Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Thursday, October 27, 2016

October 26, 2016


International Trade

MERCOSUR to discuss enforcement of democratic clause against Venezuela

The Common Market of the South (MERCOSUR) will hold a meeting "in the upcoming days" to discuss whether the democratic clause should be enforced against Venezuela, informed Uruguayan President Tabaré Vázquez at a press conference, along with his Argentinian counterpart Mauricio Macri. "As for the democratic clause, MERCOSUR has to hold a meeting to discuss the matter, and Uruguay will attend that meeting and it is going to discuss it with the integrity and responsibility we seek to prosecute in our governance," said Vázquez, who specified neither date nor place of the meeting. For his part, President Macri noted that both Uruguay and Argentina were “very concerned about how things have worsened” in Venezuela. "Under these terms, Venezuela cannot be part of Mercosur,” and added that this country has to be "deplored by all American nations and the entire world" as "human rights are not being respected." (El Universal, http://www.eluniversal.com/noticias/daily-news/mercosur-discuss-enforcement-democratic-clause-against-venezuela_624077)

 

Oil & Energy

Venezuela winning bondholder relief as 39% accept PDVSA swap

Petroleos de Venezuela SA, maneuvering to repay a ballooning debt load, says that creditors holding US$ 2.8 billion of bonds have agreed to extend maturities after weeks of tense negotiations that included dire warnings from Caracas of a possible financial collapse. The deal, while far short of the US$ 5.325 billion that PDVSA had been seeking to exchange, was still seen as significant enough to win the state-run oil giant the relief it needs to continue servicing its debts for the time being. Notes from the company and Venezuela’s government surged after the announcement. The deal comes at a hefty cost. While the country’s oil minister touted it as a victory for the “fatherland,” Venezuela had to pawn one of its most attractive assets -- CITGO Petroleum Corp., the U.S. unit of PDVSA -- to persuade investors to accept the deal. Years of declining output and a crash in oil prices have left PDVSA and the government, which relies on crude for almost all its hard currency income, struggling to find enough cash to make payments and import basic necessities. (Bloomberg, http://www.bloomberg.com/news/articles/2016-10-24/venezuela-wins-relief-from-bondholders-as-39-accept-pdvsa-swap; El Universal, http://www.eluniversal.com/noticias/daily-news/bond-swap-5257-pdvsa-says_624128)

 

Commodities

Agriculture Ministry, NESTLÉ sign agreement to expand production

Venezuela’s Agriculture and NESTLÉ have signed an agreement to create 1500 direct and indirect jobs and substitute imports worth US$ 15 million through investments seeking to increasing production in 30 items, including milk, cocoa, rice, fruit and fruit pulp. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/economia/acuerdo-con-nestle-permitira-ahorro-millones-dolares_624125)

 

Economy & Finance

U.S. said to be closing in on PDVSA-linked seizures

U.S. Federal prosecutors are preparing to charge several individuals and confiscate their property over the alleged looting of Venezuela’s state oil company in what may amount to one of the biggest asset seizures in U.S. history. Three people familiar with the case say the government has been investigating at least a dozen Venezuelans and is expected to file charges in Houston against a few of them as soon as next month. Those on the list, including former executives of Petroleos de Venezuela SA, known as PDVSA, are suspected of having taken bribes from middlemen to award contracts at inflated prices, helping to siphon more than US$ 11 billion out of the country. All three people spoke on condition of anonymity because the investigation is ongoing and sensitive due to its impact on U.S. foreign policy. The government has set its sights on a number of U.S. assets, including about 20 residential properties, some in West Palm Beach and the Houston suburbs. Switzerland has seized US$ 118 million in assets from Swiss banks related to the matter and sent US$ 51 million to U.S. authorities, Bloomberg reported on Tuesday. Venezuela’s opposition-run congress is separately seeking to recover US$ 11.3 billion that went missing from PDVSA between 2004 and 2014 while Rafael Ramirez, currently Venezuela’s ambassador to the United Nations, was company president. It seeks to hold him politically responsible. Ramirez has rejected the congressional accusations as lies. Investigators are also looking at the dealings involving PDVSA and a number of companies, including Pratt & Whitney, General Electric and Rolls Royce Holdings, as well as ProEnergy Services, a Missouri-based firm. The prosecutors have been tracking money that flowed through Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co., they added. The people under investigation include current Venezuelan government officials, prominent businessmen and individuals suspected of involvement with cocaine trafficking, two of the people said. Homeland Security Investigations, the Drug Enforcement Administration and the FBI are all involved in the investigation, which has been under way for at least three years and looks at activity going back to 2005.  The investigation comes at a time when the cost of corruption is vividly apparent in Venezuela’s crumbling economy. A former finance minister, Jorge Giordani, has said that as much as US$ 300 billion was embezzled from Venezuela in the last decade through high-level corruption. The U.S. has a strong legal interest in the case because the allegedly ill-gotten money passed through its banks and was used to buy property here. The people under investigation have been linked to billions of dollars of gains, much of which was transferred to offshore accounts in Panama, the people said. (Bloomberg: http://www.bloomberg.com/news/articles/2016-10-25/u-s-said-to-be-closing-in-on-venezuelan-asset-seizures-charges)

 

Central Bank orders higher denomination currency

It has been reported that Venezuela’s Central Bank has ordered a VEB 1000 coin and currency bills denominated at VEB 5,000; 10,000 and 20,000 for delivery toward the end of this year due to inflationary pressure here, which the International Monetary Fund expects will close at 700% by year end. More in Spanish: (El Universal:


 

Venezuelan foreign debt only payable in foreign currency, says Rodriguez of TORINO

Converting foreign currency bonds to local currency would of course be an event of default under the terms of the bond indentures and would trigger Credit Default Swaps,” said Francisco Rodríguez, Chief Economist of TORINO Capital, in reference to a claim filed by company Corporation XT 46 with the Supreme Tribunal of Justice (TSJ). “The claim argues that Article 128 of the Law on the Central Bank (of Venezuela), which stipulates that payments in foreign currency must be made in a currency of legal tender at the place of payment, allows (state-run oil company Petróleos de Venezuela) PDVSA to pay in bolivars the coupons and amortizations of its foreign currency bonds,” according to Rodríguez’s report. “Coming as it did on the eve of Friday’s (since extended) deadline for PDVSA’s exchange offer for its two issuances due on 2017, and given that the claim explicitly referenced these issuances (as well as the Pdvsa 2016 bonds due October 28), the news generated concern that the government may have been looking for ways to avoid upcoming payments (…),” the economist noted. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelan-foreign-debt-only-payable-foreign-currency_624117)

 

Politics and International Affairs

Enraged Venezuela opposition escalates anti-Maduro protests

Venezuela's increasingly militant opposition stepped up its push to remove leftist leader Nicolas Maduro on Wednesday with rallies that drew hundreds of thousands of protesters and calls for a general strike and march on the presidential palace. Enraged by last week's suspension of their push for a referendum to remove Maduro and determined to end 17 years of socialism here, Venezuela's opposition has sharply ramped up its tactics in recent days.  Maduro, the unpopular 53-year-old successor to Hugo Chavez who has presided over an unprecedented economic crisis, accuses the opposition of seeking a coup with U.S. help. "They are desperate, they have received the order from the north to destroy the Venezuelan revolution," he told a counter-march of red-shirted government loyalists. After launching a political trial against Maduro on Tuesday in the National Assembly, the opposition coalition held nationwide marches dubbed "Takeover of Venezuela" on Wednesday. "This government is going to fall!" crowds chanted, many wearing white and waving national flags as they filled one of Caracas' main highways.  Protesters clashed with security forces in several cities across Venezuela, including the volatile western town of San Cristobal that was an epicenter of violence during 2014 anti-Maduro protests. Opposition leaders said there were dozens of injured, with two protesters reportedly struck by bullets in the Western city of Maracaibo near Colombia. Both were hospitalized and expected to recover.  Coalition leaders called for a national strike for Friday, and a Nov. 3 march to the Miraflores presidential palace in Caracas, unless the election board allows the referendum.  In apparent tactics to impede the opposition demonstrations, authorities set up roadblocks and closed some underground metro stations in Caracas. Reuters journalists in several cities reported big crowds at the opposition rallies, especially in the capital, collectively numbering hundreds of thousands. Wary of trouble, many businesses stayed shut and some parents kept children away from school. In the restive city of San Cristobal, masked protesters threw rocks and petrol bombs in clashes with security forces and attacked the local headquarters of the electoral council.  Maduro convened a special Committee for the Defense of the Nation at the presidential palace to analyze the National Assembly's actions against him and a tentatively scheduled dialogue with the opposition this weekend. National Assembly head Henry Ramos, a veteran politician who swaps insults with Maduro almost daily, declined an invitation to attend. "Here's his chair, empty again," said Maduro, urging participation in talks supported by the Vatican, regional bloc UNASUR and various ex-heads of state. Opposition leaders, however, said they would not attend talks until the government allowed the referendum process to continue. (Reuters: http://www.reuters.com/article/us-venezuela-politics-idUSKCN12Q0B6)

 

National Assembly votes to put President Nicolas Maduro on trial; military brass backs him

Venezuela’s opposition-led National Assembly voted on Tuesday to put President Nicolas Maduro on political trial, but the legislature’s dwindling power means the decision will likely have no practical effect. The vote was an attempt to put new pressure on Maduro a day before the opposition planned a show of force on the streets. The legislature charged Maduro with abandoning the presidency and carrying out a coup against the Constitution. “Let him respond for the actions that have destroyed, broken, denied the right to choose in a democracy,” said Julio Borges, the leader of the Assembly’s opposition bloc. In response to the vote, Edwin Rojas, a lawmaker from Maduro’s Socialist Party, said, “This is a cheap copy of impeachment.” Referring to the impeachment of former President Dilma Rousseff of Brazil, he added, “We are not Brazil.” Venezuela’s political turmoil has grown more intractable by the day, with the opposition reacting furiously to a decision by the Electoral Council last week that blocked a drive for a referendum to recall Maduro. The referendum has been seen as the most effective legal avenue to challenge Maduro’s increasingly autocratic rule, which many Venezuelans blame for the collapsing economy. Polls have shown that an overwhelming majority of Venezuelans would vote to remove him. Addressing a crowd outside the presidential palace on Tuesday, Maduro disregarded the Assembly vote. Instead, he blamed President Obama for Venezuela’s political standoff. “These attacks from the right are an attack by Obama because he is close to leaving,” Maduro said. He also invited the opposition president of the National Assembly, Henry Ramos Allup, to meet with him and other members of the government. As he spoke, the crowd chanted, “Dissolve the Assembly!” Maduro has just returned from a five-day trip overseas, where he met on Monday with Pope Francis and early Tuesday with the incoming secretary general of the United Nations, António Guterres. The Vatican has been attempting since May to mediate between Venezuela’s government and the opposition, and it appeared to have made a breakthrough on Monday, when the pope’s special envoy to Venezuela, Archbishop Emil Paul Tscherrig, said both sides would begin a dialogue on Sunday. But leading opposition figures said they would not take part in the session, suggesting instead that the government wanted to buy time by agreeing to discussions. “In a possible dialogue, the opposition has nothing to offer, only to demand,” Ramos Allup said. As the crisis mounted, the army came down squarely in support of Maduro. Defense Minister General Vladimir Padrino Lopez, in a rare televised address, accused congress of trying to promote instability and said the country’s armed forces would uphold the rule of law here. Congress’s “real intent is nothing less that to gravely affect the institutionality of the country through chaos and anarchy,” he said in a prepared statement. “They want to overthrow the lawfully established government of Nicolas Maduro Moros, who for us is not partial to politics but rather the constitutional president and commander in chief of the Bolivarian Armed Forces, with supreme authority and to whom we reiterate our unconditional loyalty and unwavering commitment.” (The Wall Street Journal: http://www.nytimes.com/2016/10/26/world/americas/venezuela-nicolas-maduro.html; Reuters, http://www.reuters.com/article/venezuela-politics-idUSL1N1CV102; Bloomberg, http://www.bloomberg.com/news/articles/2016-10-25/venezuela-s-military-backs-maduro-in-dispute-with-congress)

 

Pope urges Maduro to alleviate people's suffering

President Nicolas Maduro made a surprise visit on Monday to Pope Francis, who urged the embattled leader to alleviate people's suffering and negotiate with the opposition to solve his country's crisis. The private, evening meeting took place in the framework of the "worrying" situation in Venezuela which was "weighing heavily on the entire population", a Vatican statement said. It said the pope had urged Maduro to "courageously take up the path of sincere and constructive dialogue to alleviate the suffering of the people, most of all the poor, and to promote a climate of renewed social cohesion, which will allow people to look to the future of the nation with hope".  (Reuters, http://www.reuters.com/article/us-pope-venezuela-maduro-idUSKCN12O2A9; http://www.reuters.com/article/pope-venezuela-maduro-idUSL8N1CU5PA; Bloomberg, http://www.bloomberg.com/news/articles/2016-10-24/venezuela-s-maduro-meets-pope-francis-as-vatican-joins-talks; El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelas-maduro-meets-with-pope-francis_624163)

 

Papal Representative announces start of a dialogue; opposition says no talks without recall referendum

The Pope’s Special Representative, Monsignor Emil Paul Tscherrig, announced that President Nicolas Maduro’s government and the opposition MUD alliance agreed to initiate a dialogue next week in pursuit of a solution to this nation’s political crisis. The agreement to begin talks emerged from a meeting of the parties under the auspices of the Union of South American Nations (UNASUR), through the former presidents of the Dominican Republic, Leonel Fernandez, and Panama, Martin Torrijos, and former Spanish President Jose Luis Rodriguez Zapatero, the papal representative said. But opposition leaders balked at the terms of the announcement. "No dialogue has begun in Venezuela," said two-time presidential candidate Henrique Capriles. "These devils want to use the good faith of Pope Francis to buy more time." The opposition Democratic Unity coalition's major parties mostly said they would not be engaging in the talks unless the recall referendum process is reinstated. They also demanded that any talks be held in Caracas, not Margarita Island as originally proposed. The secretary general of the opposition coalition, Jesus Torrealba, who met Monsignor Tscherrig, said that while talks are important and Papal mediation has been sought by them, "it can't continue to be a strategy for the government to gain time".  Capriles later emphasized that he is willing to discuss how to solve the nation’s problems, saying: “If I have to meet with the devil, I would do so, with witnesses, with the Vatican”; and emphasized that he distrusts government representatives and those from UNASUR, particularly Rodríguez Zapatero; and would ask for conditions such as incorporating other heads of state, such as Spain’s Felipe Gonzalez; clear rules and a clear agenda that includes restoring the Constitution, freeing political prisoners,  accepting humanitarian aid, access for media and calling up a recall vote. “The opposition has nothing to negotiate. The government calls for talks because it is drowning…Talks are not to save Maduro and his regime”. He said that through talks he could agree to new general elections, through a Constitutional amendment, “Signed, because one cannot believe anything from those people, and endorsed by the people.” (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2423857&CategoryId=10717; El Universal, http://www.eluniversal.com/noticias/daily-news/vatican-envoy-announces-govt-opposition-talks-venezuela_624009; Reuters, http://www.reuters.com/article/us-venezuela-politics-idUSKCN12O27N; BBC News: http://www.bbc.com/news/world-latin-america-37758515; and more in Spanish: El Nacional, http://www.el-nacional.com/politica/Capriles-oposicion-negociar_0_946105681.html)

 

Head of Roman Catholic Bishops Conference says talks have not begun

Monsignor Diego Padrón, Chairman of Venezuela’s Roman Catholic Bishops Conference, says that talks between the government and its opposition have not yet begun. He said that on Sunday, October 30th there may be a meeting to set an agenda. He added that the Vatican continues to explore what disposition there is on both sides towards talks, and emphasized that talks cannot replace the people’s right to revoke President Maduro. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/politica/2016/octubre/25/173405=monsenor-diego-padron-aclaro-que-dialogo-entre-gobierno-y-oposicion-aun-no-ha-comenzado)

 

UNASUR praises talks in Venezuela, calls for more democracy

The Union of South American Nations (UNASUR) on Monday embraced the decision made by the Venezuelan government and the opposition to engage in talks, adding that political crisis may be solved only with more democracy. In a communiqué, Colombian ex-President and UNASUR’s Secretary General Ernesto Samper said that “today more than ever, it makes sense to call on all Venezuelans to find, through dialogue, the solution to differences that have them confronted with each other”. Likewise, Samper pointed out that the decision made by the National Electoral Council (CNE) to halt the collection of signatures for a recall vote against the term in office of President Nicolás Maduro could have intensified the differences. (El Universal, http://www.eluniversal.com/noticias/daily-news/unasur-praises-talks-venezuela-calls-for-more-democracy_624148)

 

HRW calls for international pressure in Venezuela’s humanitarian crisis

Human Rights Watch is urging “strong international pressure,” in particular from the countries of the Americas, to get the Nicolas Maduro government to take “immediate measures” to deal with the “profound humanitarian crisis” in Venezuela, according to a lengthy report released Monday. “The Venezuelan government has seemed more vigorous in denying the existence of a humanitarian crisis than in working to resolve it,” said HRW Americas director Jose Miguel Vivanco. “Its failures have contributed to the suffering of many Venezuelans who now struggle every day to obtain access to basic health care and adequate nutrition,” he added. In preparing the report, in which HRW denounces the “severe shortages” of medicines and food in Venezuela, as well as the “inadequate and repressive” government response, the human rights organization last June interviewed more than 100 people in Caracas and six Venezuelan states and visited several public hospitals. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2423839&CategoryId=10717; El Universal, http://www.eluniversal.com/noticias/daily-news/hrw-calls-for-intl-pressure-over-maduro-tackle-crisis-venezuela_623999)

 

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.

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