February 23, 2016

International Trade

 

Imports shrank 18.7% during 2015, according to official data

The Central Bank reports that imports into Venezuela dropped to US$ 38.624 billion in 2015, down 18.7% from US$ 47.506 billion in 2014. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/bcv--importaciones-cayeron-18-7--en-2015.aspx#ixzz40bjcqxHM)

 

Reduced port activity hurts the economy

The Puerto Cabello Chamber of Commerce reports all areas connected to port activity are in critical condition, reducing expenditures. Warehouses, including those controlled by the state, do not have much cargo and there are many paralyzed transportation units due to a drop in merchandise and high operating costs. Customs agents are struggling to meet payrolls and fixes costs; shipping agencies, stevedores, machinery operators and others are in the same situation. More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Escasa-actividad-portuaria-golpea-economia-nacional-2619693/2016/02/22/894492/; El Universal, http://www.eluniversal.com/economia/160222/comerciantes-de-puerto-cabello-advierten-que-medidas-agudizan-la-crisi)

 

 

Oil & Energy

 

Venezuela sending new proposals to OPEC, non-OPEC producers; hopes freeze could boost oil prices by $10-$15

Venezuela is sending new proposals to leaders of OPEC and non-OPEC countries to stabilize the oil market, says President Nicolas Maduro, without providing details. The latest move by Venezuela comes days after Saudi Arabia, Russia, Qatar and this agreed to freeze output at January levels if others joined in. Iran welcomed the move but stopped short of pledging to act itself and it is unclear whether the freeze will actually happen.  The four countries have agreed to monitor the oil market through June and could take additional measures if needed, added Oil Minister Eulogio Del Pino, who also said a deal to freeze oil production could help buoy depressed crude prices by US$ 10 to US$ 15 dollars a barrel, calling on OPEC and non-OPEC countries to join the agreement. "This (deal) will help reach an equilibrium price… We estimate that there will be a recovery around the middle of the year of some US$ 10, US$ 15 dollars, it's not convenient that oil return to over US$ 100 because then that produces a cycle of falls." (Reuters, http://www.reuters.com/article/us-opec-venezuela-idUSKCN0VS2PY; http://www.reuters.com/article/us-opec-venezuela-idUSKCN0VV1EG; Bloomberg, http://www.bloomberg.com/news/articles/2016-02-19/opec-s-weakest-link-venezuela-finally-sees-payoff-in-oil-freeze)

 

The global story behind Venezuela's 6,000% gas hike

Already dealing with triple-digit inflation, Venezuelans have just been hit with about a 6,000% hike in gasoline prices and a 37% currency devaluation. Venezuelans will still pay next to nothing for gas, but the move highlights just how badly the country has been hit by a collapse in global oil prices. Now that Iranian oil exports are growing, following the lifting of international sanctions last month, and Iraq is cranking up output, there are fears that the continued oversupply could worsen and push prices as low as US$ 10, even as oil-rich nations look to freeze production and stabilize prices. Capping output probably won't do much to lift oil prices, and it certainly won't be enough to save the Venezuelan economy. The gasoline price hike is expected to save the cash-strapped government US$ 800 million a year in subsidies, the BBC reported. It’s also hoped the currency devaluation will boost demand for Venezuelan exports by making them cheaper for foreign buyers. But analysts say the measures fall well short of what is needed to revamp the economy, which has been severely weakened by years of mismanagement and is now being pushed to the brink of collapse by plunging oil prices. (Global Post: http://www.globalpost.com/article/6734866/2016/02/18/venezuela-just-hiked-gasoline-prices-6000)

 

Venezuela oil price jumps but stays below US$ 25

The price Venezuela receives for its mix of heavy oil jumped 5% this week as prices around the world rose on announcements of agreements in principle between some OPEC members and non-OPEC members like Russia to freeze oil production at January levels. According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by PDVSA during the week ending February 19 was US$ 24.03, up US$ 1.20 from the previous week's US$ 22.83. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406053&CategoryId=10717)

 

ROSNEFT signs agreement with PDVSA to produce gas in Venezuela

Russia's top oil producer ROSNEFT and Venezuela's state oil company PDVSA signed an agreement to set up a joint venture to develop natural gas here, ROSNEFT said. Each firm will have a 50% share in the venture, which with develop three offshore fields. "The gas production at the three fields is expected to be up to 25 million cubic meters per day (9 billion cubic meters a year), providing the potential to develop the world-class, export-oriented pipeline or LNG project", ROSNEFT said in a statement. (Reuters, http://www.reuters.com/article/us-rosneft-pdvsa-gas-idUSKCN0VT0KQ; Bloomberg, http://www.bloomberg.com/news/articles/2016-02-20/rosneft-to-pay-500-million-to-boost-stake-in-venezuela-venture; El Universal, http://www.eluniversal.com/economia/160222/pdvsa-to-earn-usd-500-million-under-agreement-with-rosneft)

 

Venezuela said to consider Aruba refinery to upgrade heavy oil

State oil company Petroleos de Venezuela (PDVSA) is said to be looking into leasing the Aruba refinery, where it would ship tar-like oil to be upgraded into higher value synthetic crude rather than produce fuels like gasoline. PDVSA, through its U.S. subsidiary CITGO Petroleum Corp., is in talks with the Aruba government to lease the refinery, according to an Aruba government official who isn’t authorized to speak publicly. The plan is being considered as cash-strapped PDVSA doesn’t have the financial resources to build the oil upgraders that it needs to turn its asphalt-like crude into a product that refineries can process. The last upgraders were put into operation in the early 2000s. The country owns four of them in partnership with firms like TOTAL and CHEVRON. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-19/venezuela-said-to-consider-aruba-refinery-to-upgrade-heavy-oil)

 

The specter of PDVSA bankruptcy is haunting Venezuela

Before 2016 is out, PDVSA may be forced to file for bankruptcy. Bond markets have just about concluded PDVSA will not make its October bond payments. With some PDVSA bonds now yielding north of 130%, it’s a foregone conclusion: barring a dramatic surge in oil prices, PDVSA will default. PDVSA bonds have no Collective Action Clauses, and without “bankruptcy protection”, a corporate default would soon turn disorderly. Different creditors would make bids to seize various bits of the corporation’s assets haphazardly, some might seek to get its bank accounts frozen, soon, the company wouldn’t be able to operate at all. Come October, PDVSA could easily find itself in a situation where it’s impossible for it to transact or operate outside Venezuela’s borders: its shipments and refineries seized, its bank accounts frozen, the legal and financial infrastructure of a large transnational corporation jammed. PDVSA now appears to be actively taking steps to sidestep this fate. The government could try to shield PDVSA’s assets from creditors by just shifting them to a new corporate shell – a military shell in this case. If PDVSA is found to be hiding and transferring assets to avoid debt collection it could even accelerate the maturity of some of the rest of its financial debt. In theory, any transfer done to defraud creditors could be declared void by a judge. The most likely outcome would appear to be a series of enormously complex, costly, long-running legal battles across multiple jurisdictions with contradictory or unenforceable rulings that will leave Venezuela’s oil industry operating under an impenetrable cloud of legal uncertainty long into the future. (Caracas Chronicles: http://caracaschronicles.com/2016/02/15/pdvsa/)

 

 

Economy & Finance

 

Venezuela’s reserves crash to new 13-year low, gold reserves going to Switzerland

Venezuela’s Central Bank Reserves crashed almost half a billion dollars to a new 13-year low on Friday as the country continued making February payments of US$ 2.3 billion on Venezuela and state-owned oil company Petroleos de Venezuela, S.A. (PDVSA) debt.  According to the Central Bank (BCV), Venezuela’s reserves fell US$ 472 million just on Friday, February 19 to US$ 14.563 billion.  That is the lowest the country’s reserves have been since 2003 when a nationwide strike against then-President Hugo Chavez brought oil production almost to a standstill. Venezuela’s reserves have fallen US$ 1.798 billion in just the 7 weeks since January 1. The latest half-billion withdrawal appears to be the first of several as Venezuela liquidates and/or mortgages its gold to pay the US$ 10 billion that it owes this year in dollar bond debt. Today, Venezuela had to pay US$ 191 million for the huge 12.75% semi-annual coupon on its US$ 3 billion Venezuela 12.75% of August 23, 2022.  On Friday, Venezuela must pay US$ 1.543 billion for interest and the maturity of its US$ 1.5 billion Venezuela 5.75% of February 26, 2016. According to import statistics provided by Switzerland, Venezuela exported 35.835 kilograms of gold to Zurich in January. The valuation of US$ 1.28 billion provided by the Swiss Federal Customs Administration means that it had to be gold reserve quality gold bars of close to 99.5% purity.  In addition, according to the Swiss, Venezuela shipped 23,955 kilograms of gold worth US$ 851.4 million to Zurich from September to December.  According to the BCV, Venezuela had US$ 10.97 billion worth of gold in reserves at the end of November after starting 2015 with US$ 14.5 billion. (Latin American Herald Tribune: http://www.laht.com/article.asp?CategoryId=10717&ArticleId=2402656)

 

China denies Venezuela relief on debt payments

Concerned over the instability of the Maduro regime, the Chinese government is refusing to agree to a request by Venezuela for a grace period in servicing its massive debt. Sources familiar with the secret conversations say China is instead insisting that Venezuela increase the volume of oil it sends to pay for close to US$ 45 billion the regime has with them through several agreements. The Chinese delegation visiting Caracas said the increase in volume is needed since current oil dispatches do not meet stipulated payment terms due to the drop in oil prices. Besides their concern over the amount of crude Venezuela is sending, the Chinese delegation expressed other concerns: “They asked insistently about the chances for regime change”, reported one of the sources. More in Spanish: (El Nuevo Herald: http://www.elnuevoherald.com/noticias/mundo/america-latina/venezuela-es/article61365157.html)

 

A default is becoming hard to avoid

Whenever someone questions Venezuela’s creditworthiness, President Nicolas Maduro, retorts that his government has never missed a debt payment and never will. Creditors are demanding a handsome reward for their trust in that promise. The yield on Venezuela’s dollar bond that matures in 2020 is 37%. Bondholders’ faith will soon be tested. On February 26th Venezuela is due to pay US$ 2.3 billion, mainly to hedge funds and investors that specialize in emerging-market debt. There is little doubt that it will make the payment. After that, the risk of a default on Venezuela’s remaining US$ 64 billion of foreign-currency denominated bonds will rise sharply. In the second half of 2016 the government of Venezuela and PDVSA, the state-owned oil company, are due to pay US $6 billion to creditors. With Venezuela’s heavy oil, virtually its only export, selling for as little as US$ 25 a barrel, the country’s main source of foreign currency is drying up. (The Economist: http://www.economist.com/news/americas/21693273-default-becoming-hard-avoid-praying-pay)

 

Market calls for 'regime change' in Venezuela

Maduro’s recent solution to the crisis was more of a “damn yankee” blame game. And an attempt to buy support from the country’s ever increasing poor population. “President Maduro needs to honestly admit the main sources of the economic crisis as the first step to resolve the crisis. The crux of the problem is the interventionism and regulation with the Maduro administration reluctant to embrace market flexibility,” says Siobhan Morden, a head of Latin America fixed income at NOMURA Securities in New York. “The changes to the economic team and the initial announcements just do not show sufficient political commitment. The worsening economic crisis should increase prospects of regime change.” (Forbes: http://www.forbes.com/sites/kenrapoza/2016/02/22/market-calls-for-regime-change-in-venezuela/#4b88679112fa)

 

Venezuela bond due in a week offers quick gains for risk takers

Traders who buy Venezuela’s bonds due next week may be in store for a 3.4% profit in a week’s time. Holders of the US$ 1.5 billion of sovereign notes are asking for a price of 96.7 cents on the dollar even as analysts say the country has enough money to pay off the securities coming due Feb. 26. It may seem like an attractive bet for anyone willing to stomach the risk. Economists and analysts from BARCLAYS to CITIGROUP agree that Venezuela is skidding toward a default because it depends on oil sales for almost all its hard currency needs and is suffering a dollar shortage. Most predict the country is likely to make good on its obligations next week and stop payments only in October or November when bonds from the state oil company come due. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-19/venezuela-bonds-due-in-a-week-offers-quick-gains-for-risk-takers)

 

Business says new FOREX system does not promote domestic production

Francisco Martínez, president of the nation’s main business federation, FEDECÁMARAS, says that reducing foreign exchange rates from three to two does not change the situation. He points out that with such a large difference between the two tiers “price distortions are not corrected and more speculation is caused”. Martínez says President Maduro’s recent speech did not answer many questions: “He did not speak about debts to foreign suppliers. We do not know if repayment will be at 6.30 to the dollar, or go up to 10 to the dollar”. If so, he warned, “the impact would create huge losses for companies not able to meet (the new rate)”. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Nuevo-sistema-cambiario-impulsa-produccion_0_796120671.html)

 

Industry warns production is being paralyzed, jobs endangered

Juan Pablo Olalquiaga, president of Venezuela’s Industry Federation (CONINDUSTRIA) warns that closing down companies and production is destroying jobs. Scarce supplies and spare parts is forcing the nation’s industries into growing paralysis. More in Spanish: (Notitarde; http://www.notitarde.com/Economia/Conindustria-alerta-paralisis-de-produccion-2619356/2016/02/23/894547/; El Nacional, http://www.el-nacional.com/economia/Conindustria-Deuda-proveedores-internacionales-millones_0_798520271.html)

 

Government increases controls over marketing and distribution

Cipriana Ramos, president of the nation’s Trade Federation (CONSECOMERCIO) says the government continues to centralize marketing and product distribution nationwide. All they have now done is to create another conglomerate which further concentrates distribution and reduces distribution centers. More in Spanish: (Notitarde; http://www.notitarde.com/Economia/-Ejecutivo-controla-la-comercializacion-2619355/2016/02/23/894546/)

 

Maduro signs order raising Venezuela’s minimum wage 52%

President Nicolas Maduro has signed an executive order raising Venezuela’s minimum wage by 52%, effective March 1.
A total of 32 wage increases have been implemented by the government during the “Bolivarian revolution,” Maduro said, referring to his administration and the 1999-2013 administration of late President Hugo Chavez.
(Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406118&CategoryId=10717)

 

Central Bank changed inflation measurement rules

Economic experts are warning that Venezuela’s Central Bank made changes to the method used in measuring domestic inflation, altering the “weight” of each control group within the index, and lowering the portion assigned to food and non-alcoholic beverages. The real inflation rate for 2015 would have been 240.4%, as opposed to 180.9% reported by the Central Bank. More in Spanish:  (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/advierten-que-bcv-hizo-cambios-en-metodologia-para.aspx#ixzz40tFCyYPj)

 

Government orders telecom firm to cancel rate hike

Venezuela’s National Telecommunications Commission (CONATEL), demanded that the mobile telecom firm DIGITEL cancel the rate hike it decided unilaterally to impose on the weekend. “CONATEL demands that the DIGITEL Corporation halt the implementation of the said adjustment ... (until) the corresponding technical analysis (is completed) and the details of the operation can be discussed with the firm,” said a government order sent to Oswaldo Cisneros, the firm’s owner. MOVISTAR, which is owned by Spain’s Telefonica, holds the greatest market share in Venezuela’s mobile phone market with 41.6%, followed by the government’s MOVILNET with 40.8% and the private DIGITEL with 17.6%, according to CONATEL figures. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406133&CategoryId=10717)

 

 

Politics and International Affairs

 

Court injunction against Amazonas legislators has expired

The injunction by the Supreme Tribunal ordering the disincorporation of legislators from Amazonas state for 48 days has expired, with no word from the Constitutional Court on the case. Opposition legislators Julio Ygarza, Nirma Guarulla and Romel Guzamana, have demanded respect for voters in that state and asked for immediate restitution of their legislative powers. He asked institutions involved – the Court and the National Elections Board to take a position. More in Spanish: (El Nacional, http://www.el-nacional.com/politica/Caduco-suspension-diputados-Amazonas_0_798520358.html)

 

Government and opposition to debate amnesty law

Both the Venezuelan government and the opposition will hold a debate on the draft amnesty and national reconciliation law in a second discussion at the National Assembly. While “chavistas” claim that crimes such as drug trafficking could be pardoned under this amnesty law, the opposition has pointed out that the government "created false arguments to discredit" the bill, which comprises 42 articles. The parliamentarians of the pro-government parliament group have announced that they will take the debate on this draft law to the streets to discuss it with the people. (El Universal, http://www.eluniversal.com/nacional-y-politica/160222/govt-and-opposition-to-discuss-amnesty-law)

 

FOREIGN POLICY: The clock is ticking for Maduro

President Nicolas Maduro says the current economic crisis could last through 2017. What many doubt, however, is whether Maduro himself will be in power to witness an economic turnaround, as the pressures mount for him to step down or be pushed aside. And the president seems at a loss, beset by infighting within his own cabinet and divisions within his United Socialist Party of Venezuela (PSUV) that have left him scrambling to survive politically. Maduro also faces a revitalized opposition calling for his resignation, soaring crime, a possible debt default, and now, water and power rationing exacerbated by El Niño. The Supreme Court, where PSUV partisans hold a majority, has ruled that Maduro didn’t need legislative approval to declare an emergency. He now has 60 days to take steps to right the economy, and he seems to opt for greater state control he deems essential to blunt an “economic war” allegedly being waged against his government by the country’s business elite, and exiles in Miami and Spain. The opposition Democratic Unity (MUD) coalition, has set a deadline of six months to force Maduro peacefully from office, either by a recall referendum or constitutional amendment that would shorten his term, which is currently due to end in 2019.  “The government is at the helm of a sinking ship, refusing to change course, and the opposition is content to stand by and let it happen,” letting the regime “stew in its own juices…. essentially letting the government spend what political capital it has resisting change, in order to push for an end to Maduro’s presidency,” says David Smilde, a sociology professor at Tulane University who has studied Venezuela for over 20 years. The fear of a social explosion may result in an internal coup against Maduro, as PSUV activists and the military high command seek to protect their positions and the riches they have accumulated under 17 years of the movement created by Chavez. “Maduro may be offered up as a sacrificial lamb, [replaced by a] new leader put in place by the PSUV,” Yorde said. “A new government then might try to work with the opposition in a unity government.” (Foreign Policy: http://foreignpolicy.com/2016/02/22/the-clock-is-ticking-for-maduro/)

 

Dissident “chavista” Nicmer Evans says Maduro's model will lead to nothing good

"The difference between the governments of Chávez and Maduro is simply the political actor," says political scientist and member of dissident pro-Chavez "Marea Socialista" party Nicmer Evans, stressing that the socialist model "has never existed" in the country. "Chávez's presidency has undoubtedly an important responsibility for the mistakes that could have been made, yet Maduro received an economy with oil prices at US$ 100, and that remained unchanged for one year," says Evans. "(Before Maduro's term in office) the country was already going through a shortage crisis, but the necessary measures were not adopted to face it, which has led to Maduro's government losing credibility," added the political scientist. (El Universal, http://www.eluniversal.com/nacional-y-politica/160220/nicmer-evans-maduros-model-will-lead-us-to-nothing-good)

 

 

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.