February 04, 2016

International Trade

 

Panama seeks to renew negotiations on Venezuela’s debt

Panama is seeking to renew negotiations with Venezuela over the repayment of a multimillion dollar debt by local importers with Panamanian companies, including exporters in the Colón Free Trade Zone. Negotiations over the debt – which is over US$ 1 billion according to official Panamanian data – began in August 2013 and have stretched out for different reasons. Panamanian Trade and Industry Minister Augusto Arosemena reports his government has asked Venezuela’s Finance Ministry to renew talks on repayment. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Panama-reactivar-negociacion-Venezuela-empresas_0_787121326.html)

 

 

Oil & Energy

 

Venezuela has been importing US oil since the second quarter of 2015

Crude oil imports from the United States to Venezuela "is nothing new, because Venezuela has been purchasing light oil since the second quarter of 2015, not only from that country, but also from Nigeria and Algeria," says economist and oil expert Rafael Quiroz. "Regrettably, Venezuela is still dependent on oil (...) If our production declines, we just enter into crisis," he added. Quiroz explained that regular oil production in Venezuela, which is based on light, medium, and heavy oil, "is dropping, and the only production that is growing is that of the oil found in the Orinoco Oil Belt, which is extra heavy”, and said explained that Venezuela does not have enough light oil to mix it with extra heavy oil, which is a required procedure to upgrade and use that heave crude oil. (El Universal, http://www.eluniversal.com/economia/160203/expert-venezuela-imports-oil-since-the-second-quarter-of-2015)

 

Russia's ROSNEFT, Venezuela's oil minister discussed coordination to stabilize oil markets

Igor Sechin, the head of Russia's top oil producer ROSNEFT, and Venezuelan oil minister Eulogio Del Pino have discussed this week possible joint efforts aimed at global oil markets stabilization, ROSNEFT said in a statement. It also said they had discussed cooperation in oil marketing within the existing contracts between ROSNEFT and Venezuela's state-run oil company PDVSA. (Reuters, http://www.reuters.com/article/russia-rosneft-venezuela-idUSR4N15C00R)

 

 

Commodities

 

POLAR reports their corn production is at 100%, other plants are failing

POLAR’s CEO Lorenzo Mendoza reported that POLAR’s corn production is at 100%, but that out of 32 plants nationwide some are down to 0% productivity and “we see supply failures on the horizon which must be resolved by the government by allocating FOREX”. He said paralyzed plants include a tuna producing facility in Mariguitar (Sucre state), the tuna can production plant in Valencia (Carabobo state), which also affects the Yukery fruit juice operation; the Las LLaves soap and detergent plant is also paralyzed. “There are many plants but the list of those out of service is growing and the only thing we are lacking are basic supplies. Some productive facilities are at 30% and 70% capacity, but we seek lack of supplies on the horizon”. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/mendoza-asegura-que-plantas-de-maiz-de-empresas-po.aspx#ixzz3z6JJeVXN)

 

OREO stops tracking Venezuela sales over economic mess

Venezuela's chaotic economy is crushing the company that makes America's best-selling cookies. OREO-maker Mondelez reported US$ 778 million losses on Wednesday from its business in Venezuela. The business climate there is so chaotic that Mondelez said it will continue to sell oreos and other products in Venezuela but has written off that business. In other words, it won't count any of Venezuela sales in its results going forward. Mondelez isn't alone. In October, PEPSI reported US$ 1.4 billion losses in Venezuela and also wrote off its business there, even though it plans to continue selling its drinks and snacks in the country. It's not just snacks and sodas either. FORD, CITIGROUP, ORACLE, IBM and AMERICAN AIRLINES have all noted the tough business climate and their exposure to Venezuela's currency collapse in the past year. (CNN: http://money.cnn.com/2016/02/03/news/economy/venezuela-oreos-mondelez-loss/)

 

Venezuela is unprepared to face “El Niño” climate impact

According to Saúl Salas, coordinator of Venezuela’s Society of Agronomic Engineers, the nation is unprepared to anticipate, prevent and lessen the impact of “El Niño” on agriculture here, and could aggravate food scarcities in the country. He challenged the official claim that scarcities are due to “El Niño”, and said the country has not made proper use of its water due to a lack of public policies and investment in infrastructure such as dams, reservoirs, irrigation systems, and others. He adds that “40% of the population does not receive water on a regular basis”. More in Spanish. (Ultima Hora Digital; http://ultimahoradigital.com/venezuela-no-esta-preparada-para-frenar-impacto-del-fenomeno-el-nino/)

 

 

Economy & Finance

 

Black-market bolivars crash past 1,000 per dollar in Venezuela

Venezuela’s bolivar fell past 1,000 per U.S. dollar in the black market as world’s fastest inflation erodes the value of the nation’s currency. That means that the country’s largest denomination note of 100 bolivars is now worth less than 10 U.S. cents. The currency has declined 16.9% in the past month to 1,003 bolivars per dollar, according to dolartoday.com, a website that tracks trading in street markets where Venezuelans go to skirt limits on foreign-exchange purchases. The government maintains official rates of 6.3, 13.5 and about 200 bolivars per dollar for authorized purchases of items deemed essential. The bolivar is collapsing because the government keeps printing more money and the slump in oil prices means Venezuela is running out of dollars. The amount of cash in circulation or held in bank accounts in Venezuela has doubled from a year earlier, spurring the threat of hyperinflation. The country may face a US$ 38 billion shortfall in its dollar income this year, analysts at Credit Suisse Group AG wrote in a note to clients on Wednesday, meaning a default on government debt is a real possibility this year. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-03/venezuela-bolivar-falls-through-1-000-per-dollar-in-black-market)

 

Inflation-wrought Venezuela orders bank notes by the planeload

Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar. The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals. And the Venezuelan government isn’t finished. In December, the central bank began secret negotiations to order 10 billion more bills, five of these people said, which would effectively double the amount of cash in circulation. (The Wall Street Journal: http://www.wsj.com/articles/inflation-wrought-venezuela-orders-bank-notes-by-the-planeload-1454538101

 

National Productive Economy Council considering FOREX, gasoline and price adjustments

Former Chavez Finance minister Rodrigo Cabezas, who is part of the newly created National Productive Economy Council, says the group is considering matters such as the exchange rate, gasoline price, prices controls and import substitutions, and adds it is essential that the opposition Democratic Unity Conference should put forth it’s proposal for a new economic model. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/cabezas-en-los-proximos-dias-anunciaran-medidas-fi.aspx#ixzz3z6J7Hdld)

 

BOFA fears next economic steps by Venezuela will not be enough

Bank of America/Merrill Lynch expects the government here to take a number of economic steps within the next few days, but believes they could be insufficient to view of the nation’s huge economic imbalances. “We expect the government to announce some economic policy adjustments, including an increase in domestic gasoline prices and an important devaluation in the official exchange rate within the next few days. Although such changes can surprise the market in a positive way, it is unlikely these steps will approach the main economic changes necessary to stabilize Venezuela’s economy”, it said in a report to clients. The report says “incomplete” adjustments will fuel further inflation and that economic contraction will persist until more important economic policy changes are undertaken. More in Spanish:  (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/bank-of-america-teme-que-medidas-para-venezuela-se.aspx#ixzz3zC8PRGjc; Últimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/bank-of-america-teme-que-medidas-para-venezuela-se.aspx)

 

Oil woes could make Venezuela restructure China debt

Venezuela may need to restructure its oil-linked Chinese debt before undertaking any similar move with its international bondholders, BARCLAYS said in a report on Tuesday. The nation is widely believed to be headed for a credit event thanks to the dramatic tumble in oil prices, which has wreaked havoc on the Venezuelan economy. BARCLAYS said Venezuela is falling short of the daily oil shipments to China that it uses to repay loans from Beijing, as the fall in prices has raised the number of barrels needed. At current prices the country needs nearly 800,000 barrels a day to satisfy its loan payment, Barclays said - sharply up from the roughly 228,000 needed when oil was at US$ 100 per barrel.  "A restructuring of Chinese fund debt could be supportive for Venezuela," BARCLAYS analysts wrote. (Reuters, http://www.reuters.com/article/venezuela-debtrenegotiation-china-idUSL2N15H0YZ)

 

Venezuela may have `accidental' default this year, NOMURA says

The absence of decision-making capacity in Venezuela’s government is so acute that the country is likely to default by accident later this year, according to NOMURA International. The country’s cash shortage means it would need to cut imports by US$ 32 billion to almost zero this year in order to avoid running out of money, Siobhan Morden, the head of Latin American fixed-income strategy at NOMURA, wrote in a note to clients. The nation is dependent on imports for most consumer goods and it relies on oil exports to pay for those purchases. Should crude remain below US$ 30 a barrel, Venezuela won’t have enough money to meet the US$ 6.3 billion of bond payments the country and state-owned Petroleos de Venezuela SA have coming due in the second half of the year, according to Morden. She calculates that the minimum breakeven oil price for Venezuela is US$ 65 a barrel. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-02/venezuela-may-have-accidental-default-this-year-nomura-says)

 

POLAR’S Mendoza says the “current crisis can be overcome with private investment”

Lorenzo Mendoza, CEO of POLAR, the nation’s largest food producer, has proposed seven basis steps to restore the nation’s productivity: Renew access to international supplies and basic goods, obtain international financing, bolster domestic production, adjust price controls, make state run companies produce, assist vulnerable groups within the food system, and strengthen agricultural production in staples where Venezuela is competitive.  He adds that in a relatively short time Venezuela can again become self-sufficient in coffee, white corn, cocoa, rice, and sugar, among others. Mendoza said economic affairs in Venezuela are “a disaster”. He says public policies should not exclude social contributions and called for a “market economy” so that all Venezuelans may have equal opportunities according to their ability. He called on companies here to sacrifice and “bring patience” to reconstructing the economy. Mendoza added that Venezuela's economic issues need to be tackled in a transparent manner, focusing on plummeting agriculture production, hurdles to imports, and the search for new funding sources. He stressed that there are excellent farmers in the states of Portuguesa, Guárico, Aragua, Cojedes, Barinas, and Anzoátegui who used to provide Polar with large amounts of corn, one of the main raw materials the company requires. "All that went downhill and nowadays, almost 40% of the corn consumed has to be imported. We depend on imports carried out by the State," he commented. The government’s Planning and Knowledge Minister Ricardo Menéndez quickly retorted that Mendoza had not been included in the National Productive Economy Council because “he has a double standard.” (El Universal, http://www.eluniversal.com/economia/160203/ceo-of-polar-highlights-importance-of-venezuelan-farmers); and more in Spanish:  (El Universal, http://www.eluniversal.com/economia/160203/la-actual-crisis-se-supera-con-inversion-privada; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/lorenzo-mendoza-presento-propuestas.aspx; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/menendez-al-consejo-de-economia-fueron-invitados-a.aspx#ixzz3zCA3FAzN; El Nacional, http://www.el-nacional.com/economia/Mendoza-tiempo-ciudadano-quiere-comida_0_786521561.html; http://www.el-nacional.com/economia/Lorenzo-Mendoza-propone-economia-mercados_0_787121469.html)

 

 

Politics and International Affairs

 

Former Chavez ministers seek probe into US$ 300 billion in lost oil revenue

Two former cabinet ministers under late President Hugo Chavez are seeking an investigation to trace the fate of some US$ 300 billion allegedly embezzled during the past decade through a complex currency control system. Hector Navarro, who ran five ministries under Chavez's rule, will ask a state ethics council to review the operations of the 13-year-old exchange control mechanism that opposition leaders have described as a "corruption machine." Navarro and Jorge Giordani, a former finance minister who was Chavez's closest economic adviser during his 14-year rule, have made calculations showing the government cannot account for how it spent nearly a third of the US$ 1 trillion that entered its coffers in the past decade.  "A gang was created that was only interested in getting their hands on financial resources, on (the country's) oil revenue," Navarro, who helped found the ruling Socialist Party but was expelled in 2014, said in an interview. "Thieves have no ideology," said Navarro, who continues to describe himself as a revolutionary despite his open criticism of the ruling party.  He did not elaborate on who was responsible for the funds having gone missing and or who might have embezzled them.  Navarro and Giordani are seeking an investigation by an agency known as the Republican Moral Council, which is made up of the chief prosecutor, the state ombudsman and the national comptroller. The three are widely considered to be close to the ruling Socialists. Opposition leaders have echoed many of Navarro and Giordani's criticism but also have pilloried them for helping create and maintain the state-led economic model that is now struggling with soaring inflation and chronic product shortages. (Reuters: http://www.reuters.com/article/us-venezuela-politics-idUSKCN0VB26F)

 

Economic authorities fail to appear in Congress

The authorities of the Central Bank of Venezuela (BCV), National Center for Foreign Trade (CENCOEX), and the Finance Ministry have again failed to appear at the National Assembly (AN). The Standing Committee on Foreign Policy of the Assembly reported that these authorities requested their visits to be rescheduled, without providing further details. The purpose of their appearance was to discuss the delays in the delivery of FOREX to Venezuelan students abroad, who have complained about this situation for the past few years. (El Universal, http://www.eluniversal.com/nacional-y-politica/160203/venezuelan-economic-authorities-fail-to-appear-in-congress)

 

National Assembly rejects tax proposal by SENIAT

The National Assembly’s Finance Committee has rejected a request by the SENIAT tax authority to adjust the Tax Unit used for measuring taxes, rates and fines at 177 VEB. Committee Chairman Alfonso Marquina said the proposal was sent back because it does not comply with the rules set for establishing the Tax Unit, which requires an official publication of inflation and price indexes for the entire 2015, by the Central Bank and the National Statistics bureau. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/an-devuelve-al-seniat-propuesta-para-nueva-tasa-de.aspx#ixzz3zC9pCSLH)

 

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.