December 03, 2013

Economics & Finance

Sovereign bonds drop as investors fear further radicalization. Investors see the official decision to increase controls over rents as a sign of more radicalization and less chance for reform that could stabilize Venezuela's economic system. As a result, sovereign bonds dropped an average 0.65 points, and PDVSA bonds were down 1.25 points, according to a report by ARCA. Analysts see that as hopes for economic change after the death of Hugh Chavez are dashed, Venezuelan bonds are dropping back to where they were before his illness was announced. This means any bond issue will meet with high interest rates. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131203/inversionistas-temen-radicalizacion-y-caen-bonos-de-la-republica)

Controls have failed to curb cost and price rises. Efforts by the Venezuelan regime to force down inflation by decree are not new. Many mechanisms have been set up in the last 10 years seeking to curb inflation, counter speculation, and ensure the supply of goods and services to the population. They all considered reining in corporate earnings. Both the 2008 Law for the Defense of People's Access to Goods and Services and the 2011 Law on Fair Costs and Prices were passed under enabling powers granted to Hugo Chavez. They spawned a host of business inspection plans that became diluted over time, but had no effect on inflation and product supply. Even if they had an immediate effect in lowering inflation, in the mid-term not only did prices go up, but this gave rise to short supply of products regulated by SUNDECOP (the government's price controls agency). Business-inspection mechanisms applied today are the same used by SUNDECOP in the past: auditing of costs, including costs and fiscal burdens, in order to determine a net price on the profit margin considered by the government to be "fair." (El Universal, 11-30-2013; http://www.eluniversal.com/economia/131130/controls-have-failed-to-curb-cost-and-price-rise)

Central Bank of Venezuela raises savings interest rate to 16%. The Central Bank has officially adjusted the interest rate on savings by 3.5 percentage points, from 12.5-16% for account balances up to VEB 20,000 (USD 3,174). The rate of interest on term deposits will remain unchanged at 14.5%. (El Universal, 12-02-2013; http://www.eluniversal.com/economia/131202/central-bank-of-venezuela-raises-savings-interest-rate-to-16)

Oil & Energy

PLATT excludes PDVSA from its global ranking. Oil and energy information provider PLATTS has just published its ranking of the 250 largest oil companies in the world and - for the first time - has left Venezuela's state oil company PDVSA off the list. PLATT provides data on company oil reserves, production, refining, sales, profits and work force. Experts say Venezuela has 147 natural gas reserves, and yet must import gas from Colombia; it has the largest oil reserves in the world and two refineries, and yet must import gasoline from the United States, all of which points to weakness. According to the latest figures, production is down more than 400,000 BPD, exports are down 300-500,000 BPD, and its tax contributions are significantly lower. Malaysia's PETRONAS, Russia's LUKOIL, PETROVIETNAM, Brazil's PETROBRAS and the Byelorussian oil company have all chosen to withdraw from Orinoco Oil Belt operations. Charges of corruption and irregularities have raised concerns and create a negative perception as PDVSA's cash flow is considered drawn out due to a broad range of non productive activities. Foreign investment has dropped steadily over 14 years, debt to joint ventures, foreign and domestic suppliers have grown, and equipment acquisitions must be prepaid. Production continues to decrease, Orinoco Oil Belt production is feeble despite grandiose announcements, and new bond issues are considered "junk" in markets. More in Spanish: (Tal Cual Digital, http://www.talcualdigital.com/Nota/visor.aspx?id=95962&tipo=AVA)

PDVSA considers renting VALERO Energy facilities in Aruba. Venezuela's state-run oil company PDVSA and U.S. refiner Valero Energy Corp are running tests to evaluate the restart of five units at the 235,000 barrel per day (bpd) Aruba refinery, which was shut last year over high costs, according to three sources familiar with the situation. The Aruba refinery was closed in September 2012 when its owner, Valero, reduced its workforce and stopped units at the plant - which cannot convert heavy crudes into light products because of a lack of deep conversion plants. The Aruba refinery would offer PDVSA output of heavy fuels to mix with its own heavy crudes, along with storage space it partially lost in 2012 after several fires in its domestic refining network. The sources said PDVSA could lease the units from Valero and pay for their use in oil. PDVSA and its private partners in Venezuela need to obtain heavy naphtha to mix it with increasing output of heavy crudes in the Orinoco belt and create diluted crude oil (DCO), as production of light crudes that were used to generate blends such as Merey 16 declines. (CNBC, http://www.cnbc.com/id/101239773)

Venezuela oil price up. Venezuela's weekly oil basket stayed below the country's desired U$D 100 a barrel floor, but rose on "cuts in supply from northern Africa." According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending November 29 was U$D 94.69, up U$D 0.71 from the previous week's U$D 93.98. (Latin American Herald Tribune, 12-01-2013; http://www.laht.com/article.asp?ArticleId=1252510&CategoryId=10717)

Commodities

SMURFIT KAPPA says company "intervened" by Venezuela. SMURFIT KAPPA confirms that officials from the Venezuelan government have announced a temporary intervention at the Group’s subsidiary SMURFIT KAPPA Carton de Venezuela (‘SKCV‘). This is part of a nationwide programmed of inspections and audits at both locally and internationally owned companies, conducted by a number of government Ministries and agencies. The intervention allows for further inspections and audits covering areas such as tax, costs, pricing and employment practices. SKCV retains management of the company and is co-operating fully with the government officials. SMURFIT KAPPA is one of the leading producers of paper-based packaging in the world, with around 41,000 employees in approximately 350 production sites across 32 countries and with sales revenue of €7.3 billion in 2012. (Latin American Herald Tribune, 12-02-2013; http://www.laht.com/article.asp?ArticleId=1253960&CategoryId=10717; Bloomberg, http://www.bloomberg.com/news/2013-11-30/venezuela-temporarily-takes-over-smurfit-plant-in-valencia.html; Reuters, http://www.reuters.com/article/2013/11/30/venezuela-smurfitkappa-idUSL2N0JF0KF20131130)

International Trade

Imports centralized as the government tightens control on foreign trade. Supplies for public and private companies must now go through the newly created Venezuelan Foreign Trade Corporation (VENECOM), which includes all public companies linked to foreign trade and will be charged with "coordinating, supervising and setting guidelines" on their activities. Private companies will also be directed by VENECOM. The new corporation will preserve the same infrastructure that has had problems in the past. The entire structure has been designed to increase government control. Economist Francisco Faraco says "they are bringing imports under state control, having the government deal with suppliers, and this is a plan which has brought shortages wherever it has been applied as it is extremely complicated. There is no single price for a same product, quantities and time frames must be considered. A car has about 20,000 parts and some 2,000 suppliers." More in Spanish: (El Universal, http://www.eluniversal.com/economia/131203/se-centralizan-importaciones-con-la-misma-infraestructura; and  http://www.eluniversal.com/economia/131203/el-gobierno-refuerza-el-control-sobre-el-comercio-exterior)

Non-oil exports down 56% since 2007. One of the objectives of the First Socialist Plan 2007-2013 was to diversify exports of goods and services from Venezuela. However, since then non-oil exports have plummeted by 56%, from U$D 5.45 billion in January-September 2007 to U$D 2.48 billion during the same period in 2013, according to information provided by the Central Bank of Venezuela (BCV). In 2012-2013, non-oil exports, that is, commodities and natural resources plunged by 44%, from U$D 973 million in January-July 2012 to U$D 545 one year later, according to the National Statistics Institute (INE). (El Universal, 12-02-2013; http://www.eluniversal.com/economia/131202/venezuelas-non-oil-exports-down-56-since-2007)

Venezuela may send granite to Ecuador, Uruguay, Colombia and Cuba. Arnoldo García, President of the National Association of Granite Producers (ANAGRAVEN) said on state television that Venezuela has reached an agreement with Ecuador, Uruguay, Colombia and Cuba, in order to export non-metallic processed minerals, mainly granite to these countries. More in Spanish: (AVN; http://www.avn.info.ve/contenido/venezuela-exportar%C3%A1-granito-ecuador-uruguay-colombia-y-cuba; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/venezuela-exportara-granito-a-ecuador-uruguay-colo.aspx)

Politics

Maduro steps up economic offensive days before elections. President Nicolas Maduro announced new steps in his battle against “speculation” and ordered the arrest of merchants who have raised the prices of their products after being inspected to make sure they had lowered them.
Just days before municipal elections, which the opposition has framed as a referendum on his government, all the nation’s radio and television outlets were forced to broadcast an appearance by Maduro, surrounded by his entire Cabinet at the Miraflores presidential palace, in which he called for an “economic revolution” to protect the “productive middle class.” (Latin American Herald Tribune, 11-30-2013; http://www.laht.com/article.asp?ArticleId=1248824&CategoryId=10717; Fox News, http://www.foxnews.com/world/2013/11/29/venezuela-caps-commercial-real-estate-prices-as-crackdown-on-inflation-expands/)

Capriles urges people to stay at poll centers to protect votes. Miranda State Governor and opposition leader Henrique Capriles Radonski has urged dissenters to organize themselves and vote in the local election to be held next December 8. "I urge people with difficulties to mobilize and senior citizens to vote first thing in the morning. Then, after 2:00 in the afternoon, it will be the time for the avalanche of young people," Capriles said. (El Universal, 12-02-2013; http://www.eluniversal.com/nacional-y-politica/131202/capriles-urges-people-to-stay-at-poll-centers-to-protect-votes)

Blackout darkens half of Venezuela before local elections. Half of Venezuela lost power last night, six days before voters choose mayors across the country in the first electoral test for President Nicolas Maduro’s government. Electricity Minister Jesse Chacon said on state television last night that power would be restored by the end of the day, and investigators were dispatched to the Arenosa substation in southern Bolivar state where the failure occurred. He had blamed “sabotage” for a Sept. 3 breakdown at the same station that left about 60% of the country without power. Maduro, who temporary stopped his speech during the blackout, said nothing will stop the local vote from being held. “This is sabotage, live and on air,” Maduro said in a televised speech from the presidential palace last night. “Attention all armed forces of the state: the fascists are getting desperate before the elections.” The Venezuelan opposition has blamed a lack of investment and poor management for regular blackouts. “The country is in a blackout and the government is offering pathetic declarations,” opposition leader Henrique Capriles wrote in a Twitter post last night. “Take the responsibility for once!”  State television said at least 12 out of the country’s 24 states and districts, including three states with refineries, temporarily lost power. State-owned Petroleos de Venezuela SA said in an e-mailed statement that all oil facilities were functioning normally. (Bloomberg, http://www.bloomberg.com/news/2013-12-03/blackout-darkens-half-of-venezuela-before-local-elections.html)

Venezuela ranked as the most corrupt nation in Latin America. Transparency International has published its 2013 Corruption Perception Index (CPI) and finds Venezuela and Paraguay are seen as the most corrupt countries in Latin America, while Uruguay and Chile take the lead in transparency. On a scale of 0 (extremely corrupt) to 100 (very transparent), Venezuela ranks last at 20, followed by Paraguay (24), Honduras (26), Nicaragua (28) and Guatemala (29). More in Spanish: (Infolatam)

Venezuela's oil diplomacy wanes as impact of its economic problems spread beyond borders. The late President Hugo Chavez's dream of leveraging Venezuela's oil wealth to spread revolution across Latin America is crumbling under the weight of an economic crisis that is forcing his hand-picked successor to cut back on generous foreign aid. Signs of the country's waning influence are becoming more apparent. In early November, Guatemala withdrew from the PETROCARIBE oil alliance launched by Chavez, saying it didn't receive the ultra-low financing rates it had been promised by Venezuela when it first sought to join the 18-nation pact in 2008. Also in recent weeks, representatives of Brazil and Colombia have held meetings with their Venezuelan counterparts to collect overdue payment for food, manufactured goods and other imports. While Venezuela has fallen behind on payments before, the latest cash crunch is more severe, and the economic outlook more uncertain, than any time in 15 years of socialist rule. The reason is a dependence on oil, which accounts for 95% of exports. Although Venezuela sits atop the world's largest reserves, production has steadily declined in recent years. Global prices for crude are also lower as hydraulic fracturing technology boosts supplies in the U.S. at a time that Europe's economic woes and weaker growth in China limit global demand. (Fox News, 12-02-2013; http://www.foxnews.com/world/2013/12/02/venezuela-oil-diplomacy-wanes-as-impact-its-economic-problems-spread-beyond/)

Brazil lobbies for Guyana's consolidation in the Essequibo. The Maduro regime claims Brazil is Venezuela's closed ally, yet when it comes to Venezuela's dispute over the Essequibo, Brazil supports Guyana's consolidation in the territory in dispute. According to information from Wikileaks in October 2009. US Chargé d'Affaires to Brasilia, Lisa Kubiske, relayed statements by Brazilian Ambassador Rubem Barbosa about Brazil's interests in the Essequibo. Referring to Brazil's investment in a hydroelectric power generation plant in the Essequibo and answering whether Venezuela's claim would not spoil Brazil's plans, Barbosa was reported as confident that the political reasons to carry out the project were convincing. (El Universal, 11-30-2013; http://www.eluniversal.com/nacional-y-politica/131130/brazil-lobbies-for-guyanas-consolidation-in-the-essequibo)


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.