January 03, 2014

Economics & Finance

2013 inflation at 56.2%, highest since 1996; economic growth reported at 1.6%. Venezuela's Central Bank published its November National Consumer Price Index with a 20 day delay, reporting it at 4.8%. November's figure, which was weeks behind schedule, was released simultaneously with December's, which was released early. The announcement was made by President Nicolás Maduro, who did not provide detailed inflation data for November and December, nor the 2013 year to date results. Inflation was way over the 2013 national budget projection of 14-16% and the highest since 1996 when it rose to 103.2% due to the removal of price and exchange controls that year. The Bank's press release echoed much of Maduro's discourse about "economic warfare" in order to explain inflation results. Maduro said the economy grew by an estimated 1.6% this year, well short of his administration's target of 6% growth and the 5.6% rate recorded last year. Maduro told reporters: "If we hadn't acted in time, inflation would have reached 10% in November and 15% in December, which would have generated chaos and violence." and claimed drastic moves he initiated last month, which included new laws to cap retailers' profits, would help inflation turn negative in November, a prediction that did not pan out. Critics say Venezuela's high inflation is due to economic mismanagement and the failure of government policies, including a decade of currency controls that were set up by Chavez. The opposition Democratic Unity coalition accused the government of withholding key economic data from the public. "Venezuela is witnessing a serious and dangerous process of the concealment of vital statistical information needed to analyze the economy," the opposition said in a statement. Monetary liquidity, often a key measure of the total money supply in a country's economy, grew 70% in the 12 months to November as the central bank provided financing to state oil company PDVSA to help it make social expenditures. (Reuters: http://www.reuters.com/article/2013/12/30/venezuela-inflation-idUSL2N0K90PL20131230; and more in Spanish: http://www.el-nacional.com/economia/Inflacion-cierra-alta_0_328167301.html)

Outlook for 2014:  more than 70% inflation, scarcities and devaluation. Venezuela's economic outlooks for 2014 are no better than last year's results. Domestic and international analysts agree that inflation will be higher than the 56.2% officially admitted for 2013, and will go beyond 70%. They foresee devaluation and negative or insignificant growth. There is also a consensus that price controls will tighten and scarcities will not let up. Asdrúbal Oliveros of ECOANALÍTICA says inflation will top 76% and sees no intention of ending Central Bank subsidies to PDVSA and other government owned companies. Orlando Ochoa believes that since "cost pressure is enormous and they cannot reduce scarcity they (the government) is going to selectively level some prices". Bank of America Merrill Lynch reports that a lack of FOREX will lead to a devaluation of no less than 74%, to VEB11/U$d1,  but anticipates greater radicalization in supplying FOREX and adds the economy will contract by 4%. Barclays Capital estimates economic growth around 0,5% anual and believes the government will have to increase foreign debt through bond tenders. An announcement on exchange policy is expected at any moment. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Expertos-advierten-inflacion-escasez-devaluacion_0_329967168.html

Official economic data is non transparent. A new problem has entered Venezuela's economic crisis, facing runaway inflation and shortages: Lack of reliable official economic data. In November, President Maduro sais inflation "should be minus 5%, at least" after he forced stores to slash prices, and went on to say: "Do experts at the Central Bank and Statistics Institute realize this, beyond technocracy". His statements were interpreted as a form of pressure on financial authorities. Víctor Olivo, former Central Bank manager for macroeconomic programming and analysis says delays by the Bank in providing essential data are part of "a process of clear institutional decay", and adds that this is "part of what happens when and institution is taken over by politics and loses its core objective, because it stopped operating as a Central Bank a long time ago". Olivo says "the Bank has already lost a lot of credibility". Firms such as GRUPO SOLUCIONES say the Central Bank's methodology has long been distorted as it calculates inflation simply on the basis of a group of products that operate under strict price controls. They say true inflation for 2013 is much higher than the officially released 56.2% if overall prices are taken into account. More in Spanish: El Nuevo Herald, http://www.elnuevoherald.com/2013/12/27/1644074/venezuela-cifras-economicas-bajo.html)

Devaluation can only partially cover Venezuela's deficit. Analysts say devaluation will not be sufficient to close the gap for Venezuela's deficit, which is estimated at 15-17% GDP. ECOANALÍCA has projected scenarios which would adjust FOREX rates through the SICAD system to VEB 11.3/U$D1, but says this would reach a mere 1.7% of GDP and other means will have to be sought to meet the deficit. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140103/la-devaluacion-solo-garantiza-cobertura-parcial-del-deficit)

Stock market up 480%. Caracas stocks rose 3.3% for the week ending December 27 on extremely low volume as the local exchange was closed two days of the week for the Christmas holidays. The Venezuela Stock Market is now up 480.48% for the year to date in bolivar terms, though only 296.21% in official rate dollar terms because of February devaluation. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1401740&CategoryId=10717)

Oil & Energy

Venezuela output declines in December as funds slow to arrive. Venezuela’s oil production slid for an eighth consecutive month in December, a Bloomberg survey showed, as delays obtaining external financing hamper efforts by Petroleos de Venezuela, S.A. to arrest production declines. Venezuela produced 2.45 million barrels a day in December, down 235,000 barrels from November, according to a Bloomberg survey of oil companies, producers and analysts. Monthly output has been falling since April, the survey showed. PDVSA’s ability to offset output declines at mature fields and invest in new developments is slowed by the state-run producer’s increasing financial commitments with the Venezuelan government coupled with delays obtaining financing from partners, says Carlos Rossi, president of Caracas-based Energy Nomics. (Bloomberg, 01-02-2014; http://www.bloomberg.com/news/2014-01-02/venezuela-output-declines-in-december-as-funds-slow-to-arrive.html)

Venezuelan oil price ends 2013 on the wane. Several market factors pushed the price of the Venezuelan oil down in 2013. During 2014, the possible return of Iran's exports, rising production in Iraq and the addition of new non-OPEC barrels may shape a scenario which could hurt the expected stability of oil prices. By December 20, 2013 the Venezuelan oil basket's annual price was U$D 99.87 per barrel, below U$D 100 per barrel (the average price last year has not been published yet by the Ministry of Petroleum and Mining). (El Universal, 01-02-2014; http://www.eluniversal.com/economia/140102/venezuelan-oil-price-ends-2013-on-the-wane)

PDVSA reports at least 31 malfunctions and fatalities during 2013. Petróleos de Venezuela is ending 2013 with at least one security event, accident or fatality every 12 days, according to reports released throughout the year by both the workers and the state company. At least 31 accidents were recorded, including explosions, power outages, fires, the sinking of a barge and electrical discharges on operating facilities, where several workers were injured. On Monday, a "minor fire (took place) at the Distillation Unit No. 3 of Amuay refinery, belonging to the Paraguaná Refining Center (CRP), which was quickly controlled and extinguished by firefighters of the oil industry," according to PDVSA. (El Universal, 12-31-2013; http://www.eluniversal.com/economia/131231/pdvsa-recorded-at-least-31-malfunctions-and-fatalities-during-2013)

Maduro: There is no rush to raise gasoline price. The planned increase in gasoline and diesel prices, which have remained unchanged for more than 15 years, will take place with "no rush," says President Nicolás Maduro. He says that "there is no hurry with hydrocarbons, because what we really want is to set a fair price, with all the benefits that should exist in any oil producing country." (El Universal, 12-31-2013; http://www.eluniversal.com/economia/131231/maduro-there-is-no-rush-to-raise-gasoline-price)

Commodities

SIDOR assigned 96% of its 2013 steel production to government housing plans. 1.4 million tons of steel products were contributed during 2013. More in Spanish: (AVN; http://www.avn.info.ve/contenido/sidor-destin%C3%B3-96-su-producci%C3%B3n-gran-misi%C3%B3n-vivienda-2013; El Universal, http://www.eluniversal.com/economia/140103/rendimiento-de-sidor-en-2013-fue-el-peor-en-30-anos)

"Fair" vehicle prices will be published next week, according to a press release from the Ministry for Industries. It says the decision is based on cost structure information provided by assembly plants in Venezuela. More in Spanish: (AVN; http://www.avn.info.ve/contenido/precios-justos-veh%C3%ADculos-ser%C3%A1n-publicados-pr%C3%B3xima-semana; El Universal, http://www.eluniversal.com/economia/140103/la-proxima-semana-inicia-regulacion-de-precios-de-vehiculos)

Politics

Government publishes list of alleged opposition vacation sites. Delcy Rodríguez, Venezuela's Minister of Communication and Information, has released a list of international holiday season destinations of opposition leaders, journalists and entrepreneurs -- clearly obtained from their private airport departure information as they exited immigration -- while at the same time noting that President Nicolas Maduro received 2014 "with his people". Opposition leader Henrique Capriles - who was listed as receiving the New Year in Aruba - said "the list does not deserve a reply" and charged the regime with "paranoid madness", adding that "there's nothing wrong with travelling to other countries". (Latin American Herald Tribune: http://www.laht.com/article.asp?ArticleId=1418021&CategoryId=10717; and more in Spanish: TalCual, http://www.talcualdigital.com/Nota/visor.aspx?id=97063&tipo=AVA)

Violence increases at year end. According to official data the Caracas morgue received 565 bodes in December, 70% of them homicides. The total numbers of bodies received in Caracas during 2013 were 5722. More in Spanish: (Caracol, http://www.caracol.com.co/noticias/internacionales/violencia-en-venezuela-se-agudizo-durante-la-temporada-de-fin-de-ano/20140102/nota/2047155.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.