december 02, 2014

International Trade

 

Inbound cargo at Puerto Cabello:

• Over 729 tons of whole and skimmed milk from CONAPROLE Uruguay for NISA.
• Over 607 tons of spaghetti from Productora Panorama for state agency CASA
• Over 168 tons of bicycles from Ningbo Anlian Industry for Transportes Intess.
• Over 155 tons of shoes from Schenker, Quimpac and Acmanel for Lilly & Asocciates.

More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Mas-de-168-toneladas-de-bicicletas-llegaron-al-puerto-local-2296159/2014/12/01/417784/)

 

 

Logistics & Transport

 

Government still owes airlines US$ 3,5 billion

Despite meeting several times with representatives of international airlines, the government has still not made good on its assurances that it would honor its US$ 3.5 billion past due debt with different carriers serving Venezuela. Through November 15th, international airlines had sought US$ 974.6 million in FOREX payment from the National Foreign Trade Center for operations this year, and received US$ 775.6 million. This has kept existing operations afloat, but the main debt for operations through 2013 still remains outstanding. More in Spanish: (El Nacional; http://www.el-nacional.com/)

 

ASERCA suspended domestic round trips to Maracaibo, Barquisimeto and Maturín from December 3 through December 18. The airline offered no explanations as to the cause behind the suspensions. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=42077&idc=3)

 

 

Oil & Energy

 

Oil at $40 possible as market redraws politics from Caracas to Tehran

Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union. Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the decision by the Organization of Petroleum Exporting Countries last week to let the force of the market determine what some experts say will be the first free-fall in decades. (Bloomberg, http://www.bloomberg.com/news/2014-11-30/oil-at-40-possible-as-market-transforms-caracas-to-iran.html)

 

CONOCO asked a US court to investigate into the sale of CITGO even though it assured it “was not looking to prevent the sale” of PDVSA’s subsidiary or its assets in the United States. CONOCO told the court that evidence indicated PDVSA was selling its subsidiary “to try to hinder, delay or defraud its debtors.” (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=42070&idc=4; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2363246&CategoryId=10717)

 

 

Commodities

 

Former SIDETUR plant paralyzed for lack of materiel

According to organized labor sources in the steel industry, the former SIDETUR tube making plant in Guayana stopped operations on November 23 and will probably not start operations again for the next 4 months for want of materiel and spare parts. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/industrias/falta-de-insumos-para-operar-paraliza-antigua-side.aspx#ixzz3KdqllnsR)

 

Venezuela pays HOLCIM overdue cash for seized cement operations

Venezuela paid HOLCIM Ltd. the final installment of a total US$ 650 million agreed compensation for seizing the Swiss company’s cement plants in 2008. The country paid the Jona-based cement maker US$ 97.5 million that was due almost three months ago, HOLCIM said in a statement today. The late President Hugo Chavez nationalized Venezuela’s cement industry in 2008 citing failures to sufficiently supply the local market. He also seized assets from CEMEX and Lafarge SA.  Investors have become increasingly concerned that Venezuela is running out of cash to pay its debt as its foreign reserves fall and its economy heads for its biggest contraction since 2009, according to data from the International Monetary Fund. Venezuela, which imports three-quarters of the goods it consumes, has seen export revenue slump as oil prices tumble. (Bloomberg, http://www.bloomberg.com/news/2014-12-01/venezuela-pays-holcim-overdue-cash-for-seized-cement-operations.html; Reuters, http://www.reuters.com/article/2014/12/01/holcim-brief-idUSFWN0TI04920141201)

 

Gold Reserve seeks US$ 713 million compensation from Venezuela

Canada's Gold Reserve mining firm had gone to court in the US seeking payment on an ICSID US$ 713 million ruling against Venezuela for the expropriation of their Brisas project here. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/petroleo/mineria/gold-reserve-busca-que-venezuela-le-pague--713-mil.aspx#ixzz3Kja4aSng)

 

Mining operators forced to sell gold to the central bank

An amendment to the Organic Law Reserving the State the Management of Gold Exploration and Exploitation Activities now requires gold operators to "preferentially sell and deliver" gold to the Central Bank of Venezuela (BCV). Under the amendment, the BCV "shall participate, regulate, and conduct operations in the gold market, in accordance with the rules issued by the Executive Office." The reform ratifies that the mining activity is reserved to the State, or through its public institutes or wholly owned companies. It also provides for the incorporation of joint ventures, where the State shall own 55% of shares. (El Universal, http://www.eluniversal.com/economia/141201/mining-operators-forced-to-sell-gold-to-the-central-bank)

 

 

Economy & Finance

 

Venezuela’s downward economic spiral

The price of Venezuela’s heavy oil dropped below US$ 70 a barrel last week, compared with an average of US$ 98 in 2013. Balancing the government’s budget requires a price of US$ 120 at the current exchange rate, according to the International Monetary Fund. However, rather than allowing its currency to decline like the ruble, the government of Nicolás Maduro has insisted on maintaining a fixed, multiple-tier exchange rate system that vastly undervalues the dollar. How much so? According to Francisco Rodriguez of the Bank of America, the dollar is now worth 1,700% more on the black market in Caracas than the price the government charges those lucky enough to obtain it legally. The result is staggering economic disarray in what was once Latin America’s richest country. Basic goods — cooking oil, rice, coffee, sugar, corn flour and even toilet paper — have become scarce, even as inflation soars above 60%. Venezuelans routinely line up for hours outside stores in the desperate attempt to obtain food and other essentials. Rather than embrace logic — also known as Economics 101 — the government has resorted to schemes such as installing fingerprint readers in stores in order to enforce rationing. Meanwhile, regime insiders with access to cheap dollars reap windfall profits. On state-controlled television, Maduro flaunts his ignorance, delivering speeches that attribute the shortages to conspiracies by domestic and foreign enemies. Prosecutors are preparing to charge a top opposition leader, Maria Corina Machado, on the absurd allegation that she conspired with the U.S. ambassador to Colombia to assassinate Maduro. In a recent report, Rodriguez euphemistically referred to Maduro’s administration as a “low-bandwidth government.” He noted that while most analysts agreed it would be a disaster for Venezuela to respond to its problems by defaulting on its foreign debt, the Maduro government cannot “be counted on not to make that mistake.”  Venezuelans appear to be reacting en masse to the malfeasance. A poll conducted in September by the firm DATANÁLISIS showed that 67% have a negative view of the government and more than 80% say the country is in a bad situation. Perhaps the worst news for Venezuelans is that the next election, for parliament, is nearly a year away — and Maduro’s presidential term does not expire until 2019. Barring a miraculous recovery of oil prices or a dramatic reversal of course by the government, the country’s downward spiral appears destined to continue. (The Washington Post, http://www.washingtonpost.com/opinions/venezuelas-downward-economic-spiral/2014/11/30/198a9e40-759f-11e4-9d9b-86d397daad27_story.html; http://www.washingtonpost.com/opinions/venezuelas-downward-economic-spiral/2014/11/30/198a9e40-759f-11e4-9d9b-86d397daad27_story.html)

 

Venezuela burns through third of new Chinese money in a week

Venezuela’s international reserves declined U$ 1.3 billion in the week after President Nicolas Maduro transferred US$ 4 billion of Chinese loans to the central bank. The country’s reserves dropped to US$ 22.2 billion, according to central bank data. A collapse in global oil prices pushed Venezuela’s foreign currency holdings to an 11-year low earlier this month. Maduro on Nov. 18 ordered the Chinese loan proceeds to be moved from an off-budget fund, so that they would show up in reserves and help boost investor confidence in an economy beset by the world’s highest inflation and widest budget deficit. The following day, Venezuelan bonds rose the most in six years in intraday trading. “If the plan was to calm the bondholders, then burning through a third of that money in five working days doesn’t do it in any way,” says Henkel Garcia, director of Caracas-based consultancy ECONOMETRICA. (Bloomberg, http://www.bloomberg.com/news/2014-11-27/venezuela-burns-through-third-of-new-chinese-money-in-a-week.html)

 

Venezuela bonds tumble to five-year low after crude oil declines again

Venezuelan bonds fell to a five-year low as traders projected higher chances of default after OPEC’s decision to maintain oil output pushed crude lower.  The nation’s benchmark notes due in 2027 fell 6.06 cents to 50.40 cents on the dollar at 10:23 a.m. in New York, the lowest level since February 2009. Investors are pulling money out of Venezuela as the rout in oil raises the risk that the nation won’t be able to pay for its imports. West Texas Intermediate climbed after earlier today dropping to below US$ 65 a barrel, the lowest level since July 2009. Crude tumbled last week on speculation prices have further to drop before the Organization of Petroleum Exporting Countries decision to maintain output slows U.S. shale supply. (Bloomberg, http://www.bloomberg.com/news/2014-12-01/venezuela-bonds-tumble-to-five-year-low-after-crude-oil-declines.html)

 

Venezuela faces hyperinflation threat

Gloomily watching their money shrink in value, Venezuelans don't need government statistics to tell them what they already know: their country is facing the looming risk of hyperinflation. Breaking its own regulations, the Venezuelan central bank has stopped publishing the official inflation rate, which stood at 63.4% at the end of August. Since then, prices have only continued to rise, as the nation feels the pinch of falling crude prices and struggles to import the food and medicine it largely buys abroad. It is difficult to evaluate just how much value the bolivar has lost in recent months. Families now rush to buy all they can at the start of the month in a race against prices. The only refuge for their money is the black-market dollar. But Venezuela, which gets 96% of its foreign currency from oil sales, has also watched its oil price fall by a third since July. The official exchange rate meanwhile remains at 6.30 bolivars, the level Maduro vowed to keep it at a year ago. "The deterioration of the currency outlook because of falling oil prices traditionally puts pressure on the dollar. That makes the government slash access to foreign currency (at the official rate) and forces people onto the black market," said economist Pedro Palma. There is no set numerical definition of hyperinflation, but economists often consider it to be a monthly inflation rate of more than 50%. Venezuela is not at that threshold, but there are warning signs. The monthly inflation rate likely stands at around 5% now, according to Henkel Garcia, head of consulting firm ECONOMETRICA. "In November, people's salaries bought approximately 13% fewer products than 12 months ago," he told AFP. "The threat of hyperinflation risks becoming a reality of the monetary disorder continues or gets worse, if there's an abrupt fall in supply and if there's a lack of confidence in the currency." The government has meanwhile responded to the price pressures by printing more bolivars. The money supply will likely expand 55% this year, consulting firms say. (UK Finance, https://uk.finance.yahoo.com/news/venezuela-faces-hyperinflation-threat-022006429.html)

 

Maduro orders budget cuts amid oil-price plunge

President Nicolas Maduro has ordered budget cuts in response to a sharp drop in oil prices, calling for salary reductions for himself and other senior government officials. He said in a speech that he was naming a special presidential commission to identify areas of superfluous public spending. The budget was prudently calculated based on an oil price of US$ 60 a barrel with the idea that excess petroleum-export earnings would be used to fund government-subsidized social programs, but the steep decline in Venezuela’s crude basket has made spending cuts necessary, Maduro said. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2363062&CategoryId=10717)

 

Venezuela paves the way to legalize dollar trade in black market

President Nicolas Maduro paved the way to legalize dollar exchange in the black market in a decision published today in the official gazette, according to two Caracas-based economic research firms. “The new law allows the central bank to do what it wants regarding currency rules without seeking congressional approval,” ECOANALITICA director Asdrubal Oliveros says. “It opens the door for the government to make currency system more flexible, if it chooses to do so.”  While the law doesn’t legalize the black market, it gives the central bank the choice of doing it, said Henkel Garcia, director of ECONOMETRICA. (Bloomberg, http://www.bloomberg.com/news/2014-11-28/venezuela-paves-the-way-to-legalize-dollar-trade-in-black-market.html)

 

Analyst claims Venezuela is not broke, has space to maneuver

DATANALISIS President Luis Vicente León says that "it is not true that Venezuela is broke and cannot solve its problems, it is important to understand that there is a crisis and identify the source in order to deal with it". He insists the foreign exchange rate is inadequate.  More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/luis-vicente-leon--no-es-verdad-que-venezuela-este.aspx#ixzz3Kdr3Eb4d; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/politica/video---luis-vicente-leon-el-riesgo-mayor-de-madur.aspx)

 

CENCOEX to regulate foreign investment in Venezuela

The government has expanded the duties of the Center for Foreign Trade (CENCOEX). From now on, the government agency will regulate foreign investment. The new Foreign Investment Law - which supersedes the Law on Investment Promotion and Protection - indicates that CENCOEX "shall be responsible for enforcing guidelines, methods, requirements and procedures in the field of foreign investment." (El Universal, http://www.eluniversal.com/economia/141201/cencoex-regulates-foreign-investment-in-venezuela)

 

Venezuela's credit terms with China adjusted three times

Since 2008, the Venezuelan government has signed financing agreements worth US$ 46 billion with China. That money has been allocated to the Joint Chinese-Venezuela Fund and the Great Volume and Long Term Fund, providing resources for projects in different areas. Those agreements have been amended three times to adjust funding terms. In that context, Venezuela is renegotiating some of the conditions of the agreements. Barclays commented that shipments to China have been reduced, "although that does not imply reducing non-exchangeable barrels, it could help reduce delivery costs, giving the government the possibility of getting funds faster." (El Universal, http://www.eluniversal.com/economia/141129/terms-of-venezuelas-credits-with-china-fixed-three-times)

 

Foreign visitors to pay in USD in Venezuelan islands

An amendment to the Tourism Law provides that payments in US dollars for tourism services provided to international travelers shall be allowed in Venezuelan islands. (El Universal, http://www.eluniversal.com/economia/141201/foreign-visitors-to-pay-in-usd-in-venezuelan-islands)

 

State-run companies can be monopolies

The government passed an Antitrust Law, aimed at "promoting, protecting and regulating free competition."
Any and all Venezuelan and foreign individuals and private or public corporations and non-profit organizations doing business in Venezuela are governed by the law. People's organizations, state-run companies, strategic joint ventures and public utilities are exempted. This means that monopoly, oligopoly and alike may be practiced only by state-run companies or companies with a State interest. (El Universal, http://www.eluniversal.com/economia/141129/state-run-companies-may-have-the-status-of-monopoly)

 

 

Politics and International Affairs

 

The UN’s Committee against Torture (CAT) expressed concern over claims of torture and mistreatment by Venezuelan authorities against demonstrators during this year’s protests. The claims include beatings, burns and electric shock to obtain confessions. The UN’s body urged the government to thoroughly investigate all the incidents. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=42068&idc=1)

 

And the CAT considers the Venezuelan penitentiary system “a tragedy,” as stated by Alessio Bruni when he commented this UN’s body’s report over prison conditions and the recent death of at least 24 inmates at Uribana by allegedly taking a cocktail of deadly medicines. The Committee against Torture expressed its alarm over reports describing the situation of violence in Venezuelan prisons with 4,791 fatalities since 2004. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=42067&idc=1)

 

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.