July 07, 2016

International Trade

Venezuela exported 18,000 square meters of granite during the first half of 2016

Venezuela exported 18,000 square meters of granite during the first half of 2016, according to Arnaldo García Herrera, President of the Venezuelan Granite Association. He said 35 containers went to different markets, and the amount must be doubled during the next semesters. Exported granite comes from quarries in Cojedes and Bolivar states. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/economia/afirman-que-exportaron-mil-metros-granito_318103)

 

 

Oil & Energy

Venezuela’s oil production expected to drop even further

The latest reports from BANK OF AMERICA, MERRILL LYNCH and BARCLAYS CAPITAL all indicate that Venezuela’s oil output could continue contracting and hurt the country’s cash flow even further. BOFA says that a rapid downfall in the nation’s savings, absent lasting adjustments by the government over time increases the probability “of a default in the next years”. BARCLAY’s says the drop in production is not due to “external variables, but is directly or indirectly impacted by the deepening political and economic crisis in Venezuela.” It says as long as the crisis continues, oil production will continue to diminish, and now has revised its estimates for a drop in production in 2016 upwards, to 300-350,000 BPD. BOFA adds that the lack of official economic indicators increases uncertainty over Venezuela’s economy, and says hyperinflation is possible. More in Spanish: (El Nacional: http://www.el-nacional.com/economia/Preven-produccion-crudo-caera_0_878912223.html).

 

PDVSA lowered contributions to Development Fund by 90% in 2015

The severe drop in oil prices has directly hit PDVSA’s contributions to the National Development Fund (FONDEN) for social projects. The company’s latest reports show that it contributed only US$ 974 million during 2015, down 90.6% from US$ 10.4 billion in 2014. More in Spanish: (Summarium: http://sumarium.com/pdvsa-aporto-90-menos-al-fonden-en-el-2015/)

 

Crisis-struck Venezuela sends fuel oil tankers into tight Singapore market

Crisis-struck Venezuela is sending two supertankers filled with fuel oil across the oceans to Singapore, in what traders described as a surprise move that could help reduce a tight market. Shipping data in Thomson Reuters Eikon shows that two fully-laden very large crude carriers, the New Dream chartered by PetroChina and the Trafigura-chartered Britanis, are heading to Singapore with 270,000 tons each of fuel oil from the Bonaire Terminal owned by Petroleos de Venezuela. Venezuelan exports of residual fuel oil have been sporadic into Singapore since the start of the year but the city-state has taken in 997,000 ton over the past three weeks from the country, recent government data showed. The total amount of fuel oil arriving in Singapore from Venezuela between early June and early August is at least 1.5 million tonnes, according to International Enterprise (IE) Singapore and ship-tracking data. (Reuters, http://www.reuters.com/article/us-fuel-oil-singapore-venezuela-idUSKCN0ZL0Z5; El Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-ships-540000-tons-fuel-singapore_317871)

 

 

Commodities

POLAR to renew beer production

POLAR has received 19,797 tons of malted barley to fill its inventories through December this year, and has gradually called workers back to start production. Distribution is expected to start next week, at adjusted prices. The company has also received 253,227 tons of cromed tin from Colombia. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/empresas/polar-reanuda-su-produccion-de-cerveza-y-regresa-c.aspx#ixzz4DiYVldeB; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/economia/la-polar-reanuda-produccion-cerveza-regresa-nuevo-precio/)

 

 

Economy & Finance

JP Morgan estimates Venezuela’s deficit will be US$ 10.9 billion

JP Morgan is estimating that if the average price of Venezuela’s oil rises to US$ 36 per barrel, it’s current account deficit will be US$ 10.9 billion this year. The firm says estimates are estimating even lower crude exports and an US$             18-20 billion cut in in imports. It adds a default may be avoided by drastically reducing imports, and getting more financial aid from China. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Calculan-deficit-fiscal-millardos_0_878312448.html)

 

Domestic economy in downward spiral:

• Government owes local industry US$ 12 billion, massive industrial shutdown probable

Juan Pablo Olalquiaga, President of the National Industry Council (CONINDUSTRIA) says “the government has not taken steps to increase production. All the contrary, the situation is now worse (than six months ago) due nothing has happened since the “industrial motor” was implemented (as a government policy) six months ago due to critical raw material inventories”. He says the government’s debt with local industry for paying external suppliers is now up to around US$ 12 billion, and there will be no further dispatches to Venezuela unless debts are honored. Olalquiaga adds that “industry is at a critical stage at this moment, and if there is no turnaround, a massive industrial shutdown is coming”. Yet he adds: “There is the expectation of a change in the country due to the government’s inability to manage the economy. Failure is so obvious that a change has to come.”

 

• Expectations for tourism are not very good, says José Antonio Yapur, President of the Tourism Council. He explains that due to national economic conditions and high inflation, “the priority is getting food, paying for tuition and school supplies”.

 

• Construction is paralyzed, according to Carlos González, President of the Venezuelan Real Estate Chamber, who says “the “construction motor” has been deactivated. Government representatives have not met with the Real Estate or the Construction Chamber for 3 months. They have not called us again”. He says the government has met only 12% of its housing goal, which called for 500,000 new units this year. “The lack of FOREX and materials has also hit the government’s social program”.

 

• Non-traditional exports dropped 24% in 2015, down to US$ 2.6 billion from US$ 3.4 billion in 2014, according to Ramón Goyo, President of the Venezuelan Exporters Association. He says the drop in production makes it difficult to generate surpluses for export. More in Spanish: (El Nacional: http://www.el-nacional.com/economia/millardos-dolares-subio-gobierno-industriales_0_878912224.html)

 

At least 300 shops close daily in Venezuela

Venezuela’s National Council for Trade and Services (CONSECOMERCIO) estimates at least 300 shops are closing down per day due to lack of inventories, raw materials and domestic production. CONSECOMERCIO Vice President José Chirinella explains that scarcities are due to falling local production as a consequence of government policies in agriculture, “mainly expropriations”, and says the government has taken over more than 4 million formerly productive hectares. According to Venezuela’s main business federation, FEDECAMARAS, 1,190 companies were expropriated under the Chavez regime. More in Spanish (Infolatam: http://www.infolatam.com/2016/07/07/al-menos-300-comercios-cierran-a-diario-en-venezuela-dice-gremio/

 

Average scarcity is up to 58.9%

The ECONOMÉTRICA consulting firm reports average general scarcity is around 58.9%, and is particularly severe in basic goods and services. No improvement is expected over the next few weeks. Food and beverage scarcity in May was 83.4% and basic goods and services had a 84.9% scarcity index. More in Spanish: (Notitarde; http://www.notitarde.com/La-escasez-promedio-es-de-589/Economia/2016/07/06/1007980/)

 

ATM’S grow scarce as maintenance diminishes, higher currency denominations needed

The National Council for Trade and Services (CONSECOMERCIO) has issued an alert over the growing scarcity of ATM’s and fiscal registration outlets for formal trade operations nationwide.  It says the situation is leading many shops to trade only in cash, which makes them a target for criminals. Former Banking Superintendent Alejandro Caribas explains that shutting down many ATM’S is due to a lack of FOREX needed for maintenance. He has called on the Central Bank to issue currency in higher denominations to cut down on the number of bills needed for normal operations. More in Spanish: (Notitarde; http://www.notitarde.com/No-hay-puntos-bancarios-y-registradoras-fiscales/Economia/2016/07/06/1007982/; http://www.notitarde.com/Caribas-Faltan-divisas-para-mantener-activos-los-cajer/Economia/2016/07/05/1007801/; El Nacional, http://www.el-nacional.com/economia/Escasez-puntos-maquinas-fiscales-comerciantes_0_878912117.html)

 

Venezuela refuses to default. few people seem to understand why

It’s been almost two years now since the renowned Harvard economist Ricardo Hausmann caused a stir in his native Venezuela by posing an uncomfortable question. Why does a country that’s so starved for cash keep honoring its foreign debts? In other words, how does it justify shelling out precious hard currency to wealthy bondholders in New York when it can’t pay for basic food and medicine imports desperately needed by millions of impoverished citizens? “I find the moral choice odd,” Hausmann concluded. He was, predictably, skewered by the administration back in Caracas -- President Nicolas Maduro labeled him a “financial hitman” and an “outlaw” on national television -- but today the question feels more urgent than ever. Prices for oil, Venezuela’s lifeblood, have fallen almost by half since Hausmann first spoke out and the country’s cash squeeze has deepened dramatically. The chaos has reached unprecedented levels -- food rationing, looting, mob lynchings, collapsing medical care -- yet through it all, bond traders have received every dime they were owed, billions and billions of dollars in all. (Bloomberg, http://www.bloomberg.com/news/articles/2016-07-04/venezuela-refuses-to-default-few-people-seem-to-understand-why)

 

 

Politics and International Affairs

MERCOSUR will evaluate Venezuela’s political situation, Venezuela blasts Brazil’s government

The foreign ministers of Argentina, Brazil, Paraguay and Uruguay will meet in Montevideo next Monday to evaluate Venezuela’s political situation, after Brazilian Foreign Minister José Serra joined his Paraguayan counterpart Eladio Loizaga in objecting to Uruguay’s intention of turning over the organization’s pro tem chair to President Nicolás Maduro. Loizaga said “Venezuela’s situation turns more complex by the day, and we need MERCOSUR to be headed by a nation that has domestic peace and tranquility in order to carry forward the challenges we must meet during the next semester.” Venezuelan Foreign Minister Delcy Rodríguez rejected Serra’s remarks on Venezuela, calling them “insolent and amoral”, and again said Brazil “is undergoing a coup d’etat which violates the rights of millions of citizens who voted for President Dilma Rousseff”. Miguel Braun, the Trade Secretary of Argentina, dismissed the possibility that Venezuela may influence trade negotiations between the Southern Common Market (MERCOSUR) and the European Union (EU), even though Venezuela it may hold the pro tempore presidency of the bloc in the coming months. "Venezuela is not part of these negotiations, which started with the original four countries" of this group (Argentina, Brazil, Paraguay and Uruguay), said Braun. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelas-influence-eu-mercosur-trade-talks-ruled-out_318052; and more in Spanish: El Universal, http://www.eluniversal.com/noticias/politica/mercosur-tratara-situacion-politica-venezuela_317852; Noticiero Venevisión: http://www.noticierovenevision.net/politica/2016/julio/5/161705=delcy-rodriguez-considera-)

 

US Congress votes to extend sanctions on Venezuelan officials

The US House of Representatives has passed a draft law extending US sanctions on a number of Venezuelan officials through 2019. The measure, promoted in 2014 by Republican Senator Marco Rubio and Democratic Senator Robert Menendez, freezes US assets and visas on certain members and former members of the Maduro regime. The Senate passed the bill in April, and all that remains is for President Barack Obama, who does not oppose the decision, to sign. Sanctions are imposed on officials who have committed “significant acts of violence or serious human rights abuses against peaceful demonstrators and other innocent civilians”. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/actualidad/internacional/congreso-estadounidense-extiende-sanciones-a-funci.aspx#ixzz4DiYBLdgp; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/slider-inferior/congreso-estadounidense-extiende-sanciones-funcionarios-venezolanos/)

 

John Kerry: Venezuela is able to find her way out of the current crisis

US Secretary General John Kerry made an appeal on Tuesday to talks among all the branches of the Venezuelan government and promised to strive to improve the bilateral relation. He promised that his country “will always support Venezuela by advocating for democratic institutions, respect for human rights, and economic progress” In a communiqué, Kerry offered Venezuelans his, US President Barack Obama’s and US people’s “best wishes” on the occasion of the 205th anniversary of the country’s independence on July 5. “My government recognizes that the past year has been an extremely difficult one for the Venezuelan people. You face many economic challenges that have led to political divisions and severe hardships,” Kerry said. Nevertheless, the US senior officer recalled, “Venezuelans have shown resilience in the past and we have confidence in your ability to find your way out of the current crisis.” “We urge the leaders of all branches of the government to engage in the national dialogue required to effectively address your country’s problems,” Kerry affirmed. Kerry’s message arrived on day after Venezuelan President Nicolas Maduro congratulated the United States for its independence day, commemorated last Monday, July 4. (World Affairs Journal: http://www.worldaffairsjournal.org/content/john-kerry-venezuela-able-find-her-way-out-current-crisis)

 

Maduro vows to increase Venezuela’s military might

President Nicolas Maduro marked the 205th anniversary of Venezuela’s independence on Tuesday by vowing to expand the country’s military might even as he expressed confidence in the armed forces’ ability to prevail in the “unconventional war” that he says his government confronts. “Let us continue to increase military power,” he said. “An independent republic needs a military power that is ever more powerful.” Maduro spoke during the traditional Independence Day military parade at the Los Proceres complex, and boycotted civilian ceremonies at the National Assembly. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2415798&CategoryId=10717)

 

Américo Martín calls for "serious dialogue"

Américo Martín, a lawyer, writer and leftist political leader, with an extensive track-record, including his active part in the armed struggled in sixties, called on the government and ruling Unified Socialist Party of Venezuela (PSUV) to accept the lessons implicit in electoral defeats. Martín, the keynote speaker for the 205th anniversary of Venezuela’s independence, echoed those who argue that the recall referendum to challenge the government of Venezuelan President Nicolas Maduro and championed by the Unified Democratic Panel (MUD) “is non-negotiable.” In his opinion, it is not only a constitutional right, but also because “after the deluge of signatures, it belongs to those who signed instead of the initial promoters.” (El Universal, http://www.eluniversal.com/noticias/daily-news/americo-martin-calls-for-serious-dialogue_317905)

 

Venezuelan women push past border controls for food, Colombia ready to help

About 500 Venezuelan women in search of food have broken through border controls separating the western state of Táchira from neighboring Colombia. The women said their families were going hungry because of severe food shortages in Venezuela. Hours later, they crossed back into Venezuela carrying basic goods and singing the Venezuelan anthem. The women said they had organized to meet at the border via the instant messaging service WhatsApp. Dressed in white, they gathered on the bridge linking the cities of Ureña in Venezuela and Cucuta in Colombia. Hundreds of them pushed past the Venezuelan National Guard and walked across the border, which has been closed for almost a year. One of the women told Colombian media: "We're desperate, we have nothing: no cooking oil, no sugar, no rice." After buying food and other goods which are scarce in Venezuela, they again gathered at the the border post asking the Colombian guards to let them pass. They crossed back into Venezuela singing the national anthem. Others shouted "yes, we can" and thanked the Colombian security forces for letting them through. Venezuela closed large parts of its border with Colombia in August 2015 to prevent subsidized good from being smuggled from Venezuela into Colombia. Venezuelans who want to cross into Colombia in states where the border has been closed need a special permit to do so.  But as the scarcity of food gets worse in Venezuela, many have crossed the porous border illegally. Colombian officials said a similar incident had happened in Puerto Santander, 60km north of Cucuta, in June, when 400 Venezuelans crossed into Colombia to buy essential goods. Colombia’s Foreign Minister María Ángela Holguín sent a delegation to the border to evaluate the situation, fearing the “mass arrival” of Venezuelans due to shortages. She offered to expand border passes to those seeking food, and said “we will not let our Venezuelan brothers go hungry or lack medicine”. (BBC: http://www.bbc.com/news/world-latin-america-36722422: Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2415767&CategoryId=10717; El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelans-cross-closed-border-buy-foodstuffs-colombia_317975; http://www.eluniversal.com/noticias/daily-news/colombia-fears-massive-influx-venezuelans-amidst-shortages_318088)

 

October surprise? Planning for Venezuela’s collapse     

While reason suggests Venezuela should adjust its fiscal policies, ensure basic human needs, avoid sovereign default, and continue oil production for cash flow, it could easily fail to do all of the above.  The ripples of a Venezuelan collapse could stretch from Caracas to Miami. The international community needs to put contingency plans in place to limit the potential damage. What kind of damage? A humanitarian disaster in Venezuela. A stoppage in oil production and cash flow as Venezuela stops paying its contractors and employees.  A cessation of around 37% of all heavy crude imports into the US Gulf Coast. A cut off of credit to the Caribbean and Central America, especially Cuba and Haiti. Massive and sudden migration flows from Cuba and Haiti driven by domestic privation. And all in the middle of the US presidential election season.  Venezuela’s capacity for mismanagement should not be underestimated. Inflation exceeds 400%. Access to essential consumer goods, electricity, and even water is intermittent at best. PDVSA, Venezuela’s state-owned oil and gas company, must make US$ 1.4 billion in payments on its debt by October and US$ 2.8 billion in November or face default. Absent a shift in fiscal policy it is a race between international creditors and the Venezuelan street to see who will force the government’s hand first.  Venezuela’s neighbors are at risk, especially those who have relied on credit support for oil and products in the Caribbean and Central America. Venezuela has already curbed such exports. Those countries capable of cutting ties are already doing so, as at least five PETROCARIBE signatories are no longer receiving Venezuelan supplies while others have reduced their imports. Among those nations still reliant on Venezuelan support are Haiti and Cuba. Haiti’s stock of debt to Venezuela totals around 15% of its GDP, while Venezuelan assistance to Cuba has been estimated to comprise more than 10% of Cuba’s annual GDP. Four steps are needed now. First, the United States should manage a disruption of Venezuelan supply and minimize the potential of an abrupt surge in global oil prices by planning to loan US Gulf Coast refineries heavy oil from the Strategic Petroleum Reserve (SPR) to bridge a potential shortage until commercial supplies arrive. Second, the international financial institutions should plan for (and publicly signal the availability of) short-term credit support for nations dependent on Venezuelan credit if needed. This support would be a pittance compared to the cost of a migration crisis or a humanitarian disaster.  Third, the international community needs strategies to deal with potential shocks to Haiti and Cuba to avoid a migration crisis.  Fourth, the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and the United Nations Disaster Assessment and Coordination (UNDAC) must, with the support of the Office of US Foreign Disaster Assistance, begin contingency planning to address a humanitarian crisis in Venezuela with an eye to mobilizing international support for food, medicine, and basic needs. The international community has an interest in mitigating the impact of Venezuela’s instability on the other nations of the Western Hemisphere and beyond. The United Nations must lead contingency planning efforts to limit the contagion of a Venezuelan collapse and ensure those countries most severely impacted by a forcible cutoff of credit-supported Venezuelan exports have resources at their disposal to ensure their own stability. (Atlantic Council: http://www.atlanticcouncil.org/blogs/new-atlanticist/october-surprise-planning-for-venezuela-s-collapse)

 

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.