Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Friday, January 31, 2014

January 31, 2014

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;; Últimas Noticias,

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,

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,

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,

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;

Central Bank calls new SICAD auction for $ 220 million. Central Bank has called a new auction by the Supplementary System for Foreign Currency Administration (SICAD), for U$D $ 220 million to be allocated within the paper, cardboard, wood, chemical, health, textile and footwear industries. Purchase orders by bidders will be received on Thursday, January 30 at 9:00 am through Friday, January 31 at noon. (AVN, 01-30-2014;; El Universal,

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;

Amuay refinery up to 59% capacity. Amuay, Venezuela's largest refinery is up to 59% of 645.000 BPD capacity, up from 42% three weeks ago, after two crude distillation units started up again. Neighboring Cardon refinery, with 310,000 BPD capacity, is up to 93% capacity. More in Spanish: (El Mundo,; Notitarde,; Ultimas Noticias,; El Universal,


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;;; and Veneconomy, 01-30-2014;;)

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,

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;

Agriculture prices rose 82.3% in 2013. Food prices rose 74% in 2013 due to rising prices in agriculture, fisheries and agribusiness. The Central Bank reports agriculture prices rose 82.8% in 2013, sharply up from 35.2% in 2012. More in Spanish: (El Universal,;

International Trade

Maduro signs additional bilateral agreements to guarantee food supply in Venezuela. President Nicolás Maduro has signed several bilateral agreements with his regional counterparts in encounters held during the second summit of the Community of Latin American and Caribbean States (CELAC), held in Havana, Cuba, on January 28-29. Maduro explained these agreements aimed at "guaranteeing the supply of capital goods, services, food for our people". He added that the Bolivarian Government is seeking to break relations with "thieving suppliers and businesspeople from Venezuela and the world," through alliances with "allied and strategic countries," said the President. (AVN, 01-30-2014;

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;

Legislator charges 6000 containers lie legally abandoned at Puerto Cabello. Legislator Deyalitza Aray says there are some 6000 legally abandoned containers at the port of Puerto Cabello, and is calling tor inspections at all ports to determine whether these containers bear cargo imported by the government, which is the nation's largest importer and has undertaken a nationwide nutrition program. She also demanded that the Price Superintendent begin by inspection the Nutrition Ministry: "since to date Minister Osorio has not accounted for investments in nutrition, there have been announcements of tons of food imports, at least U$D 5 billion have been spent in food purchases abroad, and the crisis continues and becomes worse by the day. The government must be accountable." More in Spanish: (Notitarde (


Venezuela, Colombia to implement bilateral action plan against smuggling. On February 6 Venezuela and Colombia will launch a joint emergency plan against smuggling, according to president Nicolas Maduro: "We are going to tighten the screws on smugglers and will crush them, we will crush the mafias who run smuggling operations, affecting both our economy and our people," he said - and added "almost 40% of the goods that we invest for the people flee (the country)," as a result of outgoing smuggling. (AVN, 01-30-2014;

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.

No comments:

Post a Comment