January 10, 2014

Economics & Finance

Growing international concerns over Venezuela's economic collapse

International banks and economic analysts are issuing warnings about Venezuela's economic crisis, which is further aggravated by lack of safety, corruption and official incompetence. The Bolivar is now a weak, devalued currency in a nation sunk in the world's highest rate of inflation, and a gigantic internal and external debt - which it is impossible to audit. Warning signs:

■ Raising domestic gasoline prices cannot be further put off.

■ Bank of America Merrill Lynch considers devaluation necessary.

■ Moody’s lowered Venezuelan debt rating, as did Standard & Poor’s after alarms were raised by JP Morgan, Barclays Capital y Bank of America.

■ ECOANALÍTICA estimates that FOREX generating oil exports are 1.3 million BPD at the close of 2013, which is 800,000 BPD lower than 2006, with an estimated income loss of U$D 29.2 billion.

■ JP Morgan forecasts 60% inflation during the first semester of 2014, and a 1% GDP drop over the next year.

■ The Moody's report emphasizes that "government policies have exacerbated these problems, the risk of economic and financial collapse has risen considerably". The report continues to say that the government is "highly fragmented into different groups" and none of them has sufficient power to "establish an adjustment with coherent policies". José Guerra, who heads the economic team for the opposition Democratic Unity Conference (MUD) says PDVSA's financial deficit with the Central Bank rose to U$D 65.272 billion by 22 November 2013. He adds that major currency devaluation and higher domestic gasoline prices will increase supply, inflation will accelerate and real income will drop. More in Spanish: (CAN, http://impactocna.com/alerta-internacional-sobre-el-colapso-economico-de-venezuela/)

FOREX: The wait continues

For nearly nine months, President Maduro has been announcing a strengthening and regularization of the FX supply through CADIVI and SICAD that has not yet materialized. Moreover, he has talked several times about the proximity of a “new exchange rate market”, but Venezuelans do not known what this means yet.  After December’s mayoral elections, some of the measures that had been postponed were expected to be announced, particularly a devaluation of the official rate (both of CADIVI and SITME) and the possibility of selling dollars at the non-official rate to reduce the gap between those rates that is producing a slow-motion balance of payment crisis. However, a month has already passed and little movement is seen of the government’s taking any significant actions. The central bank (BCV) has just announced a new FX auction through SICAD targeting sectors that have been considered priority (food and medicine) - a short-run action to try to satisfy immediate and specific FX demands for those sectors. Meanwhile, the lack of urgency that the government continues to show is a signal that if it makes any adjustment, it is likely to stay short of market expectations. At this point, Venezuela remains in the worst of all worlds. The private sector does not have a reliable permanent source of FX, which will continue to widen the distortions in the FX market, generate scarcity problems and/or feed inflation. On the other hand, the government accounts are being affected by the inconsistency between the FX and fiscal policies. While the government is trying to maintain a rigid exchange system in a context of high inflation, it has kept a very expansionary fiscal policy that has led to a fiscal deficit of double digits in terms of GDP in the past four years. It seems that divisions inside the government and ideology continue to keep it in paralysis, which gives Venezuela/PDVSA assets a very uncertain outlook. (Barclay's)

Venezuela in data denial after inflation tops 50%

Venezuela’s economic distress is so acute that the central bank stopped releasing regular statistics for the first time ever, threatening to increase borrowing costs further as the nation faces U$D 10 billion of financing needs. “This is not the right way to manage macroeconomic data,” Benjamin Wang, a money manager at PineBridge Investments LLC, which oversees U$D 5 billion of emerging-market debt and holds Venezuelan bonds, said by telephone from New York. “There’s no transparent data to measure the risk.” Yields on Venezuela’s sovereign bonds surged in the past year to 13.97%, the highest among 50 emerging markets tracked by JPMorgan Chase & Co., as consumer prices soared the most in the world and President Nicolas Maduro vowed to radicalize the Socialist Revolution started by his predecessor, Hugo Chavez, to combat enemies of the nation’s economy. (Bloomberg, 01-09-2014; http://www.bloomberg.com/news/2014-01-09/venezuela-in-data-denial-after-inflation-tops-50-andes-credit.html)

Oil & Energy

Halt in Amuay flexicoker unit likely to last one month

Although information related to operations in Venezuela's oil industry has been concealed, workers at the Paraguaná Refining Complex (CRP), northwest Venezuela, report a downtime at a distillation unit in Amuay is likely to linger for one month. Further, workers warned about the effects of the halt on the CRP's production capacity if the unit is eventually stopped for four weeks. The flexicoker unit "produces 64,000 barrels per day of oil byproducts such as gasoil and naphtha. This would lower production, which was already down particularly after the fire in the distillation unit," they indicated. (El Universal, 01-09-2014; http://www.eluniversal.com/economia/140109/halt-in-amuay-flexicoker-unit-likely-to-last-one-month)

Gasoline subsidy at U$D 91 billion since 2002

Freezing gasoline prices in Venezuela for more than 15 years has implied a substantial subsidy taken up by state-run oil holding Petróleos de Venezuela (PDVSA) and the government. The Energy Guidance Center (COENER), an organization comprising former managers and directors of PDVSA, have said in a press release that PDVSA "has directly borne the cost of subsidy of the fuel marketed in the domestic market, which cost has significantly increased, particularly since 2002." PDVSA's former managers estimate "this subsidy in fuel for vehicles is over U$D 91 billion since 2002." (El Universal, 01-09-2014; http://www.eluniversal.com/economia/140109/gasoline-subsidy-at-usd-91-billion-since-2002)

Commodities

Bakeries report no flour for bread, no milk for sale

"This is chaos" says a bakery owner who reports he has not received flour for 15 days, leading to early store closures, milk is also unavailable to the public. More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Falta-harina-para-el-pan-y-no-hay-leche-para-la-venta-en-panaderias-2082984/2014/01/09/295076)

International Trade

Hunt for food sends Venezuelans to Colombian border towns

Venezuelan taxi driver Jose Sotomayor drives four hours through army checkpoints every week from the city of Maracaibo to buy rice in Colombia for his family at 10 times the government-set price back home. “You can’t get anything in the shops here, I don’t even bother going to them for basics anymore,” Sotomayor, 39, said in a phone interview. “All of our food is taken to Colombia, it’s like a locust plague.” Sotomayor hasn’t seen rice for sale in the shops of Venezuela’s second-largest city since July, as smugglers snap up the staple for a maximum of 7.2 bolivars (U$D 1.14) per kilogram, just U$D 0.11 at the black market exchange rate. While many Venezuelan shelves go bare, the country’s rice exports to Colombia have doubled this year and now represent 11% of the market, according to the U.S. Foreign Agricultural Service and Colombian rice growers association Fedearroz. (Bloomberg, 01-08-2014; http://www.bloomberg.com/news/2014-01-08/hunt-for-food-sends-venezuelans-to-colombian-border-towns.html)

Logistics & Transport

BOLIPUERTOS says CASA is partly responsible for port congestion

As congestion at Puerto Cabello continues, the National Port Authority (BOLIPUERTOS) says part of the problem stems from massive imports by the government itself, through the CASA official supply agency. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140110/bolipuertos-culpa-a-la-estatal-casa-por-congestion-en-puertos)

Air Europa halts Venezuela sales as dollar drought hits airlines

Air Europa has suspended all ticket sales from Venezuela as currency controls make it difficult for international companies to convert bolivars into U.S. dollars that can be transfered abroad. Ticket sales are temporarily suspended until further notice, Julio Fernandez, a spokesman for the airline’s parent, Globalia Corporacion Empresarial SA, said by phone from Madrid. He declined to give a reason for the suspension. The Madrid-based airline, which according to data compiled by Bloomberg flies six days a week between Madrid and Caracas, has an equivalent of U$D 100 million in Venezuela at the official exchange rate of 6.3 bolivars per dollar, he said. (Bloomberg, 01-08-2014; http://www.bloomberg.com/news/2014-01-08/air-europa-halts-venezuela-sales-as-dollar-drought-hits-airlines.html)

Politics

Politicians appear jointly against crime. President Nicolas Maduro has met the governors of all 23 states and mayors from the most violent cities to co-ordinate action against crime. The meeting comes after a public outcry over the murder of a former beauty queen and actress, Monica Spear, who was shot dead. Ms Spear, 29, was murdered along with her British-born ex-husband Thomas Berry, 39, in their car. Maduro urged all politicians to put their differences aside and work together to end rising violence. Venezuelan opposition leader, Henrique Capriles, who is the governor of Miranda state, also met and shook hands with the president. It is the first time the two men have met since last year's disputed presidential election. Capriles has never conceded victory to Maduro, but had posted a message on Twitter addressed to the president calling for a nationwide drive against violence: "Nicolas Maduro, I suggest we put aside our deep differences and get together to fight the lack of security, as one bloc," he wrote. Vice-President Jorge Arreaza termed the meeting as just a first step to face the challenge of security. "We appreciate the willingness of all state governors and mayors yesterday," he said. (BBC)

Government releases surplus revenue to regional governors. President Nicolas Maduro on Wednesday gave the order to transfer petroleum and tax surplus revenues to regional governors in the country, as required by law. Regional governments will receive 10,749 million bolivares (Bs.), said the President, adding that such resources may be invested to support local police bodies. (AVN, 01-09-2014; http://www.avn.info.ve/contenido/government-allocated-surplus-revenues-regional-governors)

Maduro has rotated some Cabinet positions. President Nicolás Maduro has made some "necessary changes" changes in Venezuela's cabinet. The only change in the economic area involves rotating Major General Wilmer Barrientos, formerly Defense Minister and a member of the 1992 Chavez coup attempt, to the position of Minister of Industries, replacing Ricardo Menendez, who was moved to the Ministry of Education. A veteran activist in extreme leftist movements, labor lawyer Jesús Martínez, takes over as Labor Minister, replacing long time office holder María Cristina Iglesias. More in Spanish: (Infolatam)

Maduro has proposed Puerto Rico as CELAC member. President Nicolás Maduro will propose the inclusion of Puerto Rico in the Community of Latin American and Caribbean States (CELAC) in the next meeting to be held in Havana. "Free Puerto Rico will be independent," he exclaimed. Puerto Rico's Undersecretary of State Javier González responded that the proposal "has not been considered" by island authorities. (El Universal, 01-09-2014; http://www.eluniversal.com/nacional-y-politica/140109/venezuelas-maduro-to-propose-puerto-rico-as-celac-member and more in Spanish: Martinoticias, http://www.martinoticias.com/content/puerto-rico-celac-membresia-integracion-/30903.html)

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.