December 20, 2013

Economics & Finance

Central Bank calls off press conference on November inflation, unofficial sources report it at 3.5%. The Central Bank called off a press conference it had called to report on its November Consumer Price Index. Unofficial sources report inflation is at its highest level since the measurement was established. Experts say it could be up to 3.5%, despite government mandate price reductions. Food prices continue to rise and block efforts to bring the index down. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/extraoficial--inflacion-en-noviembre-fue-de-3-5-.aspx#ixzz2o0ytFYiw; and Noticias 24,  http://www.noticias24.com/venezuela/noticia/214255/ine-revision-de-algunos-indicadores-retraso-la-publicacion-del-indice-de-inflacion-de-noviembre/

Venezuelan Bolivar overvaluation estimated at 54.7%. With the official exchange rate unchanged since February at VEB 6.30 per US dollar and inflation skyrocketing, both US dollars sold by the FOREX authority (CADIVI) and gasoline are the two cheapest items in Venezuela's domestic market. As currency is overvalued items people can buy here for VEB 6.30 are much less than what they can purchase for one US dollar abroad. This boosts imports to increasingly unsustainable levels and impacts public accounts: public expenses continue rising and the government's dollar income falls short of the country's needs. A major currency devaluation is required, and research firm ECOANALÍTICA has constructed an index to measure the Bolivar's overvaluation against the currencies of Venezuela's main trade partners, including the United States, Colombia, Brazil, China and Mexico. The index takes inflation and imports into account and shows that by the end of this year the Bolivar will be overvalued by 54.7% in real terms. The exchange rate required to balance this distortion should be VEB 14.45 per US dollar. (El Universal, 12-19-2013; http://www.eluniversal.com/economia/131219/venezuelan-bolivar-overvaluation-estimated-at-547)

Analysts believe Venezuela will devalue Bolivar during Q1 2014. Venezuela will make the biggest devaluation of its currency since 2010 by the end of March in an effort to boost revenue and narrow the budget gap, all analysts surveyed by Bloomberg forecast. It will weaken the official bolivar rate 39% to 10.3 per dollar, boosting local currency revenue from each dollar of oil exports, according to the median estimate of 14 analysts surveyed Dec. 11-13. A record gap between the official and black market rate has fueled the world’s fastest inflation. (Latin American Herald Tribune, 12-18-2013; http://www.laht.com/article.asp?ArticleId=1339603&CategoryId=10717)

Ford estimates U$D 350 million in losses due to devaluation in Venezuela. Ford Motor Co. is worried about Venezuela's economy and its impact on regional results. The auto manufacturer estimates that political and financial volatility will make it lose U$D 350 million here in 2014, Efe reported. Ford's CFO Bob Shanks put Venezuela as the second element that will have an adverse effect on corporate results. "The environment in Venezuela is volatile, increasingly difficult and unpredictable for companies." The company lowered its regional economic estimates for the last quarter of 2014 due to hindrances in its Venezuelan operations, and estimates U$D 350 million in potential losses. (El Universal, 12-19-2013; http://www.eluniversal.com/economia/131219/ford-estimates-usd-350-million-in-losses-out-of-devaluation-in-venezue)

215% rise in debt service aggravates FOREX scarcity.  Venezuela's Government increased its foreign debt by 108% from 2008 to 2012, from U$D 50.909 billion to U$D 105.779 billion, and the load has started to impact national accounts. An important part of outstanding bonds came due this year, on top of interest payments; as a consequence the amount the Central Bank takes from international reserves to service these debts is rising steadily. According to official data the Central Bank disbursed U$D 5.804 billion in debt service during the first three quarters of 2013, a 215% from the same period in 2012. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131220/alza-de-215-en-el-servicio-de-la-deuda-agrava-escasez-de-divisas)

Government claims November unemployment rate at 6.6%. Venezuela's unemployment rate stood at 6.6% in November according to the National Statistics Institute (INE). This reflects a 0.2% increase from November 2012. (El Universal, http://www.eluniversal.com/economia/131218/unemployment-rate-at-66-in-november-in-venezuela)

Venezuelan bank to buy Spain’s NCG after bailout. Venezuela’s BANESCO Group will acquire control of NCG Banco SA for 1 billion Euros (U$D 1.37 billion) as Spain lines up buyers for banks rescued under last year’s European-funded bailout. Through its Spanish Banco Etcheverria unit, BANESCO, controlled by billionaire Juan Carlos Escotet, will also buy two portfolios of written-off loans, Spain’s bank rescue fund said in an e-mailed statement yesterday. Etcheverria said in its own statement that its bid didn’t include any request for state aid. NCG Banco faces potential losses of 1 billion Euros ($1.38 billion) that are not covered by provisions, a source at bank restructuring fund FROB said. The sale of 88.3% of NCG Banco to BANESCO is a step forward for Spain as it seeks buyers for lenders nationalized under the 41 billion-euro bailout that prevented mounting losses at savings banks from overwhelming government finances. NCG Banco has 57 billion Euros of assets and 672 branches, and was formed from a merger of savings banks in the region of Galicia. It needed 9.1 billion Euros of aid to replenish its capital. BANESCO will pay 40% of the price when the sale closes and the rest in stages through 2018. (Bloomberg: http://www.bloomberg.com/news/2013-12-18/banesco-to-buy-nationalized-spanish-lender-ncg-for-eu1-billion.html; Reuters, 12-19-2013; http://www.reuters.com/article/2013/12/19/spain-ncg-idUSE8N0FI01W20131219; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1339044&CategoryId=10717)

Oil & Energy

Venezuela considers fuel price rise in three-year plan. President Nicolas Maduro says he is contemplating a three-year period to raise domestic fuel prices, a sensitive issue for Venezuela where a similar move helped spark deadly 1989 riots. "Without a doubt, we have to correct a distortion," Maduro said of Venezuela's highly-subsidized gasoline that, at less than $0.02 per liter, is the cheapest in the world. "(There is) a three-year plan to adjust the prices of hydrocarbons in the internal market ... We'll do it fairly at the right time, not right now, not in January, not rushing," Maduro said at an unusual meeting with opposition politicians. (Reuters, 12-18-2013; http://www.reuters.com/article/2013/12/19/venezuela-gasoline-idUSL2N0JY01X20131219; Bloomberg, http://www.bloomberg.com/news/2013-12-19/venezuela-may-phase-in-gasoline-price-increases-over-three-years.html; El Universal, http://www.eluniversal.com/economia/131218/opposition-alliance-questions-maduros-plan-to-increase-gasoline-price; Fox News, http://www.foxnews.com/world/2013/12/18/venezuela-president-wants-to-hike-world-cheapest-gas-price-unchanged-for-nearly/)

S&P lowers rating on CITGO Petroleum to ‘B’ and CORPOELEC to ‘B-’. Standard & Poor’s Ratings Services said on Tuesday it lowered its long-term corporate credit on CITGO Petroleum Corp. to ‘B’ from ‘B+’. At the same time, the agency lowered its senior secured debt ratings on CITGO to ‘BB-’ from ‘BB’. The senior secured recovery rating of ‘1’ is unchanged. The outlook remains negative. The rating action on CITGO follows the downgrade of PDVSA to ‘B-’ from ‘B’. S&P bases its downgrade on the application of Group Ratings Methodology and its assessment of CITGO as an insulated subsidiary to its Venezuelan parent, PDVSA. The agency assesses the group credit profile of PDVSA at ‘b-’, in line with its corporate credit rating on PDVSA. S&P believes the facts and circumstances warrant CITGO being rated one notch above PDVSA. Standard & Poor’s Ratings Services lowered its long-term corporate credit and senior unsecured debt ratings on Corporacion Electrica Nacional, S.A. (CORPOELEC) to ‘B-’ from ‘B’. The outlook remains negative. (Latin American Herald Tribune, 12-18-2013; http://www.laht.com/article.asp?ArticleId=1339545&CategoryId=10717; http://www.laht.com/article.asp?ArticleId=1339473&CategoryId=10717)

PDVSA awards tenders for fuel components to India, Russia firms. State-run Petroleos de Venezuela (PDVSA) awarded a tender to import up to 2.88 million barrels of alkylate from Indian refiner Reliance and another one to buy up to 8.64 million barrels of MTBE from Russian oil company LUKOIL, traders told Reuters. The tenders, launched by PDVSA in late November to buy its annual supply of components for motor gasoline and intermediate fuels for mixing with heavy crudes, guarantees some 42,000 barrel per day (bpd) of products that the company will use during 2014. The price agreed by PDVSA and Reliance for the alkylate is 23-30 cents per gallon over the U.S. Gulf Coast waterborne price, one of the traders said. (Reuters, 12-19-2013; http://www.reuters.com/article/2013/12/19/oil-venezuela-india-idUSL2N0JY1DE20131219)

Commodities

Central bank, PDVSA establishes gold joint venture. The Central Bank of Venezuela (BCV) and state oil company PDVSA has established a joint venture to engage in the gold business in an attempt to stop smuggling. PDVSA will hold 60%. Rafael Ramírez, Vice President for Economic Affairs has said the Central Bank of Venezuela will buy all gold output from miners at the rate set by the Ancillary Foreign Currency Administration System (SICAD). (El Universal: http://english.eluniversal.com/economia/131217/central-bank-pdvsa-establish-joint-venture-engaged-in-gold-business)

SIDOR back to work after 32 day strike. Venezuela's main steel industry, SIDOR, is back in operation following a 32 day strike by workers over benefit payments. An agreement was reached with Guayana Corporation Vice President Heber Aguilar, who is now in Caracas reviewing demands with government analysts. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/sidor-se-reactiva-tras-32-dias-de-huelga.aspx#ixzz2o0ybMryQ; El Universal, http://www.eluniversal.com/economia/131220/trabajadores-reanudan-operaciones-en-sidor)

International Trade

Paraguayan Congress okays Venezuela's entry into MERCOSUR. Paraguay's Congress has given a green light to Venezuela's entry into the Common Market of the South (MERCOSUR). The move also marks Paraguay's comeback to the South American trade bloc and redirects the relations among its members for them to make headway with their talks with the European Union, thus overcoming the "legal impediment" argued by the government of Conservative President Horacio Cartes, Reuters reported. (El Universal, 12-18-2013; http://www.eluniversal.com/economia/131218/paraguayan-congress-okays-venezuelas-entry-into-mercosur)

Swiss holding sells 10 Dornier airplanes to Venezuela. Swiss armament and aeronautic holding RUAG has sold ten Dornier-228 airplanes to Venezuela. The amount of the deal was not disclosed. A spokesperson for the group said that it was "at the higher level" of a two-digit amount in terms of millions. Eight new Dornier 228 and two secondhand Dornier 228-12 airliners are included in the purchase order, RUAG specified. (El Universal, 12-19-2013; http://www.eluniversal.com/economia/131218/swiss-holding-sells-10-dornier-airplanes-to-venezuela)

Logistics & Transport

Container arrivals at ports have dropped by 70%. There has been a sharp decline in the number of containers arriving at Venezuelan ports over the past two months as a consequence of limited access to FOREX with the government holding back permits, in addition to an "economic offensive" forcing stores to reduce prices  in store. Sources close to shippers operating at Puerto Cabello have confirmed a 70% drop in container movement in November and December, except for priority areas such as food, medicines and spare parts for vehicles or Xmas holiday items. José Manuel Rodríguez, president of the Puerto Cabello Chamber of Commerce says up to 75% of imports are bulk loads, foods like wheat, soybeans, sorghum or sugar, and the overall load has sharply diminished. "Many people decided not to make their purchases and others chose to leave their goods in Panama, waiting for the situation to stabilize the country, as they are forced to sell at a loss. They feel distrust and refrain from bringing merchandise". (Notitarde, 12-18-2013; http://www.notitarde.com/La-Costa/Hasta-70-ha-caido-llegada-de-contenedores-a-puertos-2067876/2013/12/17/290648)

American Airlines runs out of tickets for Xmas season. American Airlines reports it has run out of tickets to and from Venezuela during the Xmas season, and is deny ling local media reports that it has suspended ticket sales here. American Airlines and other international carriers operating in Venezuela have over U$D 2 billion in backed up debt pending with the FOREX authority (CADIVI). More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/american-airlines-se-queda-sin-boletos-en-temporad.aspx#ixzz2o0xh4MV9; El Universal, http://www.eluniversal.com/economia/131220/pasajes-aereos-estan-agotados-hasta-agosto-del-proximo-ano)

Politics

Maduro holds rare dialogue with opponents. President Nicolas Maduro held a rare meeting with opponents on Wednesday, challenging them to collect signatures to oust him in 2016 if they wanted but to work with him in the meantime. Maduro invited opposition mayors and governors to the presidential palace in an attempt to draw a line after four bitterly fought elections in Venezuela in little over a year. "I respect all your political positions," said the 51-year-old former union activist, urging them to join government anti-poverty projects in the OPEC nation of 29 million people. "In the spirit of Christmas, we can turn over a new page," he added. "Our differences will remain, but I urge you to work." Before the meeting, Maduro shook hands with high-profile. While Maduro spoke of a fresh start between bitterly opposed political factions and listened attentively to his opponents, many will remember how his mentor, Chavez, skillfully interspersed rapprochements and attacks to outwit his foes. The president's opponents sat stone-faced through Maduro's opening speech at the meeting but then did not hold back when allowed to give ripostes. The opposition's main leader, Miranda state Governor Henrique Capriles, chose not to attend, saying he did not oppose dialogue but felt the government was imposing conditions, and complained about the government's undermining of local authorities in opposition hands by creating parallel bodies. In various opposition-controlled areas, the government has named alternative "protectors" and organizations funded by the state. Caracas Mayor Antonio Ledezma urged Maduro to consider an amnesty for jailed opponents. (AVN, 12-19-2013; http://www.avn.info.ve/contenido/opposition-mayors-called-join-national-government-projects; El Universal, http://www.eluniversal.com/nacional-y-politica/131218/president-maduro-meets-with-opposition-governors-and-mayors-in-miraflo; Reuters, http://www.reuters.com/article/2013/12/19/venezuela-maduro-idUSL2N0JY01R20131219)

Capriles: Time will tell if government-opposition dialogue has started. Opposition leader and governor of Miranda state Henrique Capriles referred to the meeting by President Nicolás Maduro and the newly elected opposition mayors by saying he believes in dialogue and supports any initiative in that direction. "The country needs dialogue and yesterday we showed that we're willing to talk under the Constitution. Time and facts will say if yesterday's meeting with mayors is the beginning of the dialogue the country is calling for." (El Universal, 12-19-2013; http://www.eluniversal.com/nacional-y-politica/131219/capriles-time-will-tell-if-government-opposition-dialogue-has-started)

CIPE Blog: The Private Sector and the Future of Venezuela. The big question after election results is whether the government will feel secure enough to open meaningful talks with the private sector seeking support for measures that must be taken in a very short term. These include devaluation of the currency, loosening of exchange controls, and support for investment, particularly in the oil sector. The private sector has reached out to the government in this respect, as witnessed by its recent press release regarding economic reform. Should this be the case, the economy will start to stabilize. However, if the more radical elements in the government continue to control the agenda and are successful in taking further steps towards eliminating private property and continuing the country’s path toward a communist economy then the potential for economic chaos and political/social confrontation will be very high. (CIPE)

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.