December 20, 2018

International Trade

571 containers of toys and food have arrived at La Guaira´s port

The La Guaira port authority reports that 571 containers are being offloaded from the ship Balao, including 128 containers bearing toys and the remainder carrying food, to be distributed by the government nationwide. More in Spanish: (AVN, http://www.avn.info.ve/contenido/bolivariana-puertos-descarga-buque-balao-571-contenedores-insumos-para-navidad)

 

Oil & Energy

Gasoline queues are back in Caracas

Gasoline queues to buy fuel have begun again in Caracas due to supply problems and gas station closures. A source within PDVSA reports that diminished supplies have been caused by a fire in a distributing plant East of Caracas that reduced capacity. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/nacional/vuelven-las-filas-en-las-gasolineras-de-caracas-por-fallos-en-el-suministro)

 

Commodities

FEDECAMARAS reports: "2018 was the worst year in history for production "

Venezuela’s principal business organization, FEDECAMARAS has reported that 2018 has had “devastating results” as a result government policies “aimed at the destruction of economic freedom, private Enterprise, and free initiative”, which have “caused 2018 to be the worst year in history for all of the country’s productive sectors”. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/economia/fedecamaras-advierte-que-2018-fue-el-peor-ano-de-la-historia-en-produccion)

 

Economy & Finance

Trust for US bondholders sues Venezuela over defaulted debt

A trust representing holders of Venezuelan bonds filed suit in New York federal court Tuesday demanding payment on more than US$ 34 million in unpaid debt. The lawsuit is believed to be the first by a long list of investors not being paid by Venezuela's socialist government as it confronts a historic cash crunch worsened by hyperinflation and collapsing oil production. It was filed by Casa Express Corp., a firm registered in Coral Gables, Florida, and which said it represents investors in dollar-denominated bonds issued in 1998 and 2002. Last year Venezuela stopped paying interest and principal on US$ 65 billion in bonds issued by the government and state oil company PDVSA. Creditors had been reluctant to sue for fear of racking up huge legal fees with no repayment scenario in sight as long as President Nicolas Maduro remains in power and under U.S. financial sanctions barring new lending to his government. But their patience has worn thin as other stiffed lenders like ConocoPhillips have jumped ahead of them and sought to seize Venezuela's limited number of foreign assets, such as PDVSA's U.S. subsidiary Citgo. Last week, a group calling itself the Venezuela Creditors Committee hired top-flight law firm Cleary Gottlieb to explore its options in the face of efforts by individuals to satisfy claims that have "skewed recoveries in their favor to the detriment of bondholders." The group said it represents Wall Street investors holding some $8 billion in Venezuelan and PDVSA bonds. "There is likely to be a surge of lawsuits attempting to get at what is left of Venezuela's assets," said Russ Dallen, head of Caracas Capital, who was the first to draw attention to the bondholder lawsuit in a note to investors. (ABC News: https://abcnews.go.com/International/wireStory/trust-us-bondholders-sues-venezuela-defaulted-debt-59899426; Reuters, https://www.reuters.com/article/us-venezuela-bonds/florida-firm-sues-venezuela-for-34-million-over-unpaid-bonds-idUSKBN1OI073)

 

Latin American lender gives Venezuela U$ 500 million credit line

Latin American development bank CAF said on Monday it has approved a US$ 500 million credit line to Venezuela’s central bank, drawing criticism from opposition lawmakers for financing the government of President Nicolas Maduro amid economic chaos. The loan will “mitigate liquidity risks and provide macroeconomic support,” Caracas-based CAF Development Bank of Latin America said in a statement. The bank is owned by 19 countries primarily in Latin America and the Caribbean and 13 private banks in the region. “With this financing, CAF is supporting the dictatorship,” said opposition legislator Angel Alvarado, who has for years warned investment banks of the reputational risk of giving financial support to Maduro’s socialist government. (Reuters, https://www.reuters.com/article/venezuela-caf/latin-american-lender-gives-venezuela-500-mln-credit-line-idUSL1N1YM12J)

 

IMF projects 1.370.000% hyperinflation in Venezuela by the end of 2018

An IMF report indicates the yearly inflation rate for Venezuela could be 1.370.000% by the end of 2018, as the government is unable to cover the budget deficit by printing money. The revised report says inflation is 100 times quicker than their January 13000% estimate. More in Spanish: (El Universal, http://www.eluniversal.com/economia/28694/fmi-preve-hiperinflacion-de-1370000-al-finalizar-2018)

 

Venezuela isn’t the crypto use case you want it to be

Cryptocurrency enthusiasts love to talk about Venezuelan users – wracked by political oppression, economic collapse and food insecurity – as a prime example of bitcoin’s subversive potential. But the reality is far more complicated. Many Venezuelans are learning about cryptocurrency through forced exposure to the state-issued Petro, in addition to aggressive outreach strategies from projects like dash. Many don’t even know that bitcoin is useful itself, beyond its ability to ease the transfer of assets like dash or dollars. Some Venezuelans fleeing the country do so with their assets held in bitcoin, to avoid being harassed at the airport or the border. Expats become more involved with the broader bitcoin ecosystem when they leave Venezuela. In part, this is due to fear that public association with crypto inside Venezuela could attract attention from corrupt government officials. Although some local projects like EOS Venezuela have so far managed to provide liquidity to small groups of local users without such conflicts, those use cases are both nuanced and nascent. Some migration experts compare the Venezuelan crisis to the Syrian civil war, a mass forced-migration movement that leaves many unbanked and desperate for necessities. All things considered, there is still a long way to go until crypto is used for its own merits in Venezuela. Now, it’s often used as a tool for acquiring or liquidating fiat. (Coindesk: https://www.coindesk.com/venezuela-isnt-the-crypto-use-case-you-want-it-to-be)

 

Politics and International Affairs

Venezuela denies Russia building military base, but missiles deployed as nation starves

A video posted to Twitter shows multiple missiles being deployed by truck around Venezuela Wednesday, less than 48 hours after embattled head of state Nicolas Maduro promised to “strengthen the air defense” in case of a joint U.S.-Colombia-Brazil invasion. At roughly the same time the video above was being made public, Maduro’s number two, Diosdado Cabello, publicly denied Tuesday night that Russia was establishing a new base on Venezuelan soil. “I wish it were true that Russia is preparing the installation of a military base in La Orchila,” Cabello, a former Army lieutenant who participated with Chavez in a coup attempt in 1992, said during a session of the Constituent Assembly, an illegitimate parallel legislature that is controlled by the government. Social media users however ignored Cabello’s unwanted clarifications, choosing instead to focus on the available evidence: armaments being moved around. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2471811&CategoryId=10717)

 

Brazil's Bolsonaro says he will target Venezuela, Cuba

Brazil’s President-elect Jair Bolsonaro said on Tuesday that he would take all action “within the rule of law and democracy” to oppose the governments of Venezuela and Cuba. Bolsonaro, who takes power Jan. 1, is a fervent anti-communist who frequently targets Venezuela and Cuba for verbal attacks, a drastic change from Brazil’s governments under the leftist Workers Party that ruled from 2003 to 2016 and had warm relations with those regimes. Brazil’s incoming president did not provide any details when he made his most recent comments on Venezuela and Cuba. (Reuters, https://www.reuters.com/article/us-brazil-politics-bolsonaro/brazils-bolsonaro-says-he-will-target-venezuela-cuba-idUSKBN1OH2F8)

 

Uruguay’s president says he is willing to be an “intermediary” in the Venezuelan situation

Uruguay’s President Tabaré Vázquez has said he is willing to act as an “intermediary” in Venezuela, if asked and if this country restores democracy and leaves violence aside. Vásquez had been asked about that nation’s position on Venezuela, which has been termed lukewarm by the local opposition. More in Spanish: (El Universal, http://www.eluniversal.com/politica/28719/presidente-uruguayo-se-muestra-dispuesto-a-intermediar-en-situacion-venezolana)

 

Why the low turnout in Venezuela?

A high turnout rate when Venezuela is going through a serious crisis could make us think that the masses would be encouraged to go out and vote in order to overcome it: citizens have lost connection with the government and should be encouraged to vote against him if only 19% approve the administration of the President; 13% defines itself as "chavista"; 12% is identified with the government party (PSUV) because the negative assessment of the situation of the country is located at 94%; Venezuela has lost more than 50% of GDP in 5 years and has the highest inflation in the world. However, opposition parties have also lost connection with citizens and are not channeling their discontent: The massive marches and street protests staged in previous years are unthinkable today since the identification of citizens with opposition parties has dropped to 26% this year from 47% in November 2016; it also dropped to 8% from 27% in late 2017 as a lack of coordination prevails among its members. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2471813&CategoryId=10717)

 

President Maduro points to Iván Duque as the main promoter of threats against Venezuela

President Nicolás Maduro claims that his Colombian counterpart, Iván Duque, is the main promoter of the threats against Venezuela. "Iván Duque is responsible if one day, Colombia militarily attacks Venezuela, for your ambition, selfishness, for your hatred against Venezuela, for your immaturity," he said in a joint radio and television. He also repeated his accusation against US Security Adviser John Bolton: "He personally directs the preparation of actions against Venezuela, so I denounce it to the world with the support, with the financing of the White House, of John Bolton, Secretary of Internal Security of the USA". (AVN, http://www.avn.info.ve/contenido/president-maduro-points-iv%C3%A1n-duque-main-promoter-threats-against-venezuela)

 

Chilean expats return home from Venezuela

A Chilean air force plane landed in Santiago, Chile, with Chilean expatriates who decided to abandon Venezuela amid a protracted political and economic crisis in that nation, officials said. The aircraft stopped in Caracas on the return from Port-au-Prince after a mission to bring 175 Haitians back to their country as part of a voluntary repatriation plan. The flight was the third one under the plan that has so far returned 500 Haitians to their homeland at no expense to them, on condition that they not try to enter Chile for nine years. The plane that touched down Tuesday at an airbase in Santiago carried 47 Chilean nationals along with eight Venezuelan-born dependents. Eight Argentines were also aboard under an accord between Santiago and Buenos Aires. The Chilean returnees were received by their families and by Chile's acting foreign minister, Carolina Valdivia. On Nov. 27 around a hundred of Chilean expats were greeted on their return by President Sebastian Piñera. (The San Diego Union Tribune: https://www.sandiegouniontribune.com/efe-3846550-14951225-20181218-story.html)

 

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 02, 2017

International Trade

Cargo that has arrived at Puerto Cabello:

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

 

Oil & Energy

PDVSA braces for oil production drop as default looms large

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

 

Venezuela's Paraguana refineries at 42% capacity

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

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

 

Economy & Finance

 

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

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

 

Venezuela’s default risk drops below 50%

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

 Debt sustainability

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

 

Politics and International Affairs

 

Regime attacks on Catholic church intensify

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

 

Venezuelan legislators vow to continue denunciations despite “aggressions”

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

 

Freedom House lists Venezuela as "not free"

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

 

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

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

 

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

December 22, 2016

International Trade

Venezuela reopens Colombia, Brazil border crossings

Thousands of Venezuelans crossed into Colombia to buy food and medicine after their government partially reopened the border following a messy crackdown on what it called currency hoarders. But while foot traffic was permitted, trucks carrying needed goods remained blocked. Venezuela also reopened its main border crossing with Brazil after talks between officials at the Brazilian embassy and Venezuela's foreign ministry, officials in Brasilia said in a statement. The crossing is open for pedestrians, but only within limited hours for vehicles. (AFP: https://www.yahoo.com/news/venezuela-reopens-border-crossing-colombia-215620846.html; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427571&CategoryId=10717)

 

Colombia's Santos asks more collaboration from Venezuela against smuggling

Colombian President Juan Manuel Santos has basked Venezuelan authorities to collaborate more in the fight against smuggling on the common border, which was re-opened after eight days of shutdown ordered by the government of Nicolás Maduro.  “We need more collaboration from both parties to fight against smuggling, because this problem is not convenient for anyone,” President Santos asserted in a speech in the bordering city of Cúcuta, Colombia, where he met with regional authorities and representatives of several sectors. “Let’s strengthen the supervision in the trails that are still not under control,” added President Santos. He said that he had conveyed that message to his Venezuelan counterpart Maduro in a telephone conversation on Monday. (El Universal, http://www.eluniversal.com/noticias/daily-news/colombias-santos-asks-more-collaboration-from-venezuela-against-smuggling_632196)

 

Argentina says Venezuela will return to MERCOSUR when it complies with rules

Argentine Foreign Minister Susana Malcorra says Venezuela will return to MERCOSUR once it complies with all the organization’s rules. She said Venezuela “has ceased participating in MERCOSUR” and expects it will “comply with agreements and join in once more”. About dialogue between the Maduro regime and the opposition here, Malcorra said: “there is no formula that is not within Venezuelans”, since “there are no miracles from the outside”, nor any enemies abroad. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/internacionales/2016/diciembre/20/179559=susana-malcorra-senalo-que-venezuela-volvera-a-mercosur-cuando-cumpla-las-reglas)

 

Food, medicine and personal care products have arrived at La Guaira in 300 containers from Colombia. The shipment includes 238 containers bearing food, 38 with personal care products, and 24 with medicine, according to the local port authority. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34860)

 

Oil & Energy

Secrecy and confusion surround Venezuela’s latest oil deals

Venezuela’s newly created and military run oil and mining company CAMIMPEG has formed a joint venture with UK-based Southern Procurement Services (SPS) to reactivate shut-in wells in Lake Maracaibo in Zulia state. The deal has raised eyebrows, given its scale and the relative inexperience of the parties involved. A source with knowledge of developments and who has operations in the lake told NewsBase the well count could approach 1,500. Given their lack of experience, questions have been asked about whether the JV partners have the requisite personnel or capital to pull off the work. Indeed, the fact the companies have even been allowed to team up is startling. SPS and CAMIMPEG, which was created in February to protect petroleum installations belonging to state-run PDVSA, recently formed CAMIMPEG-SPS to “improve the oil and gas production process for PDVSA,” the JV tweeted last week. In the most recent of only three press releases available in the news section on its website, England-based SPS, which is part of the SCZ Group financial group, reported that it was engaged in activities to supply “electric submersible pumps” as part of trade initiatives. CAMIMPEG was also created in part to provide oilfield services to PDVSA, with a view to it replicating the activity of companies like SCHLUMBERGER, HALLIBURTON or WEATHERFORD. But President Nicolas Maduro is believed to have created the rookie company, which is run by the armed forces, to keep the military happy and loyal as Venezuela’s economy collapses. CAMIMPEG-SPS also recently signed a deal to acquire a fleet of vehicles that will be used to maintain a constant presence over PDVSA’s operating areas. Financing for both deals is likely to come from SCZ Group, which provides “special financing mechanism that allows customers to pay for purchases of oil products, petrochemical industries and basic industries,” according to statements on its website. The CAMIMPEG-SPS deal mirrors a similar agreement that was struck recently between PDVSA and US-based drilling contractor Horizontal Well Drillers (HWD). That deal saw the latter company make its debut in Venezuela, despite its lack of experience in hostile environments and insufficient cash flow to finance its activities without funding from another company. The deals with both CAMIMPEG-SPS and HWD come as hundreds of companies there with years of operating experience in Venezuela are struggling to get paid by PDVSA. Many have pared back their operations, while others have simply given up and exited the country. The secrecy and confusion surrounding the deals exemplify the state of Venezuela’s oil industry. (Oil Price: http://oilprice.com/Latest-Energy-News/World-News/Secrecy-And-Confusion-Surround-Venezuelas-Latest-Oil-Deals.html)

 

Two Die in Fire at Oil Complex in Western Venezuela

Two workers were killed and a third was injured in a fire at an oil complex in Valmore Rodriguez, a city in the western state of Zulia, state-owned Petroleos de Venezuela (PDVSA) said on Tuesday. The fire started at 7:50 pm Monday in a generator in the power generation section of the Lamargas-Lago Complex. Workers put out the fire and officials activated the emergency protocols and appointed a commission to investigate the accident, PDVSA said.
(Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427586&CategoryId=10717; El Universal, http://www.eluniversal.com/noticias/daily-news/research-task-force-established-after-fire-oil-complex-north-venezuela_632062)

 

Venezuela to sell fuel on the border with Colombia in pesos

President Nicolás Maduro has announced that Venezuela will charge the gasoline sales on the border with Colombia in pesos. He added that a payment mechanism would be implemented to allow Colombians to pay for gasoline through their local banking system, including bank cards. Later on, other products sold on the border would be paid through this mechanism, according to state-run news agency AVN. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-sell-fuel-the-border-with-colombia-pesos_632297)

 

Commodities

FORD halting Venezuela production until April

FORD Motor Co halted auto production in Venezuela last week and will not resume it until April, a company executive said on Tuesday, in another blow to the crisis-wracked country's manufacturing sector.  "It is a measure to adjust production to demand in the country," Lyle Watters, FORD's president for South America, told reporters at an event in São Paulo, adding that the plant affected by the shutdown employs 2,000 workers. Watters said the production freeze would not affect FORD's consolidated results as operations in Venezuela are reported separately. Beginning in the first quarter of this year, Venezuela became the only wholly owned FORD unit with operating results that are excluded from the full company's income statement.  In January 2015, FORD took a charge related to its Venezuelan operations that cut fourth-quarter net profit by US$ 700 million. FORD is the only automaker still mass producing cars in Venezuela, even on a limited scale. Vehicle production in recession-hit Venezuela is less than 8 cars a day, as per figures provided by the national automakers organization CAVENEZ. FORD produced 2,253 units out of a paltry national total of 2,768 in the year through November. In mid-2015, FORD's major U.S. rival, GENERAL MOTORS stopped making vehicles in Venezuela altogether. GM had one plant in Venezuela. (Reuters: http://www.reuters.com/article/us-ford-motor-venezuela-idUSKBN149266)

 

Maduro regime raises prices over 200% for coffee, corn flour, and sugar

The Maduro regime’s price control agency, SUNDEE, has published new prices on sugar cane, corn flour, white and yellow corn, coffee grains, green coffee and sugar in all its forms. The price of pre-cooked corn flour was raised 236.3%, and remains beneath adjustments sought by private industry here. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/establecidos-nuevos-precios-para-caf%C3%A9-harina-ma%C3%ADz-y-az%C3%BAcar; El Universal, http://www.eluniversal.com/noticias/economia/ajustan-precios-harina-precocida-cafe-azucar_632289; El Nacional, http://www.el-nacional.com/noticias/economia/sundde-publico-lista-nuevos-precios-del-cafe-azucar-harina-maiz_72241 http://www.el-nacional.com/noticias/economia/gobierno-subio-2363-harina-maiz_72330)

 

Economy & Finance

FEDECAMARAS sees no economic improvement next year

The nation’s leading business organization, FEDECAMARAS, says there is “no improvement” in sight here next year. “For three years running we are ending in crisis and recession. The government’s refusal to implement corrections to rescue the nation is bordering on irresponsible”. “Excessive controls and a growing distance from democratic principles has brought about the destruction of the nation’s productive system”. FEDECAMARAS says companies are operating at 35% capacity, annual inflation is close to 500% and basic product scarcity is above 80%. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/economia/2016/diciembre/20/179602=fedecamaras-no-avizora-ninguna-mejoria-para-el-proximo-ano-en-el-pais)

 

Maduro says second currency shipment of 500 bolivar bills arrived, threatens to arrest bankers

President Nicolás Maduro says a second aircraft bearing 12 million 500 bolivar bills arrived here on Tuesday. Central Bank vice president José Khan confirmed that a Russian aircraft bearing 11 million 500 bolivar bills has arrived. He added that 3 currency shipments have arrived: The first one on Friday, with 76 million 50 bolivar bills; a second load on December 18^th, with 13.5 million 500 bolivar notes; and then this third shipment. Maduro also says that local bankers who “sabotage” services will be arrested. More in Spanish: (Noticiero Venevision: http://www.noticierovenevision.net/politica/2016/diciembre/20/179616=presidente-maduro-anuncio-el-arribo-al-pais-del-segundo-lote-con-billetes-de-500-bolivares)

 

Why Venezuela should default

Venezuela continues to pay foreign bondholders despite an economic crisis that would have stymied other sovereign borrowers long ago. Although reallocating funds from debt service to the importation of much-needed food and medicine is tempting, the government fears that subsequent lawsuits could leave less money for imports. Venezuela already faces the typical costs of sovereign default, such as the loss of access to international credit markets and a decline in foreign direct investment, even though it remains up to date on its debt service. With a default seemingly inevitable, the country must eventually confront any other consequences, which are unlikely to include the dreaded seizure of Venezuelan oil tankers at sea. Venezuelan oil exports cannot be immediately seized. Instead, a legal cat-and-mouse game would ensue upon default. If creditors try to confiscate tankers of oil, Venezuela will ensure that, contractually, that oil is the property of the buyer before it leaves Venezuela. If creditors go after the money paid for that oil, Venezuela will reroute that money through China to evade them. Venezuela could also sell more oil through joint ventures and to China to further complicate matters for plaintiffs. Litigation would surely take a long time. Considering Venezuela’s dire economic situation, a United States court is unlikely to grant any immediate preliminary relief to hedge funds ahead of a lengthy proceeding on the merits. In the meantime, Venezuela would save around US$ 10 billion in annual debt service, an amount sufficient to restock empty supermarket shelves by funding an estimated 50% increase in imports. By alleviating shortages, these funds would give the current government, or a future government, some breathing room to enact economic reforms that would spur growth and assure long-term viability, reforms that have so far proved politically elusive. Venezuela may eventually have to pay what it owes, but that will be easier than overpaying now. Despite the government’s extraordinary efforts, creditors are not being treated fairly. While short-term creditors are paid in full, long-term creditors may not be paid at all. Every time the country pledges assets as collateral or sells the rights to natural resources, it subordinates and dilutes the claims of typically unsecured long-term creditors. Now is the worst time to sell Venezuela’s natural resources, considering the uncertain political and economic environment. Once the country stabilizes, the government can offer a restructuring that includes a maturity extension and deferral of interest payments in return for warrants that pay when oil prices rise, allowing bondholders to share in the upside. Incentives for litigation for hedge funds would be few if the restructuring were fair. Both the country and its creditors would be better off in this scenario than in a continued fire sale of Venezuela’s remaining assets. (The New York Times Op-Ed: http://www.nytimes.com/2016/12/21/opinion/why-venezuela-should-default.html?_r=0)

 

What do investors need to understand about Venezuela’s economy?

President Nicolás Maduro says that to combat smuggling and currency manipulation, the 100-bolívar note must be retired. He is correct when he claims the bill is popular with those who violate the country’s price and currency controls, but it's also popular with everyone else: its value fluctuates between two and four U.S. cents at the widely used black market currency exchanges, but it is the largest-denomination bill currently in circulation, and using lower-denomination bills is almost impossibly burdensome. To make using cash easier, new bills of up to 20,000 bolivars will be printed. What is wholly without logic is the original timeline for this plan. When it was first announced, the government said that the use of the 100-bolívar bills would be prohibited in three days, and that there would be a ten-day period for the six billion notes already in circulation to be traded in for new coins. It also said it would only allow bills being held in Venezuela to be traded in, and it even closed the borders with Colombia and Brazil to prevent currency smuggling, effectively confiscating the wealth of all holders of the bill abroad. The implementation of this scheme was never even remotely feasible, and this weekend government has extended the deadline, as well as the border closings, until January 2. Immediately before this plan was announced, it seemed like the situation in Venezuela could barely get worse: the country is undergoing a major currency crisis, it has the both the world’s highest inflation and the world’s deepest recession, it is seeing serious shortages of basic goods, including food, and there is a looming constitutional dispute that threatens the long-term viability of the government. (Forbes: http://www.forbes.com/sites/nathanielparishflannery/2016/12/21/what-do-investors-need-to-understand-about-venezuelas-economic-crisis/#101d38c27ace)

 

ODEBRECHT acknowledges it paid US$ 98 million in bribes in Venezuela alone.

Brazilian construction giant ODEBRECHT has signed the largest anticorruption settlement in history Wednesday with authorities on three continents, following a two-year investigation that landed its chief executive and dozens of other powerful figures in prison. The deal represents a landmark in Brazil’s so-called Operation Car Wash, which has unearthed what is widely seen as the most sprawling graft scheme ever exposed and triggered a political crisis that led to the impeachment of President Dilma Rousseff. ODEBRECHT paid nearly US$ 800 million in bribes related to more than 100 projects in 12 countries, including Angola, Venezuela and Mexico, as per U.S. court documents. Court documents indicate ODEBRECHT paid out US$ 98 million in bribes in Venezuela alone. ODEBRECHT doesn’t dispute any of the allegations and says it is cooperating with authorities. (The Wall Street Journal: http://www.wsj.com/articles/odebrecht-to-pay-2-6-billion-to-settle-bribery-claims-1482325309)

 

U.S. charges Florida men with laundering money for Venezuelan officials

A Florida construction equipment exporter's owners were arrested on Wednesday on charges they illegally transferred over US$ 100 million from businesses largely in Venezuela to U.S. and foreign bank accounts belonging to Venezuelan government officials and others. Luis Diaz Jr., 74, and his son, Luis Javier Diaz, 49, were charged in a criminal complaint filed in Manhattan federal court with conspiring to commit money laundering and operate an unlicensed money transmitting business. Both men, who run Miami Equipment & Export Co, according to their firm's website, were arrested in Miami, said a spokesman for Manhattan U.S. Attorney Preet Bharara. The case came amid U.S. Justice Department investigations that have focused on individuals tied to the Venezuelan government and their suspected roles in various bribery and drug-trafficking s schemes. As per the complaint, the family's company, beginning in 2010, facilitated hundreds of hundreds of transmissions of funds into the United States on behalf of an unnamed large consortium of Venezuelan construction companies. At the consortium's request, they also transmitted money to unnamed Venezuelan government officials, including one who oversaw the award of certain contracts on which the Venezuelan companies bid, the complaint alleged. the complaint said. During the period in question, a Portuguese shell company controlled by the individual linked to Venezuelan officials received at least US$ 17 million, the complaint said. The case is U.S. v. Diaz, et al, U.S. District Court, Southern District of New York, No. 16-mj-8150. (Reuters: http://www.reuters.com/article/venezuela-usa-crime-idUSL1N1EG1OB)

 

Politics and International Affairs

Unrest continues as protests reach Caracas and the Miraflores Presidential palace

Protests are nothing new in Venezuela and the country suffered months of unrest in 2014. This latest cycle of protests however began after President Nicolas Maduro announced he was withdrawing the country’s highest denomination banknote “in 72 hours.” The President later recanted, when he realized he had no new bills to replace the money with, promising to let the Bs 100 circulate until at least January 2nd, but to no avail: savage protests rocked the nation, resulting in 450 businesses looted and 405 arrested, according to figures offered by the Interior Ministry and the Fedecamaras private-sector guild. In a east Caracas, a crowd trying to buy price-controlled foodstuffs received buckshot instead, while a group of opposition lawmakers led a protest asking for the resignation of President Nicolas Maduro right outside the Miraflores Presidential Palace. This is Venezuela, after one week of continuous, deadly protests that have so far left seven dead. Opposition party leaders along with scores of ordinary citizens announced the beginning of “a new stage” of civil disobedience, during which they will occupy the streets to demand the resignation of President Nicolas Maduro. Three political parties – Voluntad Popular (VP), Alianza Bravo Pueblo (ABP) and Vente Venezuela – called for people to come join the protest and invited other parties of the MUD opposition alliance to take part in “the struggle” for a “beautiful Venezuela.” “We’re demonstrating across the country... We’re not calling for anything that violates the constitution,” David Smolansky, mayor of the Caracas municipality of El Hatillo, told reporters. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427530&CategoryId=10717; http://www.laht.com/article.asp?ArticleId=2427600&CategoryId=10717)

 

OAS Calls for 'Restoration of Institutional Order' in Venezuela

The General Secretariat of the Organization of American States (OAS) expresses its solidarity and unconditional support for the people of Venezuela in relation to the recent wave of violence, looting, and desperation sparked by the monetary measures adopted by the government that restrict the circulation of cash and as a corollary prevent the purchase of the most basic needs. At the same time, the General Secretariat calls for calm and the reestablishment of civic coexistence. The situation has led to serious incidents of public disorder in at least 12 states, with reports of demonstrations, disturbances, and/or looting in 27 cities. Added to this is the alarming and ongoing situation of the denial of civil and political rights, institutional rupture and social and humanitarian crisis. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2427490&CategoryId=10717)

 

Venezuela unsafe for Americans and its own

The situation continues to go from bad to worse in Venezuela, so much so that the U.S. State Department has warned Americans that its dangerous to live in or even visit that country. The State Department’s Security Advisory Council last week sent the following message via Twitter: “Travel Warning: If the security climate worsens, U.S. citizens should be aware that they are responsible for making arrangements for their exit from Venezuela.” The advisory also said Americans should not travel here because crime and social instability have exploded. The State Department also emphasizes that the political and security situation in Venezuela is unpredictable, a moment-to-moment exercise. In the past, Venezuelan authorities have arrested U.S. citizens with no evidence that they committed crimes. These red alerts are no surprise. The economic crisis has created a situation of precariousness and anguish among the population — and among the hundreds of thousands of Venezuelans who live in exile in South Florida. Today, Venezuela is a place of mass despair. Street protests occur at any time and without warning. They can be peaceful or turn violent. The homicide rate has also skyrocketed, highlighting the social turmoil and the inability of the authorities to stop criminal activity. As for Americans, the State Department has already indicated that traveling to Venezuela is dangerous. And the warning should be taken seriously. Venezuela is a country on the edge. (The Miami Herald: http://www.miamiherald.com/opinion/editorials/article122130799.html#storylink=cpy)