April 11, 2017

International Trade

160,000 bags of NPK fertilizer for state agency AGROPATRIA have arrived at Puerto Cabello, according to the local port authority. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=36225; El Universal, http://www.eluniversal.com/noticias/economia/fertilizantes-del-plan-siembra-2017-fueron-descargados-puerto-cabello_647286; El Mundo, http://www.elmundo.com.ve/noticias/economia/agro/descargaron-en-puerto-cabello-fertilizantes-del-pl.aspx)

 

Oil & Energy

US Congress calls for investigation of PDVSA - ROSNEFT deal over CITGO in USA

House Foreign Affairs Committee Chairman Jeff Duncan and Ranking Member Albio Sires of the House Committee on Foreign Affairs Subcommittee on the Western Hemisphere have called on the U.S. Department of the Treasury to give immediate attention to a potential threat to critical U.S. energy infrastructure because of a recent asset transfer between Venezuela’s PDVSA and Russia’s ROSNEFT of PDVSA’s U.S.-based subsidiary CITGO. “The United States has a clear national interest in achieving energy independence," said Chairman Duncan, of the bipartisan call for a CFIUS investigation. "The recent loan agreement between Russia and Venezuela involving Citgo refineries, pipelines, and terminals presents a clear threat to U.S. energy security." "Given the uncertain economic and political situation in Venezuela, I am deeply concerned that a future default by Venezuela could result in Russian ownership of Citgo. This would give Russia clear control over the sixth-largest refinery in our country, the ability to impact gas prices for the American people, and a strategic advantage over U.S. freedom of action globally. Russia has made no secret of its ambitions to thwart the U.S., and it is using countries in the Western Hemisphere to accomplish its objectives." "I urge CFIUS to review this recent transaction and take necessary action to protect our nation’s energy infrastructure.” CFIUS is the multi-agency Committee on Foreign Investment in the United States, made up of the Secretary of the Treasury, Secretary of Justice, Secretary of Homeland Security, Secretary of Commerce, Secretary of Defense, Secretary of State, Secretary of Energy, the US. Trade Representative and the head of the Office of Science and Technology Policy. CFIUS is tasked with reviewing any transaction that could result in control of a U.S. business by a foreign person to determine its effect on the national security of the USA. (Latin American Herald Tribune: http://www.laht.com/article.asp?ArticleId=2434226&CategoryId=10717)

 

Venezuela is the wild card in the OPEC deal extension

News coming out of Venezuela over the past two years has reeked of corruption and failed political leadership. Despite all of this, the Organization of Petroleum Exporting Countries (OPEC) expects Venezuela to play a major role in the cartel’s plan to curb global supply. In OPEC’s November agreement, Venezuela accounted for almost 10% of the net supply cut from member nations (calculated as cuts minus allotted increases). Now, as OPEC begins to discuss extending the cut, in part to combat a flood of U.S. supply, Venezuela could surprise oil markets and potentially rock OPEC’s plans, regardless of whether its production slips or Maduro finds a way to encourage developers to crank up drilling to generate quick cash. The drama unfolding in Venezuela is sure to come to a head as its next debt payments come due, and oil markets will be watching its production closely. History has shown time and time again that regimes that neglect the welfare of the people eventually collapse upon themselves. But until this collapse happens, the political turmoil will continue to complicate pending OPEC conversations and add an additional layer of uncertainty to the oil markets. (Oil Price.com: http://oilprice.com/Geopolitics/South-America/Venezuela-Is-The-Wild-Card-In-The-OPEC-Deal-Extension.html)

 

Venezuela oil price jumps

The price Venezuela receives for its mix of medium and heavy oil rose on talk that the OPEC cuts may be maintained for another 6 months instead of expiring in June. According to figures released by the Ministry of Petroleum and Mining, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending April 7 rose to US$ 43.57, up US$ 2.11 from the previous week's US$ 41.46. According to Venezuelan government figures, the average price in 2017 for Venezuela's mix of heavy and medium crude has fallen to US$ 44.68. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2434375&CategoryId=10717)

 

Economy & Finance

Miner CRYSTALLEX seeks injunction against Venezuela's PDVSA

Canadian miner CRYSTALLEX on Monday asked a U.S. court for an injunction against Venezuelan state oil company PDVSA, which it accuses of illegally transferring assets out of a U.S. subsidiary to avoid paying compensation in an investment dispute. A separate U.S. court last month upheld an award by a World Bank tribunal that orders Venezuela to pay CRYSTALLEX US$ 1.2 billion in compensation plus US$ 200 million in interest for Venezuela's 2008 expropriation of the Las Cristinas gold project. CRYSTALLEX said in a motion in U.S. District Court in Delaware that PDVSA had carried out nearly US$ 2.8 billion in operations involving U.S. subsidiary Citgo and pledged Citgo shares to a Russian oil firm as a guarantee for a loan, which Crystallex called an effort to block it from collecting compensation. (Mining Industry Today: http://mining.einnews.com/article__detail/375440355-miner-crystallex-seeks-injunction-against-venezuela-s-pdvsa?vcode=XIbw)

 

Seven Wall Street firms are betting big on PDVSA bond paydays

Last month’s dip in PDVSA bonds coming due in a few days shows how nervous some investors are about a default. But some of the biggest holders are now extending their bets on Venezuela, selling the shortest-term securities to buy notes that mature in November. The theory is that the state-owned oil company will not only get through this week’s payment, but survive until the end of the year without running out of cash. It’s a bold bet as the country’s foreign reserves tumble amid a shortage of hard currency to pay for imports such as food, medicine and toilet paper. PDVSA’s bonds due Wednesday have gained 3.6% after dropping on March 31 to their lowest level in more than a month as a clash between the Supreme Court and legislature heightened fears that the fractured nation was headed for disaster. There’s still a 54% implied probability of a Venezuelan default in the next 12 months, up from 40% in February, according to credit-default swaps data compiled by Bloomberg. "I expect payments to be made; however, this is not a risk-free proposition," said Jan Dehn, the head of research at Ashmore Group, which oversees about US$ 52 billion of assets from London. Ashmore is the third-largest holder of PDVSA bonds maturing in the next year, with 4.3% of the total amount outstanding, according to data tracked by Bloomberg. Only T. Rowe Price (9.1%) and Fidelity (5.1%) have more. Altogether, seven firms hold more than a quarter of the company’s debt due in the next 12 months, according to the latest filings, some of which are more outdated than others. With foreign reserves at a 15-year low, Venezuela has relied on everything from gold to China to Wall Street investment firms for assistance in paying its debt. Last week, the government secured at least US$ 300 million from David Martinez’s FINTECH Advisory Inc. The high yield now available on the notes due in November caused many of the nation’s biggest owners of the April bond to switch their holdings. "No one can predict the exact date on which they will default," said Sarah Glendon, the head of sovereign research at Gramercy Funds Management in Greenwich, Connecticut, noting that default risk has been high since 2014. "Instead of the market discussing default in the context of ‘not this year, but next year,’ the focus seems to be on ‘not this maturity but the next maturity, or even coupon." (Bloomberg: https://www.bloomberg.com/news/articles/2017-04-11/seven-wall-street-firms-are-betting-big-on-pdvsa-bond-paydays)

 

Bondholders are doubting Venezuela's state-owned oil giant

Venezuela’s willingness to honor its debts is coming under fresh scrutiny even as the will-they-or-won’t-they jitters surrounding a US$ 2.1 billion payment this week have largely subsided. The bonds from the state oil company maturing Wednesday traded as low as 94 cents on the dollar last week, showing a lack of confidence that Petroleos de Venezuela SA would come up with the needed cash. The securities shot up to 97 cents on Friday after PDVSA issued a statement saying it had already begun the payment process. The TORINO Capital research firm immediately echoed PDVSA’s announcement, reporting that the state oil company has amassed sufficient resources by lowering transfers to the Central Bank and drawing from its own resources to effectively meet its obligations. While analysts have been questioning Venezuela’s ability to avoid default for years, what’s different these days is increasing concern that a steady drop in foreign reserves will break the willingness to pay. The thinking goes that its diminishing supply of cash amid chronic shortages of basic goods means a default will happen eventually, so why should policy makers spend every last penny before succumbing to the inevitable? It would be better to stop payments now and renegotiate the debts, according to this lineof thought. (Bloomberg, https://www.bloomberg.com/news/articles/2017-04-10/venezuela-bondholders-enter-new-era-of-worry-after-pdvsa-pledges; and more in Spanish: El Universal, http://www.eluniversal.com/noticias/economia/torino-venezuela-cuenta-con-recursos-para-pago-deuda_647887)

 

Politics and International Affairs

Hospital tear-gassed, chaos ensues as protests intensify

Venezuela was roiled by a fifth straight day of protests Monday as opposition demonstrators and government security forces clashed in the capital of Caracas and other cities. Thousands of protesters demanding new elections faced off with security forces who launched tear gas and stood shoulder-to-shoulder blocking roadways in the Venezuelan capital Monday. Demonstrators covered their faces to protect against the plumes of tear gas that wafted through the streets of Caracas. A few threw rocks as they tried to make their way downtown waving Venezuelan flags and carrying signs decrying President Nicolas Maduro. The violence in the streets seemed to intensify. Video showed tear gas canisters thrown from helicopters to deter protesters and even a hospital was tear-gassed. "We went into the streets to protest measures taken by the government against our own constitution and our own democracy. But this time repression was worse than before," Juan Mejía, an opposition lawmaker for the Voluntad Popular Party, told NBC News.  Protesters charge that government security forces tear-gassed a hospital in eastern Caracas. Video showed an active tear gas canister inside the grounds of hospital Policlinica Las Mercedes. Daniel Beleli, a doctor who works at the hospital, can be seen bringing one tear gas canister up to the camera in one video. He says critically ill patients were inside the operating rooms when the gassing began and staff had to turn the air conditioners off to keep them from inhaling it. NA one-month-old baby had to be taken from the hospital and treated for asphyxiation, as reported by opposition figure Henrique Capriles. Chaos of this scale has not been seen in the streets of Venezuela in nearly three years. Ombudsman Tarek Saab, a politician traditionally aligned with the government, took to Twitter to reject "objects, tear gas being thrown from choppers to disperse protesters."  Protesters are fighting back after an apparent crackdown on opposition leaders. One of the country's main opposition figures, Leopoldo Lopez, has been in prison for more than three years. Another major opposition figure, Henrique Capriles, the current Governor of Miranda — the most populous state — was banned from office for 15 years this week. The U.S. State Department on Monday night stated its concern over the barring of Capriles, saying Maduro "must stop silencing opposition voices." The European Union earlier added to the international pressure, raising alarm over the "ongoing escalation of tensions and violent confrontations." Many protesters held banners that read: "No more dictatorship." Police fired water cannons, tear gas and rubber bullets at demonstrators, who hurled rocks and Molotov cocktails. One protester was killed on Thursday. Dozens of people have been wounded or arrested. According to Venezuela's Justice Minister, General Nestor Reverol, 18 people were arrested Monday in Caracas for "generating chaos, causing harm and altering peace." According to the NGO Foro Penal Venezolano, 188 people were arrested during the protests that took place between April 4 and April 8. Fifty-seven demonstrators are still behind bars, according to the group. Opposition protesters showed no signs of backing down, with another rally planned for Tuesday. (NBC News: http://www.nbcnews.com/news/world/venezuela-protests-hospital-tear-gassed-chaos-ensues-protests-intensify-n744996; News24: http://www.news24.com/World/News/venezuela-erupts-in-fifth-day-of-protests-against-president-20170411; EuroNews: http://www.euronews.com/2017/04/11/venezuela-hit-by-further-opposition-protests; Bloomberg, https://www.bloomberg.com/politics/articles/2017-04-07/venezuela-s-capriles-says-he-s-banned-from-public-office; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2434325&CategoryId=10718; http://www.laht.com/article.asp?ArticleId=2434354&CategoryId=10717; Reuters, http://www.reuters.com/article/us-venezuela-politics-idUSKBN17C1Y4; Al Jazeera: http://www.aljazeera.com/video/news/2017/04/venezuela-protesters-mount-pressure-president-maduro-170411061408556.html; The Miami Herald: http://www.miamiherald.com/latest-news/article143740874.html#storylink=cpy; The Wall Street Journal: https://www.wsj.com/articles/venezuela-protests-keep-pressure-on-embattled-maduro-1491681828; El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelan-ngo-105-detainees-during-protests-this-week_647641)

 

Under siege at home, Maduro gets support from regional allies in Cuba

Venezuela's leftist, regional allies pledged to support its embattled government at a summit in Havana on Monday, where President Nicolas Maduro accused the opposition of resorting to violence to lay the groundwork for a foreign invasion. Bolivia, Cuba, Ecuador, Nicaragua and several Caribbean countries issued a statement in his support. "We reject the aggressions and concerted manipulations against our ally," read the statement published by the leftist ALBA bloc of 11 Caribbean and Latin American countries. The association was founded by Communist-ruled Cuba and its top ally Venezuela 13 years ago as a counterpoint to U.S. influence in Latin America. It singled out the Washington-based Organization of American States, which has been bitterly critical of Maduro, for what it called attempts to undermine Venezuela's sovereignty. Latin America has shifted away from leftist populism toward more centrist policies in recent years and so the ALBA bloc has lost heavyweight regional allies, such as Argentina and Brazil. Venezuela has come under increased pressure over the past weeks not just from the OAS, but also American and European countries that have condemned its crackdown on the opposition. During a 1-1/2-hour speech, Maduro said he was open to dialogue but the opposition was not. (Reuters: http://www.reuters.com/article/us-cuba-venezuela-idUSKBN17D0AJ)

 

Maduro “anxious” to hold regional elections, says will beat opposition

Embattled President Nicolas Maduro said Sunday he was “anxious” for regional elections to take place in order to “beat up” the opposition, after days of violent protests have resulted in one dead, almost two hundred arrested and scores injured. "I am anxious for elections to be called so I can answer them with votes,” Maduro said during a public event, adding that he will “beat up” the opposition, conjuring images of recent street violence against demonstrators. One university student was killed by the executive-controlled National Police while demonstrating against Maduro Thursday night. “They are good for nothing”, Maduro said of the opposition. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2434358&CategoryId=10717)

 

Venezuela Socialists' election strategy? Block adversaries

Venezuela's move to bar two-time presidential candidate Henrique Capriles from public office for 15 years looked like an unusually brazen blow at the opposition but is just the logical extension of a strategy that has emerged as the last, best hope of President Nicolas Maduro's Socialists for maintaining power. A nearly identical maneuver was used ten years ago to halt the rise of former mayor Leopoldo Lopez, who in polls remains one of the most influential opposition leaders despite being jailed three years ago for his role in anti-government protests. The situation suggests the Socialists may continue to lean on Comptroller Manuel Galindo, accused by the opposition of being a government puppet, to clear the playing field of potential challengers. The election, still unscheduled, must be held by the end of 2018. Maduro is struggling under low approval ratings and Soviet-style product shortages, but so far the opposition has failed to find a way around the Socialists' domination of the top court and other state institutions that have found one excuse after another to sideline them. (Reuters,  http://www.reuters.com/article/us-venezuela-politics-elections-idUSKBN17B0ZC)

 

Brazil, OAS chief raise diplomatic pressure for Venezuela vote

Brazil and the head of the Organization of American States (OAS) called on Monday for elections to restore full democracy in Venezuela, raising diplomatic pressure on the Socialist state during its most sustained opposition protests in years. After a meeting in the Brazilian capital, OAS head Luis Almagro said elections were the only solution to a political and institutional crisis roiling Venezuela after the delay of state votes and a crackdown on opposition parties. The government has not officially called the next presidential election, which is scheduled for 2018. In some of the strongest comments to date from South American diplomatic heavyweight Brazil, Foreign Minister Aloysio Nunes said the international community must hold Venezuela to confirming an electoral calendar. "We must insist on the urgency of confirming the electoral calendar in Venezuela," Nunes told journalists. "Brazil supports an honest and effective international political dialogue to guarantee the full restoration of democracy." (Reuters, http://www.reuters.com/article/us-venezuela-oas-idUSKBN17C24Q; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2434396&CategoryId=10717)

 

Mexican government condemns violence in Venezuela

Mexico's government on Sunday condemned the acts of violence that have taken place in Venezuela in recent days, which damaged public buildings and the offices of banned opposition leader Henrique Capriles. "Mexico calls on all parties to refrain from resorting to violence or provocation and resolve their differences through peaceful means," the foreign affairs ministry said in a statement. Protesters clashed with security forces during protests in Venezuela on Saturday after a ban on Capriles breathed life into a fractured movement and fueled the first sustained anti-government demonstrations since 2014. Capriles, a two-time presidential candidate and current Miranda state governor, on Saturday said his headquarters in Caracas had caught fire after tear gas was thrown inside. He was seen by many as the opposition's best chance in the presidential election scheduled for 2018, but on Friday was banned from holding political office for 15 years. (Reuters, http://www.reuters.com/article/us-mexico-venezuela-idUSKBN17B0ZE)

 

Caracas is the most violent city in the world, says Mexican NGO

A total number of 130.35 killings in every 100,000 inhabitants were recorded in Caracas in 2016, turning it into the most violent city in the world, according to a report released by a Mexican NGO. The ranking, prepared by the Citizen Council for Public Security and Criminal Justice, surveys cities with 300,000 or more inhabitants. The number of murders in Caracas, again top in the list as in 2015, “confirms the appalling crime crisis in Venezuela.” (El Universal, http://www.eluniversal.com/noticias/daily-news/caracas-the-most-violent-city-the-world-says-mexican-ngo_647643)

 

US Southern Command denies any plan to invade Venezuela

Last week, Admiral Kurt W. Tidd, head of the US Southern Command, reported to the Senate Armed Services Committee that “"Venezuela faces significant instability in the coming year due to widespread food, and medicine shortages; continued political uncertainty; and a worsening economic situation. This growing crisis in Venezuela could require an immediate regional response.” His remarks drew a flurry of media comment and an immediate reply from Venezuela’s Foreign Affairs and Defense Ministries, claiming that Tidd’s presentation is part of meddling in Venezuela’s internal affairs, aimed at creating uncertainty and instability in the country. Tidd later issued a further clarification saying: "Each time I open my mouth and say one word about Venezuela, newspapers in Caracas say I am planning an invasion and that is not so”, He added that the US fully supports OAS efforts to meet the crisis. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-rebuts-remarks-from-the-southern-command_647642; and more in Spanish: Notiminuto: http://www.notiminuto.com/noticia/ee.uu-crisis-en-venezuela-podria-originar-una-respuesta-inmediata/; http://www.notiminuto.com/noticia/ee.uu-no-tiene-intenciones-de-invadir-venezuela/)

 

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.