February 11, 2014

Economics & Finance

Government to "evaluate" its FOREX debt to private sector

A recent resolution by the National Foreign Trade Center (CENCOEX) established that government FOREX obligations to the private sector for imports made under the abolished CADIVI system will now be subject to a "prior evaluation" as per a timetable that is yet to be published. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140211/gobierno-reitera-que-examinara-la-deuda-con-empresas-privadas)

SICAD U$D 4440 million auction to take place next Monday, private banks excluded

The National Foreign Trade Center (CENCOEX) - which has replaced CADIVI - will auction U$D 440 million next Monday through government owned banks only. Private banks were left out of the process.  Companies dealing in spare automotive parts, chemicals, medical instruments, glass and ceramics have been chosen as participants, and must have been clients of the government banking system for "no less than 90 days". (Veneconomy, 02-10-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=38005&idc=2; and more in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/cencoex-convoca-subasta-del-sicad-a-traves-de-la-b.aspx#ixzz2t0SAXr8x; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/cencoex-se-hace-cargo-del-sicad-con-nuevas-reglas-.aspx; AVN; http://www.avn.info.ve/contenido/centro-comercio-exterior-convoca-nueva-subasta-del-sicad-440-millones)

FOREX 'swap' market may be operating this month

The government says Venezuela will this month set up a new parallel foreign currency exchange platform based on bond swaps to complement two existing mechanisms for dollar sales. "It won't be any later than February," Oil Minister Rafael Ramirez, who is also vice-president for the economy, was quoted as saying by local media at the weekend. It "will be more transparent and would allow different public and private players to participate and bring foreign currency in," he said. The government has been saying for months it plans to set up this system, but has given few details on how it would work. (Reuters, 02-10-2014; http://www.reuters.com/article/2014/02/10/venezuela-economy-idUSL2N0LF0KY20140210; http://www.reuters.com/article/2014/02/10/venezuela-economy-idUSL2N0LF0O920140210; Bloomberg, http://www.bloomberg.com/news/2014-02-10/venezuela-plans-new-currency-swap-market-amid-dollar-shortage.html)

Venezuela bonds rally on currency swap market promise

Venezuelan dollar bonds rallied the most in almost eight months after Economy Vice President Rafael Ramirez said the country plans to start operating a new currency swap market before the end of the month. The benchmark dollar bond due in 2027 rose 0.99 cents on the dollar to 67.69 cents at 11:14 a.m. in New York. The yield on the bond fell 23 basis points to 14.84% after falling 66 basis points on Ramirez’s Feb. 7 comments, the biggest two-day decline since June 27. “Unlike in 2010, this new market will have a controlled price, and they will also likely continue to ration dollars there because demand will be too high as international companies try to take earnings out of the country,” says Henkel Garcia, director of Caracas-based consultancy ECONOMETRICA. According to Ramírez: “The private sector should be able sell its foreign currency so that our economy can function. With our public funds from oil we’re going to guarantee what we consider essential to our priorities.” (Bloomberg Business Week: http://www.businessweek.com/news/2014-02-10/venezuela-plans-new-currency-swap-market-amid-dollar-shortage)

Administrative, sales and advertising expenses not considered costs in establishing profit margins

The National Superintendent for the Defense of Socio-Economic Rights (SUNDDE) has ruled that administrative, sales and advertising expenses will not be considered costs in estimating profit margins under the Fair Prices Law. Distribution costs will only be accepted for companies that carry out these tasks. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/empresas-no-podran-cargar-a-los-precios-sus-costos.aspx#ixzz2t0TJbSUO; AVN; http://www.avn.info.ve/contenido/c%C3%A1lculo-precios-justos-garantiza-ganancias-productores-y-comerciantes; http://www.avn.info.ve/contenido/precios-se-fijar%C3%A1n-funci%C3%B3n-del-costo-real-producci%C3%B3n; El Universal, http://www.eluniversal.com/economia/140211/sundde-establece-criterios-para-analizar-costos-de-produccion)

CONSECOMERCIO warns trade system is not ready for the Fair Prices Law

 CONSECOMERCIO, Venezuela's main trade association has warned that the nation's trade system is "not prepared" for the Fair Prices Law: "We have no doubt that an important segment of the nation's trade system is not prepared for this type of procedure, particularly small business" - and adds that this law has been passed amid inflation that appears "uncontrollable". More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/consecomercio---red-comercial-no-esta-preparada-pa.aspx#ixzz2t0Ttg3Yn

Authorities suspend remittances to Colombia

Venezuelan authorities have suspended family remittances for Venezuelan residents in Colombia. The measure will be effective pending the implementation of a new mechanism and the establishment of the conditions governing remittances, as per a resolution by the Ministry of Economy, Finance, and Public Banking. As of February 10, authorized foreign exchange operators are banned from processing any application or updating documents related to remittances to Colombia. (El Universal, 02-10-2014; http://www.eluniversal.com/economia/140210/venezuelan-authorities-suspend-remittances-to-colombia)

Venezuela has the highest country risk in the world

Venezuela closed last week with the highest country risk in the world and if the government seeks funding through the sale of bonds abroad, it could pay a tremendously high interest rate of 14.44% above the amount paid by the United States, which is the nation financed at the lowest cost. (El Universal, 02-10-2014; http://www.eluniversal.com/economia/140210/venezuela-has-the-highest-country-risk-in-the-world; http://www.eluniversal.com/economia/140210/inflation-in-venezuela-hits-highest-level-since-1996-despite-controls)

Venezuela could fall into an even more dramatic economic chaos than it currently is, warns International Monetary Fund Director for Latin American Affairs Alejandro Werner. Werner points out “inflation episodes around 50-60% that are stable through the years are difficult to find. These are the sort of levels in which the economies speed out of control into a very, very high inflation or political measures are put into action to control the pressures over prices.” (Veneconomy, 02-10-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=38006&idc=2)

Oil & Energy

Promised swap system could provide oil companies with options

Analysts report markets have quieted slightly with the announcement that the Venezuelan government will allow a FOREX swap market, with PDVSA participating, which could also allow PDVSA's partner companies to go ahead with projects that are currently delayed or paralyzed. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/petroleo/pdvsa/sistema-de-permuta-abre-opciones-a-petroleras.aspx#ixzz2t0PmIoOd)

Commodities

MONACA flour plants are reported operating at 45% capacity

Fernando Ortega, an official in the flour workers union reports that MONACA plants at Puerto Cabello are operating at 45% capacity and 90 workers remain outside the plant.. He says this is reflected in flour scarcity. "We cannot understand why they are not working at 100% capacity, mills stop every so often". And adds that 156 workers are back in line, while 90 remain outside, receiving no pay. More in Spanish: (Notitarde, http://www.notitarde.com/La-Costa/Plantas-de-Monaca-operan-solo-al-45-de-su-capacidad-productiva-2104570/2014/02/10/303923

287 tons of newsprint said to have arrived at Puerto Cabello, from New York. More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Desembarcaron-papel-prensa-en-el-puerto-local-2104575/2014/02/10/303927; El Carabobeño, http://www.el-carabobeno.com/impreso/articulo/93751/-ms-de-mil-toneladas-de-autopartes-llegaron-al-puerto)

International Trade

Toyota Venezuela slams brakes on vehicle assembly, irks president

Toyota Motor Corp plans to halt vehicle assembly in Venezuela this week despite a rebuke over the weekend from socialist President Nicolas Maduro and a demand for talks with the Japanese automaker's top executives. The move by the world's No. 1 automaker would appear to bring vehicle production to a standstill, given it made almost all the units produced in Venezuela in January, according to the local automobile chamber. Like other private businesses in Venezuela, carmakers are complaining that the socialist government's currency controls are preventing them from importing essential products. An official at Toyota Venezuela, who asked not to be named, confirmed on Monday that its assembly plant in the eastern state of Sucre would be temporarily shut from Thursday. (Reuters, 02-10-2014; http://www.reuters.com/article/2014/02/10/toyota-venezuela-idUSL2N0LF0SP20140210; Bloomberg, http://www.bloomberg.com/news/2014-02-07/toyota-halts-venezuela-production-as-car-sales-fall.html)

Logistics & Transport

Government orders a review of airfares

As distorted airfares continue to plague Venezuela, both international and national airlines have adjusted fares to an exchange rate that is above the FOREX rate established by the Ancillary Foreign Currency Administration System (SICAD). This also includes state-owned airline CONVIASA, which has implemented several adjustments in international airfares since January 24. Travel agencies report that some international airlines, namely AIR EUROPA, AEROMEXICO, and AIR CANADA, cut down their flight frequencies, and "this explains why there are fewer flights and higher fares." (El Universal, 02-10-2014; http://www.eluniversal.com/economia/140210/venezuelan-executive-office-orders-revision-of-airfares)

Politics

Maduro: "Not one dollar more for the parasitic bourgeoisie"

President Nicolás Maduro says the government is preparing a "productive map of all public sector areas" that he intends to reinforce in order to "expand the nation's productive forces", adding that "we will not allocate a dollar more to the parasitic bourgeoisie; the Fatherland's dollars are for production". He again attacked FEDECÁMARAS, the nation´s main business organization: "Their hour will come, FEDECÁMARAS and VENAMCHAM (Venezuelan-American Chamber of Commerce) you feel secure because you have the gringo blessing, but your hour will come", he warned. More in Spanish: (Últimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/maduro-no-habra-ni-un-dolar-mas-para-la-burguesia-.aspx#ixzz2t137MTCp)

Maduro threatens to disqualify opponents from public office "for life"

As students protest to seek liberation of other students imprisoned for protesting in Táchira state, President Maduro says he will seek a way to stop those who take part in "pro coup adventures" from running for office. "I will seek strict rules so that those who take part in this pro coup adventure or any other adventure can never again be a candidate for anything in this country". Both Maduro and National Assembly President Diosdado Cabello specifically accused Leopoldo López, a key opposition leader, of instigating protests. López was previously disqualified by the National Comptroller until this year, in a decision highly questioned by the Inter American Human Rights Court. The opposition is expected to stage nationwide protests tomorrow. More in Spanish: (BBC)

Two German tourists shot on Margarita Island

A German tourist who arrived on the island of Margarita was gunned down Friday and another was wounded while they were being robbed, Tourism Minister Andres Izarra said. "We deeply regret the incident in which a German tourist died on Margarita. Security forces are searching for the criminals," Izarra. "We are providing all possible help to the injured tourist, and to the tourism company and the German Embassy," the minister wrote. (Latin American Herald Tribune, 02-08-2014; http://www.laht.com/article.asp?ArticleId=1578229&CategoryId=10717)

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.