September 12, 2014

International Trade

Venezuela extends night closure of Colombia border to stop smuggling

Venezuela says it will extend an overnight closure of its border with neighboring Colombia for another three months in a campaign to stop widespread fuel and food smuggling. The measures to stop traffic crossing between 10 p.m. and 5 a.m., and limit the movement of cargo vehicles during the day, were introduced in mid-August to combat the lucrative business in smuggling heavily subsidized Venezuelan products. "We are going to pursue and punish smugglers with double severity," President Nicolas Maduro said, announcing the three-month extension. "They are looting the republic." (Reuters, http://www.reuters.com/article/2014/09/12/us-venezuela-colombia-idUSKBN0H62ND20140912)

MELIÁ planning five hotels in Venezuela

MELIÁ Hotel International will be managing five new hotels in Venezuela under the Innside By Melia brand in the coming years, the company announced. The hotels will be developed together with investor Franco Biocchi Zurita. “This framework agreement is a major landmark in the consolidation of the Innside brand as a market leader for urban hotels in cities with strong growth and development potential in Latin America, while also strengthening our strategic alliance with Franco Biocchi to develop extraordinary and successful hotel projects in Venezuela,” said Gabriel Escarrer, CEO of MELIÁ Hotels International. Melia said the first hotel would be the Innside Punto Fijo Hotel in the state of Falcon, which is slated to open in 2016. (Caribbean Journal, http://www.caribjournal.com/2014/09/11/melia-planning-five-hotels-in-venezuela/)

Oil & Energy

PDVSA seeks bids for CITGO in potential US$ 10 billion deal

Venezuela's state-run oil company PDVSA is seeking preliminary offers for its U.S. unit CITGO Petroleum Corp by the end of September a deal that could fetch up to US$ 10 billion, according to two people familiar with the matter. Venezuela is selling CITGO in part due to a cash crunch stemming from repaying debts to Beijing with oil, rather than selling the crude to generate revenue, analysts say. The government denies a cash-flow problem exists. Within President Nicolas Maduro's government, the potential sale is controversial and seen as a privatization that would contradict years of socialist policies, including a nationalization of the oil industry in 2006 and 2007. Investment bank Lazard Ltd, which is running the sale process for CITGO on behalf of PDVSA, has sent offering materials to potential buyers, the people said in recent days, asking not to be named because the matter is not public. PDVSA also has a 50% stake in the Chalmette refinery in Louisiana alongside Exxon Mobil Corp, which owns the remainder. The Venezuelan oil company has tapped Deutsche Bank separately to explore a sale of its stake in that refinery. A sale, if it were to come to fruition, would be Venezuela's biggest pullback ever from the U.S. refining market. (Reuters, http://www.reuters.com/article/2014/09/09/us-refineries-citgo-pete-sale-idUSKBN0H428720140909)

Commodities

Steel: Venezuela’s showcase city becomes symbol of economic meltdown

Long before Hugo Chávez launched his socialist revolution, government planners came to Ciudad Guayana on Venezuela’s eastern frontier, where the Orinoco and Caroni rivers converge, and envisioned an industrial workers’ paradise. A half-century later and 15 years after Chávez came to power, Ciudad Guayana’s factories are crippled, starved for investment and riled by labor disputes. The workers’ standoff with President Nicolás Maduro – Chávez’s successor and a former union leader himself – has turned Ciudad Guayana into a crucial battleground for the socialist government as it faces economic meltdown and political infighting. When it was founded, Ciudad Guayana and its state-run heavy industries were Venezuela’s best hope for breaking the country’s overwhelming dependence on crude oil exports. It had the raw materials on hand: iron ore, bauxite and gold; timber and farmland; and huge rivers to supply cheap hydropower for smelters and factories.  The steelmaking company at the core of the Ciudad Guayana project, SIDOR, produced a record 4.3m tons before it was nationalized by Chávez in 2008. Today, most of its furnaces sit cold, deprived of raw materials, new technology and reliable labor. The last contract for its 14,000 steelworkers expired four years ago. National Assembly president Diosdado Cabello – Venezuela’s second-most-powerful figure after Maduro – has denounced union adversaries at SIDOR as “mafias” in the service of US “imperialism”, offending many of the workers who consider themselves Chávez loyalists and true patriots. In private, government officials say SIDOR will need to produce 250,000 ton of steel a month just to break even. Its current output is closer to 70,000 tons. Closing the gap will require hundreds of millions in new investments. One official close to the SIDOR negotiations who was not authorized to speak publicly said it makes little sense for Venezuela to sink more money into inefficient steelmaking. “We could let SIDOR die and import all the steel we need,” he said. “And there would still be enough to pay the workers’ salaries.” (The Guardian, http://www.theguardian.com/world/2014/sep/09/venezuela-maduro-labour-dispute-ciudad-guayana)

Detergent plant is paralyzed for lack of supplies

A powdered detergent plant owned by Alimentos POLAR has been paralyzed for the past 15 days for lack of supplies. Some 400 workers at the plant were on protest to ask the government to release a sodium sulfate load that has been held up at Puerto Cabello since August 22nd. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140910/planta-de-detergentes-de-polar-esta-parada-por-falta-de-insumos)

Toyota’s plant in Cumaná remains closed by workers one week after they began a conflict with the assembler’s board of directors, due to differences over salary raises and the elimination of quota assignments to workers to purchase cars at cost price. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=41019&idc=3)

Economy & Finance

Maduro says Venezuela can pay debt, blasts default fears, orders legal action against economists

President Nicolas Maduro said Venezuela could meet all its obligations to bondholders, as he sought to quell market fears that the Socialist-run country may opt to default when US$ 5 billion of its foreign debt falls due for repayment next month. Fears of a possible default heightened, with bond yields spiking, after the publication of an article by a former planning minister and a pro-opposition economist that suggested an orderly default could ultimately help Venezuela's slumping economy. "We're prepared to meet our international obligations in their entirety," Maduro declared on Wednesday night. "Down to the last dollar." He said Harvard economist Ricardo Hausmann - who recently wrote the government should prioritize its debt to the Venezuelan people above international bond holders - is a "bandit" and added: "I have ordered the Solicitor and spoken to the Prosecutor so that we can start action against you..key advisor to all those groups that want to harm Venezuela...and work as financial hit men for those forces at the IMF and oligarchies" (Reuters, http://www.reuters.com/article/2014/09/11/us-venezuela-bonds-idUSKBN0H60DF20140911; Bloomberg, http://www.bloomberg.com/news/2014-09-11/venezuela-bonds-rally-on-maduro-pledge-to-pay-every-last-dollar.html; and Noticiero Digital: http://www.noticierodigital.com/2014/09/maduro-acuso-al-economista-ricardo-hausmann-de-bandido-y-sicario-financiero/)

Specter of default looms over Venezuela despite oil reserves

Venezuela is struggling to meet its international bond payments, raising the specter of an Argentine-style default despite the country’s massive oil reserves. Yields on Venezuelan bonds, the third-largest constituent of JPMorgan’s global emerging bond index, have risen since Caracas put CITGO, the country’s US refining operation, up for sale and scrambled to reassure investors it can refinance US$ 7 billion coming due this year on its more than US$ 80 billion of sovereign debt. A Venezuelan default could be widely felt. The country accounts for 7% of emerging market benchmarks, meaning a default could force redemptions of other investments by passive index-tracking funds. As Morgan Stanley wrote in a research report late last year: “Venezuela may affect your . . . portfolio, even if you don’t own it.” Until recently, bond investors drew comfort from Venezuela’s US$ 85 billion annual oil exports. But confidence was shaken this week as yields on short-dated bonds issued by PDVSA, the state owned oil company, shot above 25%. Venezuelan credit default swaps also rose to levels comparable to Argentina. “The [Venezuelan] government is clearly exploring any and all options to generate additional cash in order to stay afloat, with an eye on short term fixes,” comments Risa Grais-Targow, Latin America analyst at Eurasia, the risk consultancy. Venezuela’s public finances certainly look tight. Despite US$ 21 billion of reserves, less than US$ 3 billion of these are liquid. The government also has about US$ 9 billion in obscure off-budget funds, plus eventual proceeds from CITGO’s sale. “The difference between Argentina defaulting and Venezuela is that Argentina had nothing to lose,” says Luis Vicente León OF DATANALISIS, a local pollster. “By contrast, Venezuela has substantial foreign assets under risk – from CITGO, to oil shipments, to PDVSA receivables . . . That makes default risk devastating.” On Wednesday, BNP Paribas recommended buying Venezuelan bonds. Other investment banks also said Venezuela had enough funds to meet import needs and short-term debt payments, although to continue doing so it needed to embrace politically costly reforms. “I don’t think Venezuela is going to default, although the probability has greatly increased,” said Russ Dallen of Caracas Capital Markets. “It is a case of the ‘devil you know versus the devil you don’t’. And the problem is we don’t know.” (Financial Times, http://www.ft.com/cms/s/0/279da4e8-39b1-11e4-83c4-00144feabdc0.html#axzz3D2HGtX3o) 

Venezuelan bonds recover slightly

Venezuelan bonds value recovered slightly following President Nicolás Maduro's remarks stating that the country is capable of honoring its international debts which slightly exceed US$ 5 billion in bonds maturing next month.

Venezuelan bonds plummeted last week amid investors' concerns about short supply of dollars in the country, which has hit its economic variables and worsened shortages of staples. However, President Maduro said on Wednesday that his administration was prepared to meet its foreign liabilities. "Despite greater risk of non-payment to domestic sectors, namely airlines, automobile, pharmaceutical, and food, (Venezuelan) authorities will continue to honor their financial debt and international obligations," says Diego Moya-Ocampos, analyst at IHS, referring to the multi-million outstanding debt caused by delays in foreign currency supply. (El Universal, http://www.eluniversal.com/economia/140911/venezuelan-bonds-recover-on-thursday)

The Central Bank (BCV) corrected the annualized inflation rate on Wednesday, a day after it had presented the figures, using the new “methodology.” Now, inflation in June was 4.4%, 4.1% in July and 3.9% in August for an annualized rate of 62.2% and not 60.5% as initially reported between June 2013 and June 2014. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=41009&idc=2; El Universal, http://www.eluniversal.com/economia/140910/central-bank-of-venezuela-revises-down-inflation-figure; http://www.eluniversal.com/nacional-y-politica/140910/capriles-inflation-sets-record-high-even-with-fabricated-numbers; http://www.eluniversal.com/economia/140911/utility-rates-in-venezuela-up-55-in-12-months; Bloomberg, http://www.bloomberg.com/news/2014-09-09/venezuelan-inflation-slows-for-third-consecutive-month-in-august.html)

Retailers report sales plunged 52% in the second quarter

According to a poll conducted by the National Trade and Services Council (CONSECOMERCIO) up to 52.2% of retailers report sales plummeted in the second quarter, "Rather than improve, the numbers have slipped," says CONSECOMERCIO's president, Mauricio Tancredi. He says high inflation, insecurity, low stocks, and price regulations are the main obstacles facing the commercial sector. (El Universal, http://www.eluniversal.com/economia/140911/retailers-claim-sales-plunged-52-in-the-second-quarter)

Food inflation climbs 210% in 24 months in Venezuela

The government has implemented a price regulation policy for many products, managed a large network of agro-industrial companies, and held thousands of hectares in the agricultural sectors. However, their results are below the expectations. According to figures disclosed by the Central Bank (BCV), the average price of food and non-alcoholic beverages skyrocketed 210% in August 2012 - August 2014. (El Universal, http://www.eluniversal.com/economia/140911/food-inflation-climbs-210-in-24-months-in-venezuela)

DATÁNALISIS: 84% describe the current economic situation as negative

DATANALISIS Director Luis Vicente Leon reports that 84% of all Venezuelans consider the current economic situation is negative and 53% doubt this government is able to solve economic problems. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/datanalisis--84--de-la-poblacion-considera-negativ.aspx#ixzz3D0YXsVIQ)

Politics

Maduro claims his regime is set to win 2015 legislative elections

President Nicolás Maduro claims his United Socialist Party (PSUV) is getting ready for "a great victory" in parliamentary elections set for October 2015 to teach those have "sabotaged the economy" a "lesson". He added that "the shakeup is only beginning... we are going after the remainder of the bourgeois state". More in Spanish: (Infolatam)

Opposition leader Leopoldo Lopez on trial September 22

One of Venezuela's main opposition leaders, Leopoldo Lopez, again appeared in court in Caracas and the next hearing has been set for September 22nd. He is accused of inciting violence during anti-government demonstrations earlier this year and has been in custody since 18 February, when he handed himself in to the authorities. He denies all the charges. Dozens of people gathered outside the courthouse to demand his release. The prosecution was expected to present more evidence against him. Lopez, who is the head of the Popular Will Party, has accused the government of President Nicolas Maduro of jailing Venezuelans for seeking democratic change. Other opposition activists detained during the protests earlier this year have also appeared in court in Caracas. The authorities accuse Lopez of inciting violence and encouraging demonstrators to vandalize government buildings. Only two of the four witnesses summoned for this fourth hearing showed up and according to López’ defense they “irrefutably” determined there was no arson at the Attorney General’s Office building last February 12 which is one of the charges against Voluntad Popular leader and the four students, Marco Coello, Christian Holdack, Ángel González and Demian Martin. (BBC, http://www.bbc.com/news/world-latin-america-29151975?utm_source=Sailthru&utm_medium=email&utm_term=%2AMorning%20Brief&utm_campaign=2014_MorningBrief-%20RD%20PROMO%209.11.14; Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=41011&idc=1; El Universal, http://www.eluniversal.com/nacional-y-politica/140911/leopoldo-lopezs-next-hearing-scheduled-for-september-22; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2351650&CategoryId=10717)

US is concerned over the "lack of due process" for opposition leaders here

US State Department spokesperson Marie Harf referred to opposition leaders imprisoned after protests began in February, including Leopoldo López, and mayors Enzo Scarano and Daniel Ceballos, saying: "The US is deeply concerned by the lack of due process and guarantees in procedures against those detained over protests in Venezuela". More in Spanish: (Diario 2001, http://www.2001.com.ve/en-el-mundo/eeuu-preocupado-por-la--falta-de-debido-proceso--a-opositores-en-venezuela.html)

BLOOMBERG View: Colombia does Venezuela's dirty work

How to parse Colombia's decision to hand over two young Venezuelan fugitive dissidents to the Bolivarian thought police? One theory: To seal a peace deal with the Revolutionary Armed Forces of Colombia (FARC), Juan Manuel Santos, Colombia's president, is again pandering to the autocrat next door. It's no secret that Venezuela has long been in the corner of the Colombian insurgents, who have been waging terror and mayhem against Colombia’s government for the last half-century, often with a wink and a nod from their Venezuelan patrons. That toxic bond had estranged Colombia and Venezuela for most of the previous decade, with the hawkish Alvaro Uribe pitted against the chief Andean tub-thumper, Hugo Chavez. Since Santos was first elected in 2010, he has gone out of his way to end the Andean Cold War, infuriating Uribe, many Colombians, and the entire Venezuelan opposition besides. Exhibit A: his 2011 extradition of suspected Venezuelan drug-trafficker, Walid Makled, then in a Colombian jail. Not to the U.S., where Makled was wanted for a farrago of felonies, from running cocaine to abetting the FARC, but to Venezuela, where his trial has yet to be concluded. Two years on, peace is still elusive, but Santos has kept courting the Chavistas. Gabriel Valles, aged 27, and Lorent Saleh, 26, are members of an organization protesting the government of Venezuelan President Nicolas Maduro, but they aren't exactly hardened criminals, much less game changers in the peace parley. Both had slipped over the border to evade the Venezuelan courts, where they face charges of troublemaking during antigovernment street protests, including "inciting public disorder," spreading "false information," and a Bolivarian gem called "public uncertainty," which is Chavista-speak for anything their men in red want it to be. Since they were first hauled into Venezuelan court, they'd been under orders to report every few weeks to the police and were barred from traveling abroad. So effectively, their offense was skipping probation. Venezuela hadn't even issued an extradition request when Colombia handed the two over to Venezuelan intelligence last week. More tellingly, perhaps, Saleh and Valles were reported to be close to former president Uribe, Santos's archenemy, and had criticized the Santos administration in speeches, adding a note of potential political payback to the surrender. (Bloomberg, http://www.bloombergview.com/articles/2014-09-11/colombia-does-venezuela-s-dirty-work)

Brownfield slams Venezuela's lack of cooperation on narcotics

US Assistant Secretary of State of the Bureau of International Narcotics and Law Enforcement Affairs William Brownfield says drug traffic through Venezuela has increased considerable due to lack of cooperation with the US and other countries in the Hemisphere. "When I arrived in Venezuela as Ambassador in 2004 we had some sort of cooperation....when I left almost all cooperation had ended. This creates an opportunity for drug traffic and creates the problem we now have". More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/140910/brownfield-critica-la-no-colaboracion-del-pais-en-drogas)

Venezuela gains support to sit on the UN Security Council

According to Amín Cruz, a Dominican Republic diplomat who chaired a closed door meeting of Latin America and Caribbean representatives at the UN on July 23rd, the decision was taken there to support Venezuela's candidacy to a term on the UN Security Council. The last time Venezuela attempted to gain a seat on the Council - in 2006 - it was torpedoed by the US, which has not spoken on the issue at this time. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/140912/venezuela-aseguro-apoyo-regional-al-consejo-de-seguridad)

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.