January 10, 2014

Economics & Finance

Growing international concerns over Venezuela's economic collapse

International banks and economic analysts are issuing warnings about Venezuela's economic crisis, which is further aggravated by lack of safety, corruption and official incompetence. The Bolivar is now a weak, devalued currency in a nation sunk in the world's highest rate of inflation, and a gigantic internal and external debt - which it is impossible to audit. Warning signs:

■ Raising domestic gasoline prices cannot be further put off.

■ Bank of America Merrill Lynch considers devaluation necessary.

■ Moody’s lowered Venezuelan debt rating, as did Standard & Poor’s after alarms were raised by JP Morgan, Barclays Capital y Bank of America.

■ ECOANALÍTICA estimates that FOREX generating oil exports are 1.3 million BPD at the close of 2013, which is 800,000 BPD lower than 2006, with an estimated income loss of U$D 29.2 billion.

■ JP Morgan forecasts 60% inflation during the first semester of 2014, and a 1% GDP drop over the next year.

■ The Moody's report emphasizes that "government policies have exacerbated these problems, the risk of economic and financial collapse has risen considerably". The report continues to say that the government is "highly fragmented into different groups" and none of them has sufficient power to "establish an adjustment with coherent policies". José Guerra, who heads the economic team for the opposition Democratic Unity Conference (MUD) says PDVSA's financial deficit with the Central Bank rose to U$D 65.272 billion by 22 November 2013. He adds that major currency devaluation and higher domestic gasoline prices will increase supply, inflation will accelerate and real income will drop. More in Spanish: (CAN, http://impactocna.com/alerta-internacional-sobre-el-colapso-economico-de-venezuela/)

FOREX: The wait continues

For nearly nine months, President Maduro has been announcing a strengthening and regularization of the FX supply through CADIVI and SICAD that has not yet materialized. Moreover, he has talked several times about the proximity of a “new exchange rate market”, but Venezuelans do not known what this means yet.  After December’s mayoral elections, some of the measures that had been postponed were expected to be announced, particularly a devaluation of the official rate (both of CADIVI and SITME) and the possibility of selling dollars at the non-official rate to reduce the gap between those rates that is producing a slow-motion balance of payment crisis. However, a month has already passed and little movement is seen of the government’s taking any significant actions. The central bank (BCV) has just announced a new FX auction through SICAD targeting sectors that have been considered priority (food and medicine) - a short-run action to try to satisfy immediate and specific FX demands for those sectors. Meanwhile, the lack of urgency that the government continues to show is a signal that if it makes any adjustment, it is likely to stay short of market expectations. At this point, Venezuela remains in the worst of all worlds. The private sector does not have a reliable permanent source of FX, which will continue to widen the distortions in the FX market, generate scarcity problems and/or feed inflation. On the other hand, the government accounts are being affected by the inconsistency between the FX and fiscal policies. While the government is trying to maintain a rigid exchange system in a context of high inflation, it has kept a very expansionary fiscal policy that has led to a fiscal deficit of double digits in terms of GDP in the past four years. It seems that divisions inside the government and ideology continue to keep it in paralysis, which gives Venezuela/PDVSA assets a very uncertain outlook. (Barclay's)

Venezuela in data denial after inflation tops 50%

Venezuela’s economic distress is so acute that the central bank stopped releasing regular statistics for the first time ever, threatening to increase borrowing costs further as the nation faces U$D 10 billion of financing needs. “This is not the right way to manage macroeconomic data,” Benjamin Wang, a money manager at PineBridge Investments LLC, which oversees U$D 5 billion of emerging-market debt and holds Venezuelan bonds, said by telephone from New York. “There’s no transparent data to measure the risk.” Yields on Venezuela’s sovereign bonds surged in the past year to 13.97%, the highest among 50 emerging markets tracked by JPMorgan Chase & Co., as consumer prices soared the most in the world and President Nicolas Maduro vowed to radicalize the Socialist Revolution started by his predecessor, Hugo Chavez, to combat enemies of the nation’s economy. (Bloomberg, 01-09-2014; http://www.bloomberg.com/news/2014-01-09/venezuela-in-data-denial-after-inflation-tops-50-andes-credit.html)

Oil & Energy

Halt in Amuay flexicoker unit likely to last one month

Although information related to operations in Venezuela's oil industry has been concealed, workers at the Paraguaná Refining Complex (CRP), northwest Venezuela, report a downtime at a distillation unit in Amuay is likely to linger for one month. Further, workers warned about the effects of the halt on the CRP's production capacity if the unit is eventually stopped for four weeks. The flexicoker unit "produces 64,000 barrels per day of oil byproducts such as gasoil and naphtha. This would lower production, which was already down particularly after the fire in the distillation unit," they indicated. (El Universal, 01-09-2014; http://www.eluniversal.com/economia/140109/halt-in-amuay-flexicoker-unit-likely-to-last-one-month)

Gasoline subsidy at U$D 91 billion since 2002

Freezing gasoline prices in Venezuela for more than 15 years has implied a substantial subsidy taken up by state-run oil holding Petróleos de Venezuela (PDVSA) and the government. The Energy Guidance Center (COENER), an organization comprising former managers and directors of PDVSA, have said in a press release that PDVSA "has directly borne the cost of subsidy of the fuel marketed in the domestic market, which cost has significantly increased, particularly since 2002." PDVSA's former managers estimate "this subsidy in fuel for vehicles is over U$D 91 billion since 2002." (El Universal, 01-09-2014; http://www.eluniversal.com/economia/140109/gasoline-subsidy-at-usd-91-billion-since-2002)

Commodities

Bakeries report no flour for bread, no milk for sale

"This is chaos" says a bakery owner who reports he has not received flour for 15 days, leading to early store closures, milk is also unavailable to the public. More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Falta-harina-para-el-pan-y-no-hay-leche-para-la-venta-en-panaderias-2082984/2014/01/09/295076)

International Trade

Hunt for food sends Venezuelans to Colombian border towns

Venezuelan taxi driver Jose Sotomayor drives four hours through army checkpoints every week from the city of Maracaibo to buy rice in Colombia for his family at 10 times the government-set price back home. “You can’t get anything in the shops here, I don’t even bother going to them for basics anymore,” Sotomayor, 39, said in a phone interview. “All of our food is taken to Colombia, it’s like a locust plague.” Sotomayor hasn’t seen rice for sale in the shops of Venezuela’s second-largest city since July, as smugglers snap up the staple for a maximum of 7.2 bolivars (U$D 1.14) per kilogram, just U$D 0.11 at the black market exchange rate. While many Venezuelan shelves go bare, the country’s rice exports to Colombia have doubled this year and now represent 11% of the market, according to the U.S. Foreign Agricultural Service and Colombian rice growers association Fedearroz. (Bloomberg, 01-08-2014; http://www.bloomberg.com/news/2014-01-08/hunt-for-food-sends-venezuelans-to-colombian-border-towns.html)

Logistics & Transport

BOLIPUERTOS says CASA is partly responsible for port congestion

As congestion at Puerto Cabello continues, the National Port Authority (BOLIPUERTOS) says part of the problem stems from massive imports by the government itself, through the CASA official supply agency. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140110/bolipuertos-culpa-a-la-estatal-casa-por-congestion-en-puertos)

Air Europa halts Venezuela sales as dollar drought hits airlines

Air Europa has suspended all ticket sales from Venezuela as currency controls make it difficult for international companies to convert bolivars into U.S. dollars that can be transfered abroad. Ticket sales are temporarily suspended until further notice, Julio Fernandez, a spokesman for the airline’s parent, Globalia Corporacion Empresarial SA, said by phone from Madrid. He declined to give a reason for the suspension. The Madrid-based airline, which according to data compiled by Bloomberg flies six days a week between Madrid and Caracas, has an equivalent of U$D 100 million in Venezuela at the official exchange rate of 6.3 bolivars per dollar, he said. (Bloomberg, 01-08-2014; http://www.bloomberg.com/news/2014-01-08/air-europa-halts-venezuela-sales-as-dollar-drought-hits-airlines.html)

Politics

Politicians appear jointly against crime. President Nicolas Maduro has met the governors of all 23 states and mayors from the most violent cities to co-ordinate action against crime. The meeting comes after a public outcry over the murder of a former beauty queen and actress, Monica Spear, who was shot dead. Ms Spear, 29, was murdered along with her British-born ex-husband Thomas Berry, 39, in their car. Maduro urged all politicians to put their differences aside and work together to end rising violence. Venezuelan opposition leader, Henrique Capriles, who is the governor of Miranda state, also met and shook hands with the president. It is the first time the two men have met since last year's disputed presidential election. Capriles has never conceded victory to Maduro, but had posted a message on Twitter addressed to the president calling for a nationwide drive against violence: "Nicolas Maduro, I suggest we put aside our deep differences and get together to fight the lack of security, as one bloc," he wrote. Vice-President Jorge Arreaza termed the meeting as just a first step to face the challenge of security. "We appreciate the willingness of all state governors and mayors yesterday," he said. (BBC)

Government releases surplus revenue to regional governors. President Nicolas Maduro on Wednesday gave the order to transfer petroleum and tax surplus revenues to regional governors in the country, as required by law. Regional governments will receive 10,749 million bolivares (Bs.), said the President, adding that such resources may be invested to support local police bodies. (AVN, 01-09-2014; http://www.avn.info.ve/contenido/government-allocated-surplus-revenues-regional-governors)

Maduro has rotated some Cabinet positions. President Nicolás Maduro has made some "necessary changes" changes in Venezuela's cabinet. The only change in the economic area involves rotating Major General Wilmer Barrientos, formerly Defense Minister and a member of the 1992 Chavez coup attempt, to the position of Minister of Industries, replacing Ricardo Menendez, who was moved to the Ministry of Education. A veteran activist in extreme leftist movements, labor lawyer Jesús Martínez, takes over as Labor Minister, replacing long time office holder María Cristina Iglesias. More in Spanish: (Infolatam)

Maduro has proposed Puerto Rico as CELAC member. President Nicolás Maduro will propose the inclusion of Puerto Rico in the Community of Latin American and Caribbean States (CELAC) in the next meeting to be held in Havana. "Free Puerto Rico will be independent," he exclaimed. Puerto Rico's Undersecretary of State Javier González responded that the proposal "has not been considered" by island authorities. (El Universal, 01-09-2014; http://www.eluniversal.com/nacional-y-politica/140109/venezuelas-maduro-to-propose-puerto-rico-as-celac-member and more in Spanish: Martinoticias, http://www.martinoticias.com/content/puerto-rico-celac-membresia-integracion-/30903.html)

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

December 27, 2013

Economics & Finance

Central Bank still withholding November inflation rate, unofficial sources estimate 4-5%. Christmas has come and gone and the Central Bank (BCV) has yet to publish long overdue November inflation data, which by law it should have made public 27 days ago.  Venezuela is the only nation in the region that has not published November inflation rates. If President Maduro is limiting Central Bank autonomy it will join the National Statistics Institute (INE) and the Foreign Exchange Board (CADIVI) as another institution that manipulates and hides data essential for economic decisions. A group of Venezuela's most prominent economists recently declared that "such a delay...hurts BCV's credibility and calls its statistics into question."  October's inflation was 5.1% bringing the year-to-date total to 45.8%. Unofficial information - according to opposition leader Henrique Capriles - is that the November rate could be around 4%, and other sources place it as high as 4.8%. More in Spanish: (El País: http://internacional.elpais.com/internacional/2013/12/25/actualidad/1387932561_756743.html; and El Universal: http://www.eluniversal.com/blogs/sobre-la-marcha/131226/la-encaletada-inflacion-de-noviembre-48#.UryIRXwnxHQ.facebook; http://www.elmundo.com.ve/noticias/economia/banca/demora-de-inflacion-pospone-decisiones-de-consumo-.aspx#ixzz2ofubZhNv)

Collapse of gold prices hits Venezuela's international reserves. Amid the global economic crisis of 2008, the Central Bank of Venezuela (BCV) transferred most of its liquid reserves to the National Development Fund (FONDEN) thinking that gold prices would rise steadily. 70% of Venezuela's international reserves are in gold and gold prices have dipped 29% so far this year, from U$D 1,621.50 per ounce to U$D 1,195 by December 20th, thus bringing down the value of Venezuela's reserves. (El Universal, 12-23-2013; http://www.eluniversal.com/economia/131223/collapse-of-the-gold-price-hits-venezuelas-international-reserves)

Total FOREX allocations dropped by 71% in 2013. FOREX allocations at the official VEB 6.30/U$D have dropped by 71% this year, since the SITME exchange allocation system was replaced by SICAD, which auctions an average U$D 100 million every week to predetermined businesses, travelers, and persons needing health treatment or studying abroad. Total allocations this year by SICAD and CADIVI, including those made through SITME which operated up to February, are 71% below allocations made in 2012. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131227/sustitucion-del-sitme-por-sicad-recorto-71-la-oferta-de-divisas)

Venezuela devalues Bolivar for tourists by 44%. Venezuela devalued its currency for foreign tourists by 44% after the Bolivar slumped to a record low on the black market. People visiting the country can buy bolivars at 11.3 to the U.S. dollar compared with the 6.3 official rates for most other transactions. Investors in the oil industry will also use the new exchange rate that is set at weekly currency auctions. “This is the first step toward an officially weaker exchange rate across the board,” says Daniel Snowden, emerging markets economist at INFORMA Global Markets in London. “We are looking at a significant devaluation early next year.” (Bloomberg, 12-23-2013; http://www.bloomberg.com/news/2013-12-23/venezuela-devalues-bolivar-for-tourist-dollars-to-boost-reserves.html; El Universal, 12-23-2013; http://www.eluniversal.com/economia/131223/sicads-official-rate-at-veb-1130-per-dollar-for-foreign-tourists; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1366432&CategoryId=10717; El Universal, 12-24-2013; http://www.eluniversal.com/economia/131224/travelers-could-buy-us-dollars-at-the-sicad-exchange-rate)

SICAD to auction U$D 100 million to corporations. The Central Bank (BCV) has announced the last auction sale of the Ancillary Foreign Exchange Administration System (SICAD) for 2013. The invitation goes to corporations only and for the amount of U$D 100 million. Companies in the food sector (finished products, inputs and raw materials) and health care (X-ray products and materials; lab agents; surgical equipment; prosthesis; etc.) may bid between Thursday, December 26 and Thursday, January 2, by noon. FOREX will be allocated on January 3, 2014. (El Universal, 12-24-2013; http://www.eluniversal.com/economia/131224/sicad-auctions-usd-100-million-to-corporations)

Excess liquidity increases inflationary pressure. In October the Central Bank increased the percentage of deposits financial institutions must set aside as legal reserves from 17% to 20.5%. Despite this, Bolivars mushroom. Last November, banks recorded in average VEB 87.7 billion (USD 14 billion) on the amount of reserves. At December 23, the amount of idle cash that has not been lent or placed in bonds climbed 26% to VEB 110.2 billion (U$D 17.5 billion). (El Universal, 12-26-2013; http://www.eluniversal.com/economia/131226/too-much-liquidity-threatens-to-put-more-inflationary-pressure)

Many stores may not reopen in January due to lost inventories. Mauricio Tancredi, President of CONSECOMERCIO warns that merchants were forced to sell stock they had set aside for January sales in November and have nothing to sell at the start of next year. "Renewed operations depend on the speed of FOREX allocations". Tancredi adds that it takes 75 to 90 days to bring merchandise from Japon and China, and says there are also some merchants that were seriously hurt financially by selling goods at a loss in November. More in Spanish: (El Nacional; http://www.el-nacional.com/)

Stock market up. Venezuela’s stock market rose 2.3% during the week ending December 20 to close at 2,725,813, an all time high, with all stocks closing up or flat on reasonable volume. The leading gainers were state companies, such as government-owned Banco de Venezuela and the nationalized telephone company (CANTV). Other shares gaining ground were commercial real estate developer Fondo de Valores Inmobiliarios B, up 3.8% at Bs. 27.5; and Banco Provincial, up 2.5% at Bs. 810. The Venezuelan stock market is now up 294.65% in official rate (6.30) dollar terms. (Latin American Herald Tribune, 12-22-2013; http://www.laht.com/article.asp?ArticleId=1361881&CategoryId=10717)

Oil & Energy

Venezuela car owners unfazed by planned fuel hike. Owners of the 1970s-era gas guzzling trucks and sedans that have long reigned over Caracas' smog-filled roadways will soon have to pay a bit more to keep flaunting their energy-inefficient monsters. As an economic crisis drains government coffers, President Nicolas Maduro is putting motorists on notice and taking on one of the nation's biggest sacred cows: nearly free gasoline. With cut-rate prices for fuel, Venezuelans have never felt compelled to buy smaller, more environment-friendly vehicles like motorists in many other countries, often favoring decades-old clunkers or newer SUVs. Prices at Venezuelan gas pumps have been frozen for almost 20 years with politicians hesitant to repeat the mistake of rising prices in 1989, triggering days of deadly rioting. The late President Hugo Chavez once confessed it pained him to practically give away fuel to luxury car owners, but during 14 years of rule he never dared to touch the gasoline subsidy that consumes upward of U$D 12.5 billion a year in government income. (Fox News, 12-23-2013; http://www.foxnews.com/leisure/2013/12/23/venezuela-car-owners-unfazed-by-planned-fuel-hike/)

International Trade

Bolivia has sent 48,500 tons of sugar to Venezuela. During 2013 Bolivia exported 48,500 tons of sugar; 2,000 tons of milk and over 1,000 tons of hearts of palm to Venezuela. A source at state-run Insumos Bolivia, which is responsible for exports, confirmed the shipments.
As many as 12,500 tons of sugars await shipment in order to reach a targeted 60,000 tons. Another 6,000 tons of powdered milk are expected to arrive during the first quarter of 2014. (El Universal, 12-26-2013; http://www.eluniversal.com/economia/131226/bolivia-has-exported-48500-tons-of-sugar-to-venezuela)

Politics

Maduro met with Cuban President in Havana.  Nicolas Maduro met with his Cuban counterpart Raul Castro in Havana to discuss relations between the two countries and highlighted the close relationship between the people and governments of Cuba and Venezuela. They also discussed other issues of international and regional agenda. (AVN, 12-24-2013; http://www.avn.info.ve/contenido/maduro-met-cuban-president-havana; El Universal, http://www.eluniversal.com/nacional-y-politica/131224/raul-castro-and-maduro-meet-in-havana; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1371543&CategoryId=10717; More in Spanish: CNN, http://cnnespanol.cnn.com/2013/12/21/nicolas-maduro-se-reune-con-fidel-castro-en-cuba/?iref=allsearch)

Maduro says Cabello is to be re-nominated as President of the National Assembly when the new legislative term convenes on January 5th. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/131227/cabello-sera-postulado-nuevamente-a-la-presidencia-del-parlamento)


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.

August 30, 2013

Economics & Finance

Lowered FOREX availability and increased liquidity swell parallel market rate

The jump in the black market exchange rate - a law forbids divulging the rate - is impacting prices on most products because traders use it to calculate their replacement cost. On March 26th, President Nicolas Maduro announced his regime was ready to "completely twist the arm of the parallel dollar", but the strategy applied has not met the challenge. SICAD, was created to replace SITME and carry out FOREX auctions, but amounts offered have been too small to impact the enormous demand in a parallel FOREX market. More in Spanish: (El Universal, 08-30-2013; http://www.eluniversal.com/economia/130830/menor-oferta-de-divisas-y-mas-liquidez-elevan-al-dolar-paralelo)

Rise in oil prices to reduce Venezuela's US dollar deficit

Tension in the Middle East and a looming air attack on Syria by the United States and allies has brought the Brent crude oil price up to a six-month high with a significant impact on the Venezuelan oil basket, which usually trades around 5% below Brent's. If the Venezuela oil basket price stands at U$D 110 per barrel, as recorded on Tuesday, there would be a 10% increase over the first half of the year. In other words, Venezuela would receive an additional U$D 126 million weekly. (El Universal, 08-29-2013; http://www.eluniversal.com/economia/130829/rise-in-oil-prices-to-reduce-venezuelas-us-dollar-deficit)

Táchira Governor denies restriction in sales of basic commodities in western Venezuela

José Vielma Mora, governor of the state of Táchira in western Venezuela, denies having implemented "any sort of food rationing in the state. Nobody is authorized to sell food and request identification cards." Vielma Mora urged citizens to report to the Institute for the Defense of Persons in the Access to Goods and Services (INDEPABIS) "any stores requesting identification cards to sell basic commodities o minimizing sales," Globovisión reported. (El Universal, 08-29-2013; http://www.eluniversal.com/economia/130829/governor-denies-restriction-in-sale-of-basic-commodities-in-west-venez)

“There has been no improvement in supply during the first semester", says CONSECOMERCIO President Mauricio Tancredi. He also says he does not foresee a clear outlook in the short term and questioned the Central Bank’s (BCV) GDP figures. “When one has an economy with shortages. When you don’t have employment growth, but a radical labor law and scant access to foreign currency, we do not see how there can be a 4.2 growth in the commerce sector,” he said. (Veneconomy, 08-27-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36049&idc=3)

August scarcity level projected to be highest to date

As more items enter the scarcity list, EL MUNDO daily visited seven stores and found no pasta or rice at any of them. Scarcities are becoming more severe in items such as powdered milk, pasteurized milk, vegetable oils, sugar, corn flour and margarine. Lack of supply continues in personal care products such as toilet paper, sanitary napkins, etc. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/preven-que-escasez-de-agosto-sea-una-de-las-mas-al.aspx#ixzz2dRqiKATt; El Nacional; http://www.el-nacional.com/)

Commodities

ENI, Venezuela form JV to develop Perla field

Italy's ENI has agreed with Venezuela to create a new joint venture with state oil company Petróleos de Venezuela (PDVSA) to develop the Perla super-giant gas field. The Perla field is one of the largest gas fields discovered in recent years. PDVSA and ENI will establish a joint venture, with ENI holding a 40%, to exploit Perla's condensate reserves, which are estimated at 170 million barrels. Tests concluded in 2010 by ENI, PDVSA, and Spain's REPSOL confirmed that the Perla 3x reservoir is up to 15 trillion cubic feet gas in place, making it the largest in the country. (RIGZONE, http://www.rigzone.com/news/oil_gas/a/128739/Eni_Venezuela_Form_JV_to_Develop_Perla_Field; (AVN, 08-29-2013; http://www.avn.info.ve/contenido/pdvsa-eni-create-jv-exploit-condensate-reserves; El Universal, http://www.eluniversal.com/economia/130828/pdvsa-to-establish-joint-venture-for-production-of-gas-condensate; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=974646&CategoryId=10717)

PDVSA and India's Reliance agree to increase production

Petroleos de Venezuela (PDVSA) and Reliance, India's largest oil company, agreed to expand their trade relations by shipping up to 400,000 barrels of oil to the Asian country. The announcement was made by PDVSA's president Rafael Ramirez, during a press conference attended by the board of both companies. "Of that possibility, of that volume, we've been currently shipping 320,000 barrels per day to India, which makes our country a very important supplier with 12% of total consumption in India," he said. (AVN, 08-29-2013; http://www.avn.info.ve/contenido/venezuela039s-pdvsa-and-india039s-reliance-agree-increase-production)

Fines have been eliminated for residential electric service bills by a resolution repealing each and every part of a prior resolution which established extra charges on higher electric consumption. (August 26 Gaceta Oficial). (Veneconomy, 08-28-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36068&idc=3; El Universal, 08-29-2013; http://www.eluniversal.com/economia/130829/limits-to-household-energy-consumption-eliminated)

International Trade

Venezuelan chemical companies owe suppliers U$D 400 million

The Venezuelan chemical sector "is going through a very difficult situation," says Juan Pablo Olalquiaga, President of the Venezuelan Chemical Industry Association (ASOQUIM). Olalquiaga says debts by local chemical enterprises to foreign suppliers abroad hamper raw material exports. In addition, "there are product lines seriously hit, whereas others will run out soon," he said. The president of ASOQUIM reported that the total debt accrued by the 155 companies registered in the association amounts to U$D 400 million.  "Since we have not paid suppliers, they will not ship us anything," he stressed. (El Universal, 08-29-2013; http://www.eluniversal.com/economia/130829/venezuelan-chemical-companies-owe-usd-400-million-to-suppliers)

Venezuela seeks 'fair price' for metals exports, traders see problems

Venezuela is hiking prices for its metals and minerals exports in an effort to obtain a "fair price" from buyers, but traders warned the move could leave the nation without buyers for its most important non-oil exports. President Nicolas Maduro said the system would boost revenue for metals including iron, steel and aluminum, while reducing costly commissions paid to intermediaries and traders. (Reuters, 08-27-2013; http://www.reuters.com/article/2013/08/27/venezuela-mining-idUSL2N0GP01F20130827)

Logistics & Transport

Colombian, Venezuela examine cross-border points

Colombia-Venezuelan authorities met in Colombia's Arauca Department to establish cross-border points and determine the state of access roads. The cross-border points established are in the Southern and Andean region of Venezuela: Arauquita (Colombia)- La Victoria (Apure state -Venezuela), Arauca (Colombia)- El Amparo (Apure -Venezuela), Puerto Carreño (Colombia) - Puerto Ayacucho, Paso El Burro (Venezuela), Casuarito (Colombia), and Puerto Ayacucho (Venezuela). The parties agreed to submit a report on the state of the road infrastructure, including geographical location, the state of roads, and a road maintenance schedule, by September 12th. (El Universal, 08-29-2013; http://www.eluniversal.com/economia/130829/colombian-venezuela-examine-cross-border-points)

Politics

Maduro caught between economic moderates and radicals

Planning Minister Jorge Giordani and Finance Minister Nelson Merentes are involved in a tough struggle within the regime headed by Nicolás Maduro, who seems inclined to favor the pragmatic group (Merentes), as opposed to the orthodox left wing faction (Giordani). Opposition legislator Julio Borges says: "In economic affairs there are players with different approaches, such as Merentes and Giordani, sabotaging each other." Maduro maintains a radical discourse towards the US and the opposition led by Henrique Capriles, but through Merentes has begun a pragmatic turnaround on economic affairs.. Merentes has increased his power within the government and remains as Vice President for Economic Affairs. He has become the man Maduro listens to the most, got rid of Giordani ally Edmée Betancourt as President of the Central Bank and had her replaced with his own man, Eudomar Tovar. Merentes now controls the Finance Ministry, Central Bank and CADIVI (Currency Board), and has begun talks with the private sector, increased FOREX availability, begun reviewing prices on controlled products, and started to put public finances in order. His largest problem is that this approach has not yet shown results: Venezuela will barely reach half of the growth forecast for 2013, 3% instead of 6%. Giordani, often called "The Monk", was Chavez's economic mentor and ran Venezuela's economy for 12 years through archaic Marxist policies, including exchange and price controls. He maintains a strong influence in the National Assembly, where a majority of pro-Chavez legislators favor a more radical approach involving more controls and higher taxes. His remaining key supporters are Industry Minister Ricardo Menendez, Labor Minister María Cristina Iglesias, Housing Minister Ricardo Molina, as well as high level officials such as Eduardo Saman, who runs the Consumer Protection Agency (INDEPABIS). Rumors abound that Giordani will be removed as Planning Minister and appointed to an embassy abroad. Should this happen, Maduro will definitely lean toward the moderate and pragmatic group. More in Spanish: (INFOLATAM)

Guyana grants an oil concession in Venezuela's border maritime area

Guyana, without awaiting delimitation of maritime and submarine boundaries with Venezuela, has granted a new concession which impinges not only on the disputed area but also on Delta Amacuro State. The so-called Roraima bloc was granted in June 2012 to the ANDARKO multinational oil company, but its location had been kept secret. However, in a presentation made by Guyana's Environment Ministry at an energy conference in San Diego, California - a copy of which was obtained by El Universal daily - the location is shown to be in the Atlantic maritime area of Delta Amacuro state, which is not under discussion and is currently patrolled by the Venezuelan Navy. More in Spanish: (El Universal, 08-30-2013; http://www.eluniversal.com/nacional-y-politica/130830/guyana-dio-otra-concesion-en-fachada-venezolana)

Maduro writes Barack Obama recommending a peaceful solution in the case of Syria

 He calls for a "twitter" campaign to Obama asking for no military intervention. More in Spanish: (El Universal, 08-30-2013; http://www.eluniversal.com/internacional/130830/maduro-enviara-carta-a-barack-obama-para-que-evite-el-conflicto)

16880 candidates to run in December municipal elections

The National Elections Council (CNE) says there will be 16880 candidates in the upcoming December 8th municipal elections.  The number includes 1,978 candidates for mayor, the remainder for city council members and other municipal offices. More in Spanish: (El Universal, 08-30-2013; http://www.eluniversal.com/nacional-y-politica/130830/para-las-elecciones-del-8d-participaran-16880-aspirantes)

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.

August 23, 2013

Economics & Finance

Government says Venezuela's economy rebounds from slow first quarter, food production up

Venezuela's economy rebounded in the second quarter from tepid growth in the previous three months, the Central Bank said on Thursday, but growth was still far below 2012 due to slower government spending. Government officials said growth of 2.6% compared with the same period last year was evidence that the country's economy was on solid ground after lackluster growth of 0.5%. Bright spots included 24.3% growth in the financial sector, 5.7% in manufacturing, and 6.7% growth in communications. But the construction sector shrank by 6% percent, while activity in the mining sector contracted a whopping 22%. Maduro's government targeted 6% growth in GDP this year and a 15% increase inflation, but Merentes said those figures will be updated in the coming weeks. Though figures showed a notable expansion in the manufacture of food, consumers complain regularly they cannot find products, including wheat flour and corn flour, and the central bank's scarcity index remains near historic highs. Data presented shows food production rose 9.2% April to June, in areas such as 9% in wheat milling and 23% in overall bakery products; edible oils, 24%; non alcoholic beverages, 33.6%; and 1.9% in dairy products. The announcements were made at a joint press conference by Central Bank President Eudomar Tovar, Finance Minister Nelson Merentes and Planning Minister Jorge Giordani. Merentes remarked that GDP could hit 3% this year if the growth trend continues, particularly in construction. (REUTERS; http://www.reuters.com/article/2013/08/22/venezuela-economy-idUSL2N0GN0Z120130822; and more in Spanish: El Universal; http://www.eluniversal.com/economia/130823/produccion-de-alimentos-subio-92-entre-abril-y-junio; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/merentes--economia-venezolana-puede-crecer-3--este.aspx#ixzz2cn3lk9t6; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/econom%C3%ADa-venezolana-creci%C3%B3-23-segundo-trimestre-2013;)

The Bolívar may suffer new devaluation between December 2013 and February 2014, according to economist José Guerra. This new 42-50% devaluation would take the rate to between Bs.9:$ and Bs.9.50:$. Guerra says Venezuela faces a serious problem of foreign currency flow and also a low level of reserves and this is worsened by the fact that oil is the only activity that generates foreign currency. (VENECONOMY, 08-21-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=35967&idc=2)

New bond issue could depend on China negotiations

British investment firm BARCLAYS Capital keeps forecasting that the Venezuelan government is expected to issue additional bonds in foreign currency in the last quarter of 2013; however, the investment firm believes bond issuance depends on funding negotiations with China. BARCLAYS Capital says that given the current liquidity in the Venezuelan financial system and in order to avoiding exchange rate risk, part of the additional indebtedness may be issued in the domestic market. It also forecast that the government and state-run oil company Petróleos de Venezuela (PDVSA) could issue bonds worth USD 6 billion in the fourth quarter of 2013, but added that recent negotiations between Venezuela and China over a new U$D 5 billion loan might lower the need for issuing debt in the international market. (El Universal, 08-21-2013; http://www.eluniversal.com/economia/130821/venezuelan-govt-to-issue-bonds-worth-usd-6-billion)

Tangled FOREX system, rising non-official rate

BCV has announced a new SICAD (Complementary Exchange System) dollar auction for U$D330 million. FOREX supply could now take a couple of months to reach the market because the Central Bank will sell PDVSA bonds it currently holds in the international market and transfer the proceeds to the auction winners’ international suppliers once proof of delivery has been obtained. PDVSA made a private placement of these bond to BCV last year for a total of U$D 3 billion, of which U$D1.3 billion were sold through SITME. BCV could still have U$D1.7 billion of this bond in addition to other bonds that it could have bought in the secondary market and could sell through SICAD in coming auctions. When the government decided to close SITME last February, it held it was unsustainable to maintain a system that demanded recurrent bond issuances to operate. The operation of SICAD has been worse than SITME, which at least had a stable daily supply of U$D30-40 million. The irregularity in the supply of dollars does not help the government control the depreciation of the non-official FX rate, which jumped from U$D/VEB 32 to U$D/VEB 37 in the last two weeks. The change of the president of BCV and the poor results obtained by SICAD in containing the non-official exchange rate depreciation reportedly has begun a debate on the bank’s board about the frequency of the dollar auctions and even consideration of other alternatives to providing dollars to the private sector. (Special report from ECOANALITICA; and Reuters, 08-21-2013; http://www.reuters.com/article/2013/08/21/venezuela-currency-idUSL2N0GM01U20130821; El Universal, http://www.eluniversal.com/economia/130821/next-sicad-auction-sale-to-offer-usd-330-million; more in Spanish: Fox News Latino, http://latino.foxnews.com/latino/espanol/2013/08/21/venezuela-convocan-cuarta-subasta-por-330-millones-de-dolares/)

Commodities

Yellow alert at the Paraguaná Refining Center

Jesús Luongo, general manager of Paraguaná Refining Center (CRP), reported that a yellow alert was triggered last week at the site composed of Amuay, Cardón and Bajo Grande refineries. "Plotting sabotage and making it look like an accident, an act of God, is very easy," the official said. (El Universal, 08-21-2013; http://www.eluniversal.com/economia/130821/yellow-alert-activated-in-paraguana-refining-center; http://www.eluniversal.com/economia/130821/accident-in-funnel-of-amuay-refinery-under-control)

Refining center authorities reject report on Amuay's accident

Representatives of the Paraguaná Refining Center (CRP), in Falcón state (northwest Venezuela), refused to receive a report prepared by a commission of National Assembly opposition legislators and oil experts, following the accident registered on Amuay refinery on August 24, 2012, which caused 48 deaths. Deputies William Dávila, María Corina Machado, Gregorio Graterol, Eliécer Sirit, Leomagno Flores, José Manuel González, Juan Pablo García, and Américo De Gracia met with the Public Affairs and Legal Affairs Officers of the CRP at the front desk. The managers said that they were not authorized to receive the paper. (El Universal, 08-21-2013; http://www.eluniversal.com/economia/130821/refining-center-authorities-reject-report-on-amuays-accident)

International Trade

Government imports up 25%, private imports down 9,6%

According to Central Bank data Government imports continue growing while private sector is repressed. Total imports in 2Q 2013 rose by 3.3% to U$D 13.5 billion due to government purchasing abroad which increased by 25.1% in such items as chemicals and refined products for the oil industry, food, medicine, medical supplies, aircraft and electric industry products. At the same time, private sector imports dropped by 9.6%. More in Spanish: (El Universal, 08-23-2013; http://www.eluniversal.com/economia/130823/importacionespublicas-suben-25-y-las-privadas-caen-96)

China slowdown could hit Venezuela

Venezuela will likely be hit most among Latin America's energy markets by a slowdown in China’s economy, experts say. As concerns rise about an economic slowdown in China, how would Latin America's energy sector be affected? Here are some highlights:

• R. Evan Ellis, associate professor at the Center for Hemispheric Defense Studies in Washington says it "depends on whether a 'China slowdown' simply means below 7 percent GDP growth or whether the Chinese banking system, burdened by an excess of marginal loans, is pushed into a crisis. Populist oil producers such as Venezuela, already slipping ever deeper into debt, could face a revenue crisis."
• Sun Hongbo, associate professor at the Institute of Latin American Studies of the Chinese Academy of Social Sciences in Beijing adds: "China's energy cooperation with Latin America will continue to maintain a stable and rising profile... Chinese oil companies expect to tap into the Mexican oil industry while they strengthen their commercial presence in different forms in Venezuela, Ecuador, Brazil, Colombia and other countries."
• William J. Norris, professor of Chinese foreign and security policy at the Bush School of Government and Public Service at Texas A&M University says: "The downturn will be most acutely felt in nations for which Chinese trade demand represents the largest percentage of the nation's total energy exports. While Brazil and Argentina are much bigger economies that may be better able to weather the downturn, smaller nations that rely heavily on Chinese energy demand (in particular, Venezuela) are in for a rough ride."
• Philip Andrews-Speed, principal fellow at the Energy Studies Institute of the National University of Singapore says: "In the unlikely event that China enters a sustained period of very low growth (below 4%), then the effect on overseas investments and on oil imports could be dramatic." (Inter-American Dialogue Latin America Advisor; http://latinvex.com/app/article.aspx?id=887)

Panamanian business seeks U$D 1 billion payment from Venezuela

Panama´s Colon Free Trade Zone has presented the Venezuelan Government with a U$D 1.097 billion bill for commercial debts, and Panamanian businessmen continue to wait on repayment options offered by Venezuela. The information was provided by Marco Antonio Téllez, Vice President of the Colon Free Trade Zone Client Associations, who said Venezuela is still reviewing the paperwork provided. More in Spanish: (El Carabobeño, 08-23-2013; http://www.el-carabobeno.com/impreso/articulo/72930/empresarios-panameos-exigieron-a-venezuela-pago-de-ms-de-mil-millones-de-dlares; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/empresarios-panamenos-piden-a-venezuela-el-pago-de.aspx; El Universal, http://www.eluniversal.com/economia/130823/venezuela-adeuda-a-empresarios-de-panama-1-millardo)

Logistics & Transport

Germany complains over Venezuela's port delays

The German government has complained to the Venezuelan Foreign Ministry that detention of over 170 containers at different ports here hurts the operations of German companies. Germany is aware that when local customs authorities suspended PANALPINA, which provided transport and logistical services, it stopped processing cargo at different ports, including containers from German companies. The German Embassy's "verbal note" complains that the situation has a negative impact on the operations German companies in Venezuela, under contract with the public and private sector. More in Spanish: (El Universal, 08-23-2013; http://www.eluniversal.com/economia/130823/alemania-se-queja-ante-venezuela-por-retrasos-en-puertos)

... transport operators also report port delays

Julio Abreu, President of the Bulk Workers Front at Puerto Cabello says an outage in internet system for weighing lorries at BOLIPUERTOS, along with stop and go operations by the Automatic Customs System (SIDUNEA) has been delaying operations. He pointed to over 9 hours delays in offloading, and said: "they told us the systems were fast and efficient, and we are suffering them because we have pending 8 vessels loaded with bulk cargo, plus a ship loaded with sugar, not to mention 500 dump trucks waiting to load sugar, on top of 2,000 vehicles that load bulk and normally operate at the local terminal." More in Spanish:  (El Carabobeño, 08-23-2013; http://www.el-carabobeno.com/impreso/articulo/72890/transportistas-de-carga-pesada-denunciaron-retrasos-en-el-puerto)

Politics

Maduro backs off debate, seeks added powers in any way, hints at Constitutional Assembly

President Nicolás Maduro says the single vote he needs to enact the Enabling powers act at the National Assembly are "the people in the streets". He said a debate on corruption he previously proposed to the opposition "was already held by the people in the streets, and the people know what they want". Maduro warned he would go to the National Assembly escorted by "legislator 99" (the people), and added that "if they (special powers) are refused, we will take other routes". In the same speech he referred to opposition proposals seeking a new constitutional assembly, saying "I like that battle. If they choose to battle in that field, we are encouraged. We even may suddenly all of us hurl ourselves into a constituent assembly. We will not stop being president or ministers, because the people gave us power and I am going to hold it for six full years. And you will decide if I continue for six more, afterwards....a constituent assembly is all-powerful." More in Spanish: El Universal, 08-22-2013; http://www.eluniversal.com/nacional-y-politica/130822/maduro-hasta-de-repente-nos-lanzamos-todos-a-la-constituyente; El Nacional, http://www.el-nacional.com/politica/Maduro-diputado-pueblo-calle_0_250175214.html)

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