuela,” Tissot says. (Bloomberg: http://www.bloomberg.com/news/2013-11-25/venezuela-oil-rut-makes-dollars-even-more-scarce.html)

Maduro calls inflation "induced and criminal", pressures Central Bank, National Statistics Institute

President Nicolás Maduro says inflation this year was "induced and criminal, the product of economic warfare that wanted to lead our nation into chaos". He brought heavy pressure to bear on technocrats at Venezuela's Central Bank and National Statistics Institute, saying "Do technocrats at the Central Bank and the INE realize what is happening beyond technocracy and technology?" and asked them to "dig deep and discover the incidents of the economic offensive". According to economist José Guerra, a former Research Director at the Central Bank, Maduro is now aiming at indicators which reflect inflation and scarcity. Guerra says "we are facing a sort of blackmail seeking to bring inflation down with a sledgehammer, by decree, and I hope specialists to not knuckle under to this, because they will destroy the credibility of statistics". More in Spanish: (El Universal: http://www.eluniversal.com/economia/131126/el-gobierno-incrementa-la-presion-sobre-el-banco-central; and Infolatam)

Central Bank says Venezuela experienced 1.4% GDP growth January-September 2013, adding that this adds up to growth over 12 consecutive quarters. The Bank reports financial institutions led growth, at 19.5%. More in Spanish: (Banco Central de Venezuela: http://www.bcv.org.ve/c4/notasprensa.asp?Codigo=11033&Operacion=2&Sec=False)

Operating reserves down 83% from 2009

Central Bank reports show that at the end of 2009, operating reserves were U$D 15.9 billion, but this September the same reserves were down to U$D 2.7 billion, a 83% drop. (El Universal, 11-25-2013; http://www.eluniversal.com/economia/131125/venezuelas-operating-reserves-down-83-since-2009)

Compulsory price cuts do little to deter inflation

President Nicolás Maduro claims that as a result of his ordering mandatory price cuts November inflation should be at least -5%. However, the ECOANALÍTICA economic think tank says such government action may not have a significant effect since prices adjusted cover only 1.2% of the Venezuelan basic consumption basket. ECOANALÍTICA adds that shortages could shoot up as "retailers may have to reduce stocks to minimize losses with price adjustments below replacement cost." (El Universal, 11-25-2013; http://www.eluniversal.com/economia/131125/compelling-cuts-in-prices-do-little-to-deter-inflation; http://www.eluniversal.com/economia/131123/excess-of-liquidity-threatens-to-speed-up-inflation-in-venezuela)

Venezuela stock market up 402%

Venezuela’s stock market recovered during the week ending November 22, with the Caracas Stock Index gaining 5.7% to 2,365,205. Volume was high, as prices bounced back from the sharp drop of the previous week. The Venezuela Stock Market is now up 401.70% for the year to date in Bolivar terms, though only 242.44% in official rate dollar terms because of a February devaluation, but still making it the best performing stock market in the world. (Latin American Herald Tribune, 11-25-2013; http://www.laht.com/article.asp?ArticleId=1224696&CategoryId=10717)

Oil & Energy

Nervous oil traders fixated on Venezuela risk

Within the oil industry, nervous traders are increasingly fixating on a fresh source of supply risk – Venezuela, where political instability is threatening to hit production at PDVSA, the state oil company, which is the country’s main source of export revenue and the regime’s cash cow. In a report last week which was otherwise bullish on supplies, analysts at Citigroup called Venezuela “probably the biggest bull risk to the oil market in 2014 outside of the MENA [Middle East and north Africa] region”. “The current regime is looking increasingly unstable, with rampant inflation, shortages of food and other basics. In the event of a coup the country’s production could collapse as it did back in 2002 [when PDVSA workers went on strike],” the bank’s analysts added. Venezuela’s growing instability was also widely discussed at an oil industry conference in Mexico last week, according to participants. Concern centers around two scenarios. One fear is that municipal elections in December could be a trigger for civil unrest, encouraging elements within the army that oppose the regime to step in to secure the streets. Any coup could lead Chavistas to orchestrate a shutdown of production at PDVSA. The second concern is more prosaic – cash. Since 2007 China has committed to lend Venezuela more than U$D 40bn, which has helped keep the economy afloat. But traders say PDVSA is struggling to supply the more than 300,000 barrels a day of exports required under the agreement, while still generating export revenues by selling elsewhere. “It is a matter of time before Venezuela defaults on its loans to China and without more cash the government will struggle to pay wages and there will be chaos,” says one senior trader, who says the market should be factoring in a significant reduction in Venezuelan output next year. (The Financial Times; http://www.ft.com/cms/s/0/44955dfc-55d2-11e3-b6e7-00144feabdc0.html#axzz2lmmBDIRv)

PDVSA's oil exports to CITGO decline, U.S. oil firms buy more

State-owned oil company PDVSA is sending less of its crude to its U.S. unit CITGO and some of the slack is being picked up by other U.S. oil firms such as Valero Energy and CHEVRON, according to the Energy Information Administration. PDVSA used to send some intermediate products for CITGO's 750,000 barrel per day (bpd) refining network but it has not shipped its unit any feedstock’s this year, latest EIA data through August shows. The decline stems in part from a series problem PDVSA has had with its domestic refinery network since 2012 and assets sales CITGO made starting in 2005 of two East Coast asphalt plants and a partnership at a refinery in Texas. (Reuters, 11-25-2013; http://www.reuters.com/article/2013/11/25/oil-venezuela-us-idUSL2N0J721420131125; El Universal; http://www.eluniversal.com/economia/131125/buy-of-us-oil-byproducts-up-156)

Orinoco Oil Belt output at 80% of target

Current production at the OOB, including traditional areas that were seized by the Venezuelan State in 2007 and new developments, is 1.21 million BPD. PDVSA had projected a 1.5 million BPD output by year end 2013, which means only 80% of the volumetric target of average production has been attained. (El Universal, 11-25-2013; http://www.eluniversal.com/economia/131125/oil-output-at-the-orinoco-oil-belt-at-80-of-the-target)

ROSNEFT looks to boost Venezuelan output

Russia's top crude producer ROSNEFT expects oil output at its projects in Venezuela, where production has been stagnant in recent years, to reach 1 million BPD by 2019-2020. Venezuela, whose economy is heavily dependent on oil production, is hoping that new projects in the Orinoco crude belt will help increase output. ROSNEFT President Igor Sechin, a long-standing ally of Russian President Vladimir Putin, says oil production at Rosneft's joint ventures in the Orinoco belt will reach 280,000 bpd in 2016 and rise further in 2017. "Such dynamics of assets and production development would allow us to reach the level of at least 1 million bpd in 2019-2020," Sechin is quoted as saying at a conference. (Upstream; http://www.upstreamonline.com/live/article1344654.ece)

International Trade

Price checks at Puerto Cabello have increased, seasonal cargo lower than usual, 50% drop at La Guaira

Price checks on merchandise arriving at Puerto Cabello have become significantly stricter over the past two weeks. A source at the port says officials have "become more inquisitive".  The same source says there is less incoming import volume as imports no longer depend on business needs but on FOREX availability. Cipriana Ramos, President of FEDECÁMARAS in Vargas State (La Guaira) says import volume there dropped 50% from November 2012, and says "The dollar scarcity will doubtless result in deeper overall scarcity". More in Spanish: (El Nacional; http://www.el-nacional.com/economia/acentuaron-revisiones-precios-Puerto-Cabello_0_307169507.html)

50% drop reported in dairy product imports from Argentina

Argentina's Ministry for Agriculture, Cattle and Fisheries reports there has been a 50% drop in dairy product exports to Venezuela since last month, from 5.604 to  2.794 tons, down from U$D 29.1 to 14.6 million. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/cae-50--importacion-de-productos-lacteos-de-argent.aspx#ixzz2lkO6Nxlo)

Overbilling on exports from Ecuador to Venezuela under investigation

Ecuadorean authorities have detected overbilling in chemical product exports to Venezuela. Overbilling was found in 4 chemical product exporting companies owned by Venezuelans, which operated within the Regional SUCRE payment system, for a total of U$D 17.7 million. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131126/investigan-recargo-en-facturas-de-exportaciones-a-venezuela)

Politics

Opposition marches in Venezuela ahead of local elections

Tens of thousands of opposition supporters marched in Venezuela on Saturday to pressure President Nicolas Maduro's government before Dec. 8 local elections after their leader denounced the pre-dawn arrest of one of his aides. The vote for control of 335 municipalities will be the first big test of Maduro's political strength after he narrowly defeated his opposition rival, Henrique Capriles, in a presidential election in April. While it will be nearly impossible for the opposition to win the majority of Venezuela's 335 municipalities, many of them far-flung villages dependent on government patronage, it hopes to win the combined majority of votes nationwide with a strong showing in large metropolitan areas such as Caracas, where it currently holds just one of the five electoral districts. (Fox News: http://latino.foxnews.com/latino/politics/2013/11/24/maduro-opponents-take-to-streets-in-venezuela-in-nationwide-protest/: Reuters, 11-23-2013; http://www.reuters.com/article/2013/11/23/venezuela-opposition-idUSL2N0J80GE20131123; http://www.reuters.com/article/2013/11/23/venezuela-opposition-idUSL2N0J80C620131123; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1218658&CategoryId=10717; The Washington Post, http://www.washingtonpost.com/world/the_americas/venezuelas-opposition-stages-nationwide-protests/2013/11/23/585d1a52-5472-11e3-9ee6-2580086d8254_story.html; Fox News, http://www.foxnews.com/world/2013/11/23/venezuelan-opposition-seeks-to-rebuild-momentum-in-nationwide-day-protests/)

OAS Secretary General calls for a dialogue in Venezuela

OAS Secretary General José Miguel Insulza says he is following "events taking place in Venezuela with concern", adding that "the spirit of confrontation that is prevalent within Venezuelan society benefits no one". He added that "only positive dialogue can bring positions closer", saying "this is what Venezuelans need". More in Spanish: (El Universal; http://www.eluniversal.com/nacional-y-politica/131126/secretario-general-de-la-oea-llama-al-dialogo-en-venezuela)

Democratic Unity Conference (MUD) warns the Elections Board will not present total vote

Vicente Bello, a director of the opposition Democratic Unity Conference (MUD) warns that the National Elections Board will not announce total results for municipal elections scheduled for December 8th. Bello says "plans are that they will not give national total results", beyond individual municipal results. More in Spanish: (El Nacional; http://www.el-nacional.com/)

The Department of State has issued a Travel Warning to inform U.S. citizens about the security situation in Venezuela, saying violent crime here is pervasive, both in the capital, Caracas, and in the interior.  According to the non-governmental organization Venezuelan Violence Observatory (VVO), there were 21,692 homicides in Venezuela in 2012, amounting to a rate of 73 homicides per 100,000 inhabitants, among the highest in the world.  In Caracas, the homicide rate is even higher at 122 homicides per 100,000 inhabitants. Kidnappings are also a serious concern throughout the country.  In 2012, 583 kidnappings were reported to the authorities.  It is estimated that roughly 80% of kidnappings go unreported; meaning the actual number of kidnappings in 2012 is likely much higher.  Common criminals are increasingly involved in kidnappings, either dealing with victims’ families directly or selling the victims to terrorist groups.  In addition, there is cross-border violence, kidnappings, drug trafficking, and smuggling along Venezuela’s western border. (American Thinker;  http://www.americanthinker.com/blog/2013/11/state_department_issues_travel_warning_for_venezuela.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.

November 22, 2013

Economics & Finance

Ghost of Chavez can't stop hyperinflation

Economist Steve Hanke believes Venezuela is sliding into a hyperinflation episode: "For years, Venezuela has sustained a massive social spending program, combined with costly price and labor controls, as well as an aggressive annual foreign aid strategy. This fiscal house of cards has been kept afloat -- barely -- by oil revenues. "But as the price tag of the Chavez/Maduro regime has grown, the country has dipped more and more into the coffers of its state-owned oil company, PDVSA, and (increasingly) the country’s central bank. "Since Chavez’s death, this house of cards has begun to collapse, and the black market exchange rate between the Bolivar (VEF) and the U.S. dollar (USD) tells the tale. Since Chavez’s death on March 5, 2013, the Bolivar has lost 62.36% of its value on the black market ... "This, in turn has brought about very high inflation in Venezuela. The government has responded by imposing ever tougher price controls to suppress the inflation. But those policies have failed, resulting in shortages of critical goods, such as toilet paper, without addressing the root cause of Venezuela’s inflation woes." The country's official inflation rate is about 50% a year. Steven Hanke puts the actual inflation rate at more like 280% a year. (Bloomberg, 11-20-2013; http://www.bloomberg.com/news/2013-11-20/ghost-of-chavez-can-t-stop-hyperinflation.html)

Excessive liquidity is fueling inflation

In an attempt to rein in the constant increase of circulating Bolivars, the Central Bank increased the ratio of deposits financial institutions most hold in reserve from 17 to 19%, but the currency flood is such that this step has had virtually no impact. In October banks were holding on to some 74.5 billion Bolivars as mandatory reserves, and by November 20th the amount had risen 30% to 96.8 billion Bolivars. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131122/exceso-de-liquidez-amenaza-con-acelerar-la-inflacion)

CAPITAL ECONOMICS sees default risk

CAPITAL ECONOMICS is skeptical over the government's mid-term ability to meet its foreign debt. "Default is a clear risk, particularly if oil prices continue to drop". The firm says the fact that PDVSA has returned to the market with a new PDVSA 2026 bond for U$D 4.5 billion, along with the decision by the National Assembly to enact the Enabling Law for the coming 12 months clearly indicate the government is reacting to high inflation. "With upcoming December 8th municipal elections turning into a measure of the government's popularity, President Nicolás Maduro has been taking ever more radical steps to meet inflation". More in Spanish: (El Nacional; http://www.el-nacional.com/)

Declining gold prices hit Venezuela's international reserves

The average price of gold has tumbled by 21%, from U$D 1,671 per ounce in January to U$D 1,314 in October. On November 20, the ounce of gold hit U$D 1,242. Analysts believe that in order to boost Central Bank liquid reserves it will have to sell a part of the country's gold; yet falling prices make this operation complicated. (El Universal, 11-21-2013; http://www.eluniversal.com/economia/131121/declining-gold-price-hits-venezuelas-international-reserves)

Economic reform seen as more unlikely

Investment banks see uncertainty over Venezuela is increasing, reform becoming more difficult, and foresee high inflation along with more acute fiscal imbalance. A UBS report says President Nicolás Maduro is in a difficult position to launch basic reforms given his drop in popularity and increasing social tensions. It says devaluation may be postponed in the coming months, and considers "exchange flexibility is the key, but the government seems to be going in the opposite direction by increasing public sector imports and further tightening the private sector's access". More in Spanish: (El Universal, http://www.eluniversal.com/economia/131122/creen-que-reformas-economicas-en-el-pais-se-dificultan)

Oil & Energy

A SPECIAL REPORT by SUBEAESHI: "Losing an oil market"

Is attached to this edition given the importance of oil production and sales to Venezuela's economy. (See attachment).

Government generates 97% of Venezuela's FOREX

Currency Board (CADIVI) President José Khan says the public sector generates 96% of all FOREX for the country, mainly through exporting oil and its derivates, plus basic industries. He says the private sector generates the remaining 3% through exports. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/sector-p%C3%BAblico-produce-97-divisas-pa%C3%ADs; Notitarde, http://www.notitarde.com/Economia/Sector-publico-produce-97-de-las-divisas-en-el-pais/2013/11/21/283054)

A Special Economic Zone to be created for the Orinoco oil belt

Oil and Mining Minister Rafael Ramírez says three new oil related laws will be established under the newly granted special powers. This includes a special law to regulate the Orinoco oil belt, in order to increase operations and develop new projects, such as 2 refineries, 282 drills, 2750 kilometers of pipelines, and activating 10,800 wells. He says a National Industrial Oil Conglomerate will expand participation by the productive sector. More in Spanish: (PDVSA, http://www.pdvsa.com/; El Mundo, http://www.elmundo.com.ve/noticias/petroleo/pdvsa/promulgaran-leyes-sobre-crudo-en-el-marco-de-la-ha.aspx; El Universal, http://www.eluniversal.com/economia/131122/crearan-zona-economica-en-la-faja-del-orinoco-via-habilitante)

ROSNEFT to invest U$D 65 billion in the Orinoco oil belt

Igor Sechin, President of Russia's state owned ROSNEFT says the company will invest U$D 65 billion into the Orinoco oil belt over the next years, and adds that "this is the most important investment project we have for the future." He said cooperation between Venezuela and Russia is an alliance between two global oil giants. Joint projects include the development of PETROMIRANDA and PETROVICTORIA, the creation of an oil services joint venture, for engineering and construction, the development of the Mariscal Sucre projects, among others. More in Spanish:  (PDVSA, http://www.pdvsa.com/; El Mundo, http://www.elmundo.com.ve/noticias/petroleo/pdvsa/rosneft-acompanara-a-venezuela-con--65-000-millone.aspx; La Información, http://noticias.lainformacion.com/economia-negocios-y-finanzas/petroleo-y-gases-secundarios/petrolera-rusa-rosfneft-invertira-65-000-millones-de-dolares-en-venezuela_lsyUZ05h3kcwb9DZrdn7y2/; Notitarde, http://www.notitarde.com/Economia/Petrolera-rusa-preve-millonaria-inversion-en-faja-del-rio-Orinoco/2013/11/21/283146)

Harvest Natural says PLUSPETROL revises proposal for Venezuela interests

Harvest Natural Resources Inc, announces revised proposal from PLUSPETROL for company's interests in Venezuela; termination of negotiations with VITOL. Says co and PLUSPETROL agreed to enter into two independent transactions. Negotiations toward definitive deal with VITOL S.A. for sale of 66.667% interest in Dussafu marine permit psc terminated. (Reuters, 11-19-2013; http://www.reuters.com/article/2013/11/20/harvestnaturalresources-brief-idUSWNBB035GK20131120)

Commodities

Cell phone shortage worsens

State company TELECOM Venezuela was created to rein in "speculation" by centralizing imports, but it has not been efficient and scarcity continues to intensify. Cell phones have disappeared from stores because TELECOM Venezuela has a long standing U$D 500 million debt with suppliers which means key operators such as DIGITEL, MOVILNET and MOVISTAR may not be able to meet increased demand during the upcoming Christmas season. TELECOM Venezuela limits the number of units entering the country, decides what models can be imported, and restricts operators from importing other models. In addition, it demands payment in advance on units required by operators, with a special surcharge for "social investment", plus other charges which raise the cost to the public, and then has not paid suppliers abroad. As a consequence, none of the operators, including state-owned MOVILNET, have units available and it is likely they will not have any until next year. More in Spanish: (Tal Cual: http://www.talcualdigital.com/Nota/visor.aspx?id=95338&sec=44&colum=156)

Venezuela signs joint ventures with SAMSUNG, MABE

The government has allied with SAMSUNG to jointly produce consumer electronics and appliances. Rafael Ramirez, vice president for the economy, signed the agreement with the South Korean company's regional president, Hyun Chil Hong. SAMSUNG will initially invest U$D 50 million in a factory for the joint production and Venezuela will take a controlling interest, Ramirez said. Its location, output and start date won't be announced for at least a month. In the meantime, the government will directly import 400,000 SAMSUNG major home appliances and other electronics worth about U$D 100 million to arrive in "the coming days" from SAMSUNG plants in Brazil, Mexico and Argentina. Venezuela has signed a similar agreement earlier this month with Mexican appliance maker MABE to produce and sell stoves, refrigerators and other durable goods at "fair prices" well below what Venezuelans have grown accustomed to amid soaring inflation. (ABC News: http://abcnews.go.com/International/wireStory/venezuela-inks-joint-venture-samsung-20954071; Veneconomy, 11-21-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=37242&idc=3; Reuters, http://www.reuters.com/article/2013/11/20/us-venezuela-samsung-idUSBRE9AJ14A20131120; Fox News, http://www.foxnews.com/world/2013/11/20/venezuela-signs-joint-venture-with-samsung-as-state-deepens-its-control-economy/)

Venezuela fines GENERAL MOTORS over spare parts' prices

The government has fined the local subsidiary of General Motors nearly U$D 85,000 for allegedly selling spare parts at exorbitant prices. The measure came as part of an aggressive drive by President Nicolas Maduro's government to tackle the country's high inflation rate by forcing businesses to lower prices. Speaking from the GM subsidiary's assembly plant in central Carabobo state, Industry Minister Ricardo Menendez accused it of selling spare parts at up to 500% more than cost. "Obviously this is a case of usury," he said. (The Chicago Tribune: http://www.chicagotribune.com/classified/automotive/sns-rt-us-venezuela-generalmotors-20131119,0,5104863.story

Dairy product distribution is diminishing

A 50% drop in production at companies such as PARMALAT, NESTLÉ and LACTEOS LOS ANDES is leading them to reduce distribution to market outlets and cut employment. The National Association of Food Distributors has called for state of emergency for government to urgently approve FOREX for packing material, fruit pulp and concentrates necessary for production. More in Spanish: (El Nacional; http://www.el-nacional.com/)

International Trade

Government to control all foreign trade

President Nicolas Maduro exercised new emergency powers for the first time Thursday, signing decrees limiting business profit margins and tightening regulation of imports. The two new laws aim to control prices and profits in the business sector and closely monitor imports and exports and hard currency that come in from oil sales, Venezuela's main source of revenue. Maduro says the law on foreign trade is designed to control "all that is imported and all that is exported", and adds that all businessmen who request FOREX for imports must register with the government - and those accused of "stealing" or "misusing" FOREX will not be allowed to register. The Currency Board (CADIVI), charged with delivering 95% of FOREX to business since 2003, will now come under the direct orders of a National Foreign Trade Center. He said the Foreign Trade Corporation will take care of imports by "powerful State-owned companies" and that registered private companies can take part "when advise is needed" on "vital matters", such as medical imports. (Yahoo News: http://news.yahoo.com/venezuelan-president-tries-emergency-powers-071959194.html; and more in Spanish: Infolatam)

Importers will have to declare US dollar origin

Venezuela's Currency Board (CADIVI) is now requiring importers bringing in goods below U$D 50,000 to report on the way they purchased US dollars to bring goods into the country. (El Universal, 11-20-2013; http://www.eluniversal.com/economia/131120/importers-in-venezuela-will-have-to-declare-us-dollar-origin)

Public sector share of imports will be 48%

Economist Asdrúbal Oliveros, of the ECOANALITICA economic research firm, estimates that nearly 48% of Venezuela's imports will be carried out by the public sector, in an economic model in which the State keeps gaining ground as importer. He further says the government aims at centralizing imports of auto spare parts and appliances. (El Universal, 11-20-2013; http://www.eluniversal.com/economia/131120/expert-imports-by-the-public-sector-will-total-48)

Foreign suppliers come calling to collect

Venezuelan businessmen in different areas have been receiving increasing visits from their foreign suppliers concerned about collecting outstanding debts. A business source who asked not to be identified says: "We meet with them, we explain the situation and we try to convince them that we will honor our debts." In some cases the merchandise has been delivered and is not yet paid for, others are products on their way to Venezuela, and in other cases there are products pending for dispatch. More in Spanish: (El Nacional; http://www.el-nacional.com/)

        

Government allies received most FOREX

An investigation by Últimas Noticias daily newspaper shows State companies and companies with ties with the regime received the most dollars from CADIVI in its nine years in operation. For instance, DAKA received more dollars (ranking 59th) than Alimentos Polar, Glaxosmithkline pharmaceutical lab, Coca Cola, Grupo Souto (breeding and distribution of poultry, among others), Plumrose, Agroisleña and Johnson & Johnson Venezuela. (Veneconomy, 11-21-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=37241&idc=2)

Politics

Maduro gets power to rule by decree

Venezuela's congress has granted President Nicolas Maduro emergency decree powers that will strengthen his hand as he goes after businesses the government accuses of sabotaging the economy. The same device was employed four times by Maduro's predecessor, the late Hugo Chávez, to promulgate dozens of laws that dramatically boosted state control over the economy. Unlike the charismatic Chávez, who had near-absolute command over his party, doubts about Maduro's leadership have risen since he defeated opposition leader Henrique Capriles by a razor-thin margin in April's presidential election and as worsening shortages of basic goods and galloping inflation, now at 54%, have eroded popular support for his rule. Addressing a crowd smaller than the ones Chávez was accustomed to drawing, Maduro reiterated a pledge to use his expanded powers to keep prices low across industries and limit profit margins to 30%. He also vowed to start 2014 with a frontal attack on corruption. "They underestimated me; they said Maduro was an amateur," he told the crowd. But "what you've seen is little compared to what we're going to do". Opposition leader Henrique Capriles replied in a Twitter message: "I'll give it to you really straight so it registers," ... after the December elections "we're going after you and your disastrous government, constitution in hand". (The Guardian; http://www.theguardian.com/world/2013/nov/20/maduro-power-rule-by-decree)

Fire sale TVs and Chavez-style theatrics heat up Venezuela vote

President Nicolas Maduro is firing up supporters for the upcoming mayors' election through a theatrical confrontation with businesses that has showered voters with cheap consumer goods, echoing the style of late Hugo Chavez. The Dec. 8 vote for control of 335 municipalities, ranging from urban hillside slums to isolated villages in sweltering plains, will be the first major test of Maduro's strength after he narrowly won the presidency in April. Venezuelans are flooding shops to snatch up discounted car parts, televisions and clothes since Maduro ordered businesses to slash prices in a gambit similar to the oil-financed pre-election largesse of the Chavez era, but with private merchants footing the bill. (Reuters, 11-21-2013; http://www.reuters.com/article/2013/11/21/venezuela-election-idUSL2N0IX1QL20131121)

Capriles calls on Venezuelans to demonstrate against economic chaos

Opposition leader Henrique Capriles and the Democratic Unity Conference (MUD) have called on Venezuelans to march this Saturday in a protest against Nicolas Maduro's regime and the crisis he says is caused by the government, a crisis reflected in scarcities, inflation and lack of personal safety. Capriles said: "I call upon all Venezuelans suffering this crisis, upon all those who feel the government wants to destroy the nation, to protest in all 355 municipalities around Venezuela this Saturday". He said these demonstrations require no permits as they will take place within the upcoming election campaign. More in Spanish: (INFOLATAM)

Internet coming under censorship

The government's telecom regulatory agency CONATEL is trying to criminalize some web pages, forcing them to restrict content it considers inconvenient. It has taken steps to remove concessions and licenses from carriers, and has taken down sites that provide information on foreign exchange rates on the parallel market. The trend seems to be moving toward taking down any number of sites they believe upset "public tranquility" by providing information on scarcities and others. The regime might, by law, force carriers into becoming digital wardens over content on the web. The move seems destined to fail because many sites are based outside Venezuela and can continue creating new ways to get around restrictions, unless the government decides to block internet in the entire nation. More in Spanish: (Tal Cual: http://www.talcualdigital.com/Nota/visor.aspx?id=95000&tipo=COL&idcolum=156)

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.