March 01, 2016

International Trade

Colombia border opens partially and temporarily

According to Lieutenant José Vielma Mora, governor of Táchira state, the temporary opening of the Venezuela-Colombia borderline on Saturday, February 27, is "an initiative of the Bolivarian government and its Foreign Office in order to move ahead with the economic area and vent the border issue." Speaking to the possibility of opening the border hub in nighttime hours, Vielma disclosed that the government is working on it to foster the local productive development, instead of stimulating smuggling and the action of paramilitaries. (El Universal, http://www.eluniversal.com/economia/160229/frontier-opens-as-advancement-in-the-economic-area)

 

Oil & Energy

Deepening default fears cast shadow over Venezuela's oil flows

As Venezuela grows closer to exhausting nearly every means of paying its debt, some oil market participants are seriously pondering the possible implications of an unprecedented event: the default of a major crude producing company. State-run firm PDVSA faces around US$ 5.2 billion in payments to bondholders in 2016, much of it in October and November, a sum that some experts say it will be hard-pressed to meet after the government used nearly all of its available cash reserves to pay US$ 1.5 billion in maturities last week. A default could curtail some of the OPEC member's exports by crippling its ability to import crude and fuels used to blend its extra heavy oil, experts and sources say. It could also degrade the quality of domestic gasoline by limiting purchases of necessary components. (Reuters, http://www.reuters.com/article/us-oil-pdvsa-debt-analysis-idUSKCN0W00DA; Bloomberg, http://www.bloomberg.com/news/articles/2016-02-26/venezuela-bond-payment-spurs-rally-in-pdvsa-notes-due-in-october)

 

Venezuela oil price up slightly but still under US$ 25

The price Venezuela receives for its mix of medium and heavy oil rose 3% this week as prices around the world continued grinding higher on announcements of agreements in principle between some OPEC members and non-OPEC members like Russia to freeze oil production at January levels and hold a meeting in March. 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 February 26 was US$ 24.71, up 68 cents from the previous week's US$ 24.03. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406592&CategoryId=10717)

 

National power grid nearing collapse

Power rationing is not new for Venezuelans. Over the past fifteen years there have been some crises, such as that of 2009-2010, that have forced Venezuelans to adapt their lifestyle to power outages. What is new, however, is the seriousness of the current situation which, according to some experts, is expected to get worse over the next two months if the necessary measures are not taken immediately. To major general Luis Alfredo Motta Domínguez, the Minister of Electricity and President of the National Electricity Corporation (CORPOELEC) - a state-owned holding company created in 2007 to consolidate the power sector - the current crisis is a one-off problem due to the extensive drought associated with the recurring weather phenomenon commonly known as El Niño, which has caused water levels in the Central Hidroeléctrica Simón Bolívar (aka the Guri Dam) to drop to record-low levels. (El Universal, http://www.eluniversal.com/nacional-y-politica/160227/national-power-grid-nearing-collapse)

 

Commodities

10 sugar mills are out of service

Low sugar supply nationwide is due to sugar mills that were “relaunched” 16 years ago. Expert Edgar Contreras says that it the government does not take urgent steps there will be catastrophic scarcity, perhaps the worst sugar crisis in the nation’s history. “Out of 10 government controlled sugar mills, not one is in production”, he reports. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/azucareras-nacionales-produciendo_0_802119792.html)

 

Beer and malt production to run out in March

Omaira Sayago, Executive Director of the Venezuelan Beer Manufacturers Chamber says there is only one month left of supplies for producing beer and malt locally. She says there is no barley, hops or even tinplate for cans. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Produccion-malta-cerveza-llegaria-marzo_0_802719858.html)

 

Economy & Finance

Venezuela paid US$1.54 billion in principal and interest on debt

Venezuela has paid US$ 1.54 billion in principal and interest owed to international bondholders, the Banking and Finance Ministry said Saturday. President Nicolas Maduro’s administration “once again manifests its willingness and capacity to honor its financial commitments in a timely manner, demonstrating its solvency in international markets,” the ministry said of Friday’s payment. That same ministry said this week that Venezuela’s foreign debt rose to US$ 42.53 billion last year; around US$ 3 billion shy of its record-high debt level registered in 2012. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406626&CategoryId=10718; El Universal, http://www.eluniversal.com/economia/160229/venezuelan-intl-reserves-slip-to-usd-1350-billion)

 

International reserves down to US $13.501 billion

After discounting principal and interest payments on the Global 2016 bond, for US$ 1.543 billion, international reserves held by Venezuela’s Central Bank dropped last week to US$ 13.501 billion, their lowest level in 13 years. More in Spanish: (El Universal, http://www.eluniversal.com/economia/160229/reservas-internacionales-bajan-a-13501-millones)

 

Central Bank President Merentes claims to advance talks for US$ 5 billion loan

The head of the central bank says Venezuela is in advanced talks for a US$ 5 billion loan from international banks and investment funds. The operation would provide US$ 3 billion in liquidity for the government and US$ 2 billion to finance a gold mining joint venture with Canada's Gold Reserve, according to Nelson Merentes. Venezuela's international reserves fell to a 17-year low after the government paid in full its US$ 1.5 billion Global 2016 bond, according to central bank data. Venezuela and Gold Reserve have previously signed a memorandum of understanding to jointly develop the Las Brisas and Las Cristinas gold mines, ending an arbitration dispute. "We hope within a month to constitute the company, and in parallel we are seeking the loan," Merentes said. "I can't say for sure if it will be in a month, in two months. But it will definitely be this year. We are moving quickly." Merentes said the loan would be repaid with gold produced from the mines. The mines would serve as the guarantee for the loan. He said banks from Germany, Canada and China had come to Caracas to participate in a government-sponsored mining sector event. It was not immediately clear whether these banks would be involved in providing the loan. He also vowed Venezuela would meet all debt commitments, adding that authorities were willing to use instruments such as oil or gold warrants in efforts to refinance. "These are commodities that can be sold in the future or in the present," he said. Obtaining the financing may be difficult given that Gold Reserve is a tiny exploration company with no assets in production. It had US$ 2.2 million in cash on hand as of the end of September, and in its third-quarter results warned of "substantial doubt about the company's ability to continue as a going concern." Banks have been leery of funding the advanced projects of major players in the sector, and precious metal exploration companies have largely fallen out of favor with investors, stung by the extended slide in bullion prices. (CNBC: http://www.cnbc.com/2016/02/26/reuters-america-update-1-venezuela-in-advanced-talks-for-5-bln-loan-cenbank-president.html; Reuters, http://www.reuters.com/article/venezuela-economy-idUSL2N1680N6; Bloomberg, http://www.bloomberg.com/news/articles/2016-02-27/venezuela-sees-savior-in-gold-as-country-fights-to-avoid-default;  http://www.bloomberg.com/news/articles/2016-02-25/can-a-small-mining-company-help-save-venezuela-chart; http://www.bloomberg.com/news/articles/2016-02-25/venezuela-says-gold-reserve-accord-paves-way-to-investment; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406555&CategoryId=10717)

 

FITCH Ratings says new economic steps here did not improve credit ratings

FITCH Ratings reports that the new economic steps taken by the Venezuelan regime are not sufficient to improve the nation’s credit ratings. “Despite recent measures by Maduro’s government to relieve Venezuela’s financial and macro-economic stress, the combined impact of lower oil prices, the lack of outside financing and political uncertainty will continue to weigh upon ratings”. More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/29/medidas-economicas-de-venezuela-no-lograron-mejorar-su-debilidad-crediticia-fitch/)

 

New economic decisions cannot significantly reduce projected 18% fiscal deficit

Economic experts warn that the due to the size of the fiscal deficit recent government measures here are not enough to deserve fresh financing. Raising domestic gasoline prices, devaluation, selling stock in joint ventures, gold swaps, and a loan from Gold Reserve, among others, will have a very slight fiscal impact. Asdrúbal Oliveros, of ECOANALÍTICA, says this year’s deficit will be 18% of GDP. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/medidas-son-insuficientes-para-reducir-el-deficit-.aspx#ixzz41GeEzb7d; http://www.elmundo.com.ve/noticias/economia/empresas/86--de-los-empresarios-tiene--poca-esperanza--de-r.aspx)

 

Venezuelan delegation again discusses economic agenda with Chinese officials

A delegation of top officials has traveled to China to brief Asian authorities on the scope of the Bolivarian Economic Agenda, says Oil Minister Eulogio del Pino.  The delegation was headed by Planning and Knowledge Vice-President Ricardo Menéndez and a group of group of ministers who met with Wang Chao, China’s Vice-Minister for Latin America and the Caribbean, and separately with Ning Jizhe, Vice-President of National Commission of Development and Reform. President Nicolas Maduro later called the meetings “successful” (El Universal, http://www.eluniversal.com/economia/160229/venezuelan-delegation-shows-economic-agenda-to-chinese-top-officials); and more in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/presidente-maduro-destaca-respaldo-china-agenda-econ%C3%B3mica-bolivariana-venezuela)

 

Venezuela is the only Iberamerican country where Spanish investments will decrease in 2016, according to the 9^th report on the “Outlook for Spanish Investment in Iberamerica”, carried out by the IE Business School and Air France KLM shows that the key risks in investing in Venezuela are lack of legal stability and personal safety. More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/29/venezuela-unico-pais-de-latam-donde-bajara-inversion-de-empresas-espanolas/)

 

Shortage of basic products in Venezuela creates new “jobs”

The shortage of food, medicines, household goods and personal hygiene products that Venezuela has suffered for several years has created new “jobs” in this country for those who profit from the crisis by speculating on it. Citizens known as “bachaqueros” (named for the fat ant species known as “bachacos”) purchase products at the subsidized “fair price” established by the government, only to resell them at a much higher price on the black market. At times bachaqueros resell products at prices 10 times higher than the regulated prices. Corn flour, the prime ingredient of Venezuela’s tasty arepas, valued at 20 bolivars (10 cents), is sold on the black market for as much as 500 bolivars (US$ 2.50). According to a survey by pollster DATANALISIS, 60% of citizens who form long lines outside markets are dedicated to the resale of regulated products, an activity penalized with fines and up to three years in jail. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406585&CategoryId=10717)

 

Politics and International Affairs

 

Maduro is using the Supreme Tribunal to strip the National Assembly of powers

After losing control of the National Assembly, the Maduro regime started to gradually dismantle the powers of the legislature, which experts consider a slow motion coup d’ etat which will define his government’s dictatorial stance. Institutional dismantling is conducted through the Supreme Court’s Constitutional Chamber. Antonio De La Cruz, Executive Director of Inter American Trends says: “We are experiencing a judicial coup d’état…the Executive is executing a coup against the Legislature through the judiciary”. A series of sentences by the Court are taking away the hopes of the National Assembly for supervising and regulating the government. The worst blow came on 12 February, when the Court bypassed an Assembly resolution rejecting the state of emergency dictated by Maduro. The decision came from the Constitutional Chamber, where 13 of the current justices were named by a simple majority of the previous Assembly, hours before ending their term of office in December. If the National Assembly is deprived of the power to make real change through legislation and is limited to acting as a platform to vent protests. Former Foreign Minister Armando Durán says: “It is not enough to enact laws; they need to be enforced”. “No government official bothers to comply with National Assembly summons”, he adds. Institutional paralysis created by the regime is taking place at a time when the people are entering an unprecedented state of desperation and millions of Venezuelans spend most of their day in line at supermarkets in the hope of buying something. “There is a strong possibility that this leads to a social explosion that will create domestic social movements that are not going to be easy to control”, says De La Cruz. More in Spanish: (El Nuevo Herald:  http://www.elnuevoherald.com/noticias/mundo/america-latina/venezuela-es/article62063192.html#storylink=cpy)

 

Corruption scandals in the Venezuelan State’s food networks are linked to the fact that it is the military who run the companies and they do not have the required expertise, says food supply analyst Tomás Socías. He also claims other factors are distortions of the preferential forex rate, price controls and the grouping of 293 public food production, storage and distribution companies into 14 conglomerates in 2015. Parties allied with the Maduro regime – including Venezuela’s Communist Party are supporting an investigation into the administration of General Carlos Osorio as Minister for Nutrition, as well as scrutinizing PDVAL, which is managed by the oil industry. This is the first time regime political allied openly name an individual for investigation. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46987&idc=3); and more in Spanish: (El Nacional, http://www.el-nacional.com/politica/PCV-PPT-Osorio-Min-Alimentacion_0_802719979.html)

 

Comptroller General launches investigation into Capriles Radonski

The Comptroller General's Office reports it is investigating opposition leader and Miranda state governor Henrique Capriles Radonski and several members of his team over the use of several budget items in 2011, 2012, and 2013. Capriles Radonski termed the step political retaliation: "The government is trying to silence the opposition voices, for they know they are lost. They know that they lost people's support; that they lack people, and that is why they have begun new reprisals against us. Seemingly, the government is afraid of the recall referendum, for soon after we started to travel the country promoting such vote, government leaders ordered us to be investigated once again," the governor said. (El Universal, http://www.eluniversal.com/nacional-y-politica/160229/comptroller-general-commences-investigation-into-capriles-radonski)

 

STRATFOR: How Venezuela would remove its President

With each passing day, it is becoming increasingly clear that President Nicolas Maduro’s term could come to an abrupt end. Both the opposition-controlled legislature and Maduro’s own party are calling for him to resign to deflect public anger from the government. According to STRATFOR sources, the opposition has already discussed with the ruling United Socialist Party of Venezuela (PSUV) the possibility of forming a joint post-Maduro junta to govern the country.  Progress on any junta discussions depends on whether powerful military leaders, such as Minister of Defense Vladimir Padrino Lopez, consider a junta or another transitional government to be in the country’s interests. At this point, it appears that at least a significant segment of the armed forces, including retired and middle-ranking officers, may support a transition; it is up to the military to deal with any social unrest created by the country’s collapsing economy. According to one STRATFOR source, Padrino Lopez backs Maduro’s removal, albeit in a manner that preserves the president’s dignity. National Assembly Speaker Henry Ramos Allup has also claimed that a faction of current and former military leaders led by Zulia state Gov. Francisco Arias Cardenas is considering Maduro’s resignation as a possible means of dealing with the political and economic crisis. A change in government would enable a new administration to begin structural economic reforms that Maduro has long opposed. It would also assuage public anger against the government that could erupt into street protests. The question, though, is how such a leadership change would take place. The events of the next few will months will in large part determine which of four possible scenarios will play out. The risk of social upheaval because of the country’s soaring inflation will be a given, no matter how Maduro is replaced. (STRATFOR: https://www.stratfor.com/analysis/how-venezuela-would-remove-its-president)

 

 

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.