July 18, 2019

Logistics & Transport

U.S. Department of Transportation suspends air service to and from Venezuela

The U.S. Department of Transportation Office issued a notice this week announcing the suspension of air service to and from Venezuela. Venezuela imports fresh crab meat that is flown into the U.S., and the suspension of air service could potentially impact the market. Most of this product is used on the East Coast of the U.S. With the summer season quickly approaching, this suspension is coming at a time that is the highest demand period of the year. (Seafood News: https://www.seafoodnews.com/Story/1141620/US-Department-of-Transportation-Suspends-Air-Service-to-and-from-Venezuela)

 

Oil & Energy

Opposition-controlled CITGO plans to borrow US$ 1.9 billion as 2020 bond payment nears

CITGO Holding Inc., the refining company whose operations are largely under the control of Venezuela’s political opposition, plans to issue new debt to pay back US$ 1.9 billion of bonds that mature in February. The refinancing would include US$ 1.4 billion of senior secured notes due in 2024 and a US$ 500 million senior secured term loan B facility that matures in four years, the Houston-based company said in a statement. It didn’t say who is advising on the proposed deal. That offering’s success may depend upon a Delaware court’s ruling about the legitimacy of two rival corporate boards at state-owned oil giant Petroleos de Venezuela SA, the parent of CITGO. One board was appointed by Nicolas Maduro; the other one by the National Assembly leader Juan Guaidó. Oral arguments are set to be held Thursday. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2481128&CategoryId=10717)

 

Fitch raises Venezuela's opposition-controlled Citgo rating on new bond

Fitch Ratings has upgraded the long-term IDR of CITGO Holding, Inc. (Holdco) to 'CCC+' from 'CCC', upgraded the ratings of all senior secured debt at Holdco to 'B+'/'RR1' from 'B'/'RR1', and assigned a 'B+'/'RR1(EXP)' rating to the new Holdco secured notes and term loan. Proceeds from the new secured notes and term loan will be used to pay off the company's existing 10.75% 2020 Holdco notes. Fitch has also affirmed the long-term IDR of CITGO Petroleum Corp. (Opco) at 'B and affirmed the 'BB'/'RR1' ratings for Opco's secured notes, term loan and IRBs. The Outlook at Opco remains Stable. The main drivers for today's actions are the company's successful expected refinancing of its US$ 1.875 billion 2020 Holdco maturity, which addresses near-term refinancing issues at HOLDCO and helps reduce contagion risk for CITGO through favorable revisions to change in control indenture language. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2481121&CategoryId=10717)

 

Moody's rates new CITGO US$ 1.9 billion debt issue Caa1

Moody's Investors Service (Moody's) assigned a Caa1, LGD4 rating to CITGO Holding, Inc.'s proposed up to US$ 1.37 billion in senior secured notes due 2024 and up to US $500 million in proposed senior secured term loan B due 2023. Proceeds from the transactions will be used to refinance US$ 1.87 billion in senior secured notes due 2020. The outlook is stable. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2481133&CategoryId=10717)

 

S&P rates new US$ 1.9 billion CITGO Debt at B

S&P Global Ratings today assigned its 'B' issue-level rating and '2' recovery rating to CITGO Holding Inc.'s US$ 500 million senior secured term loan B due 2023 and US$ 1.37 billion senior secured notes due 2024 and put the issue-level ratings on CreditWatch with developing implications, where we placed all of our ratings on the company on Dec. 7, 2017. The '2' recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 80%) recovery in the event of a default. The company intends to use the net proceeds from the senior notes to refinance its existing outstanding $1.87 billion 10.75% notes. Therefore, we view this transaction as leverage neutral. Our issuer credit ratings on CITGO Holding Inc. and subsidiary CITGO Petroleum and the issue ratings on their debt are unchanged and remain on CreditWatch with developing implications, where they were placed Dec. 7, 2017. CITGO Holding Inc. is the direct parent of CITGO Petroleum Corp., a U.S. refinery and petroleum product marketer and distributor. The company is owned by Petroleos de Venezuela S.A. (PDVSA), Venezuela's state-owned oil company. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2481132&CategoryId=10717)

 

Economy & Finance

Venezuela's debts to China, Russia would be restructured through Paris Club

Loans to Venezuela from Maduro allies Russia and China would be renegotiated though the Paris Club if Maduro leaves power, an advisor to the opposition said on Wednesday, responding to concerns about favorable treatment for the two countries. Ricardo Hausmann, who represents opposition leader Juan Guaidó at the Inter-American Development Bank (IADB), said Guaidó's team has not determined how loans might be restructured under its governance because bilateral debt talks typically take place under the auspices of the Paris Club creditor group. "It is not as if the chapter on bilateral debt says we are going to treat it differently. It is treated differently in international practice through the Paris Club," said Hausmann, a Harvard economics professor and former planning minister, at the IADB's annual meeting in Guayaquil, Ecuador. "We have not come out with any specific guidelines on the treatment of bilateral debt for that reason." Earlier this month, Guaidó's advisers published a plan pledging equal treatment for creditors during an eventual restructuring process of Venezuela's $200 billion in debt if Maduro leaves power. The document carved out some exceptions, including for the billions of dollars in loans from Russia and China, which drew criticism from a group of bondholders known as the Venezuela Creditors Committee, who said the "burden" should be shared equally between public and private creditors. (The New York Times: https://www.nytimes.com/reuters/2019/07/17/world/americas/17reuters-latam-economy-iadb-venezuela.html; Reuters: https://www.reuters.com/article/us-latam-economy-iadb-venezuela/venezuelas-debts-to-china-russia-would-be-restructured-through-paris-club-Guaidó-advisor-idUSKCN1UC2JI

 

Venezuela may switch from SWIFT to Russian payment system to skirt US sanctions

Venezuela is considering using the Russian alternative to the traditional SWIFT international payment system, as the country braces for new US sanctions that could further weaken its financial sector. Venezuela’s central bank has sent a request on the matter to the Central Bank of Russia (CBR) as the regulator’s approval is necessary if Caracas wants to use the payment platform, the report said, citing sources. However, neither of the sides involved, nor the world’s largest payment system, SWIFT, has commented on the report. The Russian alternative payment system already includes nearly 400 users, including the country’s major banks. Last month, the Central Bank of Russia (CBR) said that foreign banks had shown interest in joining the platform and are already testing it. (RT: https://www.rt.com/business/464389-venezuela-russia-swift-alternative/)

 

Venezuela's opposition congress names ad-hoc central bank board

Venezuela’s opposition-controlled National Assembly on Tuesday appointed an ad-hoc board for the country’s central bank with the aim of “protecting its international reserves” from Nicolas Maduro’s regime. The assembly head, Juan Guaidó, named five people to the ad-hoc board. Guaidó did not explain how the ad-hoc board would function, but the opposition has previously sought to prevent Maduro’s government from accessing central bank gold kept at the Bank of England. (Reuters, https://www.reuters.com/article/us-venezuela-politics/venezuelas-opposition-congress-names-ad-hoc-central-bank-board-idUSKCN1UB2HP)

 

Politics and International Affairs

Colombian president says Maduro regime harbors, funds leftist guerrillas

Colombian President Ivan Duque said in an interview with EFE that the National Liberation Army (ELN) guerrilla group is recruiting minors in Venezuela and has the backing of that neighboring country's leftist president, Nicolas Maduro. Duque said Maduro supports not only the ELN but also dissident elements of a former rebel army - the Revolutionary Armed Forces of Colombia (FARC) - that signed a peace deal three years ago with Colombia's previous government and has transformed itself into a leftist political party. “The ELN has a situation and that's that in Venezuela, Nicolas Maduro, the dictator of Venezuela, is protecting them. He's giving them money and sponsoring their efforts to recruit children to work in illegal mining in parts of Venezuela. And on top of that, the ELN's leaders are in Venezuela and protected by Maduro. Alias "Pablito" is there. Another leader, "Antonio Garcia," is there. They also have groups of recruiters there, and many of the criminal attacks they're planning in border areas are planned in Venezuela”, he said; and added: “That dictator in Venezuela is protecting not only the ELN leaders, but also those dissident leaders of the FARC. It's no secret to anyone that that's happening, and that "Ivan Marquez" is in Venezuela and "El Paisa" is in Venezuela and "Romaña" is in Venezuela. And it'd be no surprise if "Santrich" were there. All indications are that he's there under the protection of the Venezuelan dictatorship. That shows that they're looking to sponsor a sort of union of criminal clans to perpetrate violent actions in Colombia.” (EFE: https://www.efe.com/efe/english/portada/colombian-president-venezuela-harbors-funds-leftist-guerrillas/50000260-4024978)

 

EU readies sanctions on Venezuelan security officials

The European Union is preparing new sanctions against Venezuelan security forces involved in human rights violations, the bloc’s foreign policy chief said on Tuesday, following the death in custody of a navy captain amid allegations of torture. Federica Mogherini said the death of Rafael Acosta while in custody for alleged participation in a coup plot was a “stark example” of the deteriorating situation in the country, amid a crackdown by the government of President Nicolas Maduro. “The EU is ready to start work toward applying targeted measures for those members of the security forces involved in torture and other serious violations of human rights,” Mogherini said in a statement. (Reuters, https://www.reuters.com/article/us-venezuela-politics-eu/eu-readies-sanctions-on-venezuelan-security-officials-idUSKCN1UB1L9)

 

MERCOSUR bloc calls for Venezuela elections

South American trade bloc MERCOSUR called for "free, fair and transparent presidential elections, as soon as possible" in Venezuela, at its summit in Argentina on Wednesday. The political and economic crisis in Venezuela was the center of the political debate among the heads of state that, this Wednesday, met in Santa Fe, Argentina in the MERCOSUR semi-annual summit, a block from which this country is currently suspended. The host of the regional meeting, the Argentine president, Mauricio Macri, affirmed that he recognizes the National Assembly as the legitimate State organ of the country, and expressed his solidarity with Venezuela and the humanitarian crisis that he blames the regime of Nicolás Maduro. Also, he called on him to “stop obstructing the democratic transition and stop with the violations of human rights of Venezuelans.” The president of Brazil, Jair Bolsonaro, maintained that the social, political and economic crisis that Venezuela is experiencing was born “from the populism and the irresponsibility of a project of a country that had no limits.” “We do not want what happens unfortunately with Venezuela. We ask God to give us strength and intelligence and that the destiny of Venezuela is the same as we have, that is, democracy, freedom, and prosperity,” said Bolsonaro. For his part, the Paraguayan president, Mario Abdo Benítez, reminded everyone present that “one of the fundamental pillars of Mercosur is the political agreement, which must be translated into mechanisms that guarantee the full validity of the Rule of Law and Democracy.” Three of Mercosur's members -- Brazil, Argentina and Paraguay -- have backed Guaidó, while only Uruguay, under a socialist government, has not done so. (France24: https://www.france24.com/en/20190717-south-american-bloc-calls-venezuela-elections; MERCOSUR Press: https://en.mercopress.com/2019/07/18/what-did-the-mercosur-s-leaders-say-about-venezuela-in-santa-fe)

 

Eight countries call for Inter-American Commission on Human Rights to enter Venezuela

A group of 8 countries submitted a draft resolution condemning human right violations in Venezuela to the Permanent Council of the Organization of American States (OAS), demanding an investigation and requesting access by the Inter-American Commission on Human Rights into the country. The draft resolution seeks to “firmly condemn the grave and systematic violations” of the rights in Venezuela. the project also seeks to “demand immediate, complete and unimpeded access” to Venezuela by the IACHR. (2NYZ: https://2nyz.com/2019/07/17/eight-countries-call-for-inter-american-commission-on-human-rights-to-enter-venezuela/)

 

In a United Nations report, a Socialist details Venezuela’s horrors

Twenty years after Hugo Chávez gained power in Venezuela, promising a workers’ paradise, the United Nations has finally acknowledged that his regime and that of his successor, Nicolás Maduro, is a brutal dictatorship guilty of widespread human-rights abuses and of policies that have led to economic deprivation. The acknowledgment comes in the form of a scathing report, coincidentally released on July 4, that officially confirms the Venezuelan inferno that has been obvious for a long time. That the report was issued by Michelle Bachelet, U.N. high commissioner for human rights, should have special meaning. Bachelet, a former president of Chile (2006–10), is a socialist whose father died in prison after being tortured by the military dictatorship of Augusto Pinochet. She had long resisted efforts to condemn the Venezuelan tyranny, preferring to warn against outside intervention and to call for a new “dialogue” every time negotiations between the regime and the opposition reached a stalemate. (News Yahoo, https://news.yahoo.com/united-nations-report-socialist-details-103013098.html;_ylt=AwrC1DFLly9dC2oAYiHQtDMD;_ylu=X3oDMTBydDI5cXVuBGNvbG8DYmYxBHBvcwM2BHZ0aWQDBHNlYwNzcg--)

 

Opposition calls for mass rally on Tuesday

Venezuela's opposition leader announced a mass street rally set for Tuesday to move forward the “next stage” of their US-backed attempt to gain power in the oil-rich country. "We call on all of Venezuela to mobilize. Together, with the citizen power and the work of the National Assembly, we will advance to a next stage in our struggle. Everyone to Caracas!”  Hampered by opposition from the Venezuelan army and popular challenges to his legitimacy, Guaidó's delegation agreed to take part in Oslo and Barbados initiatives for negotiation talks with the government. Both the EU and MERCOSUR made a fresh call to Venezuela to hold elections. Addressing the migratory, humanitarian and political crisis, the MERCOSUR called Venezuela to hold free, fair and transparent presidential elections "in the shortest time possible", following Tuesday's EU Council statement. On Tuesday, the EU Council reaffirmed that crisis in Venezuela requires an "urgent" political solution, which can only be achieved through "a peaceful, democratic and Venezuelan-owned" process leading to "free and fair presidential elections". (AA: https://www.aa.com.tr/en/americas/venezuela-opposition-calls-for-mass-rally-on-tuesday/1535081)

 

US to redirect Central America aid to Venezuela's Juan Guaidó

The US is planning to divert nearly US$ 42 million from development funding for Guatemala and Honduras to Venezuela's opposition. The move comes just months after the Trump administration announced it would be ending aid to Guatemala, Honduras and El Salvador, the three countries at the center of the current migration wave to the US. In the memo, USAID, the government's international development agency, said the "deviation” of the money was "necessary due to unforeseen events and exceptional circumstances.” USAID stressed in the memo that Venezuela's political crisis was "a significant, exigent event in the US national interest" that required the diverted funds. A portion of the money would finance Guaidó directly. The memo said the funds could cover the "interim government staff salaries or stipends, work-related travel and other costs necessary to ensure full deployment of a transparent financial management system and other activities necessary for a democratic transition." Some US$ 2 million will go to support diplomatic efforts by Guaidó's supporters as they negotiate with the Maduro regime, and US$ 7.5 million will be dispensed to support independent media with the goal of providing Venezuelans with "unbiased and unfiltered sources of news and information," the memo said. Other funds will go address other aspects, including strengthening human rights groups, election monitoring and civil society. (DW: https://www.dw.com/en/us-to-redirect-central-america-aid-to-venezuelas-juan-Guaidó/a-49626538; France24: https://www.france24.com/en/20190717-us-diverts-central-america-aid-boost-venezuelas-Guaidó)

 

… but drags its feet on TPS for Venezuelans

The Trump administration also signaled on Wednesday that it would not grant protection to Venezuelans seeking refuge in the US. In a response to a request by Democratic Senator Dick Durbin, the US Citizens and Immigration Services said it was not planning on adding Venezuela to the list of countries eligible for its Temporary Protected Status (TPS) program, which would allow citizens from that country stay in the US until the situation at home improves. In a letter to U.S. Senators made public on July 16, acting director of U.S. Citizenship and Immigration Services (USCIS) Ken Cuccinelli signaled an unwillingness on the part of the Trump administration to extend Temporary Protected Status (TPS) to Venezuelans. According to U.S. Sens. Dick Durbin and Bob Menendez, the administration will not grant Venezuelans Temporary Protected Status, or TPS. "President Trump cannot do both. He cannot warn Americans that Venezuela is such a dangerous place that they should not travel there, and then tell the Venezuelans in the United States that they are forced to return," said Senators and Menendez said in a written statement. In January, Miami U.S. Reps. Mario Diaz-Balart and Donna Shalala proposed TPS for Venezuelans. That same month, Rep. Darren Soto, an Orlando Democrat, filed the Venezuela TPS Act of 2019. It would allow Venezuelans who came to the United States after early 2013 and who don’t have legal status to temporarily — and legally — stay in this country, shielded from deportation. They would be able to secure work permits. In March, Florida’s Sen. Marco Rubio, along with Sens. Patrick Leahy and Cory Booker — plus Menendez and Durbin — introduced the Venezuela Temporary Protected Status Act of 2019. In addition, Rubio was one of 24 senators, and the only Republican, to sign a letter dated March 7 that was sent to the president on this issue. It said, in part: “In light of the ongoing violence, deteriorating security situation, and humanitarian crisis in Venezuela caused by the illegitimate regime of Nicolás Maduro, we respectfully request that your administration promptly designate Venezuela for Temporary Protected Status (TPS) to ensure that Venezuelan nationals currently present in the United States are not forced to return to Venezuela at this time. Returning non-violent individuals back to Venezuela during this critical time of transition is not in the best long-term interests of the United States or our partners in the region.” In a letter dated July 11, Kenneth Cuccinelli II, acting director of U.S. Citizenship and Immigration Services responded, in part: “The U.S. government continues to monitor the situation in Venezuela. In addition, there may be other relief measures available to Venezuelan nationals affected by current condition in Venezuela.” The Washington Office on Latin America (WOLA), a leading research and advocacy organization that advocates a regional response to broaden access to formal protection status and essential services for Venezuelan migrants and refugees, is alarmed by the Trump administration’s inaction. “Inaction on TPS sends the absolute wrong message: The United States is only concerned about Venezuelans right up until they are forced to flee their country,” said WOLA Assistant Director for Venezuela Geoff Ramsey. (The Miami Herald: https://www.miamiherald.com/opinion/editorials/article232813137.html; WOLA: https://www.wola.org/2019/07/venezuela-letter-tps-regional-response/)

 

Venezuelan teen blinded after 52 rubber pellets to the face

16-year old Rufo Chacon lost both of his eyes just two weeks ago, during a July 2 protest in the Andean city of San Cristobal, Venezuela, which turned bloody when police began firing rubber bullets into the crowd. The doctors who tried to save his eyes said that 52 rubber buckshot pellets hit his face, 16 of them flying directly into his eyes. A police report investigating the accident said state security forces forcefully repressed the crowd without warning. Two other underage protesters also received head injuries the report says. One of them was Chacon's younger brother, Adrian, 14, who received a blow to his skull from a police baton. Both were there with their mother, Adriana Parada, to protest shortages of cooking gas in the region. After the protest, Venezuelan authorities announced that two officers had been charged for "attempted murder, improper use of weapon and cruel treatment" in dealing with the protesters. They are currently awaiting trial. The announcement came hours after the Office of the UN High Commissioner for Human Rights, Michelle Bachelet published a report that denounced "patterns of violations of all human rights" at the hands of the Venezuelan state—a report which the regime of Nicolas Maduro has refuted as biased. Doctors at San Cristobal Central Hospital say they could only remove what was left of Chacon's eyes. He is still at risk of infection, doctors say as pieces of the rubber pellets remain embedded in his face and head, too deep for the surgeon to reach. After being shot, Chacon's plight swiftly became known in the Spanish-speaking world. On the same night of the protest, Puerto Rican music star Don Omar published a picture of the injured and bloodied Rufo on his Instagram account, blaming the soldiers for allegedly firing too low. Offers to pay for treatment have come in from around the world, including Mexico, Spain and the US. One clinic in Colombia has offered to perform an eyelid transplant on Chacon for free. His mother, Adriana, has also opened an Instagram account to crowdsource financial help for the family. But due to currency controls on the country, Venezuela's economy is effectively sealed off from the outside world, and they can only receive donations from inside the impoverished country. (ABC News: https://www.cnn.com/2019/07/17/americas/venezuela-rufo-chacon-blind-teenager-protest-intl/index.html)

 

Regime frees musician jailed after blasting Maduro online

Karen Palacios who plays the clarinet and was cut from the National Philharmonic for criticizing the government, and who was detained for 6 weeks, was released today. Karen Palacios' Yamaha clarinet still rests where she left it atop sheet music of a Mozart concerto that she practiced diligently the night before two strangers dressed in black lured her away in a luxury SUV. The 25-year-old musician's captors duped her into believing she was needed for an interview with a victims' unit at the presidential palace. Instead, they drove her to Venezuela's most-notorious military prison, locking her up alongside the socialist regime's top opponents for violating Venezuela's highly subjective hate law. Her crime: posting a message on social media venting frustration at President Nicolás Maduro's government over having been cut from the state-funded National Philharmonic, where she had recently debuted as first clarinetist. On Tuesday, the family's nightmare ended. After 45 days in jail alongside some of Venezuela's most-hardened female criminals — and a full month after a judge ordered her immediate release — Palacios walked through a giant metal gate at a penitentiary outside Caracas. She remains on probation and is banned from speaking to the media. But the scars from her confinement will take time to heal. Meanwhile, her plight has drawn attention to what the United Nations in a report this month signaled as the government's growing use of arbitrary detentions to intimidate opponents — real or imagined — and stifle free expression.

Meanwhile, her imprisonment has reopened debate on Venezuela's hate law, which was passed by the rubber-stamping, pro-Maduro constitutional assembly in 2017 and carries prison sentences of between 10 and 20 years for anyone found guilty of publicly instigating violence against people based on their race, ethnicity or political views. Free speech advocates say the law is selectively enforced and consider it a tool of repression and censorship. Last year, 24 people were detained for expressing criticism of the government online, according to local NGO Espacio Publico. (ABC News: https://abcnews.go.com/International/wireStory/venezuela-frees-musician-jailed-blasting-maduro-online-64383127)

 

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)

December 13, 2016

International Trade

Venezuela must renegotiate 5 major infrastructure projects with Brazil’s BNDES

Brazil’s “Lava Jato” anti-corruption drive has forced that country’s National Social and Economic Development Bank (BNDES) to paralyze and renegotiate ongoing infrastructure projects worth US$ 3.6 billion it is financing throughout Latin America, carried out by companies implicated in the corruption scandal. The nation hardest hit by the move is Venezuela, which must renegotiate 5 major projects: including two Metro lines, the Abreu de Lima steel plant, a cleanup project in the Tuy river basin, and the ALBA shipyards. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Venezuela-debera-renegociar-proyectos-Bndes_0_974302576.html)

 

MERCOSUR turns its back on a diminished Venezuela

It couldn’t have come as a total shock when on Dec. 2, four South American nations ruled to suspend Venezuela from the continental trade compact to which it never ought to have been admitted. And yet, for the keepers of the Bolivarian Republic, the ouster from MERCOSUR might have been a diplomatic outrage. President Nicolas Maduro called the move a “coup”; Foreign Minister Delcy Rodriguez denounced it as “an illegal action” and vowed to appeal. Assorted sympathizers and fringe militants as far away as Uruguay and Paraguay joined the chorus. What’s at stake isn’t the future of regional commerce. Venezuela’s economy is such a shambles that trade in any conventional sense of the word ceased to matter long ago. But the choler in Caracas and the initiative by Venezuela’s once-accommodating neighbors said a good deal about the state of play in Latin American relations, where over a decade of diffidence and indulgence before the region’s stumbling autocracy has given way to umbrage and confrontation. (Bloomberg, https://www.bloomberg.com/view/articles/2016-12-09/mercosur-turns-its-back-on-a-diminished-venezuela; el Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-attend-mercosur-meeting-despite-suspension_630971)

 

Maduro says he has planned Venezuela’s future course with MERCOSUR with Uruguay’s Vasquez

President Nicolás Maduro says he has agreed with his Uruguayan counterpart, Tabaré Vásquez, on a working plan to resolve Venezuela’s case with MERCOSUR by using the organization’s Olivos Protocol for conflict resolution. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/maduro-acordamos-uruguay-ruta-para-solventar-situaci%C3%B3n-mercosur)

 

Medicine, food and toys have arrived at Maracaibo from Jamaica

213 containers bearing medicine, food, personal care products, tires, and toys have arrived at Maracaibo’s port, consigned to several recipients. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34833)

 

Oil & Energy

Venezuela oil price jumps up for 3rd week

The price Venezuela receives for its mix of medium and heavy oil rose 8.7% this week as oil prices strengthened in the wake of a November 30 OPEC agreement to cut production to 32.5 million barrels per day. As per figures released by the Ministry of Petroleum and Mining, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending December 9 was US$ 44.01, up US$ 3.54 from the previous week's US$ 40.47. Official data shows the average price in 2016 for Venezuela's mix of heavy and medium crude is now US$ 34.52 for the year to date. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2426922&CategoryId=10717)

 

Oil production cut agreement comes into force in January 2017

The agreement signed between the Member States of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC independent oil producers to reduce oil output by 1.7 million barrels will come into force in January 2017. Meanwhile, during the first half of 2017, both OPEC members and independent oil producers will be monitoring the oil market to verify compliance with production cuts agreed upon by each of the 25 nations that signed the agreement on Saturday in Vienna, Austria, with a view to recovering oil prices. Non-OPEC nations that agreed to reduce oil production are Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Republic of Sudan, and Republic of South Sudan. (El Universal, http://www.eluniversal.com/noticias/daily-news/oil-production-cut-agreement-comes-into-force-january-2017_630960)

 

Commodities

"Food apartheid" leaves some citizens starving here

The current "food apartheid" in Venezuela means that if you don't support the president, you won't be getting any help from the government. Food is in short supply in Venezuela, where falling oil prices and inflation have caused an unstable state. But reports from the country, which has a population of over 30 million, reveal that the government is selectively handing out subsidized food. Since April 2016, a system called "CLAPs" (Local Committees of Supply and Production) has been going to homes in Venezuela's poorest neighborhoods peddling subsidized groceries. The socialist-affiliated organizations managing the CLAPs program are community groups that don't have much oversight and can do what they want. "Given the way that the country is currently falling apart, [President Maduro] is using this to shut up his opponents by starving them," Monica Baumgarten de Bolle, senior fellow focusing on Latin America at Peterson Institute for International Economics, said. (Food. Mic. https://mic.com/articles/158075/venezuela-s-food-apartheid-leaves-some-citizens-starving#.92oEjD0FF)

                 

Government to distribute personal care products starting 2017

Freddy Bernal, head of the regime’s CLAP basic product distribution system, says he will meet with the managers of COLGATE PALMOLIVE and PROCTER & GAMBLE to ensure that 50% of their personal care products are distributed through the official system starting in 2017. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/clap-distribuir%C3%A1n-art%C3%ADculos-higiene-personal-partir-2017)

 

Maduro called a 'Grinch' after massive toy seizure by government

Venezuelan officials have confiscated nearly 4 million toys from a toy distributor, accusing the company of planning to sell them at inflated prices during the Christmas season. On Saturday, the government initially said it had confiscated 4.8 million toys. It revised the figure Sunday, putting it at 3.821 million. Critics say the consumer protection agency, which targeted the toy warehouse this week, has become "the Grinch that stole Christmas" because many families won't be able to buy the confiscated toys for the holiday. Agency head William Contreras disputed that, saying executives at toy distributor KREISEL-Venezuela, the largest of its kind in the country, "don't care about our children's right to have a merry Christmas." The government said the 3.821 million toys will now be made available to families in impoverished neighborhoods at lower-than-market prices. Officials also detained at least two people as part of the operation. It's not clear what effect, if any, the confiscation of the millions of toys will have on the toy market in Venezuela just two weeks before Christmas. FEDECÁMARAS President Francisco Martínez says the government is "acting in an irresponsible way," discouraging job creation and endangering private property. "This was plundering of inventory. The government didn't even respect the company's right of due process," Fernández said. (CNN: http://edition.cnn.com/2016/12/10/americas/venezuelan-government-toy-seizure-grinch/index.html; Bloomberg, https://www.bloomberg.com/news/articles/2016-12-09/venezuela-seizes-millions-of-toys-accuses-importer-of-hoarding)

 

Venezuela discusses importing medicines with UN agencies

Foreign Minister Delcy Rodriguez met with representatives of the Food and Agriculture Organization (FAO), the UN Development Program (UNDP), the World Health Organization (WHO), and the Pan American Health Organization (PAHO) to discuss the creation of mechanisms to streamline medical imports coordinate efforts to guarantee access to key imported medicines here. The left-leaning government has resisted calls by the United States and European Union in recent months to accept “humanitarian aid”, which it considers an attempt to interfere in its internal affairs.  (Venezuela Analysis: https://venezuelanalysis.com/news/12832)

 

Economy & Finance

Venezuela struggles with hyperinflation

Venezuela’s struggling economy just passed another grim milestone: it’s the seventh country in Latin America to ever experience hyperinflation. The term “hyperinflation” is often bandied about, but it’s quite rare, and only happens when monthly inflation exceeds 50% for more than 30 consecutive days. On Dec. 3, Venezuela did just that, becoming the 57th known case of hyperinflation since France suffered the malaise in 1795.  “Venezuela, welcome to the record books,” said researchers at Johns Hopkins University as they added the country to their Hanke-Krus World Hyperinflation Table. “You have now entered the inglorious sphere of hyperinflation. It is a world of economic chaos, wrenching poverty and death. Its purveyors should be incarcerated, and the keys should be thrown away.” While Venezuela’s case is obviously bad, history shows it could be worse. The country’s implied daily inflation rate is 3.96%, meaning it takes 17.8 days for prices to double. That ranks it at No. 23 on the Hanke-Kraus table. The leaders of that list are Hungary (1945), when prices were doubling every 15 hours, and Zimbabwe (2007), when prices doubled every day. “Only seven countries have hyperinflated in Latin America, but Venezuela’s case is still rather mild by hyperinflation standards,” said Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore and the co-author of the Hanke-Krus World Hyperinflation Table. The other countries in the hemisphere that have seen hyperinflation are Argentina (1989), Bolivia (1984), Brazil (1989), Chile (1973), Nicaragua (1986) and Peru (1988 and 1990). On the streets of Venezuela, however, even the “mild” hyperinflation is generating real pain, as people see their purchasing power sapped amid rolling food shortages and massive shopping lines. The Central Bank hasn’t put out inflation data all year, but Hanke and his team say annual inflation as of Dec. 9th, is 375%. Others have said the number could be running twice that high. The country has been trying to tame its inflation for years, but it began spiraling out of control between 2012 and 2013, when it jumped from 20 percent to 56 percent. By 2015, annual inflation hit 181%, according to official figures.  Hanke said there are only two ways for the government to stop hyperinflation: Establish a currency board (like Bulgaria or Estonia) or to dollarize, as Ecuador did in 2000. So far, Venezuela seems to be resisting taking the painful measures. But printing higher-denomination bills is a tacit surrender to market forces, Hanke said. “This is very typical of what happens in hyperinflation; it goes with the territory,” he said of printing bigger bills. “And it does in a way mean that the government has thrown in the towel.” (The Miami Herald: http://www.miamiherald.com/news/nation-world/world/americas/venezuela/article120451593.html)

 

Government pulls highest-value banknote 'to strike against mafia'

The Maduro regime has announced it will remove the country's highest-denomination banknote from circulation within 72 hours to combat contraband. Central bank data suggests there are more than six billion 100-bolivar notes in circulation, making up almost half of all currency. Venezuelans will have 10 days from Wednesday to exchange the notes for coins and new, higher-value bills. President Nicolas Maduro said the move would stop gangs hoarding the notes. In a surprise announcement, Maduro said on Sunday that the 100-bolivar note, worth about 2 US cents on the black market, would be taken out of circulation on Wednesday. The president said the aim was to tackle transnational gangs which hoard the Venezuelan notes abroad, a move he has in the past described as part of the "economic war" being waged against his government. He said the gangs held more than 300 billion bolivars worth of currency, most of it in 100-bolivar notes. President Maduro said there were "entire warehouses full of 100-bolivar notes in the [Colombian cities of] Cucuta, Cartagena, Maicao and Bucaramanga", as well as in Brazil, Germany, the Czech Republic and Ukraine, where criminal organizations are stockpiling Venezuelan currency,. He said part of the plan was to block any of the 100-bolivar notes from being taken back into the country so the gangs would be unable to exchange their hoarded bills, making them worthless. The “operator” behind the plan targeting Venezuela’s currency is a non-governmental organization “hired by the U.S. Treasury Department,” Maduro said. "I have given the orders to close all land, maritime and air possibilities so those bills taken out can't be returned and they're stuck with their fraud abroad," he said speaking on television. Analysts say the move is likely to worsen the cash crunch in Venezuela, where people have already been limited in the amount of cash they can take out at automated teller machines. Critics slammed the move as economically nonsensical, adding there would be no way to swap all the 100-bolivar bills in circulation in the time the president has allotted. Central bank data showed that in November, there were more than six billion 100-bolivar bills in circulation, 48% of all bills and coins. "Ineptitude rules! Who would possibly think of doing something like this in December amid all our problems?" says opposition leader Henrique Capriles. (BBC: http://www.bbc.com/news/world-latin-america-38284485; Bloomberg, https://www.bloomberg.com/news/articles/2016-12-11/venezuela-orders-largest-bills-turned-in-ahead-of-new-bank-notes; https://www.bloomberg.com/news/articles/2016-12-12/venezuelans-rush-to-stash-cash-before-biggest-bill-is-nullified; Reuters, http://www.reuters.com/article/venezuela-economy-idUSL1N1E60I1)

 

Interior Minister claims NGO involved in capital flight worth VEB 300 billion

Minister of the Interior, Justice, and Peace met on Monday with representatives of the Banking Association of Venezuela to coordinate the collection of VEB 100 banknotes. The minister said an investigation had been launched into the smuggling of VEB 100 bills out of the Venezuelan territory. “Until now, we have found that VEB 300 billion were smuggled out of the country through organizations hired by the US Department of the Treasury in to take the money out of our country, suffocate the local financial system, and leave our country without circulating money,” Minister General Reverol explained. In addition, he claimed that foreign non-governmental organizations (NGO) were linked to organized mafias to smuggle Venezuelan banknotes into Colombia. He added that large amounts of money have been deposited in Switzerland, Poland, Spain, Ukraine, Germany and the Czech Republic. (El Universal, http://www.eluniversal.com/noticias/daily-news/interior-minister-ngo-involved-capital-flight-worth-veb-300-billion_631009)

 

Politics and International Affairs

Time for a call from the Venezuelan opposition to President-Elect Trump?

President-elect Donald Trump’s conversation with Taiwan’s President has put the People’s Republic of China on notice that his administration will not necessarily self-censor its activities to avoid a conflict. As with China, there is another regime whose advances have been similarly emboldened by the perceived unwillingness of the Obama administration to stand up for U.S. interests. In Venezuela, the country’s “Bolivarian socialist” regime has systematically dismantled democratic institutions and made it a hub for narcotrafficking, Russian and Chinese arms and the activities of Iran, and terrorist groups such as the FARC. There are few regimes more in need, and more deserving, of being put on notice by a phone call and a few well-placed tweets from the incoming U.S. president, than that of Nicolás Maduro in Venezuela. Although the incoming Trump administration has many demands on its attention, “putting America first” implies putting those on notice who, such as Maduro, are working against U.S. interests, and where the implosion of a failed regime threatens neighboring U.S. friends and allies. A hopeful sign that the integral connection between Latin America and U.S. security interests will be highlighted to President Trump is his selection of retired Marine General John F. Kelly, former head of U.S. Southern Command, to serve as head of the Department of Homeland Security. For the chavistas, the nomination by President-Elect Trump of Exxon Mobil CEO Rex Tillerson as Secretary of State should further dampen their spirits. Tillerson arguably will bring an in-depth understanding of the machinations of the Venezuelan government, which mistreated Exxon in the country for years, expropriated its assets, and violated its contractual rights, for which Exxon was awarded US$ 1.6 billion in damages in 2014. Official negotiations between Venezuela’s chavista regime and the opposition, mediated by the Vatican, are now on hold until the end of the Christmas holiday and scheduled to resume January 13, 2017, just a week before Donald Trump is inaugurated in the United States. The first week of January would be an ideal time for Donald Trump to take a friendly call from Henry Ramos Allup and others in Venezuela’s democratic opposition. The position of democracy in Venezuela will be strengthened if President Maduro (and those who stay out of jail so long as he remains in power) returns to the bargaining table knowing that the incoming Trump administration is paying attention, and not entirely sure what he will do once he takes office. (Latin America Goes Global: http://latinamericagoesglobal.org/2016/12/time-call-venezuelan-opposition-president-elect-trump/)

 

Venezuela oil deal reportedly laundered ‘hundreds of millions’ into Iran

A new report in Bloomberg reveals that U.S. authorities are investigating evidence suggesting that the socialist government of Venezuela paid Iran “hundreds of millions” as part of a money laundering scheme designed to avoid human rights sanctions imposed on the Islamic Republic. Bloomberg’s report cites an engineer for the state-owned oil corporation Petroleos de Venezuela (PDVSA), who says documents exist that show the government of Venezuela paying Iran to build housing units at US$ 74,000 an apartment, far more than the construction costs. “The documents appeared to detail the housing deals and payments to Swiss bank accounts through JPMorgan Chase—a potential violation of U.S. law. The investigation is ongoing; PDVSA hasn’t been charged with illegal activity involving Iran,” Bloomberg reports. The scheme may have resulted in a total of US$ 3 billion in revenue for Iran, the leading U.S.-designated state sponsor of terrorism in the world. While PDVSA officials are not yet facing formal charges for deals with Iran, Bloomberg notes that the corporation is embroiled in a sweeping corruption scandal. Up to US$ 1.9 billion have allegedly gone missing from PDVSA’s internal coffers in recent funding audits. The opposition-controlled National Assembly found US$ 11 billion went missing from PDVSA funds between 2004 and 2014, “more than the budget of five Central American countries.” The PDVSA corruption scandal has spilled over into the United States, where a Houston court is expected to see a criminal investigation into a million-dollar money laundering scheme that, like Petrobras is suspected of doing, overcharged on vast government projects, allowing officials to pocket the change. Venezuela and Iran have enjoyed close diplomatic relations for the past 17 years, since socialist dictator Hugo Chávez took power. Chávez’s government has been accused of illegally purchasing weapons from a sanctioned Iran. The two governments routinely support each other’s interests on the global stage. Iran and Venezuela’s ties are far from merely economic, however. Venezuela has long tolerated the presence of Iranian “cultural centers” national security officials have accused of helping spread the influence of Iran’s terrorist proxy organization Hezbollah in the region. Multiple reports — including a confession from a former diplomat at the Venezuelan embassy in Baghdad — have alleged that Venezuela has used its embassies to issue false national documents to members of Hezbollah. Armed with Venezuelan passports, birth certificates, and other identifying documents, these individuals can travel more freely through Latin America and the United States. One report estimates that up to 300 Hezbollah operatives have acquired false Venezuelan government documents. (Breitbart: http://www.breitbart.com/national-security/2016/12/12/venezuela-oil-deal-laundered-millions-iran/; Bloomberg: https://www.bloomberg.com/news/features/2016-12-08/why-witnesses-to-venezuela-s-catastrophic-corruption-keep-turning-up-in-the-u-s)

 

Ramos Allup says failed talks defined key policy matters, will lead to further confrontation

National Assembly President Henry Ramos Allup says that for the MUD Democratic Unity coalition talks with the government sector, international organizations and the Vatican were no waste of time, even though no solutions were found to the country’s ongoing crisis. Ramos Allup says that “the agreements defined in the dialogue table are those specified by Cardinal Pietro Parolin (a Vatican’s envoy) in a letter he sent the government representatives as a formal request.” As per the document, the agreements achieved by the talks include humanitarian crisis, setting of the electoral schedule, respect for the National Assembly, and release of political prisoners. He added that the government’s non-compliance with agreements reached will lead to renewed confrontation between the regime and the democratic opposition. (El Universal, http://www.eluniversal.com/noticias/daily-news/ramos-allup-halted-talks-will-lead-political-confrontation_631012)

 

Chilean government concerned about detained Chilean-Venezuelan Braulio Jatar

Chilean Foreign Affairs Minister Heraldo Muñoz stated that Chile was “constantly worried” about the detention of Chilean-Venezuelan journalist Braulio Jatar, and that it has undertaken efforts to achieve his release. Jatar’s sister, Ana Julia Jatar, travelled to Chile this weekend to denounce human rights abuses against his brother. Braulio Jatar was born in Chile, but his parents are Venezuelan. He was charged with “legitimation of capital” after he was arrested in September, as the police found large amounts of cash in his vehicle when he was heading to work in an internet radio station. (El Universal, http://www.eluniversal.com/noticias/daily-news/chilean-govt-concerned-about-detained-chilean-venezuelan-braulio-jatar_630963)

 

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.