January 07, 2014

Economics & Finance

Venezuela hikes minimum wage 10% amid galloping inflation, 69.2% liquidity at close of 2013

President Nicolas Maduro on Monday announced a 10% increase in the minimum wage and pensions in efforts to maintain consumer spending power amid spiraling inflation that reached 56.2% last year. He claimed the increase would leave the minimum wage rising faster than inflation over 12 months. The hike would put the monthly minimum wage at VEB 3,270 bolivars. That is equivalent to U$D 519 at the official rate, which economists say is vastly over-valued.  Critics note the country's monetary liquidity -- a key measure of the money supply -- expanded by 69% in 2013 compared with economic growth of less than 2%, resulting in more money chasing the same amount of goods and services. (REUTERS, http://www.reuters.com/article/2014/01/06/venezuela-wage-idUSL2N0KG1EB20140106, and more in Spanish: El Universal, http://www.eluniversal.com/economia/140106/maduro-announces-minimum-wage-increase-of-10-effective-from-january, and http://www.eluniversal.com/economia/140106/monetary-liquidity-up-692-ending-2013)

Deficit is driving additional Bolivar devaluation planning

Under pressure of a huge 15% GDP budget deficit, the Maduro administration is looking at further devaluation in order to generate more Bolívars to the U$D. A new plunge in the exchange rate seems imminent after a 28% drop in reserves during 2013, and an inflationary jump that makes dollars at current 6.3 parity the cheapest item after gasoline. Reports indicate economic authorities are considering two scenarios: one would raise the base parity toward 11 VEB/U$D and the SICAD auction rate to around 16 VEB/U$D. The second scenario would keep the 6.3 rate for public sector imports and a list of basic goods and carry the SICAD rate to 16 VEB/U$D. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140107/deficit-fiscal-obliga-al-gobierno-a-prever-devaluacion-del-bolivar)

Chinese loans to Venezuela total U$D 49.5 billion in seven years

At the end of 2013, Venezuelan President Nicolás Maduro announced an additional disbursement related to the last loan signed with China. Over the past 7 years Venezuela and state-run oil company PDVSA have signed vast loan agreements amounting to U$D 49.5 billion in 2007-2013, according to official data. (El Universal, 01-06-2013; http://www.eluniversal.com/economia/140106/chinese-loans-to-venezuela-total-usd-495-billion-in-seven-years)

Oil & Energy

PDVSA seeks private partners for Mariscal Sucre project

With pending offshore projects in the states of Falcón, Sucre and Delta Amacuro, state-run oil holding Petróleos de Venezuela (PDVSA), sorely needs to increase domestic gas supply, diminish deficits and curb high consumption of liquid fuels (mostly gasoline and diesel). It is amenable to private partners in the Mariscal Sucre project in order to cope with planned investments by sharing a portion of the capital stock. Mariscal Sucre implies gas reserves amounting to 14.3 TCF, and is estimated to reach as much as 1.25 million cubic feet per day (mmpcd) of gas and 27,000 barrels per day (bpd) of natural gas condensates by 2017. (El Universal, 01-06-2013; http://www.eluniversal.com/economia/140106/pdvsa-in-quest-of-private-partners-for-mariscal-sucre-project)

Oil companies concerned over Venezuelan Navy actions

Oil companies working on oil prospecting in Essequibo waters and the Venezuelan Atlantic front under the concessions granted by Guyana recently voiced their concern to Georgetown over the determination of the Venezuelan Navy to prevent the survey. Executive officers of the oil companies which operate under Guyana authorization met last December with Guyana's Minister of Environment Robert Persaud and the Commissioner of Geology and Mines Neweel Denison in the United States. (El Universal, 01-06-2013; http://www.eluniversal.com/nacional-y-politica/140106/oil-companies-worried-about-action-of-venezuelan-navy)

PETROPAR managers visit Venezuela to deal with debt

Paraguayan state-run oil company PETROPAR has an accrued debt of at least U$D 265 million with PDVSA and its Board believes the amount due will be renegotiated. Paraguayan daily newspaper ABC Color reports that PETROPAR authorities plan to visit Caracas next week to discuss new ways to pay off debt for fuel supply owed by the Paraguayan company to its Venezuelan counterpart. (El Universal, 01-06-2013; http://www.eluniversal.com/economia/140106/petropar-managers-visit-venezuela-to-deal-with-debt)

Commodities

Supermarkets are short on basic supplies

A survey of major public and private supermarkets by ULTIMAS NOTICIAS daily newspaper reveals empty shelves in areas reserved for key products such as beef, chicken, flour, sugar, vegetable oils, milk and toiled paper - among others. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/red-de-supermercados-esta-corta-de-cesta-basica.aspx#ixzz2pi5wFgih)

International Trade

Companies report snags while attempting to set up import bonds

Companies importing food and consumer products must post Bolivar bonds at the new National Foreign Trade Center (CENCOEX) in order to apply for FOREX allocations. Company representatives report that in addition to the new requirement, companies cannot determine what rate will be used for import operations, nor what to do to get them. "CENCOEX now  handles dollars and it will establish a FOREX fund do determine which activity gets the 6.3 parity rate or the SICAD 11.3 parity rate, or whether more devaluation is on the way." More in Spanish: (El Nacional; http://www.el-nacional.com/)

Logistics & Transport

Lack of spare parts snares transports

Cargo dispatching sources report at least 25% of Venezuela's 36,000 unit truck system is currently paralyzed due to lack of spare parts, and is now hurting distribution of imported goods from ports to urban centers while scarcity worsens. (El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/falta-de-repuestos-complica-flota-de-transporte-de.aspx#ixzz2pi8Jhmim)

SPECIAL REPORT: Panama Canal fracas

A Spain-led consortium building a new set of locks for the 100 year old Panama Canal says it miscalculated the cost of the job and would need an additional sum to finish the work: U$D 1.6 billion. The effects are rippling through Europe and in global shipping and maritime circles. The consortium says it may halt work on Jan. 20 unless it is paid, further delaying the expansion of the canal, which handles roughly 5% of world trade each year. The expansion is already 72% complete. But delays have already pushed the ribbon cutting back till June 2015. And this may delay it further. That means shippers worldwide taking delivery on what are called POST-PANAMEX vessels - over 30% of all global shipping - in 2015 have to figure out what to do with their ships until the new set of wider locks that can accommodate them open. This pushes shipping costs up. The company at the center of the overrun storm is SACYR Vallehermoso, one of Spain’s largest construction firms. According to Madrid’s El Pais newspaper. SACYR had reported as income the cost overruns it hoped to collect from Panama. In many ways, the cost overrun was a tale foretold. Back in 2009 when Panama awarded the bidding for the canal project, the consortium led by SACYR bid U$D 3.2 billion, versus the U$D 4.3 billion bid by a group led by U.S. firm BECHTEL. A third bid from another Spanish group was for U$D 6 billion. The wide variance raised suspicions.“A BECHTEL representative noted that the concrete cannot even be poured at SACYR's price,” noted a U.S. diplomatic cable signed by then-Ambassador Barbara Stephenson on July 8, 2009. The SACYR led group now says the cost override is due to unforeseen geological faults, while the Panama Canal Authority says it is only an attempt to fatten up the contract. Spain's Development Minister Ana Pastor is now in Panama meeting with President Ricardo Martinelli - who had previously announced he would travel to Spain to deal with the problem - and all sides in the argument in search of an arrangement with the Panama Canal Authority, which is willing to accept a cost override "as long as it is fully justified".  Panama Canal officials said cost overruns of 5 to 10% are expected in jobs as big as the canal expansion, but not the nearly 50% claimed by the SACYR consortium, which also includes Italy’s IMPREGILO, Belgium’s Jan de Nul and a Panamanian construction firm. The contract is insured and the SACYR-led consortium obtained a U$D 400 million bond in case of a dispute over costs. The bond is backed in part by a parastatal credit agency under Spain’s Secretariat of Commerce. The administrator of the Panama Canal, Jorge Quijano, told reporters Thursday that he’s got a Plan B for finishing the expansion project. What that is, he didn’t say. To be continued... To be continued... (McCLATCHY: http://www.mcclatchydc.com/2014/01/03/213464/spains-troubles-and-the-panama.html, and more in Spanish: Infolatam)

Politics

President Maduro calls for debate on separation of powers

At a recent meeting with legislators President Maduro says: "There is criticism from the opposition that there is no separation of powers in Venezuela: well, let us debate these matters, how it was, how it is and how it should be". The selection of a new Attorney General, People's Advocate, National Comptroller is due this year, along the months overdue replacement of 3 out of 5 members of the National Elections Board, and one third of the Justices on the Supreme Court. He added: "We must move toward a communal Elections authority to consult everything all the time, fearlessly. Practice democracy beyond formalities and bourgeois election carnivals, how to practice and live democracy in such complex societies, we believe it is through communes. A communal democracy will warrant a more democratic, more extended, more capable Elections Board". More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/140107/presidente-maduro-propone-ir-a-un-poder-electoral-comunal)

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.