February 02, 2016

International Trade

 

Venezuela, Brazil talk about reviving bilateral trade

Foreign Minister Delcy Rodríguez has met with her Brazilian counterpart Mauro Vieira to request his country’s help in overcoming the "emergency" the Venezuelan economy is going through. In press conference where questions were not allowed, both ministers said they would discuss several agreements to re-establish bilateral trade, which decreased US$ 3.7 billion in 2015 from around US$ 5 billion annually some years ago.
In Vieira's view, "there has been a significant drop in recent years" in bilateral trade, and said Brazil is willing to assess methods to revive it. (El Universal, http://www.eluniversal.com/economia/160201/venezuela-brazil-to-revive-bilateral-trade)

 

Oversized pieces come to Puerto la Cruz refinery

A total of eleven oversized pieces were offloaded at the Guanta port in Anzoategui state, to be used in the expansion of the Puerto la Cruz refinery. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/llegan-piezas-sobredimensionadas-para-refineria-de.aspx#ixzz3yuXzo7tJ)

 

Cargo that has arrived at Puerto Cabello:

• 30.000 tons of rice

More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/llegan-piezas-sobredimensionadas-para-refineria-de.aspx#ixzz3yuXzo7tJ)

 

Cargo that has arrived at La Guaira:

13 vessels have arrived at the various ports of the country with containerized goods such as food, medicines and hygiene products. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/llegan-piezas-sobredimensionadas-para-refineria-de.aspx#ixzz3yuXzo7tJ)

 

 

Oil & Energy

 

Venezuela tries to convince oil nations to cut production

Venezuela’s Oil Minister Eulogio Del Pino faces an uphill battle persuading Russia and Saudi Arabia to cooperate in cutting oil production amid a supply glut that has pushed prices down more than 30% in the past year. Concern that U.S. shale producers would benefit from any increase in prices after a potential cut is one factor that may keep Saudi Arabia and Russia from agreeing to reduce output. Iran’s plan to boost crude exports now that sanctions have ended is another complication. Del Pino is to meet Russian Energy Minister Alexander Novak in Moscow Monday before traveling to Qatar, Iran and Saudi Arabia, the world’s largest oil exporter. “There’s a minimal chance the Venezuelans will get them to agree to anything,” Robin Mills, chief executive officer of Dubai-based oil consultant Qamar Energy, said by phone on Sunday. “I don’t think the conditions are there for an agreement.” (Bloomberg, http://www.bloomberg.com/news/articles/2016-01-31/venezuela-seen-facing-uphill-battle-getting-oil-nations-to-cut; Reuters, http://www.reuters.com/article/us-opec-venezuela-idUSKCN0V72RD; El Universal, http://www.eluniversal.com/economia/160201/venezuela-russia-discuss-downward-trend-in-oil-prices)

 

Venezuela oil price bounces off 14-year low

The price Venezuela receives for its mix of heavy oil bounced this week as prices around the world rose on prospects of talks on coordinated cuts between OPEC and Russia. According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending January 29 was US$ 24.16, up US$ 2.53 from the previous week's US$ 21.63. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2404596&CategoryId=10717)

 

 

Commodities

 

Pharmaceutical Federation head seeks WHO help in providing medicines

Freddy Ceballos, President of Venezuela’s Pharmaceutical Federation, has asked the World Health Organization (WHO) and other international organizations to send medicine here and says the government should not oppose receiving such “humanitarian assistance”. “Patients are dying due to the humanitarian crisis we are going through”, he says, and estimates scarcities in medicine are around 80%, adding that the government owes the industry “around US$ 4 billion.” Venezuela lacks 70% of the 150 medicines identified by the WHO for mandatory access. Las month Health Minister Luisana Melo said scarcities are due “to irrational use of medication”” More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/01/gremio-farmaceutico-venezolano-pide-a-oms-el-envio-de-medicinas/)

 

10% drop in food production reported

Venezuela’s Food Industry Chamber (CAVIDEA) reports production by affiliate companies has dropped 10% over the past 4 months due to lack of FOREX, default by local industry on their debts to foreign providers, prize freezes and lower labor productivity. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/negocios/empresas/cavidea-reporta-10--de-caida-en-la-produccion-de-a.aspx#ixzz3ycuKo4MC; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/cavidea-reporta-10-de-caida-en-la-produccion-de-al.aspx; El Nacional, http://www.el-nacional.com/economia/Agroindustria-crisis-paralizada-produccion-alimenticios_0_783521901.html

 

Venezuela produces only 30% of the beef it consumes

Ramón García, President of the National Farm and Cattle Producer’s Association (CONFAGAN) reports the nation is producing 4 million liters of milk daily out of the 10 million it needs; and also says in the best case it produces only 30% of the 640,000 tons it needs domestically. More in Spanish: (Ultima Hora Digital; http://ultimahoradigital.com/el-pais-produce-30-de-la-carne-que-se-consume/)

 

Governor Falcón proposes reverting expropriations

Lara State Governor Henri Falcón has asked President Nicolás Maduro to revert expropriation of companies and farms that have not been productive, He mentioned AGROISLEÑA as an example of a company that had over 60 branches nationwide and provided financing to over 20,000 farmers, and guaranteed 70% of all inputs for agriculture. He adds that in Lara state the government took over more than 130 farms, for more than 11,789 hectares, which grew over 1.7 million tons of sugar cane, for 60% of the nation’s total production – “and are now down to under 20%”, More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160201/gobernador-falcon-plantea-revertir-las-expropiaciones)

 

 

Economy & Finance

 

Venezuela is on the brink of a complete collapse

The only question now is whether Venezuela's government or economy will completely collapse first. Both are well into their death throes. Indeed, Venezuela's ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it's hard to see that getting any better for them any time soon—or ever. Incumbents, after all, don't tend to do too well when, according to the International Monetary Fund, their economy shrinks 10% one year, another 6% the next, and inflation explodes to 720%. It's no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt. How? Well, a combination of bad luck and worse policies. Chavez turned the state-owned oil company from being professionally-run to being barely run. People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn't go in. Specifically, oil production fell 25% between 1999 and 2013. Even triple-digit oil prices weren't enough to keep Venezuela out of the red when it was spending more on its people but producing less crude. So it did what all poorly-run states do when the money runs out: it printed some more. The result of all this money-printing is that Venezuela's currency has, by black market rates, lost 93% of its value in the last two years. The idea was that it could stop inflation without having to stop printing money by telling businesses what they were allowed to charge, and then giving them dollars on cheap enough terms that they could actually afford to sell at those prices. The problem with that idea is that it's not profitable for unsubsidized companies to stock their shelves, and not profitable enough for subsidized ones to do so either when they can just sell their dollars in the black market instead of using them to import things. That's left Venezuela's supermarkets without enough food, its breweries without enough hops to make beer, and its factories without enough pulp to produce toilet paper. The only thing Venezuela is well-supplied with are lines. And it's only going to get worse because Socialist president Nicolas Maduro has changed the law so the opposition-controlled National Assembly can't remove the central bank governor or appoint a new one. Not only that, but Maduro has picked someone who doesn't even believe there's such a thing as inflation to be the country's economic czar. "When a person goes to a shop and finds that prices have gone up," the new minister wrote, "they are not in the presence of 'inflation,'" but rather "parasitic" businesses that are trying to push up profits as much as possible. If past hyperinflations are any guide, this will keep going until Venezuela can't even afford to run its printing presses anymore—unless Maduro gets kicked out first. (The Washington Post: https://www.washingtonpost.com/news/wonk/wp/2016/01/29/venezuela-is-on-the-brink-of-a-complete-collapse/)

 

The coming mess in Venezuelan debt

Venezuela has a large debt stock of about US$ 125 billion, with about a quarter of that coming due in the next few years. A payment of US$ 10 billion is due this year. Some estimates suggest that because of low oil prices, Venezuela will raise only about US$ 20 billion from oil sales this year. Half of that money is already pledged to bondholders, so the country will continue to struggle to balance its budget, especially given that the budget was not balanced even when the price of oil was at US$ 100 a barrel. Compounding financial woes, inflation in Venezuela is rather high, to put it mildly. The minister of the economy, Luis Salas, declared an "economic state of emergency" as Venezuela struggled with falling oil prices and a worsening crisis at home. According to the data service provider MARKIT, spreads on credit default swaps on Venezuela were trading north of 6,200 basis points last week, as compared with about 19 basis points for the United States or even 1,100 basis points for Greece. No wonder the country’s debt is trading at a big discount to face value. The question is, how can Venezuela buy itself some time? A workout with its creditors would seem to be a good start, but there will be challenges. First, the debt has been issued both by the country and by the state-controlled oil company. That sets up the potential for inter-creditor disputes about who should get paid when, and who should suffer when the debt is restructured. Second, it has been reported that the outstanding debt does not contain “collective action clauses.” Because Venezuela’s debt lacks these clauses, any workout is subject to being sideswiped by litigation in New York. And that might make bondholders hesitant to work with Venezuela in the first place. Why agree to take a “haircut” if some other bondholder will get more by litigating? And the country has some assets outside the country, especially those tied to oil production, that might make litigation even more attractive than it was in the case of Argentina. Finally, it all comes back to politics. Venezuela is now a split country, with the president from one party and the Legislature from another. If there is going to be a deal with bondholders, they will have to work together. That seems unlikely. In short, it sure seems like we are heading for a mess. (The New York Times, http://www.nytimes.com/2016/01/29/business/dealbook/the-coming-mess-in-venezuelan-debt.html?_r=2)

 

Economic Council: Venezuela needs international funding

Foreign funding and tax reform are the two main steps that must be taken to change the characteristics of the current economic situation in Venezuela, says the head of the National Economic Council, Efraín Velásquez. "The issues of FOREX unification, fuel, among others are secondary, for they will have no real effect if implemented before these two (measures)," he explained. "We need a credible and sustainable economic strategy (...) (Currency) devaluation is unavoidable," he added. Velázquez further said the country's problem is related to foreign funding. In this sense, he pointed out that Venezuela must pay the debt with international suppliers, resume bilateral relations with all countries that may cooperate "in this funding process," and turn to international markets "presenting our funding needs." Should this fail, "the International Monetary System has an ultimate lender, which is the Monetary Fund." (El Universal, http://www.eluniversal.com/economia/160201/economy-council-venezuela-needs-international-funding)

 

Agriculture Minister says the situation of expropriated estates is under revision

The issue of estates expropriated by the government is under revision, says Minister of Agriculture Production and Lands Wilmar Castro Soteldo. "Livestock was more hit by seizures: some for strategic reasons, and some others I will not mention. Most of them are under revision and legal procedures," the minister added. Castro further recalled that President Nicolas Maduro has instructed authorities to track the status of such estates. "Those seizures were not monitored in technical terms, which led to shortage of spare parts and consumables required to exploit them properly." (El Universal, http://www.eluniversal.com/economia/160201/castro-soteldo-situation-of-expropriated-estates-is-under-revision)

 

In an effort to drain liquidity in the market, the Venezuelan Central Bank (BCV) placed Bs.15 billion in extraordinary buyout operations last Friday, January 29. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46824&idc=2; El Universal, http://www.eluniversal.com/economia/160201/venezuelan-central-bank-drains-veb-15-billion-in-liquidity)

 

 

Politics and International Affairs

 

Venezuelan opposition ups efforts to oust President Maduro

Venezuela's newly empowered opposition is intensifying efforts to find a legal means to oust President Nicolas Maduro, whose mandate runs until 2019. The opposition MUD party thrashed Maduro's socialists in December's parliamentary election, winning 112 of the 167 National Assembly seats - giving it a constitutional majority. But Maduro maneuvered to have three of the MUD legislators suspended for possible electoral fraud. The move was backed by Venezuela's Supreme Court, which is packed with loyalists to the late socialist President Hugo Chavez. Stripped of a straightforward path to removing Maduro, the opposition is searching for other constitutional or legislative means, as the country's economic turmoil continues to deepen. "Someone said we should let the government finish its term so it can stew in its own juice," the opposition speaker of congress, Henry Ramos Allup said. "That would be irresponsible." Options for the multi-faction opposition include demanding Maduro's resignation, forcing a recall referendum, which is allowed half-way through his term, or reforming the constitution to trigger a new presidential election. Maduro is not likely to resign, and for now the opposition is short of their constitutional majority. A recall referendum appears to be their best bet, as Maduro will reach the half-way point of his six-year term in April. "I don't want this to last three more years, going from bad to worse," Ramos said. "If you can treat an illness before it kills you, then you obviously apply the treatment." Former presidential candidate Henrique Capriles believes Venezuela's opposition must define within weeks its strategy for ending Nicolas Maduro's presidency. Options for the multi-faction coalition include demanding his resignation, forcing a recall referendum as allowed half-way through his term, or reforming the constitution to trigger a new presidential election. "We have to find a common position. The clock is ticking ... We can't wait longer than the first quarter," Capriles says. A recall referendum is not without pitfalls, as the Maduro-backed judiciary and electoral institutions could delay the process into 2017, paving the way for his vice president to take over rather than there being a new election if he lost the vote of confidence. (Reuters, http://www.reuters.com/article/us-venezuela-politics-capriles-idUSKCN0V71PD; Deutsche Welle, http://www.dw.com/en/venezuelan-opposition-ups-efforts-to-oust-president-maduro/a-19013650)

 

Economic and political crises will collide in the second half of 2016

With Venezuela’s oil basket now trading at around $20 per barrel and economic distortions growing, the government will announce changes to the foreign exchange regime and a hike in the gasoline price, along with other measures aimed at increasing local production and exports. This is similar to the strategy employed by the government in the past, but is less sustainable in the current economic reality.  Even if there is a debate about the best path forward, none of the groups within chavismo is advocating for major changes to the country’s price or foreign exchange controls. Instead, the debate is between a light adjustment - FX devaluation and simplification, along with a gradual gasoline price hike versus a continuation of the current policy mix and a deepening of controls. However, the principal problem facing the economy is a dire lack of foreign exchange (oil exports fell by around 50% in 2015, with income falling from US$ 65 billion in 2014 to $US 35 billion in 2015, according to ECOANALITICA). Moreover, its impact will likely be eroded relatively quickly by inflation, which is already running at around 275% according to the IMF, and is unlikely to diminish as long as the government continues printing money. The government will however, continue to pay for as long as it can, which includes the February maturities (US$ 2.3 billion between PDVSA and the sovereign).  Thus the government will continue to liquidate assets in order to service debt until they can’t. To this end, the government is reportedly shipping gold reserves out of the country to conduct more swaps (they had US$ 11 billion in gold as of end November, according to the central bank). The government also has US$ 4 billion in its off-budget funds, according to ECOANALITICA, and US$ 15.5 billion in reserves overall. The IMF SDR reserve balance is now just US$ 800 million (from a total allocation of US$ 3.6 billion) and there are no other PETROCARIBE members who could execute a debt-buy back that would have a significant impact. A CITGO sale is unlikely to generate significant amounts of cash given its own debts and the government is unlikely to receive fresh loans from China, given their frustration with Maduro and their own shifting priorities. The timing and nature of a credit event will also be shaped by political dynamics, which are on their own collision course that looks likely to culminate in the second half of the year. (The Eurasia Group: http://www.eurasiagroup.net/)

 

Maduro insists on the Supreme Court as arbitrator to resolve conflicts

President Nicolas Maduro said he only recognizes the authority of the Supreme Court (TSJ) as an arbitrator to resolve conflicts in the country, as he lauded efforts towards building an “independent” justice system. “There is only one power for arbitrating all conflicts and tensions that come up, only one that I recognize as head of the state – the TSJ,” Maduro said at the opening session of Judicial Year 2016. He also lauded the “enormous effort” towards creating a truly independent judicial power. Judicial power “must be independent from the economic powers, from the bourgeois republic, from corruption, transnational companies,” Maduro explained. During the same event, TSJ head Gladys Gutierrez said: “Supremacy by definition excludes the possibility of challenging a superior body, thus the Supreme Court has full power to review the actions of other constitutional bodies.” Gutierrez’s stress on the powers of the judicial body comes as it gears up for a year of confrontations with the parliament, which, since it came to be controlled by the opposition from Jan. 6, has questioned the independence of the highest court and the Executive. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2404587&CategoryId=10717)

 

Latin America shows no sympathy for Venezuela

When Venezuela's head of state arrived in Quito, Ecuador, last week for the Community of Latin American and Caribbean States summit, his pitch was almost unrecognizable. Gone were the encomiums to 21st-century socialism and the late President Hugo Chavez's set-piece barbs against yanqui imperialism. In their place were contrition and beseeching. "Venezuela is in a very difficult situation; I've come to hold a series of meetings with our brother countries, brother presidents," President Nicolas Maduro said on Jan. 27, prior to the opening of the regional meeting. "I've come to propose a series of possible measures for Latin America to respond to Venezuela's economic emergency, to boost free trade, to increase complementarity and solidarity."  Later that day, Maduro enjoined leaders to embrace "a common plan" to confront "the current economic crisis" facing the region, but there was little doubt which country he wanted embraced. (Bloomberg, http://www.bloombergview.com/articles/2016-02-01/latin-america-shows-no-sympathy-for-venezuela)

 

Venezuela’s Ambassador to the UN Rafael Ramírez says he is not concerned over the possibility of being indicted as part of the US investigations on an alleged bribe of over US$ 1 billion that would have taken place at PDVSA while he chaired it. He discarded cooperating with the American authorities. Ramírez has just taken over as President of the UN Security Council. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46836&idc=4)

 

79% of Venezuelans polled believe their conditions worsened during 2015

According to pro regime polling firm HINTERLACES 79% of all Venezuela polled believe they were worse off in 2015 than in 2014, and only 15% say it has improved. 28% believe the situation is “very serious”, 25% say it is “serious” and 43% consider it “serious but can be overcome”.  More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/01/un-79-de-venezolanos-cree-que-su-situacion-empeoro-en-2015-segun-encuesta/)

 

Colombia investigates reported border incursion by Venezuelan armed forces

The government of Colombia is investigating a reported entry of a Venezuelan Armed Forces patrol in Arauca department, says that nation’s Foreign Ministry, which reports that have made contact with Venezuelan authorities to clear up what happened. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160201/colombia-investiga-presunta-incursion-de-fanb)

 

 

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.