Economics &
Finance
Venezuela seeks help due to drop in reserves
President Maduro and his team went to China so seek
financial assistance due to the drop in disposable international reserves, but
Chinese authorities did not grant it. Disposable reserves have dropped to U$D
900 million in the last few weeks, which can only cover 6 days worth of
imports. This is why the Maduro regime needs a credit that is not tied to
infrastructure or agriculture projects, which is the case with the Chinese Fund
and all other agreements signed with China. What the need is cash that can be
used for imports. Maduro has said economic agreements entered into between
Venezuela and China have been reached under the "best financial conditions possible in the market." He added that
for five years China has financially supported Caracas with U$D 50 billion for
the development of several projects in Venezuela. More in Spanish: (El
Nacional; http://www.el-nacional.com/; and El Universal, 09-26-2013; http://www.eluniversal.com/economia/130926/maduro-venezuela-china-reach-agreements-under-the-best-terms; AVN, http://www.avn.info.ve/contenido/venezuela-become-latin-american-power-china039s-support)
15% GDP deficit is the center of the
crisis
A sharp currency devaluation in the parallel market,
accelerated inflation, and a scarcity of FOREX for the private sector. What is
going on in Venezuela's economy? In the most recent Bank of America report,
economist Francisco Rodríguez explains that the center of the crisis is that
government expenses are above oil and tax income, and if you consider the
entire public sector the deficit now stands at 15% of GDP. He adds that as the
Central Bank prints currency it goes into buying FOREX and this pushes the
parallel rate up and accelerates inflation since there is no increase in
production. He says inflation equals what it would have been if the official
rate were devalued to 10 Bolivares to the U$D. More in Spanish: (El Universal, http://www.eluniversal.com/economia/130927/el-deficit-del-gobierno-es-el-epicentro-de-la-crisis)
Bonds-for-chickens barter feeds debt selloff in Venezuela
Venezuela will pay for U$D 600 million of food
imports including milk and live chicks from Colombia with
dollar-denominated bonds, a sign the nation is running out of money to address
the chronic shortages of basic goods fueling the world’s fastest inflation. Venezuela’s
borrowing costs, which fell this month on speculation it would start a
foreign-exchange system to boost the dollars needed to buy necessities from
abroad and alleviate inflation of 45%, surged by the most in three weeks
yesterday after El Nacional newspaper said China wouldn’t loan the
cash intended to fund the change. (Bloomberg, 09-26-2013; http://www.bloomberg.com/news/2013-09-26/bonds-for-chickens-barter-feeds-debt-selloff-in-venezuela.html)
FOREX board ponders extraordinary
allocation of foreign currency
Jose Khan, President of the Foreign Exchange
Administration Commission (CADIVI), is saying an "extraordinary" allocation of US dollars could take place in
the upcoming months in order to speed up imports. "Such decision is in the hands of the President of the Republic (Nicolás
Maduro); there is a proposal and it is up to him to make the announcements,"
the official stated after a meeting with Vice-president Jorge Arreaza and other
members of the Economy Higher Authority. The business sector claims that
foreign currency shortage is the main obstacle to boost production and increase
supply. (El Universal,
09-26-2013; http://www.eluniversal.com/economia/130926/forex-board-ponders-extraordinary-allocation-of-foreign-currency)
Unemployment rate hits 8% in August
Venezuela's unemployment rate in August 2013 stood at 8%, a small
increase compared to August 2012, when unemployment hit 7.9%, according to the
monthly labor report issued by the National Institute of Statistics (INE). In
absolute terms, 1,133,674 people were unemployed in Venezuela last month,
either because they lost their jobs, or because they were looking for their
first job and did not found one. In addition, 58% of Venezuelans (7,629,436
people work in the formal sector of the economy, and 41.2% (5,342,390 people)
work in the informal sector. (El Universal; http://www.eluniversal.com/economia/130925/venezuelas-unemployment-rate-hits-8-in-august)
Commodities
Private sector seems anxious to invest if PDVSA builds confidence
PDVSA is scrambling to increase production by enlisting
the private sector and by meeting the tough new constraints on loans imposed by
Beijing and major foreign oil companies. Several Venezuelans, on condition
of not being quoted as they do business with PDVSA, related a consistent
picture differing only in amount of detail: PDVSA has had to allow delivery of
loans directly to large joint ventures (JVs) with major foreign oil companies,
surrendering much operational management. To guarantee timely payment and
repatriation of profits, PDVSA delivers oil produced to a third party for
marketing abroad, with proceeds put in offshore accounts with JV partners. (Americas
Quarterly, 09-17-2013; http://www.americasquarterly.org/caracas-and-maracaibo-venezuela-private-sector-anxious-invest-pdvsa)
Brazil's PETROBRAS nixes refinery
deal with Venezuela
Brazil's state-run oil giant PETROBRAS has scrapped a
proposed partnership with its Venezuelan counterpart in the ongoing
construction of a refinery in northeastern Brazil, the economic daily Valor
reported Tuesday. As of November 1, the Abreu e Lima refinery will become a
PETROBRAS business unit, ending bilateral talks which began more than six years
ago between Brazil's ex-president Luiz Inacio Lula da Silva and his now
deceased Venezuelan counterpart Hugo Chavez, Valor said. While awaiting a 40%
participation by Venezuela's state-owned PVDSA oil company in the project,
Brazil began building the refinery south of Recife in 2007. Venezuela's
promised investments failed to materialize however. (Global Post; http://www.globalpost.com/dispatch/news/afp/130924/brazils-petrobras-nixes-refinery-deal-venezuela)
Ramirez announces meeting of
Venezuela-India oil companies
Oil and Petroleum Minister Rafael Ramírez says directors
of Venezuelan and Indian oil companies will gather in October in Caracas to
discuss the possible participation of India in oil projects at the Orinoco Oil
Belt (OOB). The official noted the meeting would be held on October 7-9 in
Caracas and in the Orinoco Oil Belt. (El Universal, 09-26-2013; http://www.eluniversal.com/economia/130926/pdvsas-head-announces-meeting-of-venezuela-india-oil-companies)
Land grabs aggravate food scarcities
Ciro Labarca, President of the
Cattlemen Association of Colón, in Zulia state, says land grabs make food
production worse since invaders sell off whatever is there, and therefore
diminish the production of milk, beef, plantains and other items. He explains
that those who enter forcibly have taken over 4 highly productive farms in his
area, for a total 6900 hectares. "Their
modus operandi is to occupy, steal all there is , sell the cattle, and then
resell lots at any price". More in Spanish: (Últimas Noticias; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/afirman-que-invasiones-agravaran-escasez-de-comida.aspx; El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/afirman-que-invasiones-agravaran-escasez-de-comida.aspx)
International Trade
Drop in reserves lead to paying for Colombia
food with PDVSA bonds
The drop in disposable reserves is so great that the
Maduro regime is getting ready to pay Colombian food exporters with U$D 600
million worth of PDVSA bonds. Colombian Finance Minister Mauricio Cárdenas has
explained that "there is an ongoing
dialogue between Venezuela's Nutrition Ministry and Colombian businessmen...and
there is a pending last discussion on the way to pay, over how PDVSA bonds will
operate, as this is the device initially suggested as payment." He
added: "we are waiting for a reply
to a proposal made by the Colombian government." More in Spanish: (El
Universal, http://www.eluniversal.com/economia/130927/caida-de-reservas-obliga-a-pagar-alimentos-a-colombia-con-bonos)
Venezuela promises to cut red tape
on imports of essential goods
Vice-President Jorge Arreaza said the government was cutting red tape
for companies willing to import food, toiletries and mechanical parts. Arreaza also announced that the government
was giving importers easier access to foreign currency. (BBC; http://www.bbc.co.uk/news/world-latin-america-24276587)
Logistics
& Transport
Puerto Cabello's port has been overwhelmed due to deficit
in ground transportation
Over 40 vessels, some of them
bearing food and live cattle, have collapsed the most important commercial port
in Venezuela due to a chain of events made worse by bureaucracy. The Puerto Cabello maritime terminal
in Central Venezuela has a deficit in land transportation which makes it
difficult to move 332 tons of backed up cargo, and ships continue to arrive
with grain coming out of the harvest season. Tarek Bahsas, President of the
Central Venezuela Transportation Chamber, says there is a deficit of some 2000
cargo vehicles, and that some 10% of the fleet is paralyzed due to a lack of
spare parts. Offloading is slow and takes an average 8 to 15 days. Delays are
extremely costly to the government as each additional day costs between U$D
10-25,000, depending on the type of cargo. Container cargo arrivals have
dropped 30-35% from 2012 due to delays in FOREX allocation and other bureaucratic
snags. National Assembly member Neidy Rosal called on the government to declare
an emergency at this port which received 80% of all imports. She also said
there are 200, 000 tons sugar and corn backed up at the port due to the
inefficiency of the port authority (BOLIPUERTOS). She says there are 45 ships
in the port, 27 of them waiting at bay and 18 in the process of docking. Rosal
says ships take an average 72 hours to dock, offload and go through customs at
most Latin American ports, and it takes over a month to do so in Venezuela.
More in Spanish: (Ultimas Noticias; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/puerto-cabello-esta-hasta-los--tequeteques-.aspx#ixzz2ftld3jXr)
Customs agents protest increase in
cargo freightage
Antonio Marcano, President of the Puerto Cabello Customs
Agents Association says there has been an exaggerated increase in freightage
for transporting cargo. He says the increase is not 40%, which is what carriers
claim, but approximately 130%. As an example he said the cost of transportation
between Puerto Cabello and Valencia went up from 3,000 to 8,000 Bolivars. More
in Spanish: (El Carabobeño; http://www.el-carabobeno.com/impreso/articulo/77363/sector-aduanero-en-desacuerdo--con-incrementos-de-fletes-para-cargas; Notitarde; http://www.notitarde.com/La-Costa/Aumento-en-precio-de-fletes-es-exagerado/2013/09/26/267776)
Politics
Maduro cancels UN speech over
alleged New York threats
President Nicolas Maduro canceled a trip to speak at the
United National General Assembly’s annual gathering in New York because of what
he called threats to his safety. One of the alleged plots could have caused
violence in New York and the other could have affected his physical safety,
Maduro said in a national address carried on television and radio yesterday. “The clan, the mafia of Otto Reich and Roger
Noriega once again had planned a crazy, terrible provocation that can’t be
described in any other way,” Maduro said, referring to two former U.S.
officials he frequently accuses of plots against Venezuela. Maduro, who
returned to Venezuela yesterday from a state visit to China, said he learned of
the plots from “various sources”
during a stopover in Vancouver and decided to return to Caracas. The State
Department in March said claims by Venezuelan officials of U.S.-based plots to
destabilize the South American country were “unsubstantiated and outlandish.” Foreign Minister Elías Jaua will speak
instead and says "We have prepared a
file outlining all ...obstacles and difficulties". (Bloomberg; http://www.bloomberg.com/news/2013-09-26/venezuela-s-maduro-cancels-un-speech-over-new-york-threats.html; El Universal, 09-26-2013; http://www.eluniversal.com/nacional-y-politica/130926/venezuelan-fm-to-report-on-obstacles-to-nicolas-maduros-trip;
Latin American herald Tribune, 09-26-2013; http://www.laht.com/article.asp?ArticleId=1038518&CategoryId=10717;
Reuters, http://www.reuters.com/article/2013/09/26/venezuela-airbus-idUSL2N0HM01B20130926;
Bloomberg, http://www.bloomberg.com/news/2013-09-27/venezuela-s-maduro-said-to-drop-u-s-trip-over-cuban-jet.html;
CNN, http://www.foxnews.com/world/2013/09/25/venezuela-president-maduro-claims-scrapped-trip-for-un-speech-after-plot/)
Maduro says he will sue AIRBUS
President Nicolás Maduro says he is planning legal action
against AIRBUS, after his presidential plane developed a fault. "A serious fault appeared in one of the wings
of the plane after five months at AIRBUS in France - my God!" said
Maduro. "With the help of an
international law firm, we're preparing legal actions against AIRBUS of France."
(BBC: http://www.bbc.co.uk/news/world-latin-america-24276587
Beijing expands presence in
Venezuelan Armed Forces
During recent meetings of China-Venezuela authorities and
representatives, the Venezuelan Government entered into agreements under which
China is to conduct a preliminary study for the construction of two general
commands of the Bolivarian National Armed Forces (FANB) and furnish defense
supplies to the Venezuelan military. (El Universal, 09-26-2013; http://www.eluniversal.com/nacional-y-politica/130926/beijing-expands-presence-in-venezuelan-armed-forces)
Venezuela, Russia sign electoral
cooperation agreement
Tibisay Lucena, head of Venezuela's National Electoral
Council, and Stanislav Vavilov, deputy chairman of Russia's Central Election Commission,
have signed a bilateral cooperation protocol to exchange experiences relative
to election affairs, particularly the alleged cutting-edge technology of the
Venezuelan electoral system. (El Universal, 09-26-2013; http://www.eluniversal.com/nacional-y-politica/130926/venezuela-russia-sign-electoral-cooperation-agreement)
SPECIAL REPORT BY THE ECONOMIST:
Maduro’s balancing act
It is a remarkable achievement. Amid the longest oil boom in history
Venezuela has in many respects the worst-performing economy in the Americas,
even though it has (it claims) the world’s biggest reserves of the black stuff
and gets 94% of its export earnings from it. That is the legacy of 14 years of
“21st-century socialism” under the
late Hugo Chávez. Inflation is over 45% a year and supermarket shelves are bare
of many staple goods. Even Nelson Merentes, the finance minister, concedes that
Chávez’s revolution has yet to achieve economic success. But oil revenues of
U$D 90 billion a year allow Nicolás Maduro, Chávez’s successor, the luxury of
debating whether or not to change course. After contracting for several months,
the economy grew in the second quarter. August inflation of 3% was half the
monthly rate in May. But most economists do not believe a sustainable recovery
has begun. The growth spurt appears to come from a fiscal splurge; the budget
deficit is probably around 10% of GDP. A decade and a half of hyper-regulation,
including ever more stringent price and exchange controls, has inflicted “terrible distortions” which will be hard
to correct, even given the political will, says José Manuel Puente of IESA, a
business school in Caracas. Foreign exchange has been largely allocated by
government fiat since 2003. On the black market, the dollar commands more than
six times the official exchange rate of 6.3 Bolivares. The government handed
out more hard currency in the second quarter, which may have boosted growth.
Merentes is more pragmatic than his predecessor Jorge Giordani, a Utopian
Marxist. Following a 32% devaluation in January there is talk of another, or
even of floating the Bolívar, though Giordani, who is now planning minister,
opposes this. Opportunists, who delight in the profits to be made from graft
and arbitrage, are happy to go along with him. The government’s main response
to the scarcity of food and other staples, such as toilet paper and toothpaste,
is a conspiracy theory. It blames an “economic
war” waged by the United States and its “fascist” allies in the Venezuelan opposition. On September 20th it
sent the national guard to occupy a big toilet-paper factory. Officials said
the “temporary” takeover was needed
to check for irregularities in production and distribution. Maduro claimed
recently that in meetings at the White House earlier this year a plan was
hatched to engineer the “total collapse”
of the Venezuelan economy in October. A huge power cut affecting 18 (out of 24)
states on September 3rd was due to sabotage, he said, as was a refinery
explosion last year that killed 49 people. This month he set up an army-backed
task-force to tackle the supposed plot, with the help of 0800-SABOTAJE, a
hot-line. Maduro has produced not a scrap of evidence for these claims. The
private sector wearily promised to collaborate. After all, said one business
leader, “we already face 50 to 100
inspections a month of various kinds, so what is one more?” Economists
debate how long Venezuela’s foreign-currency reserves can stand the current
rate of attrition. They have plummeted by around a quarter this year, thanks in
part to the fall in the price of gold, of which they largely consist. Liquid
reserves amount to less than a month’s imports. There could be another U$D 20
billion or so in opaque off-budget funds, but up to a third of this may be
earmarked for specific projects. This week Maduro was in Beijing, where he
confirmed a fresh U$D 5 billion credit line (with strings attached) and U$D 15
billion in long-term oil and mining investments. Pragmatists argue that an
adjustment is unavoidable. But Maduro faces local elections on December 8th
which are widely viewed as a plebiscite on his rule. IVAD, a pollster, recently
found that two-thirds of those it surveyed saw the economy as being in bad
shape—and they blamed the government. Less than 4% believed the official line
about “sabotage”. Maduro is caught in
a trap of his predecessor’s making. If he sticks to the recipes of the
radicals, the economy will only worsen. If he abandons them, he risks being
labeled a reformist traitor and exacerbating faction-fighting within the
regime. For the moment, he is moving cautiously in the direction of reform,
even as he bangs the revolutionary drum and cracks down on dissent. For the
president, who recently managed to fall off a bicycle on live television, it is
a tricky balancing act. (The Economist, http://www.economist.com/news/americas/21586850-adjustment-and-reform-are-economically-essential-politically-impossible-maduros-balancing)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.
