February 21, 2014

Economics & Finance

Investors seized by fear due to instability in Venezuela

Demonstrations leading to dead and injured people add to a Venezuelan economy signaling weakness. In this scenario, investors, holders of Venezuelan bonds in their portfolios, are seized by fear. A report issued by BBO Financial Service and quoted by Reuters explains that if the economy is an issue to worry about for those who invest in Venezuela, it is even more concerning amid political conflict and escalation of violence which point to an uncertain future particularly to politics. Any of the parties involved may radicalize confrontations to levels not seen in Venezuela in a decade, and the consequences may be unpredictable, the report states. (El Universal, 02-20-2014; http://www.eluniversal.com/economia/140220/investors-seized-by-fear-due-to-instability-in-venezuela)

Maduro signs decree creating new FOREX system

President Nicolas Maduro signed a long-awaited decree creating a new foreign exchange system, "Sicad 2", and said full details would be provided later. Venezuela's complex currency control system uses two rates, one for preferential goods such as food and medicine and a less-preferential Sicad rate, used for items such as foreign travel and remittances. Maduro signed the decree creating Sicad 2, which he said would work better than its predecessor. And he said his vice president for the economy, Rafael Ramirez, would explain how it works. (Reuters, 02-19-2014; http://www.reuters.com/article/2014/02/20/venezuela-currency-idUSL2N0LP0J020140220; http://www.reuters.com/article/2014/02/20/venezuela-currency-idUSL2N0LP1SG20140220; El Universal, http://www.eluniversal.com/economia/140220/economy-vp-regulation-and-fluctuation-await-sicad-forex-rate)

Oil & Energy

More PDVSA production declines expected

According to a Bloomberg News Survey, state oil company PDVSA saw production down to 2.45 million BPD in December, from 2.9 million BPD a year earlier, and has sought to import more oil as accidents cut into its refining capacity. Experts expect a further decline:

• David Voght, of IPD Latin America says: "We estimate that Venezuelan crude production was roughly 2.75 million BPD at the end of 2013, though annual output averaged 2.85 million BPD. Production hikes in joint venture projects, including three major heavy oil efforts, were..not enough to fully offset declines in the country's western fields and in North Monagas...Nationally, we expect continued production decline in 2014. Last year's joint venture gains will not be replicated... While PDVSA is currently negotiating big loans and worthwhile contract adjustments with some partners, the benefits will not be seen this year."

• Dan Hellinger, of Webster University adds: "It is not good enough for PDVSA to simply hold steady... Venezuela exports 310,000 bpd against loans, mainly from China, only some of which target boosting production. Venezuela also discounts financing on oil exports to a number of hemispheric neighbors...the exports involved are earning less than full market value. Domestic consumption has crept close to 800,000 bpd, all produced at a loss."

• Richard Obuchi, from IESA in Caracas, and Barbara Lira, at ODH Grupo say: "PDVSA needs high investment, and recent events point to limited resources: financial debt increased from U$D 15.5 billion in 2008 to U$D 43.4 billion in 2013; accounts payable to suppliers also increased; and in 2013, PDVSA tried to reach agreements with partners... to receive loans 'attached' to production. These agreements are probably trying to substitute the issuing of regular debt, since financial costs are now higher due to perceived risk of the company and the country. Also, PDVSA has to deal with the burden of some social expenses, but currently its biggest burden is to supply almost all the currency the republic needs. Oil represents 96% of exports".

• Gustavo Coronel, a PDVSA founder adds: "In 2012, PDVSA imported an average of 85,000 barrels per day of refined products from the United States at a huge loss, since these imports are essentially sold in the domestic market at minimum prices. Venezuelan refineries today operate at around 75% capacity...Most new production would have to come from the heavy oil deposits of the Orinoco River region, but this oil needs deep conversion refining to be commercial. These installations are quite expensive and take years to build. In the last 15 years none have been built." 

• Asdrúbal Oliveros, of ECOANALÍTICA sums up: "The need to increase production is almost desperate... Last year, according to PDVSA reports, production in the east fell 4.1% and, in the oil belt, it fell 3.2%. Things don't look any better for 2014... The stagnation of oil prices has led to an urgent need to increase oil production, given the constant fiscal needs, while the state company is tied to an over-valued exchange rate, high debt levels, and agreements like PETROCARIBE, which reduce its income. A true restructuring of the nation’s oil policy is necessary to allow PDVSA recover its position as a company devoted to production."

(LATINVEX, http://latinvex.com/app/article.aspx?id=1225 - as republished by permission from the Inter-American Dialogue's weekly Energy Advisor)

Ramírez says oil industry is operating normally

Oil Minister Rafael Ramírez, who added that "liquid fuel and gas sales are on a contingency basis". More in Spanish: (PDVSA, http://www.pdvsa.com/; El Universal, http://www.eluniversal.com/economia/140221/pdvsa-activo-plan-de-contingencia-para-despacho-de-combustible; La Verdad, http://www.laverdad.com/economia/46837-gobierno-reporta-despacho-normal-de-combustible-en-todo-el-pais.html; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/pdvsa-mantiene-normalidad-despachos-combustible-y-gas-todo-pa%C3%ADs)

80,000 BPD are shipped to Cuba, according to Oil Minister and Economy Vice President Rafael Ramírez, who announced that the Cienfuegos refinery mixed venture has concluded its first stage and is currently processing 64,000 BPD. He says the oil is processed in Cuba and sold jointly, and will be expanded with the support of China. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140221/envios-petroleros-a-cuba-llegan-a-80-mil-barriles-al-dia)

Commodities

Sidor steelworks are paralyzed due to lack of lime and serveral other operational problems. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140220/se-paralizan-acerias-de-sidor-por-falta-de-cal)

Logistics & Transport

Incoming cargo at Puerto Cabello

• Over 3,552 tons of poultry arrive at Puerto Cabello for government agency CASA from Santos, Brazil.
• 511 tons of powdered milk arrived there for CASA, from Puerto Zárate, Argentina.
• 6,050 heads of cattle arrived from Vila do Conde, Brazil. An additional 10,200 heads arrived the next day from the same port.
• Over 199 tons of newsprint arrived from Vancouver, Canada, from Catalyst Pulp And Paper Sales.
• 1,052 tons of construction machine parts from China
• 1,632 tons of black beans from China, for CASA
• 66.900 kilos of powdered soy protein from China, for Agropecuaria Los Tres Robles
• 825 tons of asbestos for Desarrollos Urbanos
• 1,356 tons of steel structures, nuts, bolts and washers for VENIRAUTO

More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Arribaron-al-puerto-mas-de-3-mil-toneladas-de-pollo-2110115/2014/02/20/306687; El Carabobeño, http://www.el-carabobeno.com/impreso/articulo/94406/-ms-de-6-mil-cabezas-de-ganado-en-pie-arribaron-al-puerto; http://www.el-carabobeno.com/impreso/articulo/94488/-ms-de-10-mil-cabezas-de-ganado-en-pie-llegaron-desde-brasil;  El Universal, http://www.eluniversal.com/economia/140220/ingresa-a-puerto-cabello-carga-de-adornos-navidenos; http://www.eluniversal.com/economia/140221/arriban-a-puerto-cabello-374-toneladas-de-material-para-venirauto)

Food distribution is down more than 60% due to protests and demonstrations, according to reports from several transportation trade associations. Distribution was already down by 40% due to a scarcity of spare parts, restricted access to FOREX and crime. (El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/cae-mas-de-60--distribucion-de-carga-de-alimentos-.aspx#ixzz2trJlfcKM)

Maiquetía International Airport has adjusted user tariffs upwards to the newly established tax unit of VEB 127. Domestic charges rose from VEB 86.60 to 101.60; and international charges went from VEB 406.60 to 482.60. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140221/aeropuerto-de-maiquetia-ajusta-tasa-aeroportuaria)

Politics

Protests against government repression escalated, with thousands of demonstrators burning tires and cars and security forces fighting back to gain control of the streets in the capital and in other cities.

• President Nicolas Maduro's government is keeping dozens of student protesters behind bars Friday as unrest still rumbled across Venezuela following this week's violence. Demonstrators gathered again in various cities, blocking roads and burning tires in some cases, to denounce the repression of protests and make a litany of complaints against Maduro ranging from rampant crime to shortages of basic products. At least five people, four protesting the government, have died since protests by university students over high crime and a crumbling economy turned violent last week.
• Dozens of others have been injured or jailed, including opposition leader Leopoldo López, a former mayor whom the government has accused of instigating the violence. López leads the more confrontational wing of Democratic Unity (MUD), an alliance of opposition parties. Like Henrique Capriles, a former presidential candidate and the leader of MUD’s moderate wing, he preaches non-violence. But unlike Capriles, López believes that demonstrations can prompt a change of government. The government is charging him with intentional arson, inciting violence, damage to public property and conspiracy. Maduro has called the opposition politician a "murderer" and alleged he is being paid the the US Central Intelligence Agency to topple his government. Maduro warned that other opposition leaders could follow him into prison: "One of them is in jail ...the others will, one by one, end up in the same jail cell." José Miguel Vivanco of Human Rights Watch, a lobbying group, said that the Venezuelan authorities had provided no evidence linking López to any crime—just “insults and conspiracy theories”.
• Many protesters are calling for Maduro to resign, but beyond that, the rallies seem to be general expressions of outrage. So far, Maduro’s response has been to crack down, but that has only fanned the flames. He threatened to declare a form of martial law known as a “state of exception” in the western state of Táchira, bordering Colombia, a traditional opposition stronghold where protests have been particularly intense. “I’m ready to declare it and send in the tanks, the troops, planes, all of the military force of the country,” the president said. In Táchira, the government's Russian-built SUKHOI fighters screamed overhead. Interior Minister, Major General Miguel Rodríguez Torres announced that a battalion of paratroopers has been deployed around San Cristóbal, the state capital. He said they would secure highways and prevent Colombians, who are often blamed of fomenting trouble here, from bringing in weapons for the student demonstrators. He blamed local antigovernment city officials for triggering the violence.
• The government’s response to days of opposition protests has been brutal. Police and national-guard riot squads have made generous use of batons and tear gas. Officers of SEBIN, the state-security service, and plainclothes gunmen have fired live rounds. Dozens of detainees describe sustained beatings, electric-shock torture and death threats. In Valencia, west of Caracas, Génesis Carmona, 22, a student and former beauty queen, died after being shot in the head during a march in Valencia. Protesters said attackers on motorcycles had fired on the march. But Rodríguez Torres, said one of her fellow demonstrators fired the shot. One protester in Caracas was shot by what appeared in a video to be members of the National Guard. Parts of the capital, Caracas, and some other cities have become battlegrounds. National guard soldiers on motorcycles patrol Caracas at night, using tear gas and rubber bullets to drive off protesters who block streets with barricades of burning trash. On one night, a group of soldiers fired rubber bullets at apartment buildings where people were banging pots to protest the crackdown. Maduro belittles the protesters and has largely ignored their complaints, trying to focus attention on smaller groups involved in violent clashes. “These aren’t students. They’re fascist vandals,” he says.
• Far from exploiting the split in the MUD, the government crackdown has forced moderates to take to the streets in support of López. Henrique Capriles, a leading opposition figure who narrowly lost to Maduro in a contested election last April has promised to call his own march in the next few days. He says: "The government came out to kill people, to try to shut up people with bullets". He scoffs at the president's claim that a coup was taking place. "Civilians don't launch coups," he said, "the military does." He suggested instead that a weakening administration would benefit the National Assembly president, Diosdado Cabello, a former military officer who is seen as Maduro's rival. A coup, opposition leaders say, would most likely come from inside the army. "That would be the worst thing that could happen to the country," says Capriles. He again rejected violence and said he was ready for dialogue, but claimed the government was not willing to listen: "We call on the students and on those on the streets not to fall into the trap of violence".
• While demonstrators condemn a wide range of perennial problems, including rampant crime, high inflation and shortages of basic goods like sugar and toilet paper, the intensity of the protests has been fueled by something more subtle and perhaps stronger — a sense that the spaces to voice disagreement with the government are shrinking and disappearing. Cowed by the country’s media watchdog, TV and radio stations have eschewed live coverage of the protests while marches organized by the government got lots of air time. A score of journalists have been beaten, detained or had their material erased. Last week Maduro ordered a Colombian news channel, NTN24, removed from cable because of its coverage of the demonstrations. Maduro has also accused U.S. cable channel CNN of producing skewed coverage of the protests and said he had begun an administrative process to kick the channel off the air in Venezuela unless it moved to "rectify" its coverage. "Enough war propaganda, I won't accept war propaganda against Venezuela. If they don't rectify themselves, out of Venezuela, CNN, out," he said. There is little live news coverage of the wave of protests, while government television has relentlessly vilified the demonstrators.
• It is unclear to what extent Maduro is actually calling the shots. After images emerged of SEBIN officers apparently firing on demonstrators, the president claimed they had disobeyed his orders and sacked the general in charge. He also attempted to distance himself from pro-regime gunmen on motorcycles by saying such groups “had no place in the revolution”. But Iris Varela, the prisons minister, tweeted gleefully that the opposition was “shit-scared” of the colectivos, calling them a “fundamental pillar in the defense of the homeland”. And the same black-clad irregulars staged an armed raid on the headquarters of Popular Will, López’s party. If not the president, who is putting the thugs on the street? A prime suspect is Diosdado Cabello, the hardline president of the National Assembly. Perhaps the two men are playing good cop/bad cop. Either way, discontent within the army is said to be growing. Repeated government calls for “unity” in the armed forces suggest all is not well in the barracks.

(BBC; The Economist: http://www.economist.com/news/americas/21596945-after-opposition-leader-arrested-violence-continues-unabated-tale-two-prisoners?frsc=dg%7Ca; The New York Times: http://www.nytimes.com/2014/02/21/world/americas/protests-swell-in-venezuela-as-places-to-rally-disappear.html?smid=fb-share&_r=0; The Wall Street Journal: http://online.wsj.com/news/articles/SB10001424052702304914204579395303541238462?mod=e2tw;  Bloomberg, 02-20-2014; http://www.bloomberg.com/news/2014-02-20/venezuelan-protests-turn-violent-as-lopez-faces-arraignment.html; http://www.bloomberg.com/news/2014-02-19/venezuela-opposition-leader-faces-judge-at-military-jail.html; http://www.bloomberg.com/news/2014-02-18/venezuela-national-guard-detains-opposition-leader-in-caracas.html< CNN, http://edition.cnn.com/2014/02/20/world/americas/venezuela-protests/index.html?iref=allsearch; http://edition.cnn.com/2014/02/20/world/americas/venezuela-qa/index.html?iref=allsearch; Fox News, http://www.foxnews.com/world/2014/02/20/violence-flares-across-venezuela-as-nation-waits-for-word-on-fate-jailed/; http://www.foxnews.com/world/2014/02/19/opposition-firebrand-in-biggest-test-yet-as-leads-anti-government-fight-from/; El Universal, http://www.eluniversal.com/nacional-y-politica/140220/venezuelan-national-guard-smashes-into-night-time-demonstrations; Reuters, 02-20-2014; http://www.reuters.com/article/2014/02/20/us-venezuela-protests-idUSBREA1J1BX20140220; http://www.reuters.com/article/2014/02/20/us-venezuela-protests-idUSBREA1I15M20140220; The Washington Post, http://www.washingtonpost.com/world/the_americas/venezuela-awaits-fate-of-jailed-opposition-leader/2014/02/19/1443bd90-99d1-11e3-b1de-e666d78c3937_story.html)

Obama urges Maduro to release demonstrators in custody, UN, OAS, European Union calls for dialogue

US President Barack Obama has condemned violence in Venezuela, and urged President Nicolás Maduro both to release demonstrators held in custody, and open dialogue. "Along with the Organization of American States, we call on the Venezuelan government to release protesters it has detained and engage in real dialogue," Obama told reporters after a North American leaders' Summit in the Mexican city of Toluca. The Ministry for Foreign Affairs rejected the statements issued by Obama and claimed his words mean "a new and grotesque interference in the domestic affairs" of the country."  Panama, Peru, Canada and the United States asked for dialogue in Venezuela At the OAS meeting on Wednesday while Argentina, Ecuador, Bolivia and Nicaragua expressed their endorsement to the Venezuelan regime in view of what they called “destabilizing maneuvers.” Venezuelan Ambassador to the OAS Roy Chaderton insisted on the official stand of blaming “the empire.” (El Universal, 02-20-2014; http://www.eluniversal.com/nacional-y-politica/140220/obama-urges-maduro-to-release-demonstrators-in-custody; http://www.eluniversal.com/nacional-y-politica/140220/venezuelan-govt-rejects-barack-obamas-statements< The Washington Post, http://www.washingtonpost.com/business/obama-condemns-violence-in-ukraine-and-venezuela/2014/02/19/29c5fd62-99d2-11e3-b1de-e666d78c3937_story.html; Veneconomy, 02-20-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=38189&idc=1; El Universal, http://www.eluniversal.com/nacional-y-politica/140220/panamanian-president-recalls-ambassador-to-venezuela-for-consultation)

Venezuela and Panamá mutually recall ambassadors

Panamanian President Ricardo Martinelli called that nation's ambassador to Venezuela back for consultations after deploring "the violent situation Venezuela is undergoing".  President Nicolás Maduro accused Panama of meddling in Venezuela's internal affairs and also withdrew this nation's representative in Panama. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/140221/venezuela-y-panama-llaman-a-consulta-a-sus-embajadores)

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.