March 31, 2016

International Trade

 

SPECIAL REPORT: Legislature investigates US$ 300 billion dollar frauds in food and medicine imports

Analysts may have been overly affixed on Venezuela’s debt liabilities and given not enough attention to the web of organized corruption behind the 60% drop in imports here. Foreign currency supply within Venezuela’s exchange control system has collapsed over the past months, while phantom companies and corrupt public officials are quickly leading the nation into default by distorting food import transactions through arbitrage and overpricing. During 2014, the Central Bank allocated US$ 45.529 billion for public and private imports; this amount dropped down to US$ 17.529 billion in 2015, as allocations to the private sector fell from US$ 14,410 billion to US$ 5.104 billion. Former congressman Ricardo Sanguino of the ruling party says “a large part of the funds allocated did not enter the country in the form of goods, they went into overpricing and in many cases the products were not even imported…The exchange control system must be dismantled because it didn’t work, it is a perverse system, perforated by mafias”. Experts agree that nepotism has backed the growth of corrupt companies involved in FOREX operations for food imports. A high bank executive reports that there are 59,000 companies registered with the National Foreign Trade Center (CENCOEX), and only 9,000 of them are legal. Phantom companies profit through an organized arbitrage system that exploits the differences between the preferential FOREX rate, the floating rate, and the black market rate. Sanguino estimated that overpricing in food imports alone accounts is around US$ 118 billion. Last month, the National Assembly’s Comptroller Committee launched an investination into the FOREX allocation system, reviewing “suspicious” food and medicine imports for a total US$ 230 billion under the CADIVI (now CENCOEX) system from 2003 to 2014, Committee Chairman Freddy Guevara says “the closest estimate is that phantom companies have stolen up to US$ 300 billion…in PDVSA alone we have estimated over US$ 10 billion; and we calculate US$ 25 billion in CENCOEX, as was reported by former Chavez Planning Minister Jorge Giordani…the issue within the electricity sector we believe is over US$ 60 billion. Also in the Economic and Social Development Bank, the Sino-Venezuelan Fund, and the National Development Fund it is estimated that fraudulent operstions can be more tan US$ 100 billion”. The committee published a list of officials and former officials that will be investigated, among them several military officers that have been in charge of food imports and distribution, and government contractors in this área. Among those investigated are former Nutrition Minister General Carlos Osorio, and Tomás Gonzáles, an operator identified by Congressman Ismael García as the intermediary for food imports by PDVSA and its affiliate BARIVEN, a front man for General Osorio. Experts say recent changes in foreign exchange policies made by President Maduro will not facilitate access to FOREX, but will only fill government coffers as it obtains more bolívars per US dollar. A more expensive dollar will be close to the 200% inflation rate but will not stop the multi-million dollar frauds that are rampant in a distorted exchange system. More in Spanish: (Portafolio: http://www.portafolio.co/internacional/millonario-robo-juego-arbitraje-venezolano-493217)

 

 

Oil & Energy

 

Maduro: Oil price average is "slightly" above output cost

“The average price of the oil barrel hit US$ 26 this year, slightly higher than the output cost,” President Nicolás Maduro has said in connection with the downward trend shown by Venezuelan crude oil prices in recent months. He further reported that the local oil basket on Wednesday ended at US$ 29.21 per barrel, a US$ 1.15 contraction. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelas-maduro-oil-price-average-slightly-above-output-cost_247294)

 

PDVSA repeats it is a victim of a corruption smear campaign

Venezuela's state-owned oil company PDVSA has said it is the target of a smear campaign after the U.S. Justice Department announced that three of the firm's former employees had pleaded guilty to charges over a scheme to corruptly secure energy contracts. The former officials at Petroleos de Venezuela S.A. (PDVSA) pleaded guilty under seal in December to conspiracy to commit money laundering. Their pleas were unsealed by a federal judge in Houston last week. The three are Jose Luis Ramos Castillo, 38, Christian Javier Maldonado Barillas, 39, and Alfonzo Eliezer Gravina Munoz, 53. (Reuters, http://www.reuters.com/article/us-venezuela-usa-corruption-idUSKCN0WV06V)

 

Government admits failure of Holy Week energy-saving plan

The government has acknowledged the failure of its plan to save water and electricity by prolonging the Holy Week holidays in order to minimize the effects of the drought caused in the region by the El Niño weather phenomenon. “I have to be very sincere – it didn’t have the hoped-for results, which is to say, we believed and calculated that during Holy Week we would have a considerable reduction” of energy use, but it didn’t turn out that way, said the deputy minister of electrical energy, Freddy Brito. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2408772&CategoryId=10717)

 

National Electric Company cannot print receipts for lack of paper

The National Electric Company (CORPOELEC) has urged clients to use its electronic billing service since it has no paper on which to print receipts. A union source within the government company says “the problem is that they have no funds to pay for paper on which to bring bills”. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Corpoelec-envia-recibos-falta-papel_0_820118289.html)

 

 

Economy & Finance

 

Venezuela seeks US$ 5 billion credit

Central Bank President Nelson Merentes claims a new US$ 5 billion credit is about to be signed, but that creditors are demanding that a joint venture between Venezuela and Canada, aimed at exploiting the Orinoco Mining Arc gold reserve, must be established within 30 days. He says the 111,000 kilometer area is one of the best guarantees the nation has to offer. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/economia/venezuela-negocia-credito-por-5000-millones_11122)

 

China conditions further aid to Venezuela on coherent policies by Maduro

David Osio, of the DAVOS Financial Group reports: “The Chinese government has indicated its dissatisfaction with recent economic changes in Venezuela, and would like to see more political stability before they consider renegotiating this country’s debt”. Venezuela has been asking China to extend payment, invest more in mining and other projects. In February, it asked China to extend the grace period on preferential price oil shipments in order to sell the oil on the open market, but China not only refused – it asked for an increase in shipments.  More in Spanish: (El Nacional, http://www.el-nacional.com/economia/China-condiciona-Venezuela-Maduro-coherentes_0_820118211.html)

 

A mystery bond in Venezuela has traders scratching their heads

Bond investors in Venezuela have made a dispiriting discovery. Last week, traders started quoting prices on a US$ 3 billion note issued by the nation’s state-owned oil company. While the eight-year securities were first sold in October 2014 under New York law not much else is known. The bonds don’t trade on any U.S. exchange, aren’t rated by any major credit-ratings firm and no term sheet has been made public.  Concern that new Petroleos de Venezuela securities were being sold to investors has sparked a 6.2% drop in its other notes due in 2022. The benchmark bonds due in November 2017 fell 5.4%. Investors are dismayed that the securities represent yet another obligation for the cash-strapped nation, which has been hounded by speculation it may default in the coming year. PDVSA, as the company is known, issued the bonds to the Central Bank, which may look to unload them on the market to generate much-needed revenue. At Monday’s price of 29 cents on the dollar, they’re actually worth less than US$ 1 billion. The Central Bank may decide to use the notes to supply Venezuela’s new currency market, known as the DICOM. Central Bank data show the government is selling less than 10% of the available dollars at the market-based DICOM rate, with over 90% being sold at the official exchange rate of 10 bolivars per dollar. That suggests there is a shortage of hard currency, said Siobhan Morden, of NOMURA Holdings Inc. in New York. “Just the fear of new supply, and look what happens to pricing,” she said. “We don’t need new bonds that no one wants to buy.” (Bloomberg: http://www.bloomberg.com/news/articles/2016-03-29/a-mystery-bond-in-venezuela-has-traders-scratching-their-heads)

 

DICOM has greatest increase since its creation and closes at VEB 262.74/US$1

The Central Bank reports the DICOM floating exchange rate closed Tuesday at VEB 262.74/US$1, an increase of VEB 11,93 from Monday. It adds that the system covered 7.24% of all FOREX transactions, with the remaining 92.76% at the protected rates. (El Mundo, http://www.elmundo.com.ve/noticias/economia/mercados/simadi-registra-mayor-alza-desde-su-creacion-y-cie.aspx#ixzz44NXqStdP; El Nacional, http://www.el-nacional.com/economia/Dicom-cierra-martes-Bs-dolar_0_820118275.html; http://www.el-nacional.com/economia/Dolar-flotante-subio-bolivares-martes_0_820118218.html)

 

 

Politics and International Affairs

 

National Assembly passes amnesty bill; Supreme Tribunal could nullify it

The National Assembly has passed an amnesty bill which could free dozens of jailed opposition leaders. The opposition-controlled assembly passed the bill after a heated discussion. President Nicolas Maduro said he would block the bill, which he argued would benefit "criminals and terrorists". Among the more than 70 detainees who could be freed if the bill becomes law is Leopoldo Lopez, who was sentenced to 13 years and nine months in prison last year for inciting violence during mass protests. The prosecutor in the case later fled Venezuela and told media abroad that Lopez's conviction had been a political show trial. But government officials maintain Lopez is responsible for the violence which erupted during the 2014 protests in which 43 people on both sides of the political divide were killed. Lopez's wife, Lilian Tintori, welcomed the passing of the bill, saying it was "felt in all of Venezuela, like a fireworks rocket going off in Caracas, full of emotion, freedom and strength". Other political leaders who could be freed are the former mayor of Caracas, Antonio Ledezma, who is under house arrest, and the former mayor of San Cristobal, Daniel Ceballos. But members of the governing PSUV party said the amnesty was a carte blanche for "murderers". President Maduro spoke on national television while the debate was still under way to say he would veto it. "You can be certain that that law will not be making it through here," he said.  President Maduro could send the bill to the Supreme Court if he has doubts about its constitutionality. National Assembly President Henry Ramos Allup was warned that the Constitutional Chamber of the Supreme Tribunal is cooking up a sentence annulling the Amnesty Law, even without receiving the final text. He wrote “If Maduro, his lawyers and the high command are so sure of popular support: Why do they obstruct all electoral and constitutional ways out?”.  (BBC, http://www.bbc.com/news/world-latin-america-35924647?utm_source=Sailthru&utm_medium=email&utm_campaign=New%20Campaign&utm_term=%2AMorning%20Brief; Bloomberg, http://www.bloomberg.com/news/articles/2016-03-30/venezuela-congress-passes-amnesty-law-to-free-jailed-politicians: El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelan-congress-approves-amnesty-and-national-reconciliation-law_247234; and more in Spanish: (El Nacional: http://www.el-nacional.com/politica/Ramos-Allup-planea-TSJ-amnistia_0_817118315.html)

 

Spanish FM regrets opposition has a narrow leeway to "straighten out" Venezuela

Spanish Foreign Minister José Manuel García-Margallo voiced concern over the narrow leeway the Venezuelan opposition has to improve the country’s situation through lawful means. García-Margallo said that “disregarding the law frustrates all the possible solutions,” in reference to recent remarks made by President Nicolas Maduro, refusing to sign the Amnesty and National Reconciliation Law, passed on by the National Assembly, as he claims the law aims at “protecting” criminals. (El Universal, http://www.eluniversal.com/noticias/daily-news/spanish-regrets-opposition-small-leeway-straighten-out-venezuela_247241)

 

Supreme Court reform law passed in initial vote by National Assembly

The opposition majority within the National Assembly has passed in a first discussion the Partial Reform of the Supreme Justice Tribunal Constitution Law, which seeks to increase the number of justices. National Assembly President Henry Ramos Allup has ordered the first draft sent to the Domestic Policy Committee. It will subsequently move on to a second and final vote. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/politica/aprobada-en-primera-discusion-proyecto-de-reforma-.aspx#ixzz44NZRUgWJ)

 

Venezuela welcomes Colombian delegation, ELN may start negotiations

The Colombian Government and the National Liberation Army (ELN), the country’s second largest guerrilla group, have begun a formal peace negotiation as part of the efforts to stop the oldest armed conflict in Latin America. A delegation of the Colombian government and ELN members appeared at the Ministry of Foreign Affairs in Caracas, where they would elaborate on the upcoming deals. President Nicolas Maduro later met with both delegations and expressed satisfaction at hosting the talks. Colombian President Juan Manuel Santos, however, made it clear talks would begin only when “humanitarian affairs” are resolved, adding that “it is not acceptable for the Colombian government to move forward in a peace conversation with the ELN while it holds kidnapped captives”. For his part, former Colombian President and current Senator Álvaro Uribe Vélez referred to the talks as “uncertain” and said “the mediator (Maduro) is the least suitable”. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-welcomes-colombian-delegation-eln-start-negotiations_247274; and more in Spanish: El Universal, http://www.eluniversal.com/noticias/internacional/maduro-paz-colombia-paz-venezuela_247343; http://www.eluniversal.com/noticias/internacional/santos-confirma-negociacion-con-eln-cuando-haya-secuestrados_247304; http://www.eluniversal.com/noticias/internacional/uribe-considera-incierto-dialogo-con-eln-cuestiona-mediacion-venezuela_247340)

 

Lawmakers report 10 more miners slain

The legislative commission investigating the disappearance of a group of gold miners this month in Southeastern Venezuela has received reports that another 10 miners were apparently slain as well. “We have received 10 reports about 10 different missing persons from 10 different mining areas” in Bolivar state, where murdering miners “is a common practice,” opposition lawmaker Americo de Grazia said.
He told reporters about the new reports by family members and witnesses after they heard that Bolivar Gov. General Francisco Rangel had ignored a summons to appear before the congressional investigative committee. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2408859&CategoryId=10717)

 

Two police officials killed at protest

A policeman and a policewoman were killed and four other officers injured during a violent protest in San Cristobal, the capital of Tachira state in the Venezuelan Andes during a protest against a nationwide increase in bus fares.
The officers died during disturbances at the La Concordia bus terminal in the city of San Cristobal, police said on Twitter. The police officers were run over by a bus that had been commandeered by hooded protesters known as “encapuchados”, according to a tweet from Tachira state police. “Police were cordoning off the area to prevent encapuchados from attacking private vehicles,” one Tachira police tweet read. Local media however disputed that version, saying the pro government bus driver was trying to break through students’ picket lines. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2408849&CategoryId=10717)

 

 

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.

February 04, 2016

International Trade

 

Panama seeks to renew negotiations on Venezuela’s debt

Panama is seeking to renew negotiations with Venezuela over the repayment of a multimillion dollar debt by local importers with Panamanian companies, including exporters in the Colón Free Trade Zone. Negotiations over the debt – which is over US$ 1 billion according to official Panamanian data – began in August 2013 and have stretched out for different reasons. Panamanian Trade and Industry Minister Augusto Arosemena reports his government has asked Venezuela’s Finance Ministry to renew talks on repayment. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Panama-reactivar-negociacion-Venezuela-empresas_0_787121326.html)

 

 

Oil & Energy

 

Venezuela has been importing US oil since the second quarter of 2015

Crude oil imports from the United States to Venezuela "is nothing new, because Venezuela has been purchasing light oil since the second quarter of 2015, not only from that country, but also from Nigeria and Algeria," says economist and oil expert Rafael Quiroz. "Regrettably, Venezuela is still dependent on oil (...) If our production declines, we just enter into crisis," he added. Quiroz explained that regular oil production in Venezuela, which is based on light, medium, and heavy oil, "is dropping, and the only production that is growing is that of the oil found in the Orinoco Oil Belt, which is extra heavy”, and said explained that Venezuela does not have enough light oil to mix it with extra heavy oil, which is a required procedure to upgrade and use that heave crude oil. (El Universal, http://www.eluniversal.com/economia/160203/expert-venezuela-imports-oil-since-the-second-quarter-of-2015)

 

Russia's ROSNEFT, Venezuela's oil minister discussed coordination to stabilize oil markets

Igor Sechin, the head of Russia's top oil producer ROSNEFT, and Venezuelan oil minister Eulogio Del Pino have discussed this week possible joint efforts aimed at global oil markets stabilization, ROSNEFT said in a statement. It also said they had discussed cooperation in oil marketing within the existing contracts between ROSNEFT and Venezuela's state-run oil company PDVSA. (Reuters, http://www.reuters.com/article/russia-rosneft-venezuela-idUSR4N15C00R)

 

 

Commodities

 

POLAR reports their corn production is at 100%, other plants are failing

POLAR’s CEO Lorenzo Mendoza reported that POLAR’s corn production is at 100%, but that out of 32 plants nationwide some are down to 0% productivity and “we see supply failures on the horizon which must be resolved by the government by allocating FOREX”. He said paralyzed plants include a tuna producing facility in Mariguitar (Sucre state), the tuna can production plant in Valencia (Carabobo state), which also affects the Yukery fruit juice operation; the Las LLaves soap and detergent plant is also paralyzed. “There are many plants but the list of those out of service is growing and the only thing we are lacking are basic supplies. Some productive facilities are at 30% and 70% capacity, but we seek lack of supplies on the horizon”. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/mendoza-asegura-que-plantas-de-maiz-de-empresas-po.aspx#ixzz3z6JJeVXN)

 

OREO stops tracking Venezuela sales over economic mess

Venezuela's chaotic economy is crushing the company that makes America's best-selling cookies. OREO-maker Mondelez reported US$ 778 million losses on Wednesday from its business in Venezuela. The business climate there is so chaotic that Mondelez said it will continue to sell oreos and other products in Venezuela but has written off that business. In other words, it won't count any of Venezuela sales in its results going forward. Mondelez isn't alone. In October, PEPSI reported US$ 1.4 billion losses in Venezuela and also wrote off its business there, even though it plans to continue selling its drinks and snacks in the country. It's not just snacks and sodas either. FORD, CITIGROUP, ORACLE, IBM and AMERICAN AIRLINES have all noted the tough business climate and their exposure to Venezuela's currency collapse in the past year. (CNN: http://money.cnn.com/2016/02/03/news/economy/venezuela-oreos-mondelez-loss/)

 

Venezuela is unprepared to face “El Niño” climate impact

According to Saúl Salas, coordinator of Venezuela’s Society of Agronomic Engineers, the nation is unprepared to anticipate, prevent and lessen the impact of “El Niño” on agriculture here, and could aggravate food scarcities in the country. He challenged the official claim that scarcities are due to “El Niño”, and said the country has not made proper use of its water due to a lack of public policies and investment in infrastructure such as dams, reservoirs, irrigation systems, and others. He adds that “40% of the population does not receive water on a regular basis”. More in Spanish. (Ultima Hora Digital; http://ultimahoradigital.com/venezuela-no-esta-preparada-para-frenar-impacto-del-fenomeno-el-nino/)

 

 

Economy & Finance

 

Black-market bolivars crash past 1,000 per dollar in Venezuela

Venezuela’s bolivar fell past 1,000 per U.S. dollar in the black market as world’s fastest inflation erodes the value of the nation’s currency. That means that the country’s largest denomination note of 100 bolivars is now worth less than 10 U.S. cents. The currency has declined 16.9% in the past month to 1,003 bolivars per dollar, according to dolartoday.com, a website that tracks trading in street markets where Venezuelans go to skirt limits on foreign-exchange purchases. The government maintains official rates of 6.3, 13.5 and about 200 bolivars per dollar for authorized purchases of items deemed essential. The bolivar is collapsing because the government keeps printing more money and the slump in oil prices means Venezuela is running out of dollars. The amount of cash in circulation or held in bank accounts in Venezuela has doubled from a year earlier, spurring the threat of hyperinflation. The country may face a US$ 38 billion shortfall in its dollar income this year, analysts at Credit Suisse Group AG wrote in a note to clients on Wednesday, meaning a default on government debt is a real possibility this year. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-03/venezuela-bolivar-falls-through-1-000-per-dollar-in-black-market)

 

Inflation-wrought Venezuela orders bank notes by the planeload

Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar. The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals. And the Venezuelan government isn’t finished. In December, the central bank began secret negotiations to order 10 billion more bills, five of these people said, which would effectively double the amount of cash in circulation. (The Wall Street Journal: http://www.wsj.com/articles/inflation-wrought-venezuela-orders-bank-notes-by-the-planeload-1454538101

 

National Productive Economy Council considering FOREX, gasoline and price adjustments

Former Chavez Finance minister Rodrigo Cabezas, who is part of the newly created National Productive Economy Council, says the group is considering matters such as the exchange rate, gasoline price, prices controls and import substitutions, and adds it is essential that the opposition Democratic Unity Conference should put forth it’s proposal for a new economic model. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/cabezas-en-los-proximos-dias-anunciaran-medidas-fi.aspx#ixzz3z6J7Hdld)

 

BOFA fears next economic steps by Venezuela will not be enough

Bank of America/Merrill Lynch expects the government here to take a number of economic steps within the next few days, but believes they could be insufficient to view of the nation’s huge economic imbalances. “We expect the government to announce some economic policy adjustments, including an increase in domestic gasoline prices and an important devaluation in the official exchange rate within the next few days. Although such changes can surprise the market in a positive way, it is unlikely these steps will approach the main economic changes necessary to stabilize Venezuela’s economy”, it said in a report to clients. The report says “incomplete” adjustments will fuel further inflation and that economic contraction will persist until more important economic policy changes are undertaken. More in Spanish:  (El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/bank-of-america-teme-que-medidas-para-venezuela-se.aspx#ixzz3zC8PRGjc; Últimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/bank-of-america-teme-que-medidas-para-venezuela-se.aspx)

 

Oil woes could make Venezuela restructure China debt

Venezuela may need to restructure its oil-linked Chinese debt before undertaking any similar move with its international bondholders, BARCLAYS said in a report on Tuesday. The nation is widely believed to be headed for a credit event thanks to the dramatic tumble in oil prices, which has wreaked havoc on the Venezuelan economy. BARCLAYS said Venezuela is falling short of the daily oil shipments to China that it uses to repay loans from Beijing, as the fall in prices has raised the number of barrels needed. At current prices the country needs nearly 800,000 barrels a day to satisfy its loan payment, Barclays said - sharply up from the roughly 228,000 needed when oil was at US$ 100 per barrel.  "A restructuring of Chinese fund debt could be supportive for Venezuela," BARCLAYS analysts wrote. (Reuters, http://www.reuters.com/article/venezuela-debtrenegotiation-china-idUSL2N15H0YZ)

 

Venezuela may have `accidental' default this year, NOMURA says

The absence of decision-making capacity in Venezuela’s government is so acute that the country is likely to default by accident later this year, according to NOMURA International. The country’s cash shortage means it would need to cut imports by US$ 32 billion to almost zero this year in order to avoid running out of money, Siobhan Morden, the head of Latin American fixed-income strategy at NOMURA, wrote in a note to clients. The nation is dependent on imports for most consumer goods and it relies on oil exports to pay for those purchases. Should crude remain below US$ 30 a barrel, Venezuela won’t have enough money to meet the US$ 6.3 billion of bond payments the country and state-owned Petroleos de Venezuela SA have coming due in the second half of the year, according to Morden. She calculates that the minimum breakeven oil price for Venezuela is US$ 65 a barrel. (Bloomberg, http://www.bloomberg.com/news/articles/2016-02-02/venezuela-may-have-accidental-default-this-year-nomura-says)

 

POLAR’S Mendoza says the “current crisis can be overcome with private investment”

Lorenzo Mendoza, CEO of POLAR, the nation’s largest food producer, has proposed seven basis steps to restore the nation’s productivity: Renew access to international supplies and basic goods, obtain international financing, bolster domestic production, adjust price controls, make state run companies produce, assist vulnerable groups within the food system, and strengthen agricultural production in staples where Venezuela is competitive.  He adds that in a relatively short time Venezuela can again become self-sufficient in coffee, white corn, cocoa, rice, and sugar, among others. Mendoza said economic affairs in Venezuela are “a disaster”. He says public policies should not exclude social contributions and called for a “market economy” so that all Venezuelans may have equal opportunities according to their ability. He called on companies here to sacrifice and “bring patience” to reconstructing the economy. Mendoza added that Venezuela's economic issues need to be tackled in a transparent manner, focusing on plummeting agriculture production, hurdles to imports, and the search for new funding sources. He stressed that there are excellent farmers in the states of Portuguesa, Guárico, Aragua, Cojedes, Barinas, and Anzoátegui who used to provide Polar with large amounts of corn, one of the main raw materials the company requires. "All that went downhill and nowadays, almost 40% of the corn consumed has to be imported. We depend on imports carried out by the State," he commented. The government’s Planning and Knowledge Minister Ricardo Menéndez quickly retorted that Mendoza had not been included in the National Productive Economy Council because “he has a double standard.” (El Universal, http://www.eluniversal.com/economia/160203/ceo-of-polar-highlights-importance-of-venezuelan-farmers); and more in Spanish:  (El Universal, http://www.eluniversal.com/economia/160203/la-actual-crisis-se-supera-con-inversion-privada; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/lorenzo-mendoza-presento-propuestas.aspx; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/menendez-al-consejo-de-economia-fueron-invitados-a.aspx#ixzz3zCA3FAzN; El Nacional, http://www.el-nacional.com/economia/Mendoza-tiempo-ciudadano-quiere-comida_0_786521561.html; http://www.el-nacional.com/economia/Lorenzo-Mendoza-propone-economia-mercados_0_787121469.html)

 

 

Politics and International Affairs

 

Former Chavez ministers seek probe into US$ 300 billion in lost oil revenue

Two former cabinet ministers under late President Hugo Chavez are seeking an investigation to trace the fate of some US$ 300 billion allegedly embezzled during the past decade through a complex currency control system. Hector Navarro, who ran five ministries under Chavez's rule, will ask a state ethics council to review the operations of the 13-year-old exchange control mechanism that opposition leaders have described as a "corruption machine." Navarro and Jorge Giordani, a former finance minister who was Chavez's closest economic adviser during his 14-year rule, have made calculations showing the government cannot account for how it spent nearly a third of the US$ 1 trillion that entered its coffers in the past decade.  "A gang was created that was only interested in getting their hands on financial resources, on (the country's) oil revenue," Navarro, who helped found the ruling Socialist Party but was expelled in 2014, said in an interview. "Thieves have no ideology," said Navarro, who continues to describe himself as a revolutionary despite his open criticism of the ruling party.  He did not elaborate on who was responsible for the funds having gone missing and or who might have embezzled them.  Navarro and Giordani are seeking an investigation by an agency known as the Republican Moral Council, which is made up of the chief prosecutor, the state ombudsman and the national comptroller. The three are widely considered to be close to the ruling Socialists. Opposition leaders have echoed many of Navarro and Giordani's criticism but also have pilloried them for helping create and maintain the state-led economic model that is now struggling with soaring inflation and chronic product shortages. (Reuters: http://www.reuters.com/article/us-venezuela-politics-idUSKCN0VB26F)

 

Economic authorities fail to appear in Congress

The authorities of the Central Bank of Venezuela (BCV), National Center for Foreign Trade (CENCOEX), and the Finance Ministry have again failed to appear at the National Assembly (AN). The Standing Committee on Foreign Policy of the Assembly reported that these authorities requested their visits to be rescheduled, without providing further details. The purpose of their appearance was to discuss the delays in the delivery of FOREX to Venezuelan students abroad, who have complained about this situation for the past few years. (El Universal, http://www.eluniversal.com/nacional-y-politica/160203/venezuelan-economic-authorities-fail-to-appear-in-congress)

 

National Assembly rejects tax proposal by SENIAT

The National Assembly’s Finance Committee has rejected a request by the SENIAT tax authority to adjust the Tax Unit used for measuring taxes, rates and fines at 177 VEB. Committee Chairman Alfonso Marquina said the proposal was sent back because it does not comply with the rules set for establishing the Tax Unit, which requires an official publication of inflation and price indexes for the entire 2015, by the Central Bank and the National Statistics bureau. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/an-devuelve-al-seniat-propuesta-para-nueva-tasa-de.aspx#ixzz3zC9pCSLH)

 

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.

 

January 21, 2016

International Trade

 

Venezuela may have lost around US$ 7 billion due to closure of its border with Colombia

Lady Gómez, an opposition legislator from southwestern Táchira reports that the five months since the Colombia-Venezuela border was closed "have led to a Customs, commercial, and industrial blockade, which has deprived the country stop of tax revenues over US$ 7 billion from border customs...Today, we are witnessing increased smuggling, stopped industry and commerce, and an economic impact against the National Treasury. Formal customs economy, which generates income for the State for the country's development, is being replaced with an informal economy," Gómez explained. (El Universal, http://www.eluniversal.com/economia/160120/usd-7-billion-may-have-been-lost-after-colombia-venezuela-border-closu)

 

Uruguayan farmers, dairy producers protest over Venezuela's debts

Uruguayan milk producers and farmers blocked traffic on Tuesday during an unprecedented demonstration against a generalized raise in taxes and fees, demanding payment of products sold to Venezuela. "There is a trade agreement. The dairy industries sent products to Venezuela, yet money never appeared," Uruguayan dairy producer Marcos Algorta argued. The governments of Uruguayan and Venezuelan Presidents Tabaré Vásquez and Nicolás Maduro, respectively, signed an agreement in 2015 under which Uruguay would pay out oil debts with Venezuela, and Caracas would buy US$ 300 million in food as of December last year. (El Universal, http://www.eluniversal.com/economia/160120/uruguayan-farmers-dairy-producers-protest-over-venezuelas-debts)

 

 

Oil & Energy

 

Venezuela's call for emergency OPEC meet gets doubtful response

Venezuela has requested that OPEC hold an emergency meeting to discuss steps to prop up oil prices, which have fallen to their lowest since 2003, two OPEC sources said on Wednesday. But four other delegates from countries in the Organization of the Petroleum Exporting Countries said such a meeting was unlikely to happen. OPEC's Gulf members including Saudi Arabia have opposed earlier calls for emergency meetings. "Venezuela has requested an extraordinary meeting," said an OPEC delegate from a Middle East member-country. Another OPEC source confirmed that such a request had been made. (Reuters, http://www.reuters.com/article/us-opec-venezuela-idUSKCN0UY1O2; Bloomberg, http://www.bloomberg.com/news/articles/2016-01-20/venezuela-said-to-request-emergency-opec-meeting-amid-oil-slump; El Universal, http://www.eluniversal.com/economia/160120/venezuela-calls-for-emergency-opec-meet-as-oil-prices-keep-dropping)

 

Guyana grants prospecting licenses to oil companies in Essequibo region

Guyana's Ministry of Natural Resources granted a prospecting license to the Tullow Guyana and Eco Atlantic oil companies within the Orinduik block, which is 1,802 square kilometers and is located off the Essequibo coast, a region in dispute with Venezuela. A representative of the ministry added that both oil companies are partners in this agreement, which is initially valid for four years, although it may extend for up to 10 years. The Essequibo region is under UN mediation since the signing of the Agreement of Geneva in 1966, but the dispute heightened when oil giant ExxonMobil found last may oil deposits in waters off the disputed area. (El Universal, http://www.eluniversal.com/economia/160120/guyana-grants-prospecting-licenses-to-oil-companies-in-essequibo-regio)

 

 

Commodities

 

Military strategic command now reports scarcities up to 91% in Western Venezuela

The Strategic Operational Command of the Western Strategic Total Defense Region has reported a survey taken last month which shows scarcities of 59 to 91% in 17 key basic products: Coffee, detergents, sanitary napkins were 91% scarce in visited establishments, the most acute scarcity was reported in the Lara, Falcon, Yaracuy and Zulia states. Beef was 82% short, up to 89% in Falcon state, and 14% in Zulia. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/CEO-reporto-escasez-basicos-occidente_0_778122404.html)

 

Venezuela needs urgent foreign medical aid, pharmaceutical group says

With scores of medicines in short supply due to a severe financial squeeze, Venezuela is suffering a "humanitarian crisis" and requires rapid international assistance, according to a major pharmaceutical association. The Venezuelan Pharmaceutical Federation listed 150 medicines, from those for hypertension to cancer, as well as basics such as prophylactics and antibiotics, which are scarce in the OPEC nation of 29 million people. "The national government must accept we are in a humanitarian crisis in the health sector, with patients dying across our territory for lack of medicines," said association president Freddy Ceballos in a statement. (Reuters, http://www.reuters.com/article/us-venezuela-health-idUSKCN0UY25R)

 

Six canning operations closed down in Sucre state due to lack of tuna

Roger Palacios, Secretary General of the Alimentos Polar Marigüitar labor union, and food area coordinator for the National Workers Union, reports that some 10,000 workers will become unemployed and 6 canning operations in Sucre state will shut down before the month is up. He says the plants need at least 6,000 tons of tuna to process at 25% capacity. “This is the worst scenario for companies in Sucre in the past 18 years, there is no tuna, the fishing fleet is paralyzed, and it is expected ship owners will sell their vessels”. More in Spanish:  (El Nacional, http://www.el-nacional.com/economia/atun-lata-cierre-empresas_0_778722233.html)

 

National Assembly calls on government to meet water supply crisis

A unanimous resolution by the National Assembly has called on the Eco-Socialism and Health Ministries to face the water supply crisis, identify contaminated areas and enact short, medium and long term contingency plans to solve the nationwide supply crisis. The proposal was brought forth by opposition legislator Ylidio de Abreu, of Carabobo state, who reported that over the past 18 years only 2 reservoirs have been built, and asked that water desalinization plants be set up on the coast to ameliorate the problem. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160120/an-insta-al-gobierno-a-paliar-la-crisis-del-agua)

 

 

Economy & Finance

 

Oil rout raises fears of Venezuela debt default

Slumping crude prices have investors bracing for a messy default in Venezuela, where the sovereign and state-owned oil company PDVSA have some US$10 billion in external debt payments due this year. With crude hovering around US$ 28 per barrel, Venezuela - which on Wednesday reportedly requested an emergency OPEC meeting - could have trouble satisfying its obligations. Barclays said the country will have difficulty avoiding a credit event in 2016 - and that is based on the bank's forecast of US$ 37 oil, almost US$ 10 higher than current prices. That sentiment seems to be widely shared in the market, even though President Nicolas Maduro assured the National Assembly last week that Venezuela would continue to pay what it owes. "It is a question of when, not if," said Russ Dallen, a partner at Latinvest in Miami, referring to the possibility of a default. (Reuters, http://www.reuters.com/article/venezuela-bonds-idUSL2N1540UK)

 

U.S. companies likely to take further big hits from Venezuela economic turmoil

A slew of major U.S. corporations is likely to announce in the next few weeks whether they will take big write-downs for their troubled Venezuela operations, and some may say they are leaving the country altogether. The companies may decide to slash the valuations of their businesses and take charges based on declines in some of the oil producing nation’s four exchange rates for the bolivar currency, of which three are official and one black market, and then deconsolidate the operations on their balance sheets, Wall Street securities analysts said. The Reuters analysis shows that U.S. companies with exposure could face total write-downs of more than US$3 billion if they revalue their assets in Venezuela using the less preferential SIMADI exchange rate of nearly 200 bolivars to the dollar. In the past, many companies valued their assets using the main official rate of 6.3 bolivars per dollar. But even that change may not reveal the full extent of the problem given that the black market exchange rate has worsened to about 878 bolivars to the dollar from about 190 bolivars a year ago, according to dolartoday.com, a website that tracks the rate. They may have more reason to accelerate the process after the socialist government on Friday declared a 60-day economic emergency, which would give President Nicolas Maduro wider powers to intervene in companies or limit access to already scarce dollars in Venezuela. GOODYEAR said in recent financial disclosures that a deconsolidation move would trigger a one-time, pre-tax charge of more than US$ 500 million and what it termed “derecognition” of US$ 293 million of cash on its balance sheet. So far, blue-chip companies that have deconsolidated in Venezuela and written off nearly all of their investment there include PROCTER & GAMBLE, PEPSICO and FORD. Among those who have departed altogether is cleaning products maker CLOROX. One major pressure point could be drug companies. ABBOTT, ABBVIE, MERCK, PFIZER and ZOETIS have about US$ 1.8 billion in combined net monetary assets exposed to the bolivar, recent U.S. regulatory filings show. Other companies selling sensitive products, such as baby formula maker MEAD JOHNSON, have had to adjust their practices because of constraints placed by the Venezuelan government on the release of U.S. dollars to repatriate cash back to the United States. Consumer products maker NEWELL RUBBERMAID has been identified by some Wall Street analysts as the next major U.S. company that will likely take action to protect itself from Venezuela's crumbling economy. If NEWELL were to deconsolidate it would take a one-time charge of US$ 111 million, according to company commentary in recent U.S. regulatory filings. Among U.S. companies, OREO cookies and CADBURY chocolate maker has one of the largest remaining exposures to Venezuela, with US $617 million in net assets, according to the Reuters analysis of corporate disclosures. 3M, COLGATE PALMOLIVE and HERBALIFE have at least raised the specter of insulating their financial results from Venezuela. Toy maker MATTEL has said it may consider ceasing operations in Venezuela. (Reuters: http://www.reuters.com/article/us-usa-companies-venezuela-insight-idUSKCN0UX1EM)

 

Council for a Productive Economy sworn in as authorities reject “neoliberal” solutions to crisis

President Nicolas Maduro has sworn in 45 people who will comprise the National Council for a Productive Economy in order to "face the crisis the oil-seeking model is going through and provide shared responses that help develop productive forces," he said. Executive Vice-President Aristóbulo Istúriz and Productive Economy Minister Luis Salas will head the body, whose first working session will take place on Wednesday. Vice-Minister of Investment for Development Simón Zerpa will be in charge of the work agenda. The economic body will be composed of president of the Central Bank of Venezuela (BCV) Nelson Merentes; economists Juan Arias and Rodrigo Cabezas; head of aluminum company Guayana's Venezuelan Corporation (CVG) Justo Noguera Pietri; and the president of CANTV state telecommunications company Manuel Fernández, and includes several business representatives. At the meeting, Vice President Aristobulo Istúriz said the government will avoid a "neoliberal" solutions to the economic crisis, adding that he was confident that the new plan will repair the national economy, which is in an official state of 'emergency'. "We are obliged to build a productive model that allows us to generate wealth and simultaneously maintain and deepen the gains of the people," he told a group of entrepreneurs. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2403786&CategoryId=10717; El Universal, http://www.eluniversal.com/economia/160120/venezuelas-council-of-productive-economy-sworn-in; http://www.eluniversal.com/economia/160120/venezuelas-maduro-lines-to-buy-foodstuffs-are-a-wound-in-social-life)

 

Venezuela: a nation in a state

The price of oil, which provides 95% of Venezuela’s foreign-exchange earnings, has long dictated the popularity of its leaders. The government's income from oil in the year to November 2015 was two-thirds lower than during the same period the year before. The oil price has fallen further since then. With less money coming in and demand for imports still strong, the value of Venezuela's foreign-exchange reserves has dropped alarmingly. A fall during 2015 in the price of gold, of which Venezuela has substantial holdings, has contributed to the decline in reserves. The current oil slump would be painful, whoever was in power. The regime has greatly compounded the damage with policies that, though designed to favor the poor, end up impoverishing them and the state. Price controls—along with the shortage of foreign exchange—have led to acute shortages of basic goods, forcing people to queue for hours to buy necessities. Inflation is officially running at 141% as of September last year (the latest available figure). Analysts believe the true figure is at least 200% a year; some predict hyperinflation in 2016. The massive budget deficit, which the Central Bank finances by printing money, contributes to that risk. The sharp recession is undermining one of the regime's proudest claims: that under its rule Venezuela's poverty has fallen. In January 2016 Maduro appointed a new economics team, but there are doubts about its willingness to tackle the nation's troubles. The minister in overall charge of the economy, Luis Salas, is a left-wing sociologist who, like others in the government, attributes the country's problems to an "economic war". He rejects some basic tenets of conventional economics, for example that printing too much money causes inflation. (The Economist: http://www.economist.com/blogs/graphicdetail/2016/01/graphics-political-and-economic-guide-venezuela)

 

Venezuela paid out US$ 27 billion in foreign debt over 16 months

President Nicolas Maduro has announced that over 16 months, Venezuela has paid US$ 27 billion in principal and interest on the foreign debt. He said the Venezuelan government has complied "first and foremost with the homeland" and also with the obligations of the Republic, which have been met and will continue to be met. (El Universal, http://www.eluniversal.com/economia/160119/venezuela-paid-usd-27-billion-in-foreign-debt-in-16-months; http://www.eluniversal.com/economia/160119/maduro-venezuela-faces-a-crisis-that-threatens-stability)

 

Kenneth Rapoza says Venezuela default imminent, Chavez legacy rests in pieces

Venezuela has been on default watch for months. Its credit rating is already in the gutter, at CCC at Standard & Poor’s. With oil now US$ 20 lower than it was when the S&P made that call, a default is no longer a question of if, but when. A recent emergency economic decree is likely too late to save anyone but president Nicolas Maduro. After two years of inaction and the recent decline in oil prices, Barclays Capital analyst Alejandro Arreaza said a “credit event” in 2016 is “increasingly difficult to avoid.” In other words, oil major PDVSA and the government it bankrolls is going bankrupt. With oil under US$ 30, Venezuela would need to use 90% of PDVSA’s oil export revenue to meet debt obligations to local and foreign creditors. Figures released Wednesday by the Central Bank of Venezuela show that foreign currency reserves were just around US$ 20 billion in the third quarter, but by the end of November they hit just US$ 14 billion, the lowest ever. Net assets are also seen shrinking to around US $24 billion, roughly US$ 10 billion less than a year ago. Considering current oil prices, any reasonable additional import cuts may be insufficient to cover the financing gap. Maduro keeps reiterating his government’s willingness to pay its debts, but his anti-Yankee rhetoric and is hardline against multinationals there makes him hard to believe. The official position shows a lack of understanding of the magnitude and roots of the crisis, making for this default to be the biggest Latin America has seen since Argentina’s in 2001 and its more strategic default on the same debt in 2014. (FORBES: http://www.forbes.com/sites/kenrapoza/2016/01/20/venezuela-default-imminent-chavez-legacy-rests-in-pieces/)

 

Politics and International Affairs

 

Full National Assembly to debate on Economic Emergency decree tomorrow

National Assembly President Henry Ramos Allup announced that the Legislature will hold a full debate on President Maduro’s proposed Economic Emergency Decree in plenary session this Friday, January 22^nd.  According to Venezuelan law, both the Legislature and the Supreme Tribunal have up to 8 days to take a stand on the petition by the Executive. The Supreme Tribunal has promptly declared the proposed decree is “constitutional”. The Assembly is calling in the heads of the Central Bank, SENIAT (tax collection), Foreign Trade Center (CENCOEX), PDVSA and the Nutrition Ministry for questioning in audiences open to the media, The ministers called stalled their scheduled morning appearance to late afternoon today, and sought to have media excluded from the hearings.(El Universal, http://www.eluniversal.com/economia/160120/presidents-of-central-bank-and-pdvsa-summoned-by-parliament; and more in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160120/decreto-de-emergencia-decidira-este-viernes-la-an; El Nacional, http://www.el-nacional.com/economia/Directivos-Seniat-BCV-Cencoex-AN_0_778122317.html; El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/tsj-declara-constitucional-decreto-de-emergencia-e.aspx; AVN; http://www.avn.info.ve/contenido/tsj-declara-constitucional-decreto-emergencia-econ%C3%B3mica; El Nacional, http://www.el-nacional.com/politica/TSJ-constitucional-Decreto-Emergencia-Economica_0_778722295.html)

 

Deputy Guerra says Venezuelan crisis is not due to oil price drop

Opposition Deputy José Guerra, who heads the Committee that is evaluating the Economic Emergency Decree drafted by President Nicolas Maduro, has said that Venezuela’s economic crisis is not due to the fall in oil prices. "This crisis, which began in 2013, is not a consequence of the drop in oil prices, for prices back then stood at US$ 110 per barrel and ended at a high price that year. In January-June 2014, prices hit US$ 101 (per barrel), and the economy tumbled. Plummeting oil prices did not spark off the crisis we are facing today," says Guerra. (El Universal, http://www.eluniversal.com/economia/160120/deputy-guerra-denies-that-venezuelan-crisis-is-due-to-oil-price-drop)

 

Legislator says proposed Economic emergency decree can lead to bank account freeze

Elias Matta, a legislator from the opposition coalition and member of the Special Committee considering President Maduro’s proposed Economic Emergency Decree says article 4 of the decree opens the door to a “corralito” or freeze on private bank accounts. He says the Parliament will assess "why the decree allows the government to manage the remaining balance of Fiscal Year 015 and spend it without the approval of the National Assembly (AN). It is worrisome that items that do not exist in the 2016 budget can be created and spent in any way." (El Universal, http://www.eluniversal.com/economia/160120/deputy-economic-emergency-decree-can-lead-to-bank-account-freeze)

 

FEDECAMARAS says proposed Economic Emergency Decree “can make the situation worse”

Venezuela’s main business federation, FEDECAMARAS says the proposed Economic Emergency Decree “could make the already precarious situation in Venezuelan homes even worse”. It adds that “the government has had and has in its hands legal powers to make the necessary corrections with no need for economic emergency decrees”. FEDECAMARAS says the proposed decree does not face the nation’s economic problems, which require “a thorough economic plan, within an institutional framework that promotes a strong, stable, productive and innovative economy”. (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/fedecamaras-dice-que-la-emergencia-economica--pued.aspx#ixzz3xmPjmPu1)

 

Lopez’ wife and mother report harassment and child abuse during jail visit

Lilian Tintori and Antonieta Mendoza, the wife and mother of jailed opposition leader Leopoldo López, have reported to the special office on gender violence at the Prosecutor General’s office, that they were seriously mistreated in the presence of Lopez’s 3 and 6 year-old children. They report that as they visited the opposition leader at the Ramo Verde military jail near Caracas, they were forced to strip naked and inspected in their intimate parts in the presence of the children, by order of Colonel Viloria. Ms. Tintori told media that “I want an investigation, they should go to Ramo Verde and investigate the military…they should tell all that happened there, demand the videos, there are cameras everywhere in Ramo Verde”. She added that “I don’t trust military authorities at Ramo Verde, the Colonel is an accomplice of Diosdado Cabello (Vice President of the ruling PSUV party and former National Assembly President), the orders come directly from Nicolas Maduro and Diosdado Cabello because this is what we are told at that jail each time we ask where the orders come from”, she said. Ms. Mendoza said that, after being forced to strip in the presence of her grandchildren, two female sergeants “tried to touch” Lopez’ 6 year-old daughter, Manuela. She said López has spoken to his lawyer and “is indignant”, adding that “this happens in other jails”, and this is not an isolated case. More in Spanish: (Infolatam, http://www.infolatam.com/2016/01/21/esposa-de-leopoldo-lopez-denuncia-ante-fiscalia-hostigamiento-en-la-carcel/)

  

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.