February 02, 2017

International Trade

Cargo that has arrived at Puerto Cabello:

148 containers bearing food staples and chemicals for agribusiness, consigned to state agency CASA, including 13 containers of beef, 38 of whole milk; 5 of Sulphur; 15 of Diuron herbicide; 8 of etaxilated grease; and 7 with reax85 chemicals. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34959; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/arriban-al-pais-148-contenedores-con-alimentos-e-i.aspx)

 

Oil & Energy

PDVSA braces for oil production drop as default looms large

The recent bump in oil prices isn’t enough to help Petroleos de Venezuela SA as it faces its fourth consecutive year of declining production. The company’s crude output is expected to fall this year as it failed to raise cash for investments and after Venezuela agreed to cut 95,000 barrels a day for six months as part of a deal struck by the Organization of Petroleum Exporting Countries and other non-members to lift oil prices, analysts say. Even the recent increase in oil prices, following the cuts, aren’t enough to ease the company’s financial burden, Lucas Aristizabal, a senior director at Fitch Ratings, said. “Giving the tight liquidity, prices need to be significantly higher to revive output,” Aristizabal said in a phone interview from New York. “At least more than US$ 100 to start with,” he said. Fitch reiterates that a default of PDVSA’s debt is "probable" amid lower production associated with a moderate oil price increase and weak liquidity. (Bloomberg, https://www.bloomberg.com/news/articles/2017-02-01/pdvsa-braces-for-oil-production-drop-as-default-looms-large)

 

Venezuela's Paraguana refineries at 42% capacity

The Paraguana refining complex was operating at about 42% capacity, a union official said late on Monday, citing an internal report that came amid chronic unit stoppages in the country's refining system. The 645,000-barrel-per-day Amuay refinery was operating at about 300,000 bpd, while the adjacent 310,000-bpd Cardon refinery was at around 100,000 bpd, according to Ivan Freites, a union leader and fierce critic of state oil company PDVSA. Cardon's fluid catalytic cracking unit was halted on Jan. 23 due to a problem with a compressor, Freites said, adding it was likely to be down around two weeks. Amuay's flexicoker is still down too, according to Freites.

A worker at the complex, who requested anonymity because he is not authorized to speak with media, confirmed the stoppages. (Reuters, http://www.reuters.com/article/venezuela-refinery-idUSL1N1FL0RR)

 

Economy & Finance

 

FEDECAMARAS charges there is “complete opacity” in government FOREX management

Francisco Martinez, President of FEDECAMARAS, Venezuela’s main business federation, has charged that government allocation of FOREX at preferential rates is not transparent. “We only know that certain areas of the pharmaceutical sector receive them, other than that area, there is complete opacity. Preferential dollars are a black box, no one here knows who gets them, and how much they get”. Since early 2015 the government has implemented two official and controlled exchange rates: One is the “protected dollar” (DIPRO) at 10 VEN/US$1 and the other is the “supplementary dollar” (DICOM or SIMADI), currently at 689 VEB/US1. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/economia/2017/febrero/1/183981=fedecamaras-sostiene-que-

 

Venezuela’s default risk drops below 50%

Traders reduced their bets on a default of Venezuela’s dollar debt over the next year amid a thin repayment schedule in the first quarter. The implied probability of nonpayment over the next 12 months plunged to 44% in January from 59% at the end of December, as per credit-default swaps data compiled by Bloomberg. That’s the first time the risk of default has been below 50% since September. The longer-term outlook is still a little murky, with the odds of a credit event over the next five years at 89%. January proved to be a volatile month in Venezuelan politics as President Nicolas Maduro reshuffled his cabinet, named and delegated wide-ranging powers to a new vice president, replaced the head of the central bank and appointed a new board at state oil company Petroleos de Venezuela SA. That happened as officials continue to face declining oil production, accelerating inflation and a currency still weakening on the black market. The real wild card for Venezuela’s finances continues to be the price of crude, which stagnated in January even as OPEC cuts started to kick in. With large payments totaling nearly US$ 3 billion coming due in April, nerves may start to fray again if a sustained increase in oil prices is not seen soon. (Bloomberg, https://www.bloomberg.com/news/articles/2017-02-01/venezuelan-credit-dashboard-default-risk-falls-below-50-percent).

 Debt sustainability

Venezuela’s debt is obviously not sustainable right now, but if things changed, could it be? It’s hard to say given the uncertainties. For one, the government’s spending is a black box. Over half of the public sector’s budget is cash transfers to unconsolidated entities. PDVSA is another black box. Nobody knows exactly how much oil it exports and how much cash it gets for those exports. Venezuela’s GDP in dollars is also unknown and arguably unknowable in the context of byzantine exchange controls. Debt sustainability is not just about being able to pay your debts in theory. It’s about having enough margin for error to pay them in practice. With basically no savings, Venezuela’s margin is significantly reduced. Stabilizing the debt at 83% of GDP requires that bond markets lend to Venezuela at 8% for the forecast period. But inflation is picking up and interest rates in dollars are poised to rise under Trump. That means issuing debt in dollars will be more expensive for all emerging market economies. Secondly, modern Venezuela is a semi-failed state run by largely inept politicians. The last time markets were willing bankroll Venezuela for 8% a year was a decade ago, in 2007, when oil was booming and Chavez lived. Folks on Wall Street often say that “Venezuela doesn’t need to default.” Strictly speaking, they are right. It is possible for Venezuela to get its act together, rationalize policy, attract massive investment, regain investor confidence, not default etc. But to confuse possible scenarios with probable scenarios is dangerous and misleading. Sooner or later, Venezuela will likely have to restructure its debt. It’s high time to begin planning for that scenario, rather than crossing our fingers and looking the other way. (Caracas Chronicles: https://www.caracaschronicles.com/2017/01/31/debt-sustainability-30000-feet/)

 

Politics and International Affairs

 

Regime attacks on Catholic church intensify

Attacks against the Catholic Church in Venezuela are growing in number and intensity, the church said Monday.
During Sunday mass in Caracas, a Chavista biker gang interrupted the service, sequestered the flock and forced them to listen to a pro-government tirade, days after Vatican-brokered talks between the embattled government of Nicolas Maduro and the opposition broke down. Monsignor Diego Padron, president of the Venezuelan Bishops Conference, said that the attacks were not isolated incidents but events “staged to intimidate”. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2430176&CategoryId=10717)

 

Venezuelan legislators vow to continue denunciations despite “aggressions”

Venezuela’s opposition controlled National Assembly passed a resolution on the “violation of the rights” of legislators, and vowed to continue making denunciations despite what they consider “aggressions” by the government and the judiciary.  Opposition legislator Luis Florido, who heads the Foreign Affairs Committee, said his passport had been cancelled at the airport upon his return from the Dominican Republic last Friday. He was told he had a “migratory embargo” and has not been able to get a new passport despite his parliamentary immunity. Legislator Delsa Solorzano, who heads the Internal Affairs Committee, challenged a sentence by the Supreme Tribunal’s Constitutional Chamber that she said violates the legislature’s rules of procedure. Former National Assembly President Henry Ramos Allup denounced “regime ruses” and the Supreme Tribunal’s “contempt” ruling concocted to stop the duly elected representatives from carrying out their duties. During the same session, the legislature ordered the Comptroller Committee to being an investigation into bribes allegedly paid by Brazilian construction firm ODEBRECHT. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/politica/2017/enero/31/183944=diputados-venezolanos-dicen-que-seguiran-con-denuncias-pese-a-

 

Freedom House lists Venezuela as "not free"

Venezuela is listed as “not free” in the annual Freedom House report released on Tuesday. “Venezuelan president Nicolás Maduro’s combination of strong-arm rule and dire economic mismanagement pushed his country to a status of Not Free for the first time in 2016,” says the report. “Venezuela had served as a model for populist regimes in the region, but today it epitomizes the suffering that can ensue when citizens are unable to hold their leaders to account,” the paper states. In 2016, “Maduro, relying in part on the regime’s control of the courts, responded to an opposition victory in recent legislative elections by stripping the legislature of meaningful power and blocking a presidential recall referendum, effectively cutting off the only route to an orderly change of leadership.” (El Universal, http://www.eluniversal.com/noticias/daily-news/freedom-house-lists-venezuela-not-free_637602)

 

Economic crisis is no reason to put off regional elections in Venezuela

There is no "constitutional or legal" reason, as well as no argument to justify not holding elections for governors this year, says Venezuelan constitutional lawyer Hermánn Escarrá. He specifically rejected the need to focus attention on the economic crisis, as has been argued by the Venezuelan government, to set aside regional elections this year. "That would not be the best of arguments. We have an electoral power and it is up to them to always specify within the framework of the Constitution the period of the consultation,” says Escarrá. (El Universal, http://www.eluniversal.com/noticias/daily-news/expert-economic-crisis-does-not-prevent-regional-elections-venezuela_637654)

 

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.