February 25, 2014

Economics & Finance

Ramírez says new FOREX market to take wind out of black market

Venezuela's top economy official has vowed that a new currency exchange platform will undermine the spiraling black market for U.S. dollars by adding a market-based mechanism to existing currency controls. Economy Vice President Rafael Ramirez told reporters that the system known as SICAD 2 would be based on supply and demand and would create an exchange rate through a bond swap system known locally as "permuta." SICAD 2 will add a third rate to the 11-year-old currency controls that sell dollars at VEB 6.3 bolivars for preferential goods and at VE 11.8 for other items, both of which are far below the rate that greenbacks fetch on the black market. "We are going to let the (exchange) rate be determined by supply and demand," Ramirez told reporters during a press conference. "The enemy is the parallel exchange rate; we are going to bring it down." The government has now reformed the Exchange Crimes Law to allowed businesses and individuals to take part in foreign exchange transactions. The new market will take effect only when the Central Bank draws up a new set of currency regulations. Ramirez said he hoped that mechanism would be ready by Tuesday. SICAD 2 will hold auctions every day, with the amount on offer to be based on demand rather than a set amount. Buyers will not have to describe what the dollars will be used for when they bid, unlike other foreign exchange mechanism that exist under the currency controls. (Reuters, 02-24-2014; http://www.reuters.com/article/2014/02/24/venezuela-forex-idUSL1N0LT1RJ20140224; Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=38247&idc=2; AVN, http://www.avn.info.ve/contenido/new-auction-convened-industrial-plastic-spares-health-sectors; El Universal, http://www.eluniversal.com/economia/140224/exchange-convention-is-pending-for-full-implementation-of-sicad-ii)

FEDECAMARAS: new decree "addresses many business needs"; CONINDUSTRIA " it is no panacea"

Jorge Roig, president of the nation's main business organization FEDECÁMARAS, says the new exchange system addresses many of the needs for the private sector, but adds: "It could have been excellent news for both international markets and the Venezuelan economy, because it will quench the fiscal need for foreign currency", but adds it arrives at the most unfortunate and inconvenient time for the nation. The new law removes penalties from the exchange system and allows parties other than PDVSA to acquire FOREX freely in the market.  Eduardo Garmendia, head of the National Industry Council (CONINDUSTRIA) says the new system is no panacea because "a market that starts out under controls is never a good sign", adding: "We will study the decree...up to now what official spokesmen have said is that it will be a market controlled within two brackets". More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/gremios/fedecamaras--nueva-ley-recoge-muchas-de-nuestras-a.aspx#ixzz2uKWGOMa4; http://www.elmundo.com.ve/noticias/economia/gremios/industriales-afirman-que-el-sicad-2-no-resolvera-t.aspx#ixzz2uKVRKDJO; El Universal, http://www.eluniversal.com/economia/140225/instan-al-gobierno-a-tomar-medidas-economicas-adecuadas)

Venezuela bonds rally after move to ease dollar shortages

Venezuelan dollar bonds rallied the most in emerging markets after the country moved to allow for more dollar sales and amid optimism there will be a political fix to end protests that have left at least nine people dead. The extra yield investors demand to own Venezuelan bonds instead of Treasuries fell 0.44 percentage point to 13.73 percentage points at 1:26 p.m. in New York, according to JPMorgan Chase & Co.’s EMBIG Diversified index. Dollar bonds due 2027 jumped 1.9 cents on the dollar to 68 cents, the highest price on a closing basis since Jan. 29. In an effort to mitigate record shortages of everything from food to medicine that spurred a month of protests, Venezuela distributed rules today allowing state oil producer Petroleos de Venezuela SA, companies and individuals to buy and sell dollars in a regulated market. The move will create a new exchange rate for dollar purchases given the scarcity of foreign currency available at the official rate of about 6.3 bolivars per dollar as Venezuela bleeds reserves. (Bloomberg, 02-24-2014; http://www.bloomberg.com/news/2014-02-24/venezuelan-bonds-rally-after-move-to-alleviate-dollar-shortages.html)

Experts warn scarcities will worsen in the next few months

Companies that manufacture, process and import such consumer products such as food, cleaning items, spare parts, and packaging material are alarmed at the drop in product inventories and supplies. They say scarcity will become worse in March - if urgent steps are not taken - as there is no plan to access funds and pay foreign suppliers in order to start importing again. Prices on controlled items have also been frozen for the past two years, with no adjustment. More in Spanish: (El Nacional; http://www.el-nacional.com/)

Unions call for recovery of the national productive system

Pro and anti government unions agree that imports must be brought down by reactivating the industrial system. The Bolivarian Workers Union have admitted to failures in the management of companies taken over by the government and has called for a review of the effectiveness of in order to generate employment, recover the 25 industrial areas and devise a special plan for infrastructure. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140224/sindicatos-instan-a-reactivar-aparato-productivo-nacional)

Oil & Energy

PDVSA, PERENCO discuss U$D 600 million financing for venture

Venezuelan state oil company PDVSA and Anglo-French oil firm PERENCO are in talks for a U$D 600 million financing deal to boost production at the PETROWARAO joint venture, says Oil Minister Rafael Ramirez. PDVSA says that since the start of last year it has brought in close to U$D 10 billion in financing from joint venture partners to help boost stalled oil production, shoring up its financing after it sharply cut back on bond issues. "PERENCO is going to bring another U$D 600 million more, just like we've been doing with other countries," Ramirez said. (Reuters, 02-24-2014; http://www.reuters.com/article/2014/02/24/us-venezuela-perenco-idUSBREA1N1WL20140224)

Commodities

Has food rationing begun?

Government PDVAL food distribution network will have a centralized system within three months to limit customer purchases of basic food items to only once a week. Customers will need to register their ID card number before entering their stores and will not be allowed to buy there again in that week. The pilot program has begun at the San José’s PDVAL Diana. (Veneconomy, 02-24-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=38245&idc=3)

Food will be imported from Argentina to ensure supply

Economy Vice President Rafael Ramírez claims "we are defeating scarcity by importing many more products" and says officials have travelled to Argentina to purchase U$D 1.6 billion worth of food. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140225/importaran-alimentos-de-argentina-para-asegurar-el-abastecimiento)

Maduro may raise agriculture product prices

President Nicolas Maduro says he will not rule out increasing agriculture prices, in order to "regularize the economy". More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/maduro-no-descarta-aumentar-precios-de-productos-a.aspx#ixzz2trILl11G; El Mundo, http://www.elmundo.com.ve/noticias/economia/agro/presidente-no-descarta-aumentar-precios-de-product.aspx)

International Trade

In-bound cargo at Puerto Cabello:

• 5,000 tons of milk from New Zealand in 86 containers, on the "Atlantic Voyager", for state owned Supply and Agricultural Service Corporation (CASA). 
• 511 tons of milk, for CASA, from Argentina.
• Over 3,000 tons of frozen chicken, also for CASA, from Brazil
• 4,304 tons of black beans, for CASA and other consignees, from Panama.
• 6,050 heads of cattle, from Brazil, for several consignees.
• Over 199 tons of white newsprint, from Vancouver, for Distribuidora y Almacenaje Graneles.
• Over 272 tons of toilet paper from Kingston, Jamaica, for Papeles Venezolanos

More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Mas-de-5-mil-toneladas-de-leche-llegaron-al-puerto-2112976/2014/02/24/310557; http://www.notitarde.com/La-Costa/Llegaron-caraotas-negras-al-puerto-de-Puerto-Cabello-2111454/2014/02/22/308121; El Carabobeño, http://www.el-carabobeno.com/impreso/articulo/94831/-al-puerto-llegaron-ms-de-5-mil-toneladas-de-leche-entera; http://www.notitarde.com/La-Costa/Arribaron-al-puerto-mas-de-3-mil-toneladas-de-pollo-2110115/2014/02/20/306687; http://www.el-carabobeno.com/impreso/articulo/94406/-ms-de-6-mil-cabezas-de-ganado-en-pie-arribaron-al-puerto)

Colombia's economy is being hit by Venezuelan unrest

Social tensions in Venezuela are causing Colombia losses around U$D 4.8 million daily for land carriers, a U$D 1 million freeze on remittances and an increase in staple prices. Over the past few days Venezuelan nationals have blocked the international bridges that join both nations thus blocking cargo transport. Pedro Aguilar, President of the Colombian Truckers Associations, says 500 merchandise bearing trucks are parked at the borders. “This is more than U$D 4.8 million in daily losses”. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/internacional/perdidas-millonarias-en-colombia-por-tension-socia.aspx#ixzz2uEb3P7mm)

Logistics & Transport

Airlines are on stand-by to leave Venezuela

An anonymous inside source reports some international airlines operating here are awaiting approval from headquarters to cease all operations in Venezuela due to the high unpaid debt the government owes them, adding that Venezuela does not have the funds to meet the U$D 3.5 billion debt due this past January. "The decision will be reversed only if there is payment within the next few days, if not, it will stand." More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Aerolineas-esperan-orden-irse-pais_0_361764013.html)

PDVSA seeking ways to deliver gas to the Andean region

Street protests in Mérida and Táchira states have made it difficult to transport goods, as well as fuel - amid conflicts in which bonfires are being lit. This has hurt distribution of propane gas tanks and is leading PDVSA to "seek contingency means to distribute gas", according to PDVSA President Rafael Ramírez. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140225/pdvsa-busca-mecanismos-para-enviar-gas-a-los-andes)

Protests make cargo transport deficiencies worse

Giovanni Lupi, who heads the Central Venezuela Transport Chamber (CATRACENTRO) says distribution has been hit by 20% due to circulation delays because of protests in major cities. "Carriers are afraid as some trucks and lorries have been burned". In some areas, vehicles that have an accident are plundered by mobs for their cargo, such as a cattle-bearing lorry that was overturned near Morón (Carabobo state), and its cattle was slaughtered and quartered by a raiding mob. Transport was hurting even before the protests, as 40% of the entire fleet is paralyzed for lack of spare parts. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140225/protestas-profundizan-las-fallas-del-transporte-de-carga-del-pais)

Politics

Protest ranks grow broader

The biggest protests since the death of the longtime leader Hugo Chávez nearly a year ago are sweeping Venezuela, rapidly expanding from the student protests that began this month on a campus in this western city into a much broader array of people across the country. Residents in Caracas, the capital, and other Venezuelan cities have piled furniture, tree limbs, chain-link fence, sewer grates and washing machines to block roads in a coordinated action against the government. President Nicolas Maduro has taken a hard line on expressions of discontent, squeezing the news media, arresting a prominent opposition politician and sending the National Guard into residential areas to quash the protests. Unlike the protests in neighboring Brazil last year, when the government tried to defuse anger by promising to fix ailing services and make changes to the political system, Maduro calls protesters fascists conducting a coup against his government. He has largely refused to acknowledge their complaints, focusing instead on violence linked to the unrest. Maduro’s stance is mirrored by the intensity among the protesters. While he has called for a national conference and some opposition politicians have urged dialogue, a majority of protesters here, most of them longtime government opponents, rejected that option. “They’ve been mocking us for 15 years, sacking the country,” said Ramón Arellano, 54, a government worker, while a burning refrigerator in the street behind him blotted out the sky with a cone of black smoke. “A dialogue from one side while the other turns a deaf ear, that’s not fair.”  Like most of the protesters here, Arellano said he wanted a change of government. Protesters say that could be achieved by having Maduro resign, or be removed through a recall election or changes to the Constitution. (The New York Times: http://www.nytimes.com/2014/02/25/world/americas/in-venezuela-middle-class-joins-protests.html?ref=americas; http://www.nytimes.com/2014/02/25/opinion/rash-repression-in-venezuela.html?_r=0)

Opposition cancels Maduro talks as unrest grows, 13 dead in protests

Opposition leader Henrique Capriles pulled out of talks with President Nicolas Maduro after the death toll rose to 13 and both sides traded insults over the weekend. Maduro last week called on governors to meet at the presidential palace in Caracas today for talks, warning there would be legal consequences for skipping. Capriles said Feb. 22 he would attend while demanding the government free opposition leader Leopoldo Lopez, who was imprisoned last week on charges of inciting violence at rallies. “How can I go amid the repression, amid the violation of human rights,” Capriles, a two-time presidential hopeful and currently a state governor, told reporters. “The presidential palace is not the place for dialog in the country...I will not go there to whitewash a dying regime” 13 people have died in nearly two weeks of protests against the leftist regime, according to Attorney General Luisa Ortega. With regard to two of the three deaths in Caracas after an opposition rally on Feb. 12 outside her office, Ortega said that “it is very clear how the incidents occurred” and there are three agents of the SEBIN intelligence service in custody. (Bloomberg, 02-24-2014; http://www.bloomberg.com/news/2014-02-24/venezuela-opposition-cancels-maduro-talks-as-unrest-grows.html; El Universal, http://www.eluniversal.com/nacional-y-politica/140224/capriles-not-to-hold-government-meeting-with-maduro; Latin American Herald Tribune, 02-24-2014; http://www.laht.com/article.asp?ArticleId=1650197&CategoryId=10717; Reuters, http://www.reuters.com/article/2014/02/24/venezuela-protests-idUSL1N0LT11O20140224)

Excessive repression criticized by party loyalist, asks for release of political prisoners

A senior member of Venezuela's governing United Socialist Party (PSUV) has criticized the government's handling of recent opposition protests. Jose Gregorio Vielma Mora - the governor of western Táchira state, where the current wave of protests began - said the deployment of troops to his region was "unacceptable". The governor also called for the release of protesters and opposition leaders who have been detained in the wave of protests which started earlier this month. "All those who are in jail for political reasons, send them home," he said. He insisted that students had the right to demonstrate peacefully and said they should be applauded for wanting to make their voices heard. Vielma Mora said he opposed "the use of weapons and abusive behavior at peaceful demonstrations"; and added he had asked the National Guard to respect demonstrators' right to protest. He also said that after an "excessive use of force" by the National Guard during protests in Táchira on Thursday, he had demanded the replacement of the officer in charge, Gen. Noel Bermudez Pirela. The governor also said that it had been a "grave error" by the government to order military planes to fly over the state capital, San Cristobal: "I'm against that, and it made me angry It was unnecessary to have military planes fly over San Cristobal". PSUV official and Foreign Minister Elias Jaua said the party would be contacting Vielma Mora to "discuss his opinions". (BBC; El Universal, 02-24-2014; http://www.eluniversal.com/nacional-y-politica/140224/governor-terms-unacceptable-excess-the-militarization-of-tachira-state)

U.S. urges calm in Venezuela, encourages dialogue, rejects Maduro's request to talk to Obama

The United States is working with the Organization of American States (OAS) and regional partners to urge calm in Venezuela, the White House said on Monday, as the country faces its most sustained unrest in a decade. White House spokesman Jay Carney expressed concern about developments in Venezuela and said the United States has made clear that with the OAS and regional partners "we are working to urge calm and encourage a genuine dialogue among all Venezuelans...Another way of putting this is that when President (Nicolas) Maduro calls for a dialogue with the U.S. president and an exchange of ambassadors, he should focus instead on a dialogue with the Venezuelan people - because that it what is at issue here," Carney told a news briefing. (Reuters, 02-24-2014; http://www.reuters.com/article/2014/02/24/us-venezuela-protests-usa-idUSBREA1N1MB20140224; El Universal, http://www.eluniversal.com/nacional-y-politica/140224/us-urges-maduro-to-pursue-dialogue-with-venezuelans-rather-than-washin)

SPECIAL REPORT: Venezuelans fear 'Syria scenario'

A former socialist guerrilla and leader of the Left Revolutionary Movement (MIR) says the current political climate - where armed pro-government collectives are asserting themselves in poor neighborhoods - "is part of a worldwide experience with paramilitary groups... These groups are often better armed than the police." They have been intimidating government critics, including those on the left, during recent unrest. A state official who trains Venezuelan security forces and spoke on condition of anonymity adds:"Let's not mince words. Objectively, these are paramilitary groups... They might run some positive community development projects [in poor areas] but they are out of control. Since 2005 they have become the avant-garde for certain sectors of Chavismo". Motorcycles are the preferred transportation for collective members. Pro and anti-government intellectuals agree that urban, armed conflict between unconventional actors is a dangerous, if still unlikely, possibility. Some collective members now work as security operatives in the Caracas mayor's office or in other government departments, the state official said. Some analysts blame them for intensifying the spiraling crime rate in Venezuela - which claimed around 20,000 lives in the past year - and for recent violence targeting student demonstrators who oppose the government. The government official confirmed that armed collectives have been known to be responsible for street crime and alleged political intimidation. "The government has instructed the police not to interfere with things in the territorial spheres of the collectives," he said. Juan Montoya, a leading figure in the collectives, and a supporter of political violence against his opponents died after being shot in the head in what appears to be a targeted killing during the February 12th protest that began peacefully. National Assembly President Diosdado Cabello then said the "revolutionary" Montoya was "vilely assassinated by the fascists". In an April 2013 interview, Montoya claimed to have a direct line of communication to Cabello's office, from which he would receive directives on where to aim his violence. "Juan wasn't any regular collective member. He was informed, educated and had military training. He was a member of the board of directors of 107 collectives in Caracas. We believe it was a deliberate assassination. The aim of that was to awaken the hate of armed groups to start a confrontation," says Armando, a member of the collectives. Maduro later said the SEBIN, Venezuela's intelligence service, was instructed to stay in its barracks that day. But some members of the group took to the streets with their weapons, apparently disobeying a direct order, leading some analysts to question how much control Maduro has over the security forces. (AL-JAZEERA, http://www.aljazeera.com/indepth/features/2014/02/armed-venezuelans-fear-syria-scenario-20142242182313941.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.