December 22, 2016

International Trade

Venezuela reopens Colombia, Brazil border crossings

Thousands of Venezuelans crossed into Colombia to buy food and medicine after their government partially reopened the border following a messy crackdown on what it called currency hoarders. But while foot traffic was permitted, trucks carrying needed goods remained blocked. Venezuela also reopened its main border crossing with Brazil after talks between officials at the Brazilian embassy and Venezuela's foreign ministry, officials in Brasilia said in a statement. The crossing is open for pedestrians, but only within limited hours for vehicles. (AFP: https://www.yahoo.com/news/venezuela-reopens-border-crossing-colombia-215620846.html; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427571&CategoryId=10717)

 

Colombia's Santos asks more collaboration from Venezuela against smuggling

Colombian President Juan Manuel Santos has basked Venezuelan authorities to collaborate more in the fight against smuggling on the common border, which was re-opened after eight days of shutdown ordered by the government of Nicolás Maduro.  “We need more collaboration from both parties to fight against smuggling, because this problem is not convenient for anyone,” President Santos asserted in a speech in the bordering city of Cúcuta, Colombia, where he met with regional authorities and representatives of several sectors. “Let’s strengthen the supervision in the trails that are still not under control,” added President Santos. He said that he had conveyed that message to his Venezuelan counterpart Maduro in a telephone conversation on Monday. (El Universal, http://www.eluniversal.com/noticias/daily-news/colombias-santos-asks-more-collaboration-from-venezuela-against-smuggling_632196)

 

Argentina says Venezuela will return to MERCOSUR when it complies with rules

Argentine Foreign Minister Susana Malcorra says Venezuela will return to MERCOSUR once it complies with all the organization’s rules. She said Venezuela “has ceased participating in MERCOSUR” and expects it will “comply with agreements and join in once more”. About dialogue between the Maduro regime and the opposition here, Malcorra said: “there is no formula that is not within Venezuelans”, since “there are no miracles from the outside”, nor any enemies abroad. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/internacionales/2016/diciembre/20/179559=susana-malcorra-senalo-que-venezuela-volvera-a-mercosur-cuando-cumpla-las-reglas)

 

Food, medicine and personal care products have arrived at La Guaira in 300 containers from Colombia. The shipment includes 238 containers bearing food, 38 with personal care products, and 24 with medicine, according to the local port authority. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34860)

 

Oil & Energy

Secrecy and confusion surround Venezuela’s latest oil deals

Venezuela’s newly created and military run oil and mining company CAMIMPEG has formed a joint venture with UK-based Southern Procurement Services (SPS) to reactivate shut-in wells in Lake Maracaibo in Zulia state. The deal has raised eyebrows, given its scale and the relative inexperience of the parties involved. A source with knowledge of developments and who has operations in the lake told NewsBase the well count could approach 1,500. Given their lack of experience, questions have been asked about whether the JV partners have the requisite personnel or capital to pull off the work. Indeed, the fact the companies have even been allowed to team up is startling. SPS and CAMIMPEG, which was created in February to protect petroleum installations belonging to state-run PDVSA, recently formed CAMIMPEG-SPS to “improve the oil and gas production process for PDVSA,” the JV tweeted last week. In the most recent of only three press releases available in the news section on its website, England-based SPS, which is part of the SCZ Group financial group, reported that it was engaged in activities to supply “electric submersible pumps” as part of trade initiatives. CAMIMPEG was also created in part to provide oilfield services to PDVSA, with a view to it replicating the activity of companies like SCHLUMBERGER, HALLIBURTON or WEATHERFORD. But President Nicolas Maduro is believed to have created the rookie company, which is run by the armed forces, to keep the military happy and loyal as Venezuela’s economy collapses. CAMIMPEG-SPS also recently signed a deal to acquire a fleet of vehicles that will be used to maintain a constant presence over PDVSA’s operating areas. Financing for both deals is likely to come from SCZ Group, which provides “special financing mechanism that allows customers to pay for purchases of oil products, petrochemical industries and basic industries,” according to statements on its website. The CAMIMPEG-SPS deal mirrors a similar agreement that was struck recently between PDVSA and US-based drilling contractor Horizontal Well Drillers (HWD). That deal saw the latter company make its debut in Venezuela, despite its lack of experience in hostile environments and insufficient cash flow to finance its activities without funding from another company. The deals with both CAMIMPEG-SPS and HWD come as hundreds of companies there with years of operating experience in Venezuela are struggling to get paid by PDVSA. Many have pared back their operations, while others have simply given up and exited the country. The secrecy and confusion surrounding the deals exemplify the state of Venezuela’s oil industry. (Oil Price: http://oilprice.com/Latest-Energy-News/World-News/Secrecy-And-Confusion-Surround-Venezuelas-Latest-Oil-Deals.html)

 

Two Die in Fire at Oil Complex in Western Venezuela

Two workers were killed and a third was injured in a fire at an oil complex in Valmore Rodriguez, a city in the western state of Zulia, state-owned Petroleos de Venezuela (PDVSA) said on Tuesday. The fire started at 7:50 pm Monday in a generator in the power generation section of the Lamargas-Lago Complex. Workers put out the fire and officials activated the emergency protocols and appointed a commission to investigate the accident, PDVSA said.
(Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427586&CategoryId=10717; El Universal, http://www.eluniversal.com/noticias/daily-news/research-task-force-established-after-fire-oil-complex-north-venezuela_632062)

 

Venezuela to sell fuel on the border with Colombia in pesos

President Nicolás Maduro has announced that Venezuela will charge the gasoline sales on the border with Colombia in pesos. He added that a payment mechanism would be implemented to allow Colombians to pay for gasoline through their local banking system, including bank cards. Later on, other products sold on the border would be paid through this mechanism, according to state-run news agency AVN. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-sell-fuel-the-border-with-colombia-pesos_632297)

 

Commodities

FORD halting Venezuela production until April

FORD Motor Co halted auto production in Venezuela last week and will not resume it until April, a company executive said on Tuesday, in another blow to the crisis-wracked country's manufacturing sector.  "It is a measure to adjust production to demand in the country," Lyle Watters, FORD's president for South America, told reporters at an event in São Paulo, adding that the plant affected by the shutdown employs 2,000 workers. Watters said the production freeze would not affect FORD's consolidated results as operations in Venezuela are reported separately. Beginning in the first quarter of this year, Venezuela became the only wholly owned FORD unit with operating results that are excluded from the full company's income statement.  In January 2015, FORD took a charge related to its Venezuelan operations that cut fourth-quarter net profit by US$ 700 million. FORD is the only automaker still mass producing cars in Venezuela, even on a limited scale. Vehicle production in recession-hit Venezuela is less than 8 cars a day, as per figures provided by the national automakers organization CAVENEZ. FORD produced 2,253 units out of a paltry national total of 2,768 in the year through November. In mid-2015, FORD's major U.S. rival, GENERAL MOTORS stopped making vehicles in Venezuela altogether. GM had one plant in Venezuela. (Reuters: http://www.reuters.com/article/us-ford-motor-venezuela-idUSKBN149266)

 

Maduro regime raises prices over 200% for coffee, corn flour, and sugar

The Maduro regime’s price control agency, SUNDEE, has published new prices on sugar cane, corn flour, white and yellow corn, coffee grains, green coffee and sugar in all its forms. The price of pre-cooked corn flour was raised 236.3%, and remains beneath adjustments sought by private industry here. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/establecidos-nuevos-precios-para-caf%C3%A9-harina-ma%C3%ADz-y-az%C3%BAcar; El Universal, http://www.eluniversal.com/noticias/economia/ajustan-precios-harina-precocida-cafe-azucar_632289; El Nacional, http://www.el-nacional.com/noticias/economia/sundde-publico-lista-nuevos-precios-del-cafe-azucar-harina-maiz_72241 http://www.el-nacional.com/noticias/economia/gobierno-subio-2363-harina-maiz_72330)

 

Economy & Finance

FEDECAMARAS sees no economic improvement next year

The nation’s leading business organization, FEDECAMARAS, says there is “no improvement” in sight here next year. “For three years running we are ending in crisis and recession. The government’s refusal to implement corrections to rescue the nation is bordering on irresponsible”. “Excessive controls and a growing distance from democratic principles has brought about the destruction of the nation’s productive system”. FEDECAMARAS says companies are operating at 35% capacity, annual inflation is close to 500% and basic product scarcity is above 80%. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/economia/2016/diciembre/20/179602=fedecamaras-no-avizora-ninguna-mejoria-para-el-proximo-ano-en-el-pais)

 

Maduro says second currency shipment of 500 bolivar bills arrived, threatens to arrest bankers

President Nicolás Maduro says a second aircraft bearing 12 million 500 bolivar bills arrived here on Tuesday. Central Bank vice president José Khan confirmed that a Russian aircraft bearing 11 million 500 bolivar bills has arrived. He added that 3 currency shipments have arrived: The first one on Friday, with 76 million 50 bolivar bills; a second load on December 18^th, with 13.5 million 500 bolivar notes; and then this third shipment. Maduro also says that local bankers who “sabotage” services will be arrested. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/politica/2016/diciembre/20/179616=presidente-maduro-anuncio-el-arribo-al-pais-del-segundo-lote-con-billetes-de-500-bolivares)

 

Why Venezuela should default

Venezuela continues to pay foreign bondholders despite an economic crisis that would have stymied other sovereign borrowers long ago. Although reallocating funds from debt service to the importation of much-needed food and medicine is tempting, the government fears that subsequent lawsuits could leave less money for imports. Venezuela already faces the typical costs of sovereign default, such as the loss of access to international credit markets and a decline in foreign direct investment, even though it remains up to date on its debt service. With a default seemingly inevitable, the country must eventually confront any other consequences, which are unlikely to include the dreaded seizure of Venezuelan oil tankers at sea. Venezuelan oil exports cannot be immediately seized. Instead, a legal cat-and-mouse game would ensue upon default. If creditors try to confiscate tankers of oil, Venezuela will ensure that, contractually, that oil is the property of the buyer before it leaves Venezuela. If creditors go after the money paid for that oil, Venezuela will reroute that money through China to evade them. Venezuela could also sell more oil through joint ventures and to China to further complicate matters for plaintiffs. Litigation would surely take a long time. Considering Venezuela’s dire economic situation, a United States court is unlikely to grant any immediate preliminary relief to hedge funds ahead of a lengthy proceeding on the merits. In the meantime, Venezuela would save around US$ 10 billion in annual debt service, an amount sufficient to restock empty supermarket shelves by funding an estimated 50% increase in imports. By alleviating shortages, these funds would give the current government, or a future government, some breathing room to enact economic reforms that would spur growth and assure long-term viability, reforms that have so far proved politically elusive. Venezuela may eventually have to pay what it owes, but that will be easier than overpaying now. Despite the government’s extraordinary efforts, creditors are not being treated fairly. While short-term creditors are paid in full, long-term creditors may not be paid at all. Every time the country pledges assets as collateral or sells the rights to natural resources, it subordinates and dilutes the claims of typically unsecured long-term creditors. Now is the worst time to sell Venezuela’s natural resources, considering the uncertain political and economic environment. Once the country stabilizes, the government can offer a restructuring that includes a maturity extension and deferral of interest payments in return for warrants that pay when oil prices rise, allowing bondholders to share in the upside. Incentives for litigation for hedge funds would be few if the restructuring were fair. Both the country and its creditors would be better off in this scenario than in a continued fire sale of Venezuela’s remaining assets. (The New York Times Op-Ed: http://www.nytimes.com/2016/12/21/opinion/why-venezuela-should-default.html?_r=0)

 

What do investors need to understand about Venezuela’s economy?

President Nicolás Maduro says that to combat smuggling and currency manipulation, the 100-bolívar note must be retired. He is correct when he claims the bill is popular with those who violate the country’s price and currency controls, but it's also popular with everyone else: its value fluctuates between two and four U.S. cents at the widely used black market currency exchanges, but it is the largest-denomination bill currently in circulation, and using lower-denomination bills is almost impossibly burdensome. To make using cash easier, new bills of up to 20,000 bolivars will be printed. What is wholly without logic is the original timeline for this plan. When it was first announced, the government said that the use of the 100-bolívar bills would be prohibited in three days, and that there would be a ten-day period for the six billion notes already in circulation to be traded in for new coins. It also said it would only allow bills being held in Venezuela to be traded in, and it even closed the borders with Colombia and Brazil to prevent currency smuggling, effectively confiscating the wealth of all holders of the bill abroad. The implementation of this scheme was never even remotely feasible, and this weekend government has extended the deadline, as well as the border closings, until January 2. Immediately before this plan was announced, it seemed like the situation in Venezuela could barely get worse: the country is undergoing a major currency crisis, it has the both the world’s highest inflation and the world’s deepest recession, it is seeing serious shortages of basic goods, including food, and there is a looming constitutional dispute that threatens the long-term viability of the government. (Forbes: http://www.forbes.com/sites/nathanielparishflannery/2016/12/21/what-do-investors-need-to-understand-about-venezuelas-economic-crisis/#101d38c27ace)

 

ODEBRECHT acknowledges it paid US$ 98 million in bribes in Venezuela alone.

Brazilian construction giant ODEBRECHT has signed the largest anticorruption settlement in history Wednesday with authorities on three continents, following a two-year investigation that landed its chief executive and dozens of other powerful figures in prison. The deal represents a landmark in Brazil’s so-called Operation Car Wash, which has unearthed what is widely seen as the most sprawling graft scheme ever exposed and triggered a political crisis that led to the impeachment of President Dilma Rousseff. ODEBRECHT paid nearly US$ 800 million in bribes related to more than 100 projects in 12 countries, including Angola, Venezuela and Mexico, as per U.S. court documents. Court documents indicate ODEBRECHT paid out US$ 98 million in bribes in Venezuela alone. ODEBRECHT doesn’t dispute any of the allegations and says it is cooperating with authorities. (The Wall Street Journal: http://www.wsj.com/articles/odebrecht-to-pay-2-6-billion-to-settle-bribery-claims-1482325309)

 

U.S. charges Florida men with laundering money for Venezuelan officials

A Florida construction equipment exporter's owners were arrested on Wednesday on charges they illegally transferred over US$ 100 million from businesses largely in Venezuela to U.S. and foreign bank accounts belonging to Venezuelan government officials and others. Luis Diaz Jr., 74, and his son, Luis Javier Diaz, 49, were charged in a criminal complaint filed in Manhattan federal court with conspiring to commit money laundering and operate an unlicensed money transmitting business. Both men, who run Miami Equipment & Export Co, according to their firm's website, were arrested in Miami, said a spokesman for Manhattan U.S. Attorney Preet Bharara. The case came amid U.S. Justice Department investigations that have focused on individuals tied to the Venezuelan government and their suspected roles in various bribery and drug-trafficking s schemes. As per the complaint, the family's company, beginning in 2010, facilitated hundreds of hundreds of transmissions of funds into the United States on behalf of an unnamed large consortium of Venezuelan construction companies. At the consortium's request, they also transmitted money to unnamed Venezuelan government officials, including one who oversaw the award of certain contracts on which the Venezuelan companies bid, the complaint alleged. the complaint said. During the period in question, a Portuguese shell company controlled by the individual linked to Venezuelan officials received at least US$ 17 million, the complaint said. The case is U.S. v. Diaz, et al, U.S. District Court, Southern District of New York, No. 16-mj-8150. (Reuters: http://www.reuters.com/article/venezuela-usa-crime-idUSL1N1EG1OB)

 

Politics and International Affairs

Unrest continues as protests reach Caracas and the Miraflores Presidential palace

Protests are nothing new in Venezuela and the country suffered months of unrest in 2014. This latest cycle of protests however began after President Nicolas Maduro announced he was withdrawing the country’s highest denomination banknote “in 72 hours.” The President later recanted, when he realized he had no new bills to replace the money with, promising to let the Bs 100 circulate until at least January 2nd, but to no avail: savage protests rocked the nation, resulting in 450 businesses looted and 405 arrested, according to figures offered by the Interior Ministry and the Fedecamaras private-sector guild. In a east Caracas, a crowd trying to buy price-controlled foodstuffs received buckshot instead, while a group of opposition lawmakers led a protest asking for the resignation of President Nicolas Maduro right outside the Miraflores Presidential Palace. This is Venezuela, after one week of continuous, deadly protests that have so far left seven dead. Opposition party leaders along with scores of ordinary citizens announced the beginning of “a new stage” of civil disobedience, during which they will occupy the streets to demand the resignation of President Nicolas Maduro. Three political parties – Voluntad Popular (VP), Alianza Bravo Pueblo (ABP) and Vente Venezuela – called for people to come join the protest and invited other parties of the MUD opposition alliance to take part in “the struggle” for a “beautiful Venezuela.” “We’re demonstrating across the country... We’re not calling for anything that violates the constitution,” David Smolansky, mayor of the Caracas municipality of El Hatillo, told reporters. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427530&CategoryId=10717; http://www.laht.com/article.asp?ArticleId=2427600&CategoryId=10717)

 

OAS Calls for 'Restoration of Institutional Order' in Venezuela

The General Secretariat of the Organization of American States (OAS) expresses its solidarity and unconditional support for the people of Venezuela in relation to the recent wave of violence, looting, and desperation sparked by the monetary measures adopted by the government that restrict the circulation of cash and as a corollary prevent the purchase of the most basic needs. At the same time, the General Secretariat calls for calm and the reestablishment of civic coexistence. The situation has led to serious incidents of public disorder in at least 12 states, with reports of demonstrations, disturbances, and/or looting in 27 cities. Added to this is the alarming and ongoing situation of the denial of civil and political rights, institutional rupture and social and humanitarian crisis. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427490&CategoryId=10717)

 

Venezuela unsafe for Americans and its own

The situation continues to go from bad to worse in Venezuela, so much so that the U.S. State Department has warned Americans that its dangerous to live in or even visit that country. The State Department’s Security Advisory Council last week sent the following message via Twitter: “Travel Warning: If the security climate worsens, U.S. citizens should be aware that they are responsible for making arrangements for their exit from Venezuela.” The advisory also said Americans should not travel here because crime and social instability have exploded. The State Department also emphasizes that the political and security situation in Venezuela is unpredictable, a moment-to-moment exercise. In the past, Venezuelan authorities have arrested U.S. citizens with no evidence that they committed crimes. These red alerts are no surprise. The economic crisis has created a situation of precariousness and anguish among the population — and among the hundreds of thousands of Venezuelans who live in exile in South Florida. Today, Venezuela is a place of mass despair. Street protests occur at any time and without warning. They can be peaceful or turn violent. The homicide rate has also skyrocketed, highlighting the social turmoil and the inability of the authorities to stop criminal activity. As for Americans, the State Department has already indicated that traveling to Venezuela is dangerous. And the warning should be taken seriously. Venezuela is a country on the edge. (The Miami Herald: http://www.miamiherald.com/opinion/editorials/article122130799.html#storylink=cpy)