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.

Tuesday, October 23, 2018

October 23, 2018

International Trade

Mexico prosecutors find fraud in Venezuela food aid program

Mexican Prosecutors say that people linked to the Venezuelan government and Mexican companies conspired to overcharge Venezuela for basic food aid packages. Known as "CLAP" packages, the food is supposedly subsidized by Venezuela's socialist administration to provide a bare level of subsistence to many families facing hunger amid the country's hyperinflation and economic breakdown. But Mexican prosecutors said an investigation found that the Venezuelan officials and Mexican businessmen bought poor quality items in bulk and exported them to Venezuela at more than double their real price. Mexico's top organized crime prosecutor, Israel Lira, said the suspects have agreed to pay US$ 3 million in reparations to the U.N. refugee agency, to be used for its Latin America operations. The agency is focused overwhelmingly now on helping Colombia resettle hundreds of thousands of Venezuelans fleeing the humanitarian crisis. Lira said prosecutors located 1,300 shipping containers with 1.8 million packages but allowed them to continue to Venezuela to avoid affecting recipients. U.S. Treasury Department officials previously compiled a list of suspected shell companies that they believe senior Venezuelan officials have used around the globe to siphon off millions of dollars from food import contracts. Financial forensic investigators from the U.S. and three Latin American allies — Mexico, Panama and Colombia — traced transactions by companies believed to be controlled by a government-connected businessman. Much of the food comes from Mexico, and there have been complaints about its quality. On May 17, three days before Maduro was re-elected, Colombia announced the seizure of 15 shipping containers filled with more than 25,000 CLAP boxes containing beetle-infested rice and other spoiled food. A story published by The Associated Press in 2016 revealed how senior Venezuelan officials and members of the military were enriching themselves by diverting money from food contracts. Alex Saab, from the Colombian city of Barranquilla, has been identified by U.S. officials as a major focus of the investigation. Saab gained some prominence in 2011 after signing an agreement to build social housing for the Venezuelan government on behalf of a Colombia-based construction company. Investigators have said Saab entered the food business through a Hong Kong-based company, Group Grand Ltd., which they said bears the hallmarks of a shell company, including no known track record in the food business, a rudimentary website that is now inaccessible and an address in Caracas shared with Saab's construction company. Group Grand has been awarded contracts to provide at least 11.5 million CLAP boxes, according to a Venezuelan Food Ministry spreadsheet. Among the transactions that have raised red flags is a September 2017 invoice presented to Venezuela's food ministry by Group Grand for US$ 41 million worth of powdered milk at a price of US$ 6,950 per metric ton, or more than double the market price at the time. A copy of the invoice was provided to the AP. (The Miami Herald:


Oil & Energy

Caracas to divert oil shipments away from Beijing

Venezuelan state-run oil company Petroleos de Venezuela (PDVSA) may begin cutting shipments to China that are used to pay for previous loans in favor of prioritizing shipments to the United States or India, which pay in cash. PDVSA will not receive any further Chinese loans to raise production from joint ventures if the company defaults further on Beijing's loans. Redirecting oil shipments would be a short-term strategy to free up more cash for pressing necessities such as debt and arbitration payments. (Stratfor:


Blackouts force Venezuelans to live and work — even perform surgery — in darkness

Blackouts in Zulia state, an area of northwestern Venezuela that includes the country’s second-largest city of Maracaibo, have become commonplace in the last year. Food and medicine were already increasingly scarce in Venezuela, but the power cuts that come without warning — sometimes more than once a day — are a new form of misery. And though some widespread outages have reached the capital of Caracas, Zulia — the heart of Venezuela’s energy industry — has turned out to be particularly vulnerable to the rolling blackouts. The government has blamed the outages on a variety of things — including pesky animals. In an Oct. 20 tweet, Energy Minister Luis Motta Dominguez named “rats, mice, snakes, cats, squirrels” as possible culprits in shorting out lines. He added: “In the list of animals mentioned above, of course iguanas are included.” Critics, however, say insufficient investment by the government is the cause, following the 2007 nationalization of the electricity sector. Zulia has experienced 11,131 power failures between January and September this year, according to a civil association called the Blackouts Committee, which receives daily reports of power cuts from citizens. Public transportation, already diminished by the economic crisis, becomes even more dysfunctional when the power flickers and goes out. Communications work erratically. People’s routines are on hold. Lines of cars are two blocks long at gas stations. Commerce and education are paralyzed. Omar Prieto, Zulia’s governor and a support of President Nicolás Maduro, declared in early October that the electric crisis in Zulia was over. But then a massive power failure in a substation in Carabobo left 11 Venezuelan states, Zulia included, without electricity for 12 to 18 hours on Oct. 15. José Aguilar, a Venezuelan power generation and risk consultant, says the power system has been in trouble since 2009, prompting the late President Hugo Chávez to announce new investment and more emphasis on the power system. He said that more than 80% of power generation in Zulia isn’t working due to lack of maintenance and corruption. “The government is overloading power lines, old equipment, and generation and distribution substations,” he said. And he thinks the crisis is far from over in Zulia and especially Maracaibo, once known for being the third Latin American city to have regular electricity in its streets. He thinks Zulia will experience more blackouts between January and February next year, when the general power demand traditionally grows. One of the most affected districts in Zulia is Guajira, a town next to the Colombian border whose population is mostly indigenous. Recently, the residents have been living without electricity for two or three days at a time until the service comes back up, usually for only four uninterrupted hours. (The Miami Herald:



RUSORO Mining has received a settlement proposal from Venezuela

RUSORO Mining Ltd. announces that it has agreed on the terms of a settlement proposal with Venezuela by which Venezuela agrees to pay RUSORO over US$ 1.28 billion to acquire the Company's mining data and for full release of the arbitral award issued in favor of the Company in August 2016 by a tribunal constituted pursuant to the Additional Facility of the International Centre for Settlement of Investment Disputes. In addition, it is contemplated that the parties will constitute a Mixed Commission to assess the status of RUSORO's Choco 10 and San Rafael - El Placer former projects and based on such assessments may by the end of January 2019 partner to exploit those projects. RUSORO expects to sign the formal settlement agreement shortly after completion of the schedules to the Settlement Agreement. (RUSORO:


Economy & Finance

FEMSA to lay off 2,000 Venezuela workers amid crisis: union

COCA COLA FEMSA is preparing to lay off 2,000 of the 4,800 total workers at its Venezuela soft drink operations due to falling demand in the crisis-stricken country, a union leader said, while the company acknowledged it was “revising” output. The move makes FEMSA, one of the largest soft drink bottlers in the world, the latest multinational to downsize in this country. “The company has said that it needs to reduce headcount and suspend some benefits,” said Daniel Montilla, secretary of the union representing workers at the FEMSA plant in the industrial city of Valencia, where Femsa plans to lay off 300 workers. (Reuters,


Out of cardboard, another COLGATE plant shuts down in Venezuela

COLGATE-PALMOLIVE plant in Valencia, Venezuela, stopped operating this week due to a shortage of cardboard needed for packaging, said Carlos Rodriguez, an employee union leader. The plant, which produced liquid detergent, fabric softener and dishwasher soap, required cardboard to transport company products to stores, supermarkets and pharmacies. The shortage worsened after the government took over control of paper and packaging manufacturer SMURFIT KAPPA’s Venezuelan operations there earlier this year. This is the second out of five production plants to close in the country, Rodriguez said. (Bloomberg,


Politics and International Affairs

Pompeo: Venezuela's Maduro has to go

Secretary of State Mike Pompeo says Socialist Venezuelan President Nicolas Maduro must go and is urging the people of Venezuela to "restore democracy to the country" during an interview with Greta Van Susteren. "We are searching for a solution which will deliver democracy to Venezuela. It's the Maduro regime that has inflicted this set of horrible living conditions on the people of Venezuela and it will ultimately be on the people of Venezuela to fix it," Pompeo said. On whether the U.S. would issue additional sanctions, Pompeo said he was "confident we can find other places where we think we can exert pressure in a way that will convince Maduro that this isn’t going to work, he’s not going to be able to retain power forever." (Newsmax:


Mike Pence: Honduran President told me Venezuela funding migrant caravan

Vice President Mike Pence on Tuesday said Honduran President Juan Orlando Hernández told him that the migrant caravan marching toward the U.S.-Mexico border is “financed by Venezuela.” Pence made the allegation while defending President Donald Trump’s assertion that Middle Easterners make up a part of the 7,000-strong. The Vice President then revealed that Hernández told him that “leftist groups” from the Central American country organized the caravan, “financed by Venezuela” to “challenge our sovereignty, challenge our border.” (Breitbart:


Venezuela declares its military ‘fully prepared’ for war with U.S.

Venezuelan soldiers march during a military ceremony to honor President Nicolas Maduro on May

Senior Venezuelan socialist official Diosdado Cabello has claimed his country is “fully prepared” for a war with the United States. Cabello, the leader of the regime’s illegal lawmaking body and a close ally of dictator Nicolás Maduro, claimed that the country’s Bolivarian National Armed Forces would remain loyal to Hugo Chávez’s socialist revolution should the U.S. or any other power try to topple the regime. There is little evidence to support Cabello’s claims. Instead, countless reports detail the growing disaffection and dropout rates among troops, many whose salaries fail to cover basic living resources such as food and medicine. Some soldiers have tried to launch low-level coups and rebellions, although such efforts have so far proved unsuccessful. Cabello’s comments come amid growing international pressure for more action to be taken against the Maduro regime, currently presiding over the worst economic crisis in the country’s history. Cabello’s warning is unlikely to instill fear among leaders in Washington. Trump previously mocked the Venezuelan military for their seemingly cowardly response to a failed assassination attempt on Maduro. (Breitbart:


Ecuador breaks diplomatic relations with Venezuela

Ecuador has broken formal relations with Venezuela after that country’s communication minister called President Lenin Moreno a “liar.” On Thursday, Ecuador expelled Venezuela’s ambassador. The action followed comments by Jorge Rodríguez, Venezuela’s communication minister, who said that Moreno’s claim that 6,000 Venezuelans a day were entering Ecuador was false. Moreno Tweeted the number in August, at the height of the influx of Venezuelan refugees into Ecuador. In its official statement on the break in relations, Ecuador’s foreign affairs ministry said, “The Republic of Ecuador will not tolerate such disrespect for its authorities.” The statement continued: “Faithful to its democratic and humanitarian principles, Ecuador will continue to provide assistance to Venezuelan citizens entering the country, assisting through economic and social efforts to protect their human rights.” Ecuador secretary of communication was more direct in his response to Rodriguez. “His statements show that this corrupt socialism, murderer and liar of the 21st century, still lives in Venezuela.” In response to the expulsion of its ambassador, Venezuela ordered Ecuador’s chargé d’affaires to leave Caracas. (St. Lucia Times:


OAS chief urges ICC to open formal probe into Venezuela crimes

Luis Almagro, Secretary General of the Organization of American States, spoke to FRANCE 24 about the current issues facing the Americas, from the caravan of Central American migrants heading to the US to the crisis in Venezuela and the situation in Nicaragua. Almagro called for the ICC to open a formal investigation into alleged crimes against humanity committed in Venezuela. (France24:


How Venezuela complicates peace talks in Colombia

After 52 years of conflict, Colombia’s government and the leftist guerrillas of the Revolutionary Armed Forces of Colombia (FARC) signed a peace deal in 2016. But not all the country’s guerrilla groups demobilized. The National Liberation Army (ELN) remains a formidable presence. It began peace talks with the government of Juan Manuel Santos in 2017 but failed to reach a deal before Iván Duque, a conservative, became president in 2018. President Duque, who had criticized the agreement with the FARC as too lenient, is adopting a tougher stance towards the ELN. He refuses to renew negotiations until the ELN has freed all hostages. And he has also raised an objection to Venezuela’s role as one of five guarantors of the talks, claiming it is a “protector of armed groups”. The ELN’s links with Venezuela date from the 1980s. Its standing in Venezuela improved in the late 1990s with the rise to power of Hugo Chávez, who regarded it as an ideological ally. Venezuela has been a haven ever since, a place where the ELN gathers to plan attacks on Colombia, and where in recent times it has started recruiting new members. Its activity within Venezuela often seems to be ignored—even endorsed—by the authorities. As Nicolás Maduro, Chávez’s successor, turns Venezuela into a mafia state in which drug-traffickers run rife, the ELN is rumored to be colluding with the Cartel of the Suns, a drugs gang, in establishing trafficking routes through the country. If the ELN should demobilize, its role in cross-border drug-trafficking is likely to weaken. In such circumstances, it is not surprising that Colombia should call into question Venezuela’s role as an honest arbiter of the peace talks. For the ELN, the price of a peace deal with President Duque’s government is likely to be the severing of its ties to the Venezuelan dictatorship. It has not yet shown itself to be willing to break that link. (The Economist:


U.N. special envoy Jolie voices support for Venezuelan refugees

U.N. refugee agency special envoy Angelina Jolie voiced support on Tuesday for Venezuelans forced to leave their crisis-stricken homeland and thanked the South American countries hosting them. Hollywood actress Jolie met with Venezuelan refugees in Lima, Peru this week to draw attention to their plight. “After having spoken to so many people it’s clear to me, very clear, that this is not a movement by choice,” Jolie told reporters in a presentation with Peru’s foreign minister. “I heard stories of people dying because of a lack of medical care and medicine... people starving, and tragic accounts of violence and persecution,” she said. Jolie’s visit comes amid a backlash against Venezuelans in some South American countries where they have settled. Jolie met with Peruvian President Martin Vizcarra and said they discussed ways the international community can help host countries like Peru accommodate Venezuelans. “As in nearly every displacement crisis, the countries that have fewer resources are being asked to do the most,” Jolie said, thanking Peru and other “very generous” countries like Ecuador and Colombia for hosting displaced Venezuelans. (Reuters:


Violent deaths of Venezuelans in Colombia more than triple in 2018

Violent deaths of Venezuelans in Colombia rose more than threefold in the first nine months of the year compared with the same period in 2017, as more desperate migrants flooded across the border to escape an economic crisis back home, a report released on Monday showed. Between January and September there were 310 violent deaths of Venezuelans in Colombia, 244.4% more than the 90 in the last year, the National Institute of Forensic Sciences said in a report. Of the total, 254 were men and 56 were women and 56% were murdered. Most of the violent deaths occurred in border regions such as the departments of Norte de Santander and La Guajira. Some died in car crashes or other accidents, and others committed suicide. Annual violent deaths in Colombia total about 25,000, according to the government. (Reuters,


Two Venezuelans die attempting to reach Aruba by boat

Two Venezuelans attempting to reach the Caribbean island of Aruba died, authorities said over the weekend, highlighting the increasingly perilous routes migrants take to escape this nation's economic meltdown. Venezuelans routinely travel to the more prosperous Aruba in search of work or staple products that have become unavailable under the socialist government of President Nicolas Maduro. Those who are not allowed to enter Aruba often travel in rickety boats under the cover of darkness. Aruba's government said the pair were undocumented and that three Venezuelans had been detained in relation to the case. In a similar incident in January, four Venezuelans attempting to reach the Dutch Antilles island of Curacao died when their boat broke apart. (The New York Times:


Venezuela is the second most corrupt country, according to the World Economic Forum's index

Venezuela is the second most corrupt country in the world, overtaken only by Yemen, a nation in civil war that, according to the United Nations, can suffer the most lethal famine of the last 100 years. The World Economic Forum (WEF) released its annual index of global corruption, as part of its report on international competitiveness, which ranks Venezuela 127th out of 140 countries surveyed. Venezuela appears in the group of the most conflictual countries of the planet, without its population being subjected to a war or a natural disaster, which makes of this country a particularly important case, because its situation is attributable its institutional situation and political conditions. Venezuela ranks last – 140 – in terms of institutional quality and macroeconomic stability. The country ranks below the top 100 Index countries as markets for quality goods and services (137); business dynamism (139); labor market situation (131); and quality of infrastructure (131). Venezuela ranks after the top 50 countries on issues such as capacity for innovation (95); health system (59); size of the market (56); ICT adoption capacity (97) and quality of the financial system (91). When the indicators presented by the World Economic Forum on Venezuela are examined in more detail, the country ranks last in the world in specific areas. like the quality of police services, the efficiency of the judicial system in the enforcement of regulations, property rights, the effectiveness of dispute resolution systems and the protection of property rights intellectual. Under aspects such as innovation and the application of technology, the country has significantly regressed. Consider an indicator as an example of a button: the assessment of mobile penetration has dropped 64 points in one year and a market representing more than 100% of the penetration of the service is 123rd in the world. Controls, skewed subsidies, the tax burden, and other factors make Venezuela's economy a complex case, but the worst of all is the poor quality of institutions, because it is a key element to correct other imbalances. (NAAJU:


Russians detained over 'Gucci' cocaine shipment from Venezuela

Three Russian citizens have been charged in Venezuela over a cocaine smuggling plot aboard a tanker headed to Belgium, local media reported, citing prosecutors. Venezuela’s National Guard reportedly seized 147 kilograms of cocaine in a raid on the Jose Progress tanker earlier this month. Twenty people were detained in connection to the plot, including Russian, Ukrainian, Filipino and Venezuelan nationals, according to media reports. Russian nationals were implicated in a cocaine-smuggling plot earlier this year after over 350 kilograms of cocaine were discovered on the grounds of the Russian Embassy in Argentina. Venezuela’s Justice Minister General Nestor Reverol posted a picture on his Twitter account earlier this month which appears to show that the seized cocaine had been hidden in bags labeled with famous fashion brands, including Gucci and Chanel. The ship, which is currently being held by local authorities, sailed under a Panamanian flag and was headed for the Belgian port of Ghent. (The Moscow Times:


These Venezuelan musicians were struggling on the streets. Then their talent saved them.

The young men hunched over their violins, a piano and a traditional cuatro guitar in a quiet Peruvian suburb never imagined their hard-won musical training might be the secret to surviving so far from home. Brought up under Venezuela’s famed El Sistema classical musical education program, they dreamed of scholarships at conservatories, or being poached by international orchestras — like their colleague Gustavo Dudamel, the kinetic and charismatic director of the Los Angeles Philharmonic. Instead, they’ve joined the millions of Venezuelans fleeing hunger and political chaos. It’s a journey that has stymied their musical careers as they were entering their prime — but also reaffirmed how valuable the determination they developed in the free musical program is to survive in the hard-scrabble world of migrant life. (The Miami Herald:


OP-ED: Whitewashing the record of Hugo Chávez, by Christian Alejandro Gonzalez

It is depressing but not altogether surprising that Hugo Chávez still retains some support in Western intellectual life. The ongoing destruction of Venezuelan society should have been enough to discredit his apologists, but unfortunately it has not been so. Did he have authoritarian tendencies? His military background left him with a firm belief in hierarchy. The longer he remained in power, the more entrenched he became, which is why term limits and checks and balances are essential to a healthy democracy. Term limits are indeed important elements of democratic societies — elements which in 2009 Chávez abolished. Dislodging incumbents is difficult enough in advanced democracies; it is even more difficult in countries with little institutional accountability, where the government can fund massive clientelist programs to shore up support whenever it needs to. As Chávez well knew, removing term limits would have allowed him to become president for life. Only his premature death from cancer at age 58 prevented him from taking full advantage of this institutional change.  It is hard to overstate the extent to which Chávez obliterated checks on presidential power during his tenure. Shortly after coming into office in 1998, Chávez began implementing steps to take control of PDVSA, the national oil company, which was then autonomously run. Apart from ruining PDVSA, these policies massively expanded the president’s power by giving him an endless source of funds to use for narrow political goals. Chávez expanded the political power of the presidency as well. He packed the Venezuelan supreme court, took over the CNE (the body that is supposed to oversee elections and ensure their fairness), undermined press freedom by shutting down the opposition’s television stations, politicized the military by promoting officers based on loyalty rather than competence, and through a long sequence of constitutional changes transferred most decision-making power from the legislature to the presidency. Nicolás Maduro’s autocracy, then, did not merely come into existence ex nihilo. Chávez bequeathed him an obsequious legislature, a loyal judiciary, and a personal oil company with which he (Maduro) could exert dictatorial power. Indeed, Maduro’s transgressions against liberal-democratic principles occur only under a specific institutional context that Chávez largely created. (National Review: