December 06, 2013

Economics & Finance

EUROMONEY: Fears of Venezuelan instability increase.

PDVSA is going ahead with U$S 4.5 billion of bond issuance despite a growing economic crisis in the country and a jump in the yield on Venezuelan debt. Rafael Ramirez, Venezuela’s oil minister and the president of PDVSA, says the firm will sell U$D 1.5 billion in bonds to the central bank while the remaining U$D 3 billion would be offered to service providers to pay down billions of dollars in accumulated debts. “I don’t think there is any way that PDVSA and the government will cancel the bond offering despite the hike in bond yields,” says Alberto Ramos, Venezuela analyst at Goldman Sachs. “They would lose too much face. We are becoming more and more concerned about the country. It has now entered a hyperinflation situation, and we don’t see the loose monetary dynamics letting up soon. It’s difficult to predict whether there could be a full-blown macroeconomic crisis, but there is a chance of a social unrest as frustrations with the government grow.” This would be the first time that PDVSA has sold bonds directly to suppliers; previously it has sold them on the open market and repurchased them to pay off contractors. The company has already taken on U$D 10 billion in private loans this year, mostly from China and Russia. The latest issue means PDVSA would have issued U$D 32 billion in bonds since 2007.  Alejandro Arreaza, Venezuela analyst at Barclays, says: “The economy would need a largely contractive adjustment to stabilize it, which would imply a high political cost for the government.” He adds: “The risk we see now is that a strong setback for the government in the December elections could further weaken Maduro’s leadership, limiting the government’s capacity to make the necessary economic adjustments and increasing political and economic uncertainty, which would continue to put pressure on Venezuela/PDVSA curves.” Barclays says that although the authorities are still expressing willingness to make some economic adjustments after the elections, the risk of an incomplete adjustment is increasing. (Euromoney; http://www.euromoney.com/Article/3285183/CurrentIssue/90426/Fears-of-Venezuelan-instability-increase.html)

Experts forecast FOREX adjustments in 2014 in Venezuela.

Venezuela's economy is likely to shrink next year due to a major adjustment in the foreign exchange rate beginning in January 2014, according to a report issued by Bank of America's Merrill Lynch and entitled, "LatAm's Moment of Truth." Devaluation could push up the official FOREX rate from VEB 6.30 to VEB 11 per US dollar, with a chance of a second adjustment to VEB 18, for an average of VEB 14.5. Moreover, inflation is likely to hit 75%, thus spurring the risk of social unrest and discontent. (El Universal, 12-05-2013; http://www.eluniversal.com/economia/131205/experts-forecast-forex-adjustments-in-2014-in-venezuela)

Industrial inventories down 40.3%.

According to the regular quarterly poll taken by the National Council of Industries (CONINDUSTRIA) there has been a 40.3% drop in supply stocks available to industries here. Difficulties in accessing FOREX and electricity rationing have brought about severe inventory drops in areas such as: Textiles and foot wear (-61,5%); Paper (-52,2%); Wood (– 47,8%); Metal products (-43,6%); Chemicals (-37,3%); Basic metals (-27,3%); Food (-23,5%). CONINDUSTRIA President Eduardo Garmendia says that this situation, plus Christmas holidays, will seriously impact product supplies in early 2014. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/industrias/los-inventarios-en-las-industrias-han-bajado-40-3-.aspx#ixzz2mVJYZQPC; http://www.elmundo.com.ve/noticias/economia/empresas/fedecamaras-reporta-la-caida-de-inventarios-en-26-.aspx; El Universal, http://www.eluniversal.com/economia/131204/53-de-los-industriales-redujo-produccion-en-el-iii-trimestre; http://www.eluniversal.com/economia/131204/desconfianza-desacelera-reposicion-de-inventarios; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/el-ranking-de-los-8-sectores-con-mayores-caidas-en.aspx#ixzz2mVGisEVS)

US dollar account holders not required to declare FOREX to Central Bank.

Individuals residing in Venezuela may now open and hold bank accounts in US dollar in the country without informing the Central Bank about the amount and nature of their FOREX. The resolution was published following a presidential decree amending the Law against Foreign Exchange-Related Offenses. (El Universal, 12-05-2013; http://www.eluniversal.com/economia/131205/us-dollar-account-holders-not-to-declare-forex-to-central-bank)

Over 52,000 new US dollar account holders reported in public banks.

Public Banking Minister Rodolfo Marcos Torres says a total of 52,575 US dollar-denominated bank accounts have been opened this week to import new automobiles following a decree by President Nicolás Maduro that allows individuals who deposit U$D into the local banking systems to import foreign vehicles. Once an account is opened, the owner can request a license to import the vehicle from the Ministry of Trade and subsequently present it to SUVINCA (Venezuelan Industrial Supplies Company). (El Universal, 12-04-2013; http://www.eluniversal.com/economia/131204/over-52000-new-us-dollar-account-holders-in-venezuelan-public-banks)

Oil & Energy

PDVSA reports 517% profit increase due to devaluation, welfare contributions drop 42%.

PDVSA's results during the first semester 2013 were impacted by fewer barrels sold and lower oil prices, with profits at U$D 59.1 billion, a 5.5% drop from 2012. The company admits average export oil prices were U$D 97.5, down from U$D 105.41 last year. PDVSA also exported less oil: During the first semester 2.4 million BPD were sold, down from 2.5 million the previous year, mainly due to a decrease in derivate products. Despite all of this, overall profits rocketed to U$D 12.9 billion, up from U$D 2.09 billion in 2012. The company admits "these results are due to the difference in exchange rates. Although profits rose 517% during the first semester we do not expect a significant increase in the remainder of the year ending 31 December 2013". PDVSA benefitted from 46.5% devaluation in February which raised the official rate from 4.3 to 6.3. Bolivars to the US dollar. On the other hand, PDVSA's social contributions have dropped 42%, down to U$D 4.5 billion from U$D 7.2 billion in 2012. More in Spanish: (El Universal; http://www.eluniversal.com/economia/131206/crecen-517-las-ganancias-de-pdvsa-pero-cae-su-aporte-social)

CITGO said to plan Lemont vacuum unit restart in mid-January.

CITGO Petroleum Corp. will try to restart the vacuum section of a crude unit at its Lemont refinery in mid-January that was shut after an October fire, according to a person familiar with the progress of repairs. The company is repairing areas around the vacuum unit, including pipe racks that were damaged in the fire, said the person, who asked not to be identified because the information isn’t public. Fernando Garay, a spokesman for CITGO in Houston, didn’t immediately reply to a request for comment today. A fire on Oct. 23 shut the atmospheric and vacuum portions of a crude unit at CITGO’s 170,500-BPD refinery in Illinois, which processes mostly heavy Canadian crude. (Bloomberg, 12-05-2013; http://www.bloomberg.com/news/2013-12-05/citgo-said-to-plan-lemont-vacuum-unit-restart-in-mid-january.html)

Commodities

Production at government held companies plunges 13.5%.

The government has set up a complicated conglomerate of new and expropriated companies in the areas of food, paper, chemicals, metals, cement, glass, and mining, but results are not what they expected. According to a Central Bank report by the close of this year's 3Q companies managed by the government are reflecting a severe drop in production which generates scarcities, a drop in non-oil exports and a heavier load on oil income. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131206/la-produccion-de-las-empresas-publicas-se-desplomo-135)

CVG says SIDOR strike lifted.

According to the CVG, workers at the SIDOR steel complex have agreed to lift their ongoing strike after agreeing to postpone collective bargaing talks to January 2014. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131206/cvg-dice-que-tras-acuerdo-de-trabajadores-se-levanto-el-paro-en-sidor)

Government to fix automotive prices.

President Nicolas Maduro said his government will set car prices in a bid to lower their cost. Maduro, using a newly-acquired power to rule by decree, ordered in an address on state television that "car production be regulated and strengthened in Venezuela, ... to lower the prices of new cars made in Venezuela, and of imports and of used cars." The decree was to have been signed Monday, Maduro said, but is now awaiting a meeting Tuesday with members of his economic team and the auto industry. People who open foreign currency accounts in state banks, in the coming months, will be granted a license to buy an imported car, Maduro added. No date was given. (France24; http://www.france24.com/en/20131203-maduro-says-govt-venezuela-will-set-car-prices; Reuters, 12-05-2013; http://www.reuters.com/article/2013/12/05/us-venezuela-cars-idUSBRE9B40ZH20131205)

International Trade

Paraguayan President calls on Congress to endorse Venezuela's entry into MERCOSUR.

Paraguayan President Horacio Cartes has signed the Accession Protocol of Venezuela to the Southern Common Market of the South (MERCOSUR) and submitted it to Congress to be endorsed by the Legislature. Cartes asked the senators of the ruling Colorado party "to revise" their position on Venezuela's incorporation into Mercosur, which became effective in July 2012 and to approve this protocol. (AVN, 12-05-2013; http://www.avn.info.ve/contenido/paraguayan-president-calls-congress-endorse-venezuela039s-entry-mercosur)

US trade deficit with Venezuela spikes to U$D 1.94 billion in October.

The United States deficit with Venezuela climbed from U$D 1.25 billion in September to U$D 1.94 billion in October. In January-October, the US deficit hit U$D 15.6 billion, down from U$D 17.9 billion recorded during the same period in 2012. (El Universal, 12-04-2013; http://www.eluniversal.com/economia/131204/us-trade-deficit-with-venezuela-spikes-to-usd-194-billion-in-october)

U$D 62 million a day losses are being generated due to sealing off the Venezuelan border with Colombia in Táchira state which was ordered without prior notice last Monday, six days into the local elections, says opposition lawmaker Miguel Ángel Rodríguez. (Veneconomy, 12-04-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=37387&idc=3)

Government signs agreement with CHERY.

Nicolás Maduro has announced that his government has signed an agreement with CHERY to set up a factory to manufacture engines for all of their premier vehicles. (Veneconomy, 12-04-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=37386&idc=3)

Politics

Local vote to test Maduro's strength.

Nationwide local polls this weekend are President Nicolas Maduro's first electoral test since taking power and will show what Venezuelans think of his socialist government's radical response to deepening economic problems. Sunday's vote for 337 mayors' and 2,523 council posts is theoretically a local affair, with humdrum issues such as pot-holes and street-lights sure to influence voters. Yet both sides in the country also view their candidates' fortunes as a snapshot of national mood and measure of their relative strength for future battles. (Reuters, 12-05-2013; http://www.reuters.com/article/2013/12/05/venezuela-election-idUSL2N0JH0RS20131205)

CNE director: "This is the most outrageous campaign in Venezuelan history".

This upcoming municipal election campaign is "the most outrageous campaign Venezuela ever had in many years; I'd dare say in Venezuelan history," says Vicente Díaz, a member of the board of the National Electoral Council (CNE).
Diaz says the current campaign is marked by the "institutionalization of the government advantageous position" and public servants' engagement in electioneering "on behalf of political candidates without stepping down, as appropriate." "We have seen the president of the Republic on mandatory simultaneous broadcasts, attacking, stigmatizing, questioning, lambasting opposition candidates and leaders," he lamented. (El Universal, 12-05-2013; http://www.eluniversal.com/nacional-y-politica/131205/cne-director-this-is-the-most-outrageous-campaign-in-venezuelan-histor)

Maduro calls for meeting with all elected mayors on December 10th.

President Nicolás Maduro has announced he will call a meeting with all mayors elected next Sunday - "without exceptions" - on Tuesday, December 10th. He said all elected mayors certified by the Elections Board "whoever they may be, will be here in Miraflores (Palace) in a meeting with the head of State, and I am also going to invite all governors in the country so that we devise a united plan, so that we join efforts". More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/131206/maduro-plantea-reunion-con-todos-los-alcaldes-electos

Article by Roger Noriega: Venezuela headed for chaos.

"Venezuela is in a death spiral that could produce a crisis for the United States. Economic collapse, incompetent leadership and Cuban meddling may provoke a showdown among well-armed chavista rivals, with civilians caught in the crossfire. US diplomats, who've spent years ignoring or minimizing threats emanating from Venezuela, must act urgently to prevent a Syria scenario on our doorstep. The late dictator Hugo Chávez left behind a mess: His divisive, illegitimate regime polarized society and devastated the economy. Inflation is running at 50 percent, while the vital oil sector is faltering. The bloated, bankrupt state can't sustain the social spending that kept the peace; the nation already faces food shortages, power outages and rampant crime. Nicolás Maduro's mismanagement since has only hastened the country's decline - for example, dealing with toilet-paper shortages by confiscating paper companies. As he further tightens economic controls, Venezuelans will have to settle for what the government provides. Their only other choices: Flee the country, turn to crime - or oppose the regime. Maduro is most worried about the last. He recently ordered the detention of several civic leaders who'd been mobilizing protest rallies. Most blame these draconian measures on Maduro's Cuban handlers. By pushing Maduro to purge powerful chavistas - many with ties to the military - who disapprove of Havana's heavy hand, the Cubans have likely overreached. This crackdown has stoked tension within the military between those aligned with Maduro and nationalists who've never been comfortable in a Cuban harness. The regime has very little room to maneuver. All sides in the military are busy weighing their options. Any act of repression, street brawl, electoral fraud or corruption scandal could unleash all the fury built up over the regime's 15 years." (Interamerican Security Watch: http://interamericansecuritywatch.com/venezuela-headed-for-chaos/)

BITLY gets caught in Venezuela's crackdown on websites that track black market exchange rates.

Venezuelans have been scrambling for dollars for weeks, taking refuge in the greenback as their own currency is in free fall. Rather than address the economic imbalances behind the bolivar's plunge, the government is going after the bearers of the bad news — it's taking down websites people use to track exchange rates on the black market. Cyber-activists say the crackdown goes to absurd lengths, even targeting BITLY, the popular site for shortening Web addresses to make it easier to send them as links via Twitter and other social media. For more than two weeks, access to the service has been partially censored by several Internet service providers in Venezuela, apparently because Bitly was being used to evade blocks put on currency-tracking websites. The New York company says such restrictions have only previously been seen in China, which has one of the worst records for Internet freedom, and even then not for such an extended period. Opponents of Venezuela's socialist government say the restrictions are designed to obscure reporting of the nation's mounting economic woes. (Fox News, 12-05-2013; http://www.foxnews.com/world/2013/12/05/bitly-gets-caught-in-venezuela-crackdown-on-websites-that-track-black-market/)

Government media say UN-ECLAC reports poverty down 5.6 points in Venezuela 2011-2012.

According t government media, the UN's Economic Commission for Latin America (ECLAC) has reported that poverty rated in Venezuela dropped 5.6 percentage points to 23.9% in 2011-2012. The information appears in its "Latin America's Social Outlook in 2013". More in Spanish: (AVN; http://www.avn.info.ve/contenido/cepal-pobreza-venezuela-se-redujo-56-puntos-entre-2011-y-2012; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/venezuela-tiene-menos-pobres-destaca-cepal.aspx)

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.