March 31, 2016

International Trade

 

SPECIAL REPORT: Legislature investigates US$ 300 billion dollar frauds in food and medicine imports

Analysts may have been overly affixed on Venezuela’s debt liabilities and given not enough attention to the web of organized corruption behind the 60% drop in imports here. Foreign currency supply within Venezuela’s exchange control system has collapsed over the past months, while phantom companies and corrupt public officials are quickly leading the nation into default by distorting food import transactions through arbitrage and overpricing. During 2014, the Central Bank allocated US$ 45.529 billion for public and private imports; this amount dropped down to US$ 17.529 billion in 2015, as allocations to the private sector fell from US$ 14,410 billion to US$ 5.104 billion. Former congressman Ricardo Sanguino of the ruling party says “a large part of the funds allocated did not enter the country in the form of goods, they went into overpricing and in many cases the products were not even imported…The exchange control system must be dismantled because it didn’t work, it is a perverse system, perforated by mafias”. Experts agree that nepotism has backed the growth of corrupt companies involved in FOREX operations for food imports. A high bank executive reports that there are 59,000 companies registered with the National Foreign Trade Center (CENCOEX), and only 9,000 of them are legal. Phantom companies profit through an organized arbitrage system that exploits the differences between the preferential FOREX rate, the floating rate, and the black market rate. Sanguino estimated that overpricing in food imports alone accounts is around US$ 118 billion. Last month, the National Assembly’s Comptroller Committee launched an investination into the FOREX allocation system, reviewing “suspicious” food and medicine imports for a total US$ 230 billion under the CADIVI (now CENCOEX) system from 2003 to 2014, Committee Chairman Freddy Guevara says “the closest estimate is that phantom companies have stolen up to US$ 300 billion…in PDVSA alone we have estimated over US$ 10 billion; and we calculate US$ 25 billion in CENCOEX, as was reported by former Chavez Planning Minister Jorge Giordani…the issue within the electricity sector we believe is over US$ 60 billion. Also in the Economic and Social Development Bank, the Sino-Venezuelan Fund, and the National Development Fund it is estimated that fraudulent operstions can be more tan US$ 100 billion”. The committee published a list of officials and former officials that will be investigated, among them several military officers that have been in charge of food imports and distribution, and government contractors in this área. Among those investigated are former Nutrition Minister General Carlos Osorio, and Tomás Gonzáles, an operator identified by Congressman Ismael García as the intermediary for food imports by PDVSA and its affiliate BARIVEN, a front man for General Osorio. Experts say recent changes in foreign exchange policies made by President Maduro will not facilitate access to FOREX, but will only fill government coffers as it obtains more bolívars per US dollar. A more expensive dollar will be close to the 200% inflation rate but will not stop the multi-million dollar frauds that are rampant in a distorted exchange system. More in Spanish: (Portafolio: http://www.portafolio.co/internacional/millonario-robo-juego-arbitraje-venezolano-493217)

 

 

Oil & Energy

 

Maduro: Oil price average is "slightly" above output cost

“The average price of the oil barrel hit US$ 26 this year, slightly higher than the output cost,” President Nicolás Maduro has said in connection with the downward trend shown by Venezuelan crude oil prices in recent months. He further reported that the local oil basket on Wednesday ended at US$ 29.21 per barrel, a US$ 1.15 contraction. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelas-maduro-oil-price-average-slightly-above-output-cost_247294)

 

PDVSA repeats it is a victim of a corruption smear campaign

Venezuela's state-owned oil company PDVSA has said it is the target of a smear campaign after the U.S. Justice Department announced that three of the firm's former employees had pleaded guilty to charges over a scheme to corruptly secure energy contracts. The former officials at Petroleos de Venezuela S.A. (PDVSA) pleaded guilty under seal in December to conspiracy to commit money laundering. Their pleas were unsealed by a federal judge in Houston last week. The three are Jose Luis Ramos Castillo, 38, Christian Javier Maldonado Barillas, 39, and Alfonzo Eliezer Gravina Munoz, 53. (Reuters, http://www.reuters.com/article/us-venezuela-usa-corruption-idUSKCN0WV06V)

 

Government admits failure of Holy Week energy-saving plan

The government has acknowledged the failure of its plan to save water and electricity by prolonging the Holy Week holidays in order to minimize the effects of the drought caused in the region by the El Niño weather phenomenon. “I have to be very sincere – it didn’t have the hoped-for results, which is to say, we believed and calculated that during Holy Week we would have a considerable reduction” of energy use, but it didn’t turn out that way, said the deputy minister of electrical energy, Freddy Brito. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2408772&CategoryId=10717)

 

National Electric Company cannot print receipts for lack of paper

The National Electric Company (CORPOELEC) has urged clients to use its electronic billing service since it has no paper on which to print receipts. A union source within the government company says “the problem is that they have no funds to pay for paper on which to bring bills”. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Corpoelec-envia-recibos-falta-papel_0_820118289.html)

 

 

Economy & Finance

 

Venezuela seeks US$ 5 billion credit

Central Bank President Nelson Merentes claims a new US$ 5 billion credit is about to be signed, but that creditors are demanding that a joint venture between Venezuela and Canada, aimed at exploiting the Orinoco Mining Arc gold reserve, must be established within 30 days. He says the 111,000 kilometer area is one of the best guarantees the nation has to offer. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/economia/venezuela-negocia-credito-por-5000-millones_11122)

 

China conditions further aid to Venezuela on coherent policies by Maduro

David Osio, of the DAVOS Financial Group reports: “The Chinese government has indicated its dissatisfaction with recent economic changes in Venezuela, and would like to see more political stability before they consider renegotiating this country’s debt”. Venezuela has been asking China to extend payment, invest more in mining and other projects. In February, it asked China to extend the grace period on preferential price oil shipments in order to sell the oil on the open market, but China not only refused – it asked for an increase in shipments.  More in Spanish: (El Nacional, http://www.el-nacional.com/economia/China-condiciona-Venezuela-Maduro-coherentes_0_820118211.html)

 

A mystery bond in Venezuela has traders scratching their heads

Bond investors in Venezuela have made a dispiriting discovery. Last week, traders started quoting prices on a US$ 3 billion note issued by the nation’s state-owned oil company. While the eight-year securities were first sold in October 2014 under New York law not much else is known. The bonds don’t trade on any U.S. exchange, aren’t rated by any major credit-ratings firm and no term sheet has been made public.  Concern that new Petroleos de Venezuela securities were being sold to investors has sparked a 6.2% drop in its other notes due in 2022. The benchmark bonds due in November 2017 fell 5.4%. Investors are dismayed that the securities represent yet another obligation for the cash-strapped nation, which has been hounded by speculation it may default in the coming year. PDVSA, as the company is known, issued the bonds to the Central Bank, which may look to unload them on the market to generate much-needed revenue. At Monday’s price of 29 cents on the dollar, they’re actually worth less than US$ 1 billion. The Central Bank may decide to use the notes to supply Venezuela’s new currency market, known as the DICOM. Central Bank data show the government is selling less than 10% of the available dollars at the market-based DICOM rate, with over 90% being sold at the official exchange rate of 10 bolivars per dollar. That suggests there is a shortage of hard currency, said Siobhan Morden, of NOMURA Holdings Inc. in New York. “Just the fear of new supply, and look what happens to pricing,” she said. “We don’t need new bonds that no one wants to buy.” (Bloomberg: http://www.bloomberg.com/news/articles/2016-03-29/a-mystery-bond-in-venezuela-has-traders-scratching-their-heads)

 

DICOM has greatest increase since its creation and closes at VEB 262.74/US$1

The Central Bank reports the DICOM floating exchange rate closed Tuesday at VEB 262.74/US$1, an increase of VEB 11,93 from Monday. It adds that the system covered 7.24% of all FOREX transactions, with the remaining 92.76% at the protected rates. (El Mundo, http://www.elmundo.com.ve/noticias/economia/mercados/simadi-registra-mayor-alza-desde-su-creacion-y-cie.aspx#ixzz44NXqStdP; El Nacional, http://www.el-nacional.com/economia/Dicom-cierra-martes-Bs-dolar_0_820118275.html; http://www.el-nacional.com/economia/Dolar-flotante-subio-bolivares-martes_0_820118218.html)

 

 

Politics and International Affairs

 

National Assembly passes amnesty bill; Supreme Tribunal could nullify it

The National Assembly has passed an amnesty bill which could free dozens of jailed opposition leaders. The opposition-controlled assembly passed the bill after a heated discussion. President Nicolas Maduro said he would block the bill, which he argued would benefit "criminals and terrorists". Among the more than 70 detainees who could be freed if the bill becomes law is Leopoldo Lopez, who was sentenced to 13 years and nine months in prison last year for inciting violence during mass protests. The prosecutor in the case later fled Venezuela and told media abroad that Lopez's conviction had been a political show trial. But government officials maintain Lopez is responsible for the violence which erupted during the 2014 protests in which 43 people on both sides of the political divide were killed. Lopez's wife, Lilian Tintori, welcomed the passing of the bill, saying it was "felt in all of Venezuela, like a fireworks rocket going off in Caracas, full of emotion, freedom and strength". Other political leaders who could be freed are the former mayor of Caracas, Antonio Ledezma, who is under house arrest, and the former mayor of San Cristobal, Daniel Ceballos. But members of the governing PSUV party said the amnesty was a carte blanche for "murderers". President Maduro spoke on national television while the debate was still under way to say he would veto it. "You can be certain that that law will not be making it through here," he said.  President Maduro could send the bill to the Supreme Court if he has doubts about its constitutionality. National Assembly President Henry Ramos Allup was warned that the Constitutional Chamber of the Supreme Tribunal is cooking up a sentence annulling the Amnesty Law, even without receiving the final text. He wrote “If Maduro, his lawyers and the high command are so sure of popular support: Why do they obstruct all electoral and constitutional ways out?”.  (BBC, http://www.bbc.com/news/world-latin-america-35924647?utm_source=Sailthru&utm_medium=email&utm_campaign=New%20Campaign&utm_term=%2AMorning%20Brief; Bloomberg, http://www.bloomberg.com/news/articles/2016-03-30/venezuela-congress-passes-amnesty-law-to-free-jailed-politicians: El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelan-congress-approves-amnesty-and-national-reconciliation-law_247234; and more in Spanish: (El Nacional: http://www.el-nacional.com/politica/Ramos-Allup-planea-TSJ-amnistia_0_817118315.html)

 

Spanish FM regrets opposition has a narrow leeway to "straighten out" Venezuela

Spanish Foreign Minister José Manuel García-Margallo voiced concern over the narrow leeway the Venezuelan opposition has to improve the country’s situation through lawful means. García-Margallo said that “disregarding the law frustrates all the possible solutions,” in reference to recent remarks made by President Nicolas Maduro, refusing to sign the Amnesty and National Reconciliation Law, passed on by the National Assembly, as he claims the law aims at “protecting” criminals. (El Universal, http://www.eluniversal.com/noticias/daily-news/spanish-regrets-opposition-small-leeway-straighten-out-venezuela_247241)

 

Supreme Court reform law passed in initial vote by National Assembly

The opposition majority within the National Assembly has passed in a first discussion the Partial Reform of the Supreme Justice Tribunal Constitution Law, which seeks to increase the number of justices. National Assembly President Henry Ramos Allup has ordered the first draft sent to the Domestic Policy Committee. It will subsequently move on to a second and final vote. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/politica/aprobada-en-primera-discusion-proyecto-de-reforma-.aspx#ixzz44NZRUgWJ)

 

Venezuela welcomes Colombian delegation, ELN may start negotiations

The Colombian Government and the National Liberation Army (ELN), the country’s second largest guerrilla group, have begun a formal peace negotiation as part of the efforts to stop the oldest armed conflict in Latin America. A delegation of the Colombian government and ELN members appeared at the Ministry of Foreign Affairs in Caracas, where they would elaborate on the upcoming deals. President Nicolas Maduro later met with both delegations and expressed satisfaction at hosting the talks. Colombian President Juan Manuel Santos, however, made it clear talks would begin only when “humanitarian affairs” are resolved, adding that “it is not acceptable for the Colombian government to move forward in a peace conversation with the ELN while it holds kidnapped captives”. For his part, former Colombian President and current Senator Álvaro Uribe Vélez referred to the talks as “uncertain” and said “the mediator (Maduro) is the least suitable”. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-welcomes-colombian-delegation-eln-start-negotiations_247274; and more in Spanish: El Universal, http://www.eluniversal.com/noticias/internacional/maduro-paz-colombia-paz-venezuela_247343; http://www.eluniversal.com/noticias/internacional/santos-confirma-negociacion-con-eln-cuando-haya-secuestrados_247304; http://www.eluniversal.com/noticias/internacional/uribe-considera-incierto-dialogo-con-eln-cuestiona-mediacion-venezuela_247340)

 

Lawmakers report 10 more miners slain

The legislative commission investigating the disappearance of a group of gold miners this month in Southeastern Venezuela has received reports that another 10 miners were apparently slain as well. “We have received 10 reports about 10 different missing persons from 10 different mining areas” in Bolivar state, where murdering miners “is a common practice,” opposition lawmaker Americo de Grazia said.
He told reporters about the new reports by family members and witnesses after they heard that Bolivar Gov. General Francisco Rangel had ignored a summons to appear before the congressional investigative committee. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2408859&CategoryId=10717)

 

Two police officials killed at protest

A policeman and a policewoman were killed and four other officers injured during a violent protest in San Cristobal, the capital of Tachira state in the Venezuelan Andes during a protest against a nationwide increase in bus fares.
The officers died during disturbances at the La Concordia bus terminal in the city of San Cristobal, police said on Twitter. The police officers were run over by a bus that had been commandeered by hooded protesters known as “encapuchados”, according to a tweet from Tachira state police. “Police were cordoning off the area to prevent encapuchados from attacking private vehicles,” one Tachira police tweet read. Local media however disputed that version, saying the pro government bus driver was trying to break through students’ picket lines. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2408849&CategoryId=10717)

 

 

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.