January 21, 2014

Economics & Finance

Venezuela puts off economic adjustments amid FOREX crisis

The speech by President Nicolás Maduro last week - rather than set forth urgent economic decisions - simply announced more controls within an economy that is speeding toward further centralization.
Maduro announced a law banning profits above 30%, changes in some ministries, desincorporation of the Foreign Exchange Administration Commission (Cadivi), and promised not to devaluate the Bolivar - and set fiscal and exchange problems that require adjustment. Economic research firm ECOANALÍTICA says: "It was a speech that hardly referred to the exchange issue. Once again, the fiscal, monetary, financial imbalances impacting the economy have been put aside; this includes the recognition of many obstacles –mostly bureaucratic– which currently hurt production and distribution of goods, and, therefore, economic performance." (El Universal, 01-20-2014; http://www.eluniversal.com/economia/140120/venezuela-puts-off-economic-adjustments-under-forex-crisis)

BARCLAY's: Shift to SICAD can reduce fiscal deficit by only 2 GDP points, decisions "too little, too late".

According to BARCLAY's Capital shifting some activities formerly handled by the CADIVI Exchange Board to the SICAD auction system at a higher exchange rate can only lower Venezuela's projected fiscal deficit - estimated at 16% GDP by 2% GDP. Keeping the 6.3 official exchange rate will make it more difficult to increase government income to a point where the deficit is impacted. "Up to now, the government has insisted on importing food and other basic commodities, such as medicines, at the official rate... Rather than face a strong adjustment that could reduce economic imbalances, uncertainty has increased by decisions which, in principle, seem insufficient and also too late." More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/migracion-al-sicad-bajaria-deficit-en-dos-puntos-d.aspx#ixzz2r1uhZc9y)

Delay in allocating FOREX is hurting distribution, says Small and Medium Business head Erich Hartkopf. because it affects payments to suppliers abroad. He also says it is yet to see “how the Fair Price Law is going to be implemented” since each sector is different." (Veneconomy, 01-20-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=37683&idc=3)

Government took over 1284 companies between 2002 and 2013

Government expansion over the past few years was fueled by expropriations. 1284 companies were taken over by authorities between 2002 and 2013, according to data from Venezuela's National Council of Industries (CONINDUSTRIA). Data shows 40.5% of all expropriations were in construction, and 32.3% in the industrial sector. The remaining expropriations took place in oil services, commerce and services. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140121/gobierno-intervino-1284-empresas-entre-2002-y-2013)

Oil & Energy

Crude oil sales to US are down 35% since 2007

Total crude oil sales from Venezuela to the USA are dropping steadily, according to information from the US Department of Energy. 2013 oil exports to the US were some 750,000 BPD, which is a 35% drop since 2007. Sales to the US are cash on delivery and most of them go to PDVSA owned CITGO, and are 30% of all Venezuelan oil shipments. The drop in sales to the US comes with a 0.71% drop in Venezuela's oil production and a growing relationship with countries such as China and India, which are receiving priority attention from Venezuelan authorities. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140121/venta-de-crudo-a-eeuu-se-acerco-a-los-750-mil-bd-en-2013)

Venezuela oil price slips

Venezuela's weekly oil basket stayed below the country's desired U$D 100 a barrel floor and continued its fall for a fourth straight week. According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending January 17 was U$D 94.19, down U$D 0.15 from the previous week's U$D 94.34. (Latin American Herald Tribune, 01-18-2014; http://www.laht.com/article.asp?ArticleId=1497082&CategoryId=10717)

Petroleum Chamber awaiting PDVSA's schedule of payments to suppliers

Venezuela's private oil services sector hopes that 2014 expansion plans by state-run oil holding Petróleos de Venezuela (PDVSA) will energize operations. Top of their agenda is the financial situation of PDVSA's suppliers of goods and services. "We understand that PDVSA is determined to settle payments to providers. Priorities were set and that has been partially addressed. Obviously, though, all providers of goods and services await predictability, as there is a void as to when payments will be received," says Alfredo Hernández Raffalli, president of the Venezuelan Petroleum Chamber. (El Universal, 01-20-2014; http://www.eluniversal.com/economia/140120/petroleum-chamber-expects-pdvsa-to-schedule-payments)

Lower oil tax share in Venezuela's 2013 revenues

Venezuela's oil income tax revenue dropped through September 2013 as other income tax income rose by 7.3% in real terms due to lowered oil tax income tax, and 6.7% higher sales taxes, according to the yearly report by the UN Economic Committee for Latin America and the Caribbean (ECLAC). More in Spanish:  (El Universal, http://www.eluniversal.com/economia/140121/baja-en-aporte-de-islr-petrolero-redujo-la-recaudacion)

Commodities

Chemical industry owes suppliers U$D 500 million due to lack of FOREX

The key problem for Venezuela's chemical industry are past due debts with foreign suppliers since the middle of 2013, according to Juan Pablo Olalquiaga, president of the national Chemical and Petrochemical Industry Association, who says total debt is around U$D 500 million that are around 280 past due. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/gremios/industria-quimica-en-deuda-con-proveedores-por-fal.aspx#ixzz2r1xZLgX7)

Agriculture and Lands Ministry announced an aggressive plan to boost national production this year. Minister Yván Gil says some of the macro-economic measures to raise production include reviewing prices for both producers and consumers, access to loans at 13% preferential rates, and waiving income taxes. (Veneconomy, 01-17-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=37667&idc=3)

Venezuela out of… bread???

“We’re fresh out of that, sir/ma’am” is the current stereotype reply consumers get at least two in three attempts to get goods and products at grocery stores, supermarkets and/or hardware stores nationwide. Bakeries are running out of bread as a sensation of helplessness and disappointment due to a high uncertainty is getting unbearable every time, because bread is a symbolic icon of food. (Latin American Herald Tribune, 01-20-2014; http://www.laht.com/article.asp?ArticleId=1503239&CategoryId=10717)

International Trade

Venezuela moves toward the Cuban foreign trade system

The key attribute of Cuba's economy is total international trade centralization by the military who control 70% of trade through corporations that operate as small autonomous fiefdoms within a rigid state bureaucracy.
By setting up the National Foreign Trade Corporation (VENECOM), Venezuelan government can now import and supply goods and inputs needed by public and private companies for production, without private sector participation - much as takes place in Cuba. (El Universal, 01-20-2014; http://www.eluniversal.com/economia/140120/venezuela-embraces-the-cuban-state-trade-model)

ALBA and PETROCARIBE imperiled by Venezuela's economic crisis

The Bolivarian Alliance (ALBA) and PETROCARIBE have been the spearhead for Venezuela's foreign policy. Yet analysts believe that ALBA and PETROCARIBE's future is uncertain given the current economic crisis of Venezuela. Although President Nicolás Maduro says Venezuela will keep up sale of crude oil under the established preferential conditions, the reality is that the current situation of the country is likely to change this. (El Universal, 01-20-2014; http://www.eluniversal.com/economia/140120/alba-in-jeopardy-due-to-venezuelas-economic-crisis)

Logistics & Transport

Government to pay 50% of Air Italy debt with jet fuel

Pedro González Díaz, president of Venezuela's Civil Aviation Institute (INAC), and Air Italy representatives have agreed on new terms to settle the FOREX Board (CADIVI) debt to international airlines. The parties agreed on a 50% payment in jet fuel. Another 25% will be paid with bonds and the remaining 25% with US dollars in cash. (El Universal, 01-20-2014; http://www.eluniversal.com/economia/140120/venezuelan-govt-to-pay-50-of-debt-to-air-italy-with-jet-fuel)

Politics

Government takes aim at TV soap operas

President Nicolas Maduro will urge representatives of Venezuela's television stations on Monday to change what he calls a culture of violence glamorized by the media. Voters routinely cite violent crime as their top concern. In the latest case to put pressure on the government, gunmen shot dead a former Miss Venezuela and her ex-husband in front of their young daughter. Maduro, has now accused TV stations - especially popular soap operas, or "telenovelas" - of glamorizing guns, drugs and gangsters. "We are going to build a culture of peace," he said last week, summoning representatives of local terrestrial and cable channels to the Miraflores presidential palace on Monday. (Reuters, 01-20-2014; http://www.reuters.com/article/2014/01/20/us-venezuela-media-idUSBREA0J13C20140120)

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.