Economics &
Finance
IMF director warns Venezuela faces a
tricky economic situation due to drop in reserves. Alejandro Werner, head of the International Monetary Fund
for the Western Hemisphere says Venezuela's economic situation is tricky:
"the loss of reserves that has been
taking place since 2013 puts this economy in a tricky situation, throughout
last year we have witnesses a very important slowdown in economic growth".
Werner adds that "crude oil
production is not increasing, and although we do not foresee a drop in oil
prices, there could be certain laxity in the midterm, and this could be an
additional weakness". More in Spanish: (Notitarde; http://www.notitarde.com/Economia/Es-delicada-la-situacion-economica-de-Venezuela-por-caida-de-reservas/2014/01/31/300608; Últimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/fmi-caida-de-reservas-pone-a-venezuela-en-una-situ.aspx)
THE ECONOMIST: Venezuelan economy
reaching breaking-point. Argentina
and Venezuela have been living high on the hog for years, blithely dishing out
the proceeds of an unrepeatable commodities boom (oil in Venezuela; soya in
Argentina). Both have been using a mix of central-bank interventions and
administrative controls to keep overvalued exchange rates from falling and
inflation from rising. Both now face a come-uppance. Both countries have
dwindling arsenals with which to defend their overvalued currencies.
Venezuela’s reserves of gold and foreign currency, which stood at nearly U$D 30
billion at the end of 2012, were down to just over U$D 21 billion by last week.
Only about U$D 2 billion of that is in liquid assets. ECOANALÍTICA, a research
firm, estimates that the government can also dip into around U$D 13 billion of
opaque, off-budget funds. Venezuela is running out of dollars to pay its bills.
Although payments to its financial creditors of around U$D 5 billion this year
do not appear to be at risk, the country’s arrears on non-financial debt are
put at over ten times that sum. These include more than U$D 3 billion owed to
foreign airlines for tickets sold in Bolivars, and around U$D 9 billion in
private-sector imports that have not been paid for because of the dollar
shortage. “Under the current economic model,
and with this economic policy,” says Asdrúbal Oliveros of ECOANALÍTICA, “this [debt] looks unpayable.” The effects are already apparent. Foreign
airlines have placed tight restrictions on ticket sales; some have suspended
them altogether. Many drugs and spare parts for medical equipment are
unavailable. Car parts, including batteries, are increasingly hard to find;
newspapers are closing for lack of paper. The country’s largest private firm,
Empresas POLAR, which makes many basic foodstuffs, is struggling to make some
products. In a statement Polar said the government owed it U$D 463 million and
that production was “at risk” because
foreign suppliers of raw materials and packaging were threatening to halt
shipments. The government blames the crisis on private businesses and “irresponsible” use of hard currency by
ordinary Venezuelans. It has ordered drastic cuts in dollar allowances for
travelers, especially to popular destinations like Miami. Remittances to
relatives abroad have also been slashed. In a bid to curb runaway inflation, it
has introduced a new law restricting companies’ profits to 30% of costs.
Without a big injection of dollars from the state oil company, Petróleos de
Venezuela, which brings in 96% of foreign earnings, the crunch will continue.
Better terms for foreign investors in the oil industry would bring in
much-needed cash and boost stagnant production. But unless the government
abandons its antipathy to private capital, the prospect of new investment is
dim. Shortages of goods are only likely to worsen. If Argentina is an outlier,
Venezuela risks straying into a different category entirely. (The Economist, http://www.economist.com/news/americas/21595471-latin-americas-weakest-economies-are-reaching-breaking-point-party-over)
FOREX debt to private sector could
amount to 61.6% of all reserves. Government debt to the private sector due to unallocated FOREX
keeps growing. The nation's prime business organization, FEDECAMARAS, estimates
the amount at U$D 10 billion, but different industry associations estimate it
is much higher. The food processing industry alone has estimated the amount at
U$D 2.4 billion. If one adds airlines, automotive spare parts, pharmaceuticals,
medical equipment, telecom, and the plastics industry, among others, the number
might shoot up to around U$D 13 billion, which is 61.6% of international
reserves reported by Venezuela's Central Bank. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140131/a-13-millardos-llega-deuda-en-dolares-con-empresas-privadas)
Multinationals concerned Venezuela
may bite into 2014 profit. FORD
Motor Co has joined a growing number of multinational companies expressing
concern that economic turmoil in Venezuela could spell trouble for 2014
profits. High inflation, along with concern about how the government will try
to steady their economies has FORD rethinking its annual forecasts for South
America. Consumer prices jumped more than 50% last year in Venezuela, fuelled
by a weakening currency that has rattled global financial markets. FORD's
fourth-quarter losses in South America ballooned to U$D 126 million. "Since December, we're more concerned,"
about company performance in South America, Ford CFO Bob Shanks has said, as
the company reported an overall annual pretax profit of U$D 8.57 billion.
Shanks said the company is poised to respond in "real time" to the changing economic landscape. "I think that is an area that we will
continue to watch very closely," he said. Ford will likely have plenty
of company. GENERAL MOTORS Co newly installed CFO Chuck Stevens says continued
volatility in Argentina and Venezuela present financial risk. Beyond the auto
industry, U.S. consumer products companies from COLGATE-PALMOLIVE to CLOROX may
also take a hit on the worsening crisis. The situation is worst in Venezuela,
where Shanks told reporters, "the
government is trying manage every aspect of the economy." "You know that just doesn't work very
effectively," he added. Shanks said a lack of access to foreign
currency in Venezuela has caused FORD to cut auto output there "because we simply can't get the currencies
that we need in order to pay for the parts that we need to bring in for
production." COLGATE-PALMOLIVE said it incurred a one-time after tax
loss of about U$D 120 million to adjust its balance sheet in Venezuela, which
hit earning by 13 cents per share. COLGATE was joined by AVON and CLOROX last
year in having to slash prices for its consumer goods sold in Venezuela after
the country's Bolivar was devalued. (Reuters, http://uk.reuters.com/article/2014/01/29/uk-autos-ford-southamerica-idUKBREA0S06920140129)
Inflation could hit 80% in 2014, given official parameters, warns
economist Alexander Guerrero. The 2013 Scarcity Index at 23% was the highest in
the last decade, with an inflation rate around 50%. (Veneconomy, 01-30-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=37858&idc=2)
Oil
& Energy
Venezuela oil exports to U.S. hit
lowest rate since 1985. Venezuela’s annual oil exports to the U.S. are on track to reach a
28-year low as the country faces declining production, rising domestic demand
and increased shipments to China.
Venezuelan exports of oil and petroleum products to the U.S. have averaged
792,000 barrels a day in the first 11 months of 2013, the lowest annual rate
seen since 1985, according to data through November published by the U.S.-based
Energy Information Administration on its website today. Petroleos de Venezuela, S.A., the state-run oil company, sends hundreds of
thousands of barrels of oil a day to China to pay back loans for billions of
dollars made to Venezuela’s government. The company’s production, which
averaged 2.9 million barrels a day in 2012, according to the company’s annual
report for that year, averaged 2.45 million barrels a day in December last
year, a Bloomberg survey showed. (Bloomberg, 01-30-2014; http://www.bloomberg.com/news/2014-01-30/venezuela-oil-exports-to-u-s-hit-lowest-rate-since-1985.html)
Commodities
FOREX scarcity and U$D 2.43 billion
government debt to food industry, hit food production. Food manufacturing in Venezuela is
being hit by delays in allocating FOREX. Venezuela's Food Processing Industry
Association (CAVIDEA) reports that Currency Board´s (CADIVI) debt with the
industry is up to U$D 2.4 billion, and has become the "prime obstacle in Venezuela's food
manufacturing." While companies await settlement in FOREX, stocks run
out with no chance of replacing them. Some companies have not received foreign
currency for more than 200 days, preventing them from paying foreign providers,
which, in turn, have discontinued their shipments to Venezuela. (El Universal,
01-30-2014; http://www.eluniversal.com/economia/140130/usd-243-billion-debt-of-the-venezuelan-govt-to-the-food-industry;
http://www.eluniversal.com/economia/140129/forex-shortage-hits-food-production;
and Veneconomy, 01-30-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=37853&idc=3;)
Government food distribution supply
is dropping. A 2013 year end report by Nutrition
Minister Felix Osorio shows the public food distribution network (MERCAL, PDVAL
and BICENTENARIO markets) distributed 3,782,668 tons of food by year end, down
from 4 million in 2012. MERCAL is a U$D
18 billion government program to supply products at an 80% discount.
More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/oferta-de-red-publica-se-queda-corta-para-satisfac.aspx#ixzz2ryUpP8Y9)
Nutrition Ministry to decide which agribusiness items are
to be traded at VEB 6.30/U$D. The Nutrition Ministry will decide which agribusiness supplies,
products and product lines will receive FOREX at the VEB 6.30 rate, and which
must be imported under the SICAD system, which is currently at VEB
11.36/U$D. Food industry representatives
met with the Ministry to review inventories and payment schedules. More in
Spanish: (El Nacional; http://www.el-nacional.com/)
International
Trade
Logistics
& Transport
Airlines cut Venezuela flights after
devaluation. At least
three international airlines are cutting flights to Caracas after the
Venezuelan government reduced the rate at which they get reimbursed for ticket
sales in bolivars. Grupo AEROMEXICO reduced flights from Mexico City to five
per week from seven last month, according to data provided by the Mexico City
International Airport. AIR EUROPA’s spokesman said the airline is cutting flights
from Madrid to five per week from six in March, while AIR CANADA will reduce weekly flights
from Toronto to four from five in February and to three in May, according to
schedule posted on the website. (Bloomberg, 01-30-2014; http://www.bloomberg.com/news/2014-01-30/airlines-cut-venezuela-flights-after-devaluation.html)
Politics
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.
