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.

March 10, 2016

Logistics & Transport

 

American Airlines to ax newly reinstated Caracas-New York route

American Airlines announced it will ax its Caracas to New York route on April 4 due to low demand just over three months after reinstating it. The surprise move comes amid a years-long battle between American Airlines Group and the Venezuelan government in which the world's largest airline says it has not been able to repatriate revenue. In January, the Fort Worth-based company wrote off US$ 592 million which it said was stuck in Venezuela due to the government's failure to exchange it for hard currency. President Nicolas Maduro's cash-squeezed socialist government has said it is negotiating solutions. "We are suspending service on the JFK-Caracas route until market conditions improve," said Martha Pantin, a spokeswoman for the airline. "This suspension is due to demand not being strong enough to support this route." Since reinstating the flight in December, many seats have remained unfilled except around holiday periods. Many airlines have reduced routes in recent years saying they were collectively owed several billion dollars in revenue for tickets sold in the local bolivar currency. The flights are priced in U.S. dollars, which put them out of reach for many Venezuelans amid the national economic crisis. The airline continues to run two daily flights to Caracas from Miami. (Reuters; http://www.reuters.com/article/us-americanairlines-venezuela-idUSKCN0WA24N)

 

 

Oil & Energy

 

Venezuela military company to start servicing PDVSA soon

Deputy Defense Minister Alexander Hernandez said CAMIMPEG, a new company formed by Venezuela's military, will begin providing state oil producer PDVSA with services including drilling, logistics and security in less than a month. It will have a commercial relationship with PDVSA and work alongside foreign companies. Hernandez's comments came after speculation among investors and foreign oil partners that CAMIMPEG could be a means to shield assets from seizure in the event of a debt default. PDVSA has a heavy repayment schedule this year, and Venezuela's economy is in crisis. (Reuters, http://www.reuters.com/article/us-venezuela-pdvsa-military-idUSKCN0WA1XW)

 

Level of major Venezuelan dam reaches collapse zone

Venezuela's National Electric Corporation (CORPOELEC) reported that the water level of major Guri dam has hit 248.02 meters above sea level, below the minimum level recorded in 2010 at that hydroelectric power station, located in Bolívar state, in southeastern Venezuela. The Guri dam has reached the so-called "collapse zone" -a level below 248 meters above sea level- three times in the past. As water levels approach 240 meters above sea level, the operational safety of the turbines is endangered.(El Universal, http://www.eluniversal.com/economia/160309/level-of-major-venezuelan-dam-reaches-collapse-zone)

 

 

Commodities

 

Local gold production dropped 47.12% during 2015

According to the 2015 annual report from the Oil and Mining Ministry, national gold production contracted 47.12% last year, from 1055.5 kilos in 2014 to 558.1 kilos in 2015. The report points to the performance of Venezuela’s General Mining Company (MINERVEN) and says “the development of plans was hit mainly by the drop in income from fine gold sales as a result of lower production due to lack of materials and critical spare parts, as well as the delay in investments.” More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/petroleo/mineria/la-produccion-de-oro-en-el-pais-se-contrajo-47-12-.aspx#ixzz42UiMywLr; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/la-produccion-de-oro-en-el-pais-se-contrajo-47-12-.aspx)

 

Oil minister presents Venezuelan mining potential in Canada

Oil and Mining Minister Eulogio del Pino has urged Canadian investors to take part in developing mining reserves in Venezuela. He briefed members of the Prospectors and Developers Association of Canada (PDAC) on the nation’s potential in gold, coltan, copper, diamond, and bauxite. (El Universal, http://www.eluniversal.com/economia/160308/oil-minister-displays-in-canada-venezuelan-mining-potential)

 

 

Economy & Finance

 

Venezuela's new dual FOREX rate launched

Venezuela's new dual foreign exchange system, with one rate fixed at 10 bolivars to the dollar and another "floating" at a starting rate of 206 bolivars, is now coming into operation, according to the vice president for economy. Miguel Perez has reiterated that the socialist government is "religiously" honoring foreign debt payments and did not have solvency problems despite the current "economic emergency." Venezuela last month made a US$ 1.5 billion debt payment, but investors are fretting as to whether it will be able to pay state oil company PDVSA's heavier obligations later in the year. "Venezuela does not have a solvency problem," Perez said. "We have a cash-flow problem." The official said details of the new foreign exchange mechanism would be published today, meaning the system should come into being from now. The 10 bolivar rate at the newly-named DIPRO system would be used for priority food and medicine sectors, Perez said. (Reuters, http://www.reuters.com/article/us-venezuela-economy-idUSKCN0WB28P; Bloomberg, http://www.bloomberg.com/news/articles/2016-03-09/venezuela-to-implement-new-foreign-exchange-system-on-thursday; El Universal, http://www.eluniversal.com/economia/160309/floating-exchange-rate-for-travel-quotas-in-venezuela)

 

Most economists call the new exchange system more of the same failed policies

• Pedro Palma, former President of the National Economic Council, says: “These announcements are more of the same. Exchange controls remain untouched…This all will have a large inflationary impact, and I doubt they will allow really free fluctuation. The black market rate will not disappear.”
• Alejandro Grisanti, of BARCLAYS, says “I unfortunately see no change in the announcement by Pérez Abad. The step repeats previous forex rules with a different name and does not deal with the main economic problem, which is the black market rate”. He believes it illogical for PDVSA to deliver FOREX to the Central Bank at the SIMADI rate (VEB 206.92/US$1) and for the bank to reallocate them at VEB 10/US$1.
• Luis Vicente León, of DATANÁLISIS, says “There are no surprises in the exchange announcements. Neither is there any change as to what has not worked to date….it goes from an absurd 6.3 rate to another absurd rate of 10 for basic goods, which will be allocated on a discretionary basis….to allocate foreign exchange at 10 or 200 is an economic crime that simply favors manipulators, no matter their political inclination”
• Juan Pablo Olalquiaga, president of the National Industry Federation (CONINDUSTRIA) says: “there will be no great change because the issue is the volume of FOREX, and apparently there isn’t any, unless they have enough or get an international loan”. He adds that “they will not bring a change to the economy”.
• Leonardo Buniak, of Planificación Estratégica, says the underlying problem is: “How much FOREX does Central Bank have to support the fluctuating rate?”
• Arístides Maza Tirado, President of Venezuela’s Banking Association, says “this new stage of a dual exchange is a start in the right direction” which will lead to “a single rate, which is what the country needs.”

More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Luis-Vicente-Leon-Entregar-bolivares_0_808119394.html; Notitarde, http://www.notitarde.com/Economia/Control-dual-no-soluciona-el-problema-del-mercado/2016/03/10/907499/; El Mundo http://www.elmundo.com.ve/noticias/economia/gremios/conindustria-considera-que-nuevo-sistema-cambiario.aspx#ixzz42UgeEmQC; El Universal, http://www.eluniversal.com/economia/160310/creen-que-nuevo-sistema-cambiario-necesita-divisas)

 

Venezuela seeks new repayment system with China

Oil and Mining Minister Eulogio Del Pino says Venezuelan and Chinese authorities are analyzing adjustments to the multibillion-dollar financing arrangement, where the nation repays China by delivering oil. More in Spanish: (Notitarde; http://www.notitarde.com/Economia/Venezuela-evalua-con-China-metodos-para-pagar-prestamos-2629988/2016/03/08/906286/; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/del-pino--evaluamos-con-china-hacer-ajustes-en-acu.aspx)

 

Venezuelans will pay 1500% more for FOREX to travel abroad

Miguel Pérez Abad, Vice President for Productive Economics said the new exchange rate to be applied to Venezuelans trying to purchase FOREX for travel abroad will be 1500% more than it is now. It will go from VEB 13/US$1 to around VEB 200/US$1. The government will continue subsidizing foreign travel, but much less than it has been doing. Rigid procedures will remain in place and Pérez Abad did not specify how much each traveler would be allocated. More in Spanish: (Infolatam: http://www.infolatam.com/2016/03/09/venezolanos-pagaran-un-1-500-mas-por-un-dolar-para-viajar-al-exterior/)

 

Hedge fund plows half its money into Venezuela bond and wins big

When Carmelo Haddad and Francisco Ghersi invested half their hedge fund’s money into a soon-to-mature Venezuela bond in mid-January, only two outcomes were possible: the trade could go horribly wrong or it could pay off fabulously. After all, the odds that Venezuela would make the Feb. 26 payment were far from good. Racked by political turmoil, the economy was on the brink of collapse as slumping oil prices deprived the government of much-needed income. At the time, traders put the chance Venezuela would default in the next 12 months at 80% -- by far the highest probability in the world. Venezuela went on to make the US$ 1.5 billion payment, handing the founders of Knossos Asset Management a return of 12% in just 45 days -- or an excess of 150% on an annualized basis. (Bloomberg, http://www.bloomberg.com/news/articles/2016-03-08/hedge-fund-plows-half-its-money-into-venezuela-bond-and-wins-big)

 

 

Politics and International Affairs

 

Venezuela lawmakers call for recall vote, renewed protests

Venezuelan opposition parties united to call for a referendum to oust President Nicolas Maduro and renewed protests starting this Saturday to get him to leave office before his term ends in 2019. Lawmakers, led by Jesus “Chuo” Torrealba, outlined a three-pronged campaign to seek to shorten term limits through a constitutional amendment, launch the recall referendum and mount a campaign to pressure Maduro into resigning. “The current state of the country demands that we place greater emphasis on mobilization and pressure,” Torrealba said, calling a for national protest against Maduro on Saturday. "Change is coming and no one can stop it," Jesus Torrealba, the head of the Democratic Unity (MUD) coalition, told reporters. Miranda state governor Henrique Capriles Radonski, speaking on the issue, said the "recall referendum may take place in October". He added: "My proposals have always included (a constitutional) amendment and a recall referendum, since the amendment may be requested right now and be subject to consultation once approved. And the recall referendum is the measure that will lead us to the political change we all want".  (Bloomberg, http://www.bloomberg.com/news/articles/2016-03-08/venezuela-lawmakers-call-for-recall-vote-protest-against-maduro; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2407324&CategoryId=10717; Reuters, http://www.reuters.com/article/us-venezuela-politics-idUSKCN0WA1UK; El Universal, http://www.eluniversal.com/nacional-y-politica/160309/capriles-recall-referendum-may-take-place-in-october)

 

Regime withdraws its top representative in the US in protest over renewed executive order

President Nicolas Maduro has ordered the withdrawal of Venezuela’s main US representative in Washington DC, Maximilien Sánchez Arvelaiz, acting charge d’affaires at the embassy, in protest for the renewal of US President Barack Obama’s executive order calling Venezuela “an extraordinary and unusual threat”. Arveláiz spent 18 months in Washington without receiving approval from the US State Department. In making the announcement, Maduro said: “Obama had plenty of chances to rectify”, adding that one gesture would be to approve Arveláiz’s nomination. “Eighteen months, what was stopping him?”, says Maduro, adding that Obama acted “at the request of the oligarchic right”. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/160310/maduro-retiro-a-encargado-de-negocios-en-washington; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/politica/maduro-retira-a-encargado-de-negocios-en-washingto.aspx)

 

National Assembly will investigate US$ 142 billion allocations for food supplies

At the request of National Assembly Deputy Manuela Bolívar, the legislature’s Comptroller Committee will look into what happened to US$ 142 which allegedly went to nutrition programs, despite which, “the nation is undergoing a food scarcity crisis”. Legislator Bolivar says: “50% of Venezuelans have only two meals a day, but US$ 142 billion have been delivered to the “Mission Alimentation” food program. Where is that money? We believe there has been a mixture of theft and inefficiency in managing those resources.” More in Spanish: (El Nacional, http://www.el-nacional.com/politica/Investigaran-destino-millardos-alimentos_0_808119433.html)

 

Maduro orders militarization of mineral-rich zone after miners’ disappearance

President Nicolas Maduro has created a “special military zone” to protect the Orinoco “mining arc”, a zone rich in minerals, after the disappearance of 28 miners in the region, all of them presumably murdered, according to relatives. “I have decided to create a special military zone of protection for all the mining municipalities and to deploy ... strengthened military units,” said Maduro. He also said that the alleged massacre of the miners was part of a “national and international media campaign” against his government directed by a sector of Venezuela’s opposition in the town of Tumeremo, near Essequibo, a part Guyana claimed by Venezuela, and along the route to the border with Brazil. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2407342&CategoryId=10718; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2407314&CategoryId=10717; El Universal, http://www.eluniversal.com/nacional-y-politica/160309/maduro-situation-south-venezuela-may-be-due-to-gang-confrontation)

 

Ombudsman admits evidence suggests crimes were perpetrated south Venezuela

Ombudsman Tarek William Saab said that a government joint task force investigating a situation involving a group of miners missing in Tumeremo town (southeastern Bolívar state) managed to collect convincing evidence of criminal interest, which reveals that crimes were committed. He indicated there is evidence that a number of Colombian nationals took part in the event. (El Universal, http://www.eluniversal.com/nacional-y-politica/160309/ombudsman-evidence-suggests-crimes-were-perpetrated-south-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.

March 01, 2016

International Trade

Colombia border opens partially and temporarily

According to Lieutenant José Vielma Mora, governor of Táchira state, the temporary opening of the Venezuela-Colombia borderline on Saturday, February 27, is "an initiative of the Bolivarian government and its Foreign Office in order to move ahead with the economic area and vent the border issue." Speaking to the possibility of opening the border hub in nighttime hours, Vielma disclosed that the government is working on it to foster the local productive development, instead of stimulating smuggling and the action of paramilitaries. (El Universal, http://www.eluniversal.com/economia/160229/frontier-opens-as-advancement-in-the-economic-area)

 

Oil & Energy

Deepening default fears cast shadow over Venezuela's oil flows

As Venezuela grows closer to exhausting nearly every means of paying its debt, some oil market participants are seriously pondering the possible implications of an unprecedented event: the default of a major crude producing company. State-run firm PDVSA faces around US$ 5.2 billion in payments to bondholders in 2016, much of it in October and November, a sum that some experts say it will be hard-pressed to meet after the government used nearly all of its available cash reserves to pay US$ 1.5 billion in maturities last week. A default could curtail some of the OPEC member's exports by crippling its ability to import crude and fuels used to blend its extra heavy oil, experts and sources say. It could also degrade the quality of domestic gasoline by limiting purchases of necessary components. (Reuters, http://www.reuters.com/article/us-oil-pdvsa-debt-analysis-idUSKCN0W00DA; Bloomberg, http://www.bloomberg.com/news/articles/2016-02-26/venezuela-bond-payment-spurs-rally-in-pdvsa-notes-due-in-october)

 

Venezuela oil price up slightly but still under US$ 25

The price Venezuela receives for its mix of medium and heavy oil rose 3% this week as prices around the world continued grinding higher on announcements of agreements in principle between some OPEC members and non-OPEC members like Russia to freeze oil production at January levels and hold a meeting in March. According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending February 26 was US$ 24.71, up 68 cents from the previous week's US$ 24.03. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406592&CategoryId=10717)

 

National power grid nearing collapse

Power rationing is not new for Venezuelans. Over the past fifteen years there have been some crises, such as that of 2009-2010, that have forced Venezuelans to adapt their lifestyle to power outages. What is new, however, is the seriousness of the current situation which, according to some experts, is expected to get worse over the next two months if the necessary measures are not taken immediately. To major general Luis Alfredo Motta Domínguez, the Minister of Electricity and President of the National Electricity Corporation (CORPOELEC) - a state-owned holding company created in 2007 to consolidate the power sector - the current crisis is a one-off problem due to the extensive drought associated with the recurring weather phenomenon commonly known as El Niño, which has caused water levels in the Central Hidroeléctrica Simón Bolívar (aka the Guri Dam) to drop to record-low levels. (El Universal, http://www.eluniversal.com/nacional-y-politica/160227/national-power-grid-nearing-collapse)

 

Commodities

10 sugar mills are out of service

Low sugar supply nationwide is due to sugar mills that were “relaunched” 16 years ago. Expert Edgar Contreras says that it the government does not take urgent steps there will be catastrophic scarcity, perhaps the worst sugar crisis in the nation’s history. “Out of 10 government controlled sugar mills, not one is in production”, he reports. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/azucareras-nacionales-produciendo_0_802119792.html)

 

Beer and malt production to run out in March

Omaira Sayago, Executive Director of the Venezuelan Beer Manufacturers Chamber says there is only one month left of supplies for producing beer and malt locally. She says there is no barley, hops or even tinplate for cans. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Produccion-malta-cerveza-llegaria-marzo_0_802719858.html)

 

Economy & Finance

Venezuela paid US$1.54 billion in principal and interest on debt

Venezuela has paid US$ 1.54 billion in principal and interest owed to international bondholders, the Banking and Finance Ministry said Saturday. President Nicolas Maduro’s administration “once again manifests its willingness and capacity to honor its financial commitments in a timely manner, demonstrating its solvency in international markets,” the ministry said of Friday’s payment. That same ministry said this week that Venezuela’s foreign debt rose to US$ 42.53 billion last year; around US$ 3 billion shy of its record-high debt level registered in 2012. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406626&CategoryId=10718; El Universal, http://www.eluniversal.com/economia/160229/venezuelan-intl-reserves-slip-to-usd-1350-billion)

 

International reserves down to US $13.501 billion

After discounting principal and interest payments on the Global 2016 bond, for US$ 1.543 billion, international reserves held by Venezuela’s Central Bank dropped last week to US$ 13.501 billion, their lowest level in 13 years. More in Spanish: (El Universal, http://www.eluniversal.com/economia/160229/reservas-internacionales-bajan-a-13501-millones)

 

Central Bank President Merentes claims to advance talks for US$ 5 billion loan

The head of the central bank says Venezuela is in advanced talks for a US$ 5 billion loan from international banks and investment funds. The operation would provide US$ 3 billion in liquidity for the government and US$ 2 billion to finance a gold mining joint venture with Canada's Gold Reserve, according to Nelson Merentes. Venezuela's international reserves fell to a 17-year low after the government paid in full its US$ 1.5 billion Global 2016 bond, according to central bank data. Venezuela and Gold Reserve have previously signed a memorandum of understanding to jointly develop the Las Brisas and Las Cristinas gold mines, ending an arbitration dispute. "We hope within a month to constitute the company, and in parallel we are seeking the loan," Merentes said. "I can't say for sure if it will be in a month, in two months. But it will definitely be this year. We are moving quickly." Merentes said the loan would be repaid with gold produced from the mines. The mines would serve as the guarantee for the loan. He said banks from Germany, Canada and China had come to Caracas to participate in a government-sponsored mining sector event. It was not immediately clear whether these banks would be involved in providing the loan. He also vowed Venezuela would meet all debt commitments, adding that authorities were willing to use instruments such as oil or gold warrants in efforts to refinance. "These are commodities that can be sold in the future or in the present," he said. Obtaining the financing may be difficult given that Gold Reserve is a tiny exploration company with no assets in production. It had US$ 2.2 million in cash on hand as of the end of September, and in its third-quarter results warned of "substantial doubt about the company's ability to continue as a going concern." Banks have been leery of funding the advanced projects of major players in the sector, and precious metal exploration companies have largely fallen out of favor with investors, stung by the extended slide in bullion prices. (CNBC: http://www.cnbc.com/2016/02/26/reuters-america-update-1-venezuela-in-advanced-talks-for-5-bln-loan-cenbank-president.html; Reuters, http://www.reuters.com/article/venezuela-economy-idUSL2N1680N6; Bloomberg, http://www.bloomberg.com/news/articles/2016-02-27/venezuela-sees-savior-in-gold-as-country-fights-to-avoid-default;  http://www.bloomberg.com/news/articles/2016-02-25/can-a-small-mining-company-help-save-venezuela-chart; http://www.bloomberg.com/news/articles/2016-02-25/venezuela-says-gold-reserve-accord-paves-way-to-investment; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406555&CategoryId=10717)

 

FITCH Ratings says new economic steps here did not improve credit ratings

FITCH Ratings reports that the new economic steps taken by the Venezuelan regime are not sufficient to improve the nation’s credit ratings. “Despite recent measures by Maduro’s government to relieve Venezuela’s financial and macro-economic stress, the combined impact of lower oil prices, the lack of outside financing and political uncertainty will continue to weigh upon ratings”. More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/29/medidas-economicas-de-venezuela-no-lograron-mejorar-su-debilidad-crediticia-fitch/)

 

New economic decisions cannot significantly reduce projected 18% fiscal deficit

Economic experts warn that the due to the size of the fiscal deficit recent government measures here are not enough to deserve fresh financing. Raising domestic gasoline prices, devaluation, selling stock in joint ventures, gold swaps, and a loan from Gold Reserve, among others, will have a very slight fiscal impact. Asdrúbal Oliveros, of ECOANALÍTICA, says this year’s deficit will be 18% of GDP. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/medidas-son-insuficientes-para-reducir-el-deficit-.aspx#ixzz41GeEzb7d; http://www.elmundo.com.ve/noticias/economia/empresas/86--de-los-empresarios-tiene--poca-esperanza--de-r.aspx)

 

Venezuelan delegation again discusses economic agenda with Chinese officials

A delegation of top officials has traveled to China to brief Asian authorities on the scope of the Bolivarian Economic Agenda, says Oil Minister Eulogio del Pino.  The delegation was headed by Planning and Knowledge Vice-President Ricardo Menéndez and a group of group of ministers who met with Wang Chao, China’s Vice-Minister for Latin America and the Caribbean, and separately with Ning Jizhe, Vice-President of National Commission of Development and Reform. President Nicolas Maduro later called the meetings “successful” (El Universal, http://www.eluniversal.com/economia/160229/venezuelan-delegation-shows-economic-agenda-to-chinese-top-officials); and more in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/presidente-maduro-destaca-respaldo-china-agenda-econ%C3%B3mica-bolivariana-venezuela)

 

Venezuela is the only Iberamerican country where Spanish investments will decrease in 2016, according to the 9^th report on the “Outlook for Spanish Investment in Iberamerica”, carried out by the IE Business School and Air France KLM shows that the key risks in investing in Venezuela are lack of legal stability and personal safety. More in Spanish: (Infolatam: http://www.infolatam.com/2016/02/29/venezuela-unico-pais-de-latam-donde-bajara-inversion-de-empresas-espanolas/)

 

Shortage of basic products in Venezuela creates new “jobs”

The shortage of food, medicines, household goods and personal hygiene products that Venezuela has suffered for several years has created new “jobs” in this country for those who profit from the crisis by speculating on it. Citizens known as “bachaqueros” (named for the fat ant species known as “bachacos”) purchase products at the subsidized “fair price” established by the government, only to resell them at a much higher price on the black market. At times bachaqueros resell products at prices 10 times higher than the regulated prices. Corn flour, the prime ingredient of Venezuela’s tasty arepas, valued at 20 bolivars (10 cents), is sold on the black market for as much as 500 bolivars (US$ 2.50). According to a survey by pollster DATANALISIS, 60% of citizens who form long lines outside markets are dedicated to the resale of regulated products, an activity penalized with fines and up to three years in jail. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2406585&CategoryId=10717)

 

Politics and International Affairs

 

Maduro is using the Supreme Tribunal to strip the National Assembly of powers

After losing control of the National Assembly, the Maduro regime started to gradually dismantle the powers of the legislature, which experts consider a slow motion coup d’ etat which will define his government’s dictatorial stance. Institutional dismantling is conducted through the Supreme Court’s Constitutional Chamber. Antonio De La Cruz, Executive Director of Inter American Trends says: “We are experiencing a judicial coup d’état…the Executive is executing a coup against the Legislature through the judiciary”. A series of sentences by the Court are taking away the hopes of the National Assembly for supervising and regulating the government. The worst blow came on 12 February, when the Court bypassed an Assembly resolution rejecting the state of emergency dictated by Maduro. The decision came from the Constitutional Chamber, where 13 of the current justices were named by a simple majority of the previous Assembly, hours before ending their term of office in December. If the National Assembly is deprived of the power to make real change through legislation and is limited to acting as a platform to vent protests. Former Foreign Minister Armando Durán says: “It is not enough to enact laws; they need to be enforced”. “No government official bothers to comply with National Assembly summons”, he adds. Institutional paralysis created by the regime is taking place at a time when the people are entering an unprecedented state of desperation and millions of Venezuelans spend most of their day in line at supermarkets in the hope of buying something. “There is a strong possibility that this leads to a social explosion that will create domestic social movements that are not going to be easy to control”, says De La Cruz. More in Spanish: (El Nuevo Herald:  http://www.elnuevoherald.com/noticias/mundo/america-latina/venezuela-es/article62063192.html#storylink=cpy)

 

Corruption scandals in the Venezuelan State’s food networks are linked to the fact that it is the military who run the companies and they do not have the required expertise, says food supply analyst Tomás Socías. He also claims other factors are distortions of the preferential forex rate, price controls and the grouping of 293 public food production, storage and distribution companies into 14 conglomerates in 2015. Parties allied with the Maduro regime – including Venezuela’s Communist Party are supporting an investigation into the administration of General Carlos Osorio as Minister for Nutrition, as well as scrutinizing PDVAL, which is managed by the oil industry. This is the first time regime political allied openly name an individual for investigation. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46987&idc=3); and more in Spanish: (El Nacional, http://www.el-nacional.com/politica/PCV-PPT-Osorio-Min-Alimentacion_0_802719979.html)

 

Comptroller General launches investigation into Capriles Radonski

The Comptroller General's Office reports it is investigating opposition leader and Miranda state governor Henrique Capriles Radonski and several members of his team over the use of several budget items in 2011, 2012, and 2013. Capriles Radonski termed the step political retaliation: "The government is trying to silence the opposition voices, for they know they are lost. They know that they lost people's support; that they lack people, and that is why they have begun new reprisals against us. Seemingly, the government is afraid of the recall referendum, for soon after we started to travel the country promoting such vote, government leaders ordered us to be investigated once again," the governor said. (El Universal, http://www.eluniversal.com/nacional-y-politica/160229/comptroller-general-commences-investigation-into-capriles-radonski)

 

STRATFOR: How Venezuela would remove its President

With each passing day, it is becoming increasingly clear that President Nicolas Maduro’s term could come to an abrupt end. Both the opposition-controlled legislature and Maduro’s own party are calling for him to resign to deflect public anger from the government. According to STRATFOR sources, the opposition has already discussed with the ruling United Socialist Party of Venezuela (PSUV) the possibility of forming a joint post-Maduro junta to govern the country.  Progress on any junta discussions depends on whether powerful military leaders, such as Minister of Defense Vladimir Padrino Lopez, consider a junta or another transitional government to be in the country’s interests. At this point, it appears that at least a significant segment of the armed forces, including retired and middle-ranking officers, may support a transition; it is up to the military to deal with any social unrest created by the country’s collapsing economy. According to one STRATFOR source, Padrino Lopez backs Maduro’s removal, albeit in a manner that preserves the president’s dignity. National Assembly Speaker Henry Ramos Allup has also claimed that a faction of current and former military leaders led by Zulia state Gov. Francisco Arias Cardenas is considering Maduro’s resignation as a possible means of dealing with the political and economic crisis. A change in government would enable a new administration to begin structural economic reforms that Maduro has long opposed. It would also assuage public anger against the government that could erupt into street protests. The question, though, is how such a leadership change would take place. The events of the next few will months will in large part determine which of four possible scenarios will play out. The risk of social upheaval because of the country’s soaring inflation will be a given, no matter how Maduro is replaced. (STRATFOR: https://www.stratfor.com/analysis/how-venezuela-would-remove-its-president)

 

 

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.