January 21, 2016

International Trade

 

Venezuela may have lost around US$ 7 billion due to closure of its border with Colombia

Lady Gómez, an opposition legislator from southwestern Táchira reports that the five months since the Colombia-Venezuela border was closed "have led to a Customs, commercial, and industrial blockade, which has deprived the country stop of tax revenues over US$ 7 billion from border customs...Today, we are witnessing increased smuggling, stopped industry and commerce, and an economic impact against the National Treasury. Formal customs economy, which generates income for the State for the country's development, is being replaced with an informal economy," Gómez explained. (El Universal, http://www.eluniversal.com/economia/160120/usd-7-billion-may-have-been-lost-after-colombia-venezuela-border-closu)

 

Uruguayan farmers, dairy producers protest over Venezuela's debts

Uruguayan milk producers and farmers blocked traffic on Tuesday during an unprecedented demonstration against a generalized raise in taxes and fees, demanding payment of products sold to Venezuela. "There is a trade agreement. The dairy industries sent products to Venezuela, yet money never appeared," Uruguayan dairy producer Marcos Algorta argued. The governments of Uruguayan and Venezuelan Presidents Tabaré Vásquez and Nicolás Maduro, respectively, signed an agreement in 2015 under which Uruguay would pay out oil debts with Venezuela, and Caracas would buy US$ 300 million in food as of December last year. (El Universal, http://www.eluniversal.com/economia/160120/uruguayan-farmers-dairy-producers-protest-over-venezuelas-debts)

 

 

Oil & Energy

 

Venezuela's call for emergency OPEC meet gets doubtful response

Venezuela has requested that OPEC hold an emergency meeting to discuss steps to prop up oil prices, which have fallen to their lowest since 2003, two OPEC sources said on Wednesday. But four other delegates from countries in the Organization of the Petroleum Exporting Countries said such a meeting was unlikely to happen. OPEC's Gulf members including Saudi Arabia have opposed earlier calls for emergency meetings. "Venezuela has requested an extraordinary meeting," said an OPEC delegate from a Middle East member-country. Another OPEC source confirmed that such a request had been made. (Reuters, http://www.reuters.com/article/us-opec-venezuela-idUSKCN0UY1O2; Bloomberg, http://www.bloomberg.com/news/articles/2016-01-20/venezuela-said-to-request-emergency-opec-meeting-amid-oil-slump; El Universal, http://www.eluniversal.com/economia/160120/venezuela-calls-for-emergency-opec-meet-as-oil-prices-keep-dropping)

 

Guyana grants prospecting licenses to oil companies in Essequibo region

Guyana's Ministry of Natural Resources granted a prospecting license to the Tullow Guyana and Eco Atlantic oil companies within the Orinduik block, which is 1,802 square kilometers and is located off the Essequibo coast, a region in dispute with Venezuela. A representative of the ministry added that both oil companies are partners in this agreement, which is initially valid for four years, although it may extend for up to 10 years. The Essequibo region is under UN mediation since the signing of the Agreement of Geneva in 1966, but the dispute heightened when oil giant ExxonMobil found last may oil deposits in waters off the disputed area. (El Universal, http://www.eluniversal.com/economia/160120/guyana-grants-prospecting-licenses-to-oil-companies-in-essequibo-regio)

 

 

Commodities

 

Military strategic command now reports scarcities up to 91% in Western Venezuela

The Strategic Operational Command of the Western Strategic Total Defense Region has reported a survey taken last month which shows scarcities of 59 to 91% in 17 key basic products: Coffee, detergents, sanitary napkins were 91% scarce in visited establishments, the most acute scarcity was reported in the Lara, Falcon, Yaracuy and Zulia states. Beef was 82% short, up to 89% in Falcon state, and 14% in Zulia. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/CEO-reporto-escasez-basicos-occidente_0_778122404.html)

 

Venezuela needs urgent foreign medical aid, pharmaceutical group says

With scores of medicines in short supply due to a severe financial squeeze, Venezuela is suffering a "humanitarian crisis" and requires rapid international assistance, according to a major pharmaceutical association. The Venezuelan Pharmaceutical Federation listed 150 medicines, from those for hypertension to cancer, as well as basics such as prophylactics and antibiotics, which are scarce in the OPEC nation of 29 million people. "The national government must accept we are in a humanitarian crisis in the health sector, with patients dying across our territory for lack of medicines," said association president Freddy Ceballos in a statement. (Reuters, http://www.reuters.com/article/us-venezuela-health-idUSKCN0UY25R)

 

Six canning operations closed down in Sucre state due to lack of tuna

Roger Palacios, Secretary General of the Alimentos Polar Marigüitar labor union, and food area coordinator for the National Workers Union, reports that some 10,000 workers will become unemployed and 6 canning operations in Sucre state will shut down before the month is up. He says the plants need at least 6,000 tons of tuna to process at 25% capacity. “This is the worst scenario for companies in Sucre in the past 18 years, there is no tuna, the fishing fleet is paralyzed, and it is expected ship owners will sell their vessels”. More in Spanish:  (El Nacional, http://www.el-nacional.com/economia/atun-lata-cierre-empresas_0_778722233.html)

 

National Assembly calls on government to meet water supply crisis

A unanimous resolution by the National Assembly has called on the Eco-Socialism and Health Ministries to face the water supply crisis, identify contaminated areas and enact short, medium and long term contingency plans to solve the nationwide supply crisis. The proposal was brought forth by opposition legislator Ylidio de Abreu, of Carabobo state, who reported that over the past 18 years only 2 reservoirs have been built, and asked that water desalinization plants be set up on the coast to ameliorate the problem. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160120/an-insta-al-gobierno-a-paliar-la-crisis-del-agua)

 

 

Economy & Finance

 

Oil rout raises fears of Venezuela debt default

Slumping crude prices have investors bracing for a messy default in Venezuela, where the sovereign and state-owned oil company PDVSA have some US$10 billion in external debt payments due this year. With crude hovering around US$ 28 per barrel, Venezuela - which on Wednesday reportedly requested an emergency OPEC meeting - could have trouble satisfying its obligations. Barclays said the country will have difficulty avoiding a credit event in 2016 - and that is based on the bank's forecast of US$ 37 oil, almost US$ 10 higher than current prices. That sentiment seems to be widely shared in the market, even though President Nicolas Maduro assured the National Assembly last week that Venezuela would continue to pay what it owes. "It is a question of when, not if," said Russ Dallen, a partner at Latinvest in Miami, referring to the possibility of a default. (Reuters, http://www.reuters.com/article/venezuela-bonds-idUSL2N1540UK)

 

U.S. companies likely to take further big hits from Venezuela economic turmoil

A slew of major U.S. corporations is likely to announce in the next few weeks whether they will take big write-downs for their troubled Venezuela operations, and some may say they are leaving the country altogether. The companies may decide to slash the valuations of their businesses and take charges based on declines in some of the oil producing nation’s four exchange rates for the bolivar currency, of which three are official and one black market, and then deconsolidate the operations on their balance sheets, Wall Street securities analysts said. The Reuters analysis shows that U.S. companies with exposure could face total write-downs of more than US$3 billion if they revalue their assets in Venezuela using the less preferential SIMADI exchange rate of nearly 200 bolivars to the dollar. In the past, many companies valued their assets using the main official rate of 6.3 bolivars per dollar. But even that change may not reveal the full extent of the problem given that the black market exchange rate has worsened to about 878 bolivars to the dollar from about 190 bolivars a year ago, according to dolartoday.com, a website that tracks the rate. They may have more reason to accelerate the process after the socialist government on Friday declared a 60-day economic emergency, which would give President Nicolas Maduro wider powers to intervene in companies or limit access to already scarce dollars in Venezuela. GOODYEAR said in recent financial disclosures that a deconsolidation move would trigger a one-time, pre-tax charge of more than US$ 500 million and what it termed “derecognition” of US$ 293 million of cash on its balance sheet. So far, blue-chip companies that have deconsolidated in Venezuela and written off nearly all of their investment there include PROCTER & GAMBLE, PEPSICO and FORD. Among those who have departed altogether is cleaning products maker CLOROX. One major pressure point could be drug companies. ABBOTT, ABBVIE, MERCK, PFIZER and ZOETIS have about US$ 1.8 billion in combined net monetary assets exposed to the bolivar, recent U.S. regulatory filings show. Other companies selling sensitive products, such as baby formula maker MEAD JOHNSON, have had to adjust their practices because of constraints placed by the Venezuelan government on the release of U.S. dollars to repatriate cash back to the United States. Consumer products maker NEWELL RUBBERMAID has been identified by some Wall Street analysts as the next major U.S. company that will likely take action to protect itself from Venezuela's crumbling economy. If NEWELL were to deconsolidate it would take a one-time charge of US$ 111 million, according to company commentary in recent U.S. regulatory filings. Among U.S. companies, OREO cookies and CADBURY chocolate maker has one of the largest remaining exposures to Venezuela, with US $617 million in net assets, according to the Reuters analysis of corporate disclosures. 3M, COLGATE PALMOLIVE and HERBALIFE have at least raised the specter of insulating their financial results from Venezuela. Toy maker MATTEL has said it may consider ceasing operations in Venezuela. (Reuters: http://www.reuters.com/article/us-usa-companies-venezuela-insight-idUSKCN0UX1EM)

 

Council for a Productive Economy sworn in as authorities reject “neoliberal” solutions to crisis

President Nicolas Maduro has sworn in 45 people who will comprise the National Council for a Productive Economy in order to "face the crisis the oil-seeking model is going through and provide shared responses that help develop productive forces," he said. Executive Vice-President Aristóbulo Istúriz and Productive Economy Minister Luis Salas will head the body, whose first working session will take place on Wednesday. Vice-Minister of Investment for Development Simón Zerpa will be in charge of the work agenda. The economic body will be composed of president of the Central Bank of Venezuela (BCV) Nelson Merentes; economists Juan Arias and Rodrigo Cabezas; head of aluminum company Guayana's Venezuelan Corporation (CVG) Justo Noguera Pietri; and the president of CANTV state telecommunications company Manuel Fernández, and includes several business representatives. At the meeting, Vice President Aristobulo Istúriz said the government will avoid a "neoliberal" solutions to the economic crisis, adding that he was confident that the new plan will repair the national economy, which is in an official state of 'emergency'. "We are obliged to build a productive model that allows us to generate wealth and simultaneously maintain and deepen the gains of the people," he told a group of entrepreneurs. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2403786&CategoryId=10717; El Universal, http://www.eluniversal.com/economia/160120/venezuelas-council-of-productive-economy-sworn-in; http://www.eluniversal.com/economia/160120/venezuelas-maduro-lines-to-buy-foodstuffs-are-a-wound-in-social-life)

 

Venezuela: a nation in a state

The price of oil, which provides 95% of Venezuela’s foreign-exchange earnings, has long dictated the popularity of its leaders. The government's income from oil in the year to November 2015 was two-thirds lower than during the same period the year before. The oil price has fallen further since then. With less money coming in and demand for imports still strong, the value of Venezuela's foreign-exchange reserves has dropped alarmingly. A fall during 2015 in the price of gold, of which Venezuela has substantial holdings, has contributed to the decline in reserves. The current oil slump would be painful, whoever was in power. The regime has greatly compounded the damage with policies that, though designed to favor the poor, end up impoverishing them and the state. Price controls—along with the shortage of foreign exchange—have led to acute shortages of basic goods, forcing people to queue for hours to buy necessities. Inflation is officially running at 141% as of September last year (the latest available figure). Analysts believe the true figure is at least 200% a year; some predict hyperinflation in 2016. The massive budget deficit, which the Central Bank finances by printing money, contributes to that risk. The sharp recession is undermining one of the regime's proudest claims: that under its rule Venezuela's poverty has fallen. In January 2016 Maduro appointed a new economics team, but there are doubts about its willingness to tackle the nation's troubles. The minister in overall charge of the economy, Luis Salas, is a left-wing sociologist who, like others in the government, attributes the country's problems to an "economic war". He rejects some basic tenets of conventional economics, for example that printing too much money causes inflation. (The Economist: http://www.economist.com/blogs/graphicdetail/2016/01/graphics-political-and-economic-guide-venezuela)

 

Venezuela paid out US$ 27 billion in foreign debt over 16 months

President Nicolas Maduro has announced that over 16 months, Venezuela has paid US$ 27 billion in principal and interest on the foreign debt. He said the Venezuelan government has complied "first and foremost with the homeland" and also with the obligations of the Republic, which have been met and will continue to be met. (El Universal, http://www.eluniversal.com/economia/160119/venezuela-paid-usd-27-billion-in-foreign-debt-in-16-months; http://www.eluniversal.com/economia/160119/maduro-venezuela-faces-a-crisis-that-threatens-stability)

 

Kenneth Rapoza says Venezuela default imminent, Chavez legacy rests in pieces

Venezuela has been on default watch for months. Its credit rating is already in the gutter, at CCC at Standard & Poor’s. With oil now US$ 20 lower than it was when the S&P made that call, a default is no longer a question of if, but when. A recent emergency economic decree is likely too late to save anyone but president Nicolas Maduro. After two years of inaction and the recent decline in oil prices, Barclays Capital analyst Alejandro Arreaza said a “credit event” in 2016 is “increasingly difficult to avoid.” In other words, oil major PDVSA and the government it bankrolls is going bankrupt. With oil under US$ 30, Venezuela would need to use 90% of PDVSA’s oil export revenue to meet debt obligations to local and foreign creditors. Figures released Wednesday by the Central Bank of Venezuela show that foreign currency reserves were just around US$ 20 billion in the third quarter, but by the end of November they hit just US$ 14 billion, the lowest ever. Net assets are also seen shrinking to around US $24 billion, roughly US$ 10 billion less than a year ago. Considering current oil prices, any reasonable additional import cuts may be insufficient to cover the financing gap. Maduro keeps reiterating his government’s willingness to pay its debts, but his anti-Yankee rhetoric and is hardline against multinationals there makes him hard to believe. The official position shows a lack of understanding of the magnitude and roots of the crisis, making for this default to be the biggest Latin America has seen since Argentina’s in 2001 and its more strategic default on the same debt in 2014. (FORBES: http://www.forbes.com/sites/kenrapoza/2016/01/20/venezuela-default-imminent-chavez-legacy-rests-in-pieces/)

 

Politics and International Affairs

 

Full National Assembly to debate on Economic Emergency decree tomorrow

National Assembly President Henry Ramos Allup announced that the Legislature will hold a full debate on President Maduro’s proposed Economic Emergency Decree in plenary session this Friday, January 22^nd.  According to Venezuelan law, both the Legislature and the Supreme Tribunal have up to 8 days to take a stand on the petition by the Executive. The Supreme Tribunal has promptly declared the proposed decree is “constitutional”. The Assembly is calling in the heads of the Central Bank, SENIAT (tax collection), Foreign Trade Center (CENCOEX), PDVSA and the Nutrition Ministry for questioning in audiences open to the media, The ministers called stalled their scheduled morning appearance to late afternoon today, and sought to have media excluded from the hearings.(El Universal, http://www.eluniversal.com/economia/160120/presidents-of-central-bank-and-pdvsa-summoned-by-parliament; and more in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160120/decreto-de-emergencia-decidira-este-viernes-la-an; El Nacional, http://www.el-nacional.com/economia/Directivos-Seniat-BCV-Cencoex-AN_0_778122317.html; El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/tsj-declara-constitucional-decreto-de-emergencia-e.aspx; AVN; http://www.avn.info.ve/contenido/tsj-declara-constitucional-decreto-emergencia-econ%C3%B3mica; El Nacional, http://www.el-nacional.com/politica/TSJ-constitucional-Decreto-Emergencia-Economica_0_778722295.html)

 

Deputy Guerra says Venezuelan crisis is not due to oil price drop

Opposition Deputy José Guerra, who heads the Committee that is evaluating the Economic Emergency Decree drafted by President Nicolas Maduro, has said that Venezuela’s economic crisis is not due to the fall in oil prices. "This crisis, which began in 2013, is not a consequence of the drop in oil prices, for prices back then stood at US$ 110 per barrel and ended at a high price that year. In January-June 2014, prices hit US$ 101 (per barrel), and the economy tumbled. Plummeting oil prices did not spark off the crisis we are facing today," says Guerra. (El Universal, http://www.eluniversal.com/economia/160120/deputy-guerra-denies-that-venezuelan-crisis-is-due-to-oil-price-drop)

 

Legislator says proposed Economic emergency decree can lead to bank account freeze

Elias Matta, a legislator from the opposition coalition and member of the Special Committee considering President Maduro’s proposed Economic Emergency Decree says article 4 of the decree opens the door to a “corralito” or freeze on private bank accounts. He says the Parliament will assess "why the decree allows the government to manage the remaining balance of Fiscal Year 015 and spend it without the approval of the National Assembly (AN). It is worrisome that items that do not exist in the 2016 budget can be created and spent in any way." (El Universal, http://www.eluniversal.com/economia/160120/deputy-economic-emergency-decree-can-lead-to-bank-account-freeze)

 

FEDECAMARAS says proposed Economic Emergency Decree “can make the situation worse”

Venezuela’s main business federation, FEDECAMARAS says the proposed Economic Emergency Decree “could make the already precarious situation in Venezuelan homes even worse”. It adds that “the government has had and has in its hands legal powers to make the necessary corrections with no need for economic emergency decrees”. FEDECAMARAS says the proposed decree does not face the nation’s economic problems, which require “a thorough economic plan, within an institutional framework that promotes a strong, stable, productive and innovative economy”. (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/fedecamaras-dice-que-la-emergencia-economica--pued.aspx#ixzz3xmPjmPu1)

 

Lopez’ wife and mother report harassment and child abuse during jail visit

Lilian Tintori and Antonieta Mendoza, the wife and mother of jailed opposition leader Leopoldo López, have reported to the special office on gender violence at the Prosecutor General’s office, that they were seriously mistreated in the presence of Lopez’s 3 and 6 year-old children. They report that as they visited the opposition leader at the Ramo Verde military jail near Caracas, they were forced to strip naked and inspected in their intimate parts in the presence of the children, by order of Colonel Viloria. Ms. Tintori told media that “I want an investigation, they should go to Ramo Verde and investigate the military…they should tell all that happened there, demand the videos, there are cameras everywhere in Ramo Verde”. She added that “I don’t trust military authorities at Ramo Verde, the Colonel is an accomplice of Diosdado Cabello (Vice President of the ruling PSUV party and former National Assembly President), the orders come directly from Nicolas Maduro and Diosdado Cabello because this is what we are told at that jail each time we ask where the orders come from”, she said. Ms. Mendoza said that, after being forced to strip in the presence of her grandchildren, two female sergeants “tried to touch” Lopez’ 6 year-old daughter, Manuela. She said López has spoken to his lawyer and “is indignant”, adding that “this happens in other jails”, and this is not an isolated case. More in Spanish: (Infolatam, http://www.infolatam.com/2016/01/21/esposa-de-leopoldo-lopez-denuncia-ante-fiscalia-hostigamiento-en-la-carcel/)

  

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.