June 17, 2014

International Trade

Incoming cargo at Puerto Cabello

• 20,000 tons of auto parts from the US to DANAVEN
• 6,000 tons of rice from Guyana to CASA
• 2,000 tons of steel coils from Brazil and 344 tons of electric transformers from Cartagena, for CORPOELEC, the national electric company
• 503 tons of cement blocks and bricks from China

Nine vessels are at dock, loading and offloading, and 11 remain at bay.

More in Spanish: (Notitarde, http://www.notitarde.com/La-Costa/Seis-mil-toneladas-de-arroz-llegaron-para-Casa-2179793/2014/06/16/333539)

  

Cost of importing rises drastically on the wings of rampant inflation

The government has taken steps that will drive importing costs up. Last week the National Customs and Tax Administration Service (SENIAT) told customs managers that the customs duties will now be calculated using the FOREX rate applied to the imported goods. In other words, it will go from the rate of VEB 6.30/U$D1 to that used by the First Ancillary Foreign Currency Administration System (SICAD 1), which is VEB 10/U$D1, or SICAD 2, that is, VEB 50/U$D1, depending on the item importing. This translates into increases of 58.7% or 700%, respectively. (El Universal, http://www.eluniversal.com/economia/140616/importing-costs-on-the-rise-amid-rampant-inflation)

"Dramatic drop" in imports reported

Rusvel Gutiérrez, President of the Trade, Industry and Customs Brokers Chamber of Vargas State (La Guaira port) reports a "dramatic drop" of up to 95% in private imports so far this year. More in Spanish: (Notitarde, http://www.notitarde.com/La-Costa/Caida-dramatica-de-importaciones-2179262/2014/06/15/333383)

65% of food going into Táchira state is diverted across the border to Colombia

General Franklin García Duque, regional commander of the National Guard, says around 65% of the food that goes into Táchira state on the border with Colombia is diverted into the neighboring country where prices are much higher due to FOREX differences. More in Spanish: (El Nacional, http://www.el-nacional.com/)

Logistics & Transport

American Airlines Cuts 80% of Venezuela Flights

American Airlines, which was one of the largest foreign carriers into Venezuela with almost 7 flights daily from Miami, Dallas and New York, has announced that it is cutting flights to virtually 1 a day because of unexchanged currency.
As of March 31, American says that it had $750 million in bolivars that the Venezuelan government has refused to exchange for US dollars. The International Air Transport Association (IATA) says that airlines have almost $4 billion in unexchanged bolivars trapped in Venezuela, some of which have not been exchanged since 2012.
American says that it will discontinue 38 of its 48 weekly flights between the USA and Venezuela and end service between Caracas and Dallas, New York and San Juan after July 1. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2340438&CategoryId=10717; El Universal, http://english.eluniversal.com/economia/140617/american-airlines-cuts-flight-frequency-to-venezuela; Reuters, http://www.reuters.com/article/2014/06/17/venezuela-airlines-idUSL2N0OY0OA20140617; More in Spanish: Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/american-airlines-reduce-80-de-sus-vuelos-hacia-ve.aspx; El Nuevo Herald, http://www.elnuevoherald.com/2014/06/17/1775633/american-airlines-reduce-80-vuelos.html)

Sixteen airlines have yet to reach an agreement with authorities

Sixteen out of 25 international airlines have not yet entered into debt repayment agreements tendered by Venezuelan aviation authorities for settlement of the government's outstanding debt, says the Venezuela Association of Airlines (ALAV). The 16 major airlines are Air Canada, Air France, ALITALIA, American Airlines, AVIANCA, Caribbean Airlines, COPA Airlines, Delta Air Lines, Federal Express, Iberia, LACSA, LAN Airlines, LUFTHANSA, TACA, TAP Air Portugal and United Airlines. (El Universal, http://www.eluniversal.com/economia/140616/sixteen-airlines-yet-to-reach-an-agreement-with-venezuelan-govt)

Oil & Energy

Venezuela wants to regain US oil market

Venezuela wants to increase oil supplies to the United States to regain its market share lost over the past decade, as Caracas views the shale oil boom in the United States as an opportunity to increase heavy crude exports, according to Venezuelan Minister of Petroleum and Mining Rafael Ramírez. After meeting with investors and bankers in London last week, Ramírez –also the president of state-owned oil conglomerate PDVSA–, said Venezuela is working to get a loan of U$D 4 billion from China secured by oil sales. He also remarked that Venezuela's total debt with Beijing was under U$D 20 billion, which is much lower than market estimates of more than U$D 40 billion. (El Universal, http://www.eluniversal.com/economia/140616/venezuela-wants-to-regain-us-oil-market)

PDVSA will issue no more bonds this year

PDVSA President Rafael Ramírez says the company will issue no more bonds this year "because they are working with loans". He added: "we are not talking about restructuring, what we are doing is ’reprofiling’ our debt". More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/pdvsa-no-emitira-nuevos-bonos-este-ano.aspx#ixzz34nZ9vfjB; El Mundo, http://www.elmundo.com.ve/noticias/economia/empresas/pdvsa-no-emitira-nuevos-bonos-este-ano.aspx; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/revisan-formulas-para-reperfilar-deuda-nacional.aspx)

PDVSA to export gas to Colombia despite deficit

Venezuela is getting ready to export gas to Colombia under a bilateral agreement under which Colombia exported approximately 200 million cubic feet of gas per day to Venezuela since 2007. Venezuela is now due to export gas to Colombia beginning next July. Rafael Ramírez, Venezuela's Minister of Petroleum and Mining and president of state-run oil holding Petróleos de Venezuela (PDVSA), Rafael Ramírez, confirmed two weeks ago gas collected from PDVSA's Eastern Division would be carried to Colombia despite a deficit within the local market. (El Universal, http://www.eluniversal.com/economia/140616/pdvsa-to-export-gas-to-colombia-regardless-of-deficit)

Despite blackouts & losses, S&P affirms 'B-' ratings on Venezuela's electric company

S&P has affirmed its 'B-' ratings on CORPOELEC with a negative outlook that reflects that on Venezuela. "We believe there is an almost certain likelihood that the company's owner, the Bolivarian Republic of Venezuela, would provide timely and sufficient extraordinary support to the utility in the event of financial distress," says S&P. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2340390&CategoryId=10717)

Commodities

SIDOR paralyzed due to lack of supplies and spare parts

The SIDOR iron and steel industrial complex remains "paralyzed for lack of spare parts and material.. and not due to labor strife", according to Rafael Tizano, the main worker representative on the Board of the state owned company. He said 3 new pot carriers are not working due to a lack of spare tires. All of this "means that 5500-6000 ton of liquid steel are not being produced daily. As each ton is worth U$D 1,200, it translates into a daily loss of a little over U$D 6.6 million", says Tizano. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/falta-de-repuestos-e-insumos-mantiene-paralizada-a.aspx#ixzz34tMiHR1b)

Polar's packing material plant halts operations

Labor representative José Ruiz reports that Polar's packing material plant in Carabobo state has stopped operating - for the second time this year - due to lack of material. He said that they have run out of aluminum to manufacture cans for beverages, and adds that the government owes suppliers around U$D 549 million. Plant capacity is for 120 million cans monthly and was lately down to 40 million. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140617/planta-superenvases-de-empresas-polar-detiene-operaciones)

Coffins are now scarce in Venezuela

Employee reports indicate cremations at the East Caracas Cemetery have risen 50% over the past months since coffins are now scarce due to lack of metal sheets, varnish and satin. Coffin production has dropped around 50% due to lack of material, according to Ricardo Guedez, a board member of the Funeral Parlor Association in Venezuela. Many funeral parlors are encouraging cremations and only using coffins during wakes in order to recycle them. Funerals in Venezuela have also increased due to rising violence; over 11,000 were murdered here last year. One funeral parlor representative reports that around 70% of bodies received in his establishment had met a violent death, either through clashes in poorer neighborhoods or in robberies in upper scale areas. More in Spanish: (Infolatam)

Economy & Finance

Venezuela FX rates to move closer together Soon: Ramirez

Venezuela needs to converge its three official foreign exchange rates soon to slow the world’s fastest inflation and promote economic growth, Economy Vice President Rafael Ramirez told investors in London. As part of the government’s effort to shore up Venezuela’s economy, international reserves that are near a 10-year low will be reinforced by dollars currently kept in off-budget funds, says Ramirez. The London presentation was the first in a series of meetings to re-establish relations with the financial markets. (Bloomberg, http://www.bloomberg.com/news/2014-06-16/venezuela-fx-rates-to-move-closer-together-soon-ramirez.html)

Exchange rate may be strengthened by transferring funds from FONDEN to the Central Bank               

Some experts have been encouraged by an announcement made by Economic Affairs Vice President Rafael Ramírez that part of the surplus funds held in the National Development Fund (FONDEN) and the Chinese Fund will be incorporated into the nation's reserves. They believe this type of action could reduce pressure on the exchange rate. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/preven-fortaleza-cambiaria-por-traslado-de-recurso.aspx#ixzz34tMNahVH)

Soaring inflation raises pressure for economic reforms

Venezuela's inflation soaring above 60% has boosted pressure on President Nicolas Maduro to speed up a transition toward a market-driven economy as the model of state-controlled socialism heads toward stagflation. Sky-rocketing consumer prices and shortages of nearly a third of basic goods have helped push Maduro's approval rating to 37% percent and weakened his standing as the heir to the late socialist leader Hugo Chavez. The central bank blamed May's 5.7% inflation reading on three months of opposition protests, but economists say the true culprit is a doubling of the money supply since the start of last year and a 17% increase this year. "It's easier to blame the protests than to cut spending and maintain fiscal discipline, which has a high political cost," said Asdrubal Oliveros of Caracas-based ECOANALITICA. "If you don't reduce monetary distortions, you won't control inflation." (Reuters, http://www.reuters.com/article/2014/06/13/venezuela-economy-idUSL2N0OU0J020140613)

Stratfor: Venezuela paves the way for economic reforms

The demotion of a major economic official could clear the path for modest economic reforms. On June 9, Venezuelan President Nicolas Maduro removed Planning Minister Jorge Giordani from his positions on the Central Bank board of directors and the board of directors of state-run energy firm Petroleos de Venezuela. He will retain his position as planning minister, but his removal from the Central Bank and Petroleos de Venezuela boards could eliminate ideological dissent from within the Cabinet for limited economic reforms, which seem likely in the upcoming months. Maduro still will have to contend with the country's cash flow problems and reduced oil production and his own declining popularity. His administration will struggle to implement economic reforms over the next few months and could face increased unrest as a consequence (Stratfor, http://www.stratfor.com/sample/analysis/venezuela-paves-way-economic-reforms)

Informal employment reported up to 60%

Blanca Llerena, a director at the National Unified Federation of Independent Workers, reports the rate of informal workers is now up to 60% as people migrate from the formal economy into informality. She says independent studies show 7.3 people are now informal workers, and contradicts reports by the National Statistics Institute of 5.3 million informal workers. She adds: "Official data shows informal workers as part of the self employed segment in order to minimize the lack of formal job opportunities." More in in Spanish; (El Nacional, http://www.el-nacional.com/economia/Aseguran-informalidad-alcanza_0_427157375.html)

Basic food consumption dropping

Rising prices and product scarcity are leading families here to reduce their food purchases, even in basic items. A survey by the National Statistics Institute shows daily consumption of the 10 key food items in the basic diet diminished by 10% in the second half of 2013, as compared to the same period in 2012. "Daily per capita intake" diminished for corn flour (-16.5%), chicken (-7.4%), plantain (-7.38), rice (-10,5%), papaya fruit (-4.6%), pasta (-7.7%), beef (-7.3%), wheat bread (-1.8%) and potatoes (-2%). Beyond these items, consumption went down in 55 out of 62 items that are part of the food basket subject to price controls. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140617/disminuye-consumo-diario-de-alimentos-basicos)

The cost of living rose 78.8% in one year

The latest version of a traditional survey undertaken by CENDAS shows the cost of the Basic Family Basket rose 6.2% in May, up to VEB 19,454.80, and it now takes 4.6 minimum wages to purchase it. CENDAS reports the cost of living rose 74.8% in one year, from May 2013 to May 2014. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/el-costo-de-la-vida-aumento-74-8-segun-el-cendas-f.aspx#ixzz34tKs8whH)

Survey: Caracas is the most expensive city in the world for expatriates

Venezuela's capital is the most expensive city in the world for expatriates, according to a ranking published by human resources consulting firm ECA International. The Cost of Living Survey by ECA determined that Caracas jumped from position 32 in 2013 to the first place in 2014, thus replacing Oslo. (El Universal, http://www.eluniversal.com/economia/140616/survey-caracas-is-the-most-expensive-city-in-the-world-for-expatriates)

Politics

María Corina Machado called in for questioning by the Prosecutor General

Questioning of Venezuelan opposition leader María Corina Machado at the Attorney General's Office ended after seven hours. Government spokesmen had accused the deposed deputy of involvement in a plot to kill the Venezuelan president and mount a coup.  The Prosecutor says her office does not suspect Machado of plotting to kill Maduro, despite accusations from government spokesmen, and insists she was called in as a witness. Machado says that her arrest would be final evidence that Venezuela is a "dying dictatorship", and that there is "not a shred of evidence that she has committed any crime". She also requested protection from the Inter American Human Rights Commission. Five more opposition members have been called in to the Prosecutor's office during this investigation. (El Universal, http://www.eluniversal.com/nacional-y-politica/140616/maria-corina-machado-i-spoke-with-consciousness; and more in Spanish: El Universal, http://www.eluniversal.com/nacional-y-politica/140617/fiscal-le-aseguro-a-machado-que-no-la-investiga-por-magnicidio; El Nacional; http://www.el-nacional.com/; and Infolatam)

Maduro congratulated President Santos on re-election

Venezuelan President Nicolas Maduro congratulated his counterpart Juan Manuel Santos, who was re-elected as president of Colombia in the second round of elections. "Between peace and no peace. Colombian people have clearly taken the path of peace," said Maduro, adding that the government and people of Venezuela are willing to work for peace in Colombia, and bet all their forces to reach the peace of all Colombians. (AVN; http://www.avn.info.ve/contenido/maduro-congratulated-president-santos-re-election; El Universal, http://www.eluniversal.com/nacional-y-politica/140616/maduro-celebrates-santos-reelection-endorses-talks)

Biden regrets the weakness of democratic institutions in Venezuela

US Vice President Joseph Biden said the Obama administration has tried to improve relations with democratically elected leftist governments in Latin America but called Venezuela "an emblematic case of the weakening of democratic institutions", More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/140617/biden-lamenta-debilidad-de-las-instituciones-democraticas-en-venezuela)

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.