January 24, 2014

Economics & Finance

Venezuela creates dual-rate FOREX system; critics cry devaluation

Venezuela has revamped its 11-year-old currency controls, creating a dual-rate system intended to stem rampant embezzlement of oil dollars, a change critics pilloried as a disguised devaluation. The widely expected reform kept a preferential rate of 6.3 bolivars to the dollar for essential goods such as some widely used basic food staples and medicine, while doubling the volume of dollars offered at a higher rate of around 11.3 bolivars. Officials offered few clear details about how they would control the black market rate for greenbacks, now more than 10 times the preferential rate. Critics predict the measures will simply spur inflation, which hit 56.2% in 2013, the highest in the Americas. The new measures expand the central bank's SICAD system of weekly currency auctions by boosting the amount offered to U$D 220 million, from about U$D 100 million. Expenditures such as travel allowances, airline tickets and remittances previously calculated at the preferential rate will be moved to the less favorable SICAD rate, currently 11.3. Ramirez insisted that the 6.3 rate would still cover 80% of Venezuela's dollar needs, in the food, agriculture, industrial, health, education, science and technology sectors. The currency plan could fuel inflation for some goods and services, but could reduce shortages if dollars previously destined for foreign travel are freed up to import food and medicines. Economist Asdrubal Oliveros of Caracas-based ECONALITICA called the new system a "slow-motion devaluation" that will help shore up state finances by providing more bolivars for dollars sold at the higher rate. But he said added the measure alone will not resolve the problems created by controls and heavy state intervention: "The currency shortages will continue until the government recognizes that a fixed exchange rate is not the solution".  (Reuters, 01-22-2014; http://www.reuters.com/article/2014/01/23/venezuela-forex-idUSL2N0KW10G20140123; Veneconomy, 01-23-2014; http://www.veneconomy.com/site/index.asp?ids=44&idt=37743&idc=2; Bloomberg, http://www.bloomberg.com/news/2014-01-22/venezuela-devalues-bolivar-for-airlines-remittances.html; El Universal, http://www.eluniversal.com/economia/140122/venezuelan-govt-announces-band-system-for-new-exchange-scheme; AVN, http://www.avn.info.ve/contenido/80-percent-currencies-be-alloted-priority-sectors; Fox News, http://www.foxnews.com/world/2014/01/22/venezuela-overhauls-foreign-currency-exchange-system/ and more in Spanish: AVN; http://www.avn.info.ve/contenido/venezuela-activa-nuevo-sistema-cambiario-para-fortalecer-econom%C3%ADa; http://www.avn.info.ve/contenido/ram%C3%ADrez-tasa-sicad-es-mucho-m%C3%A1s-baja-que-fijada-saboteadores-econom%C3%ADa; http://www.avn.info.ve/contenido/ram%C3%ADrez-nuevo-sistema-cambiario-consolidar%C3%A1-orden-econ%C3%B3mico-socialista; El Universal, http://www.eluniversal.com/economia/140123/lineas-aereas-recibiran-dolares-a-la-tasa-del-sicad; http://www.eluniversal.com/economia/140123/recortan-divisas-a-viajeros-para-atender-importaciones-basicas; http://www.eluniversal.com/economia/140123/gobierno-condiciona-el-pago-de-la-deuda-con-las-empresas; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/estos-son-los-sectores-que-quedaron-en-cadivi-y-en.aspx; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/lo-que-debe-saber-del-sistema-de-bandas.aspx; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/ramirez-dice-que-optimizaran-tramites-para-solicit.aspx; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/aseguran-que-optimizaran-tramites-para-solicitar-c.aspx; El Universal, http://www.eluniversal.com/economia/140124/daran-divisas-a-630-solo-para-alimentos-de-alto-consumo)

Venezuela bonds slide as economic measures deemed insufficient

Venezuelan bonds fell hard Thursday, a day after the government announced a partial currency devaluation seen largely as insufficient to resolve the oil-rich country's growing economic challenges. Economists said the government's plan to sell more dollars to Venezuelans at a weaker exchange rate against the dollar would produce a marginal difference in its fiscal deficit, and likely prompt the central bank to continue printing the Bolivar currency. That is likely to potentially exacerbate an inflation rate that is already at 56%, one of the world's highest. "It's a case of too little, too late, to put it bluntly," said Russ Dallen, a partner at brokerage Caracas Capital Markets. Venezuela's benchmark 2027 bond slipped to a bid price of 68.65 for a yield of 14.61%, according to Markit, levels last seen in November 2011. The measures announced so far will help the government rake in additional revenue of about 5% of gross domestic product, not enough to cover a fiscal shortfall seen at about 14% of GDP, Caracas-based consultancy ECOANALITICA estimates. (The Wall Street Journal, http://online.wsj.com/article/BT-CO-20140123-713760.html)

Ramírez hints of de-criminalizing swap operations

Ramírez also hinted at de-criminalizing swap operations, saying "If that is not sufficient (CADIVI and SICAD) then we will change the Illegal Exchange Law so that the private sector can bring in their FOREX and carry out their swaps". More in Spanish: (El Universal; http://www.eluniversal.com/economia/140124/ramirez-asoma-despenalizacion-del-mercado-permuta; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/despenalizacion-resucita-operaciones-permuta-de-di.aspx; El Nacional, http://www.el-nacional.com/economia/Reforma-Ley-Ilicitos-legalizara-permuta_0_342565983.html)

Private debt default could jeopardize new imports

Jorge Roig, President of FEDECAMARAS, Venezuela's main business organization, expressed concern that the announcement by Ramirez could be an "implicit disregard" of private sector imports previously approved by CADIVI, and warned of possible consequences: "I want to tell the nation that credit lines to Venezuela are absolutely closed. If companies such as POLAR have publicly announced that their credit lines with international suppliers are closed due to default, you can well imagine what is left for other companies with far weaker credit". More in Spanish: (El Universal, http://www.eluniversal.com/economia/140124/impago-de-deudas-arriesga-las-nuevas-importaciones; El Mundo, http://www.elmundo.com.ve/noticias/economia/gremios/medidas-dan-respiro--pero-no-salvaran-el-primer-tr.aspx; El Nacional, http://www.el-nacional.com/economia/Empresas-paralizaran-falta-divisas_0_342565995.html)

New system will continue processing pending CADIVI cases

According to Rafael Ramírez, Vice President for Economic Affairs, "all applications pending with CADIVI will continue to be processed with no change...the only difference is that the allocation will be made at another rate, the SICAD rate": More in Spanish: (AVN; http://www.avn.info.ve/contenido/nuevo-sistema-cambiario-garantiza-curso-solicitudes-hechas-cadivi-y-simplificar%C3%A1-tr%C3%A1mites)

Oil & Energy

PDVSA says consolidated debt rose 8.4% in 2013

State oil company PDVSA says its consolidated financial debt rose 8.4% at the end of 2013 versus the year before to U$D 43.4 billion, not including its debt to service providers or financing for joint ventures. (Reuters, 01-22-2014; http://www.reuters.com/article/2014/01/22/venezuela-pdvsa-idUSL2N0KW0R220140122)

PDVSA is planning to repay Central Bank with domestic gold production

Rafael Ramírez, Venezuela's Vice President for Economic Affairs, Oil Minister and PDVSA President, has said PDVSA is working on a scheme to repay its debt with Venezuela's Central Bank with local - government controlled - gold production and credit it on the books in March. He added "it will not be necessary to obtain Central Bank financing this year". More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/petroleo/pdvsa/pdvsa-acordo-con-bcv-cancelar--con-oro-las-deudas-.aspx#ixzz2rJUopLSD)

Venezuela may meet new reality, and new price, at the pump

Venezuela has the world’s cheapest gasoline, about 6 cents a gallon, a price so low that drivers often fill their tanks for less than a dollar and tip the gas station attendant more than the cost of the fuel pumped into their cars. But the illusion of inexhaustible wealth that every citizen can effortlessly tap into at the nearest gas station may finally crash into hard reality. President Nicolás Maduro has called for what was once unthinkable: It is time, he has said, to raise the price at the pump. Mr. Maduro has not said when or how much he will raise the price, which has been frozen for 15 years, but the urgency in this beleaguered economy is clear. By some estimates, the government is giving away $30 billion worth of gasoline, diesel and other fuels each year, a huge loss at a time when it is running a large deficit, forcing it to print money. The state oil company is borrowing millions of dollars from the central bank to keep running, the country endures chronic shortages of basic goods, and last year inflation hit 56%, one of the highest rates in the world. But raising fuel prices can be politically risky, especially for a president like Mr. Maduro, who has struggled for acceptance during his first year in office, often viewed as a pale shadow of his charismatic predecessor and mentor, Hugo Chávez. Venezuelan officials have said the increase here will probably be gradual, with the goal of eventually charging enough to cover the costs of producing the gasoline. (New York Times)

U.S. fuel shipments to Latin America surge on wealth gain

Latin American nations are poised to accelerate imports of U.S. refined-oil products after failing to build refineries to meet demand from a growing middle class. Freight traders booked tankers to send 19 million metric tons of fuels from the U.S. to Latin America in the spot market last year, 5.4% more than in 2012, data compiled by Bloomberg show. Latin American refiners, including state-controlled Petroleos de Venezuela SA and Petroleo Brasileiro S.A., doubled U.S. imports in the past five years amid delays in building new refineries. (Bloomberg, 01-23-2014; http://www.bloomberg.com/news/2014-01-23/u-s-fuel-shipments-to-latin-america-surge-on-wealth-gain.html)

Commodities

Venezuela’s largest food company says dollar delays threaten supply

EMPRESAS POLAR SA, Venezuela’s largest privately-held company, said food production is at risk from record delays in the release of foreign currency by the government, fueling shortages of goods such as rice and milk. POLAR, which produces everything from beer to corn flour, can’t import more raw materials, equipment and packaging, the company said in an e-mailed statement today. Dollar shortages have increased the company’s debt with foreign suppliers by 194% in the past two years to U$D 463 million, the Caracas-based company said. (Bloomberg, 01-22-2014; http://www.bloomberg.com/news/2014-01-22/venezuela-s-largest-food-co-says-dollar-delays-threaten-supply.html)

Logistics & Transport

Venezuela's government versus the world's airlines

International airlines serving Venezuela are not on good terms with the country's government. The government owes them close to U$D3 billion in ticket sales, and is now trying to "negotiate" the debt, i.e., water it down so that it doesn't have to pay as much. In fact, one could say the government is downright expropriating the airline's hard-earned profits. In essence, the Venezuelan government has been subsidizing Venezuelans' overseas travel for years. The airlines were more than glad to transport them. Sadly, the Venezuelan government hasn't upheld its side of the bargain. Months have passed since the last time airlines were allowed to repatriate their profits. But with their coffers flush with Bolívares, the airlines now have too much cash in their hands. Since the Venezuelan currency is quickly losing its value -- inflation last year was close to 60% -- they have begun investing in local real estate. Partly as a result, prices for offices in Caracas have gone through the roof. The crisis came to the forefront a few weeks ago when the Spanish airline AIR EUROPA decided it would stop selling tickets in local currency and consider pulling out of Venezuela altogether. Other airlines have hinted at similar moves. AMERICAN AIRLINES and Colombia's AVIANCA have already cut back on their sales in local currency. In response, the government made AIR EUROPA an offer it cannot refuse: it promised the company a combination of cash, government bonds, and cheap airplane fuel. AIR EUROPA has not responded, but this feels like a final offer from the government, given the dire state of its finances. By acknowledging it does not have the cash to compensate the airlines, the government is reneging on its promise and, essentially, defaulting on its debt. The prospect for the airlines seems dim. Yesterday, in an announcement that amounted to a devaluation of the official dollar rate, the government surprised the airlines by announcing that their ticket sales would now be translated into dollars at a new, higher rate. It also said it was exploring ways to honor its commitment to past sales. The airlines had better brace themselves. After the Venezuelan government expropriates their profits, many airlines will decide to leave the country altogether, leaving Venezuelans increasingly isolated from the world. (Foreign Policy)

Government representatives meet with airlines representatives to discuss U$D 3.5 billion debt

Representatives of airlines operating in Venezuela met with Finance Minister General Rodolfo Marco Torres, Aquatic and Air Transport Minister General Hebert Garcia Plaza and Alejandro Fleming, President of the National Foreign Trade Center. García Plaza said in a Twitter statement: "We are committed to solve any difficulty, in benefit of the population". The meeting follows an announcement by Rafael Ramírez, Vice President for Economic Affairs, that airline operations will be paid using the new SICAD rate of approximately VEB 11.3/U$D. The total CADIVI Foreign Exchange Board FOREX backlog with airlines is around U$D 3.5 billion and is hurting company cash flow and dividend repatriation. It is believed the government intends to negotiate payment with each airline, using FOREX, bonds and fuel as means for repayment. Rafael Guerra, Director of the Tourism Industry Council says that for their sector to operate those debts "must be honored at VEB 6.3/U$D." (AVN, 01-23-2014; http://www.avn.info.ve/contenido/national-govt-meets-airlines-representatives; El Universal, 01-22-2014; http://www.eluniversal.com/economia/140123/dollars-for-airlines-at-the-forex-rate-of-ancillary-system; and more in Spanish: El Universal, http://www.eluniversal.com/economia/140124/solicitan-que-se-reconozca-deuda-de-aerolineas-a-630; El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/gobierno-fiscalizara-a-las-aerolineas-a-partir-del.aspx)

AVIANCA drops most since November as Venezuela devalues currency

AVIANCA Holdings SA (AVH) dropped the most since November after Venezuela devalued its currency for airlines, eroding the value of new sales in the country. American depositary receipts in the Colombian carrier tumbled 4.8% to U$D 17.30 at 1:16 p.m. in New York, the biggest one-day decline since Nov. 6. COPA Holdings SA, operator of Venezuela’s second-biggest international airline by capacity, dropped 4.7% to U$D 140.18 in New York. Airlines, Venezuelans traveling abroad and foreigners sending remittances home must use a secondary exchange rate determined at weekly auctions, Economy Vice President Rafael Ramirez said yesterday. The rate set at the latest auction was 11.36 bolivars per dollar, compared with the official rate of 6.3. Bogota-based AVIANCA has U$D 270 million, or half of its cash holdings, in the country, according to a third-quarter report. (Bloomberg, 01-23-2014; http://www.bloomberg.com/news/2014-01-23/avianca-drops-most-since-november-as-venezuela-devalues-currency.html)

AIR CANADA, TAP, INSEL Air and COPA halt ticket sales in Venezuela

Several airlines have stopped selling tickets in Venezuela, according to travel agencies, includin g AIR CANADÁ. TAP AIR PORTUGAL, INSEL AIR, COPA Airlines, plus TAME. They say SANTA BÁRBARA Airlines is selling tickets only through January 26th. Most airlines have restricted reservations to one or two months ahead. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/empresas/air-canada--tap--insel-air-y-copa-dejan-de-vender-.aspx#ixzz2rJTjU2R8; El Nacional, http://www.el-nacional.com/economia/Aerolineas-ordenaron-agencias-suspender-boletos_0_342565988.html)

12.543 containers currently lie abandoned at Venezuelan ports

General Hebert Garcia Plaza, Minister for Aquatic and Air Transport, reports there are 12,543 legally abandoned containers at Venezuelan ports, along with 23,000 separate pieces of cargo. Cargo is considered to be "legally abandoned" when no one claims it after a period of time determined by authorities. Mistakes in paperwork or the lack of a given permit can cause this situation. Authorities will carry out special operations to return refrigerated containers to carriers once cargo has been offloaded, and the government must the penalties for delays incurred. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140124/hay-12543-contenedores-en-abandono-legal-en-puertos; El Carabobeño, http://www.el-carabobeno.com/impreso/articulo/91793/garca-plaza-existen-12.543-contenedores-en-abandono-legal)

Politics

Capriles: Without shadow of a doubt this is devaluation

Venezuelan opposition leader Henrique Capriles Radonski says that although the Venezuelan government "makes up and changes everything," the adoption of a dual-rate forex system, announced on Wednesday, was nothing but devaluation. Further on, referring to his political position, Capriles said, "I have not lowered my guard or remained in silence. The thing is that I have been silenced by some media outlets following the government's orders." (El Universal, 01-23-2014; http://www.eluniversal.com/nacional-y-politica/140123/capriles-without-shadow-of-a-doubt-this-is-devaluation)

Venezuela will propose Puerto Rico as a member of PETROCARIBE

President Nicolás Maduro says he will propose the entry of Puerto Rico as special member of the regional bloc in the next meeting of PETROCARIBE. He said he would also propose Puerto Rico's entry into the Community of Latin American and Caribbean States (CELAC), during the meeting to be held on January 25-29 in Cuba. (El Universal, 01-23-2014; http://www.eluniversal.com/nacional-y-politica/140123/venezuela-to-propose-entry-of-puerto-rico-to-petrocaribe)

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.

April 02, 2013

Economics & Finance

Post-Chavez rout deepens on bond sale speculation

Venezuelan bonds are extending losses as investors bet the government will be forced to resume dollar debt offerings this year to arrest a record decline in the bolivar in the black market and maintain high spending. Oil exports won’t provide enough greenbacks to supply a new exchange system started last week and meet U$D 8 billion in payments on outstanding debt, said Jorge Piedrahita, the president of Torino Capital LLC. Venezuela’s dollar debt lost 2.7% in March compared to returns of 0.6% for Argentina, 0.7% for Ecuador and 1.4% for Bolivia, according to JPMorgan Chase & Co.’s EMBIG index. (Bloomberg, 04-01-2013; http://www.twitlonger.com/show/n_1rjhimc)

Tough times ahead in post-Chavez Venezuela as dollar scarcity takes its toll

Doing business in post-Hugo Chavez Venezuela is not for the faint of heart. Thousands of companies suffer under currency controls that all but deny them the U.S. dollars they need to import vital items into this oil-rich country, from food to cars to spare parts — even gasoline. Venezuelan firms must sell their wares at state-controlled prices that don’t reflect the 22% inflation rate, the highest in Latin America. Even Venezuela’s socialist government admits the controls don’t work — but its attention is focused on the April 14 election to replace the late President Hugo Chavez. (The Washington Post, 04-01-2013; http://www.washingtonpost.com/business/tough-times-ahead-in-post-chavez-venezuela-as-dollar-scarcity-takes-its-toll/2013/04/01/f164becc-9b08-11e2-9219-51eb8387e8f1_story.html)

Fiscal deficit leads to second devaluation in five weeks

With an accelerated rise in expenditures, increasing losses in state-run oil companies, and costly subsidies, Venezuela's income is not enough for the Government, which currently faces a serious fiscal imbalance although the oil basket averages a record high of U$D 103 per barrel. As a result, two devaluations have been implemented in the past five weeks so as to obtain more bolivars per petrodollars. However, despite the significant adjustment in the foreign exchange rate, which will spur the cost of imports and therefore will hit the people, the fiscal crisis will continue. Although SICAD did not reveal the price of the US dollars sold in the bid launched on March 26, financial sources have said that companies paid VEB 11-14 per US dollar, that is, twice the rate in SITME. (El Universal, 04-01-2013; http://www.eluniversal.com/economia/130401/venezuelas-fiscal-deficit-leads-to-second-devaluation-in-five-weeks)

National Treasury gains VEB 164.5 billion through devaluation

According to estimates by ECOANALÍTICA, the National Treasury will gain VEB 164.5 billion through devaluation and the new SICAD alternate FOREX sale system, which translates into 6.3% GDP. More in Spanish: (El Universal, 04-02-2013; http://www.eluniversal.com/economia/130402/bs-1645-millardos-extra-recibira-el-fisco-por-ajustes-cambiarios)

Devaluation aggravates imbalance in controlled prices, increases scarcity

According to a report by ECOANALÍTICA, authorities have kept the price of rice frozen for 55 months; different cooking oils between 17 and 23 months; chicken for 19 months and milk anywhere from 17 to 36 months, depending on its type. This maladjustment has translated in diminished production and scarcity levels, which Central Bank data estimates at 19.7%. More in Spanish: (El Universal, 04-02-2013; http://www.eluniversal.com/economia/130402/devaluacion-eleva-desajuste-de-los-precios-controlados)

Russia´s RUSORO is suing Venezuela for U$D 3.030 billion

RUSORO Mining has formally sued Venezuela at the World Bank's  International Center for Settlement of Investment Disputes under the Canada-Venezuela Bilateral Investment Treaty for U$D 3.030 billion, based on alleged treaty violation by Venezuela by expropriating their holdings here without adequate compensation and not allowing the unfettered transfer of their investments and profits. More in Spanish: (El Mundo, 04-02-2013; http://www.elmundo.com.ve/Noticias/Petroleo/Mineria/Rusoro-exige-a-Venezuela-compensacion-por--3-030-m.aspx; El Universal, http://www.eluniversal.com/economia/130402/rusoro-presento-demanda-contra-venezuela-ante-ciadi; and Tal Cual; http://www.talcualdigital.com/index.html)

Commodities

Venezuelan oil up to U$D 103.50 last week, for a gain of U$D 1.5 (1.475),  More in Spanish: (Últimas Noticias, 04-02-2013; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/petroleo-venezolano-sube-hasta-los-103-5-por-barri.aspx; AVN; http://www.avn.info.ve/contenido/barril-petr%C3%B3leo-venezolano-subi%C3%B3-semana-pasada-10350-d%C3%B3lares)

Schlumberger CEO: Venezuela debt collections improving

Oil services giant Schlumberger Ltd has improved its ability to collect the money it is owed by Venezuela's state oil company PDVSA and will now be able to recognize all revenue associated with its first-quarter operations in the country, Schlumberger's CEO said on Sunday. Schlumberger Chief Executive Officer Paul Kibsgaard's announcement, published in a press release, follows a warning from the company earlier in March that Venezuelan customers' rates of payment had dropped sharply."After meetings with PDVSA, the collections have improved to the point that we will recognize all revenue associated with our first-quarter operations," Kibsgaard said in the release. (Reuters, 03-31-2013; http://www.reuters.com/article/2013/03/31/us-schlumberger-venezuela-payments-idUSBRE92U08120130331)

International Trade

Venezuela's BANDES funds electric projects in Cuba and Gambia

In 2012, funding by the Venezuelan Economic and Social Development Bank (BANDES) to other countries rose. According to reports from the Finance Ministry, U$D 56.6 million were used to fund two electric projects in Cuba and Gambia. The money was used to "build a fuel oil hydroelectric power plant of 175 megawatts (MW) in Cuba, and for the streamlining, refurbishment and expansion of the low voltage network in Gran Banjul, Gambia." (El Universal, 03-30-2013; http://www.eluniversal.com/economia/130330/venezuelan-bandes-funds-electric-projects-in-cuba-and-gambia)

Politics

Ghost of Chavez dominates election campaign

Weeks after his death, Venezuelan socialist leader Hugo Chavez still leads supporters in singing the national anthem.

The late president's recorded voice booms over rallies for his protégé, acting President Nicolas Maduro, who stands under billboards of Chavez's face and waves to crowds carrying signs emblazoned with his name. Maduro, who is favored to win a snap election triggered by Chavez's death last month, rarely misses a chance to lionize the man many Venezuelans know as "El Comandante". (Reuters, 04-01-2013; http://www.reuters.com/article/2013/04/01/us-venezuela-election-chavez-idUSBRE9300BN20130401)

Opposition leader says "25% of Chávez's supporters would not vote Maduro"

Carlos Ocariz, National Chairman for the Simón Bolívar pro Capriles campaign has the tough task of consolidating an organizational mechanism, developing a strategy and bolstering Henrique Capriles' presidential candidacy within one month - which would be impossible if it were not for the structure built for last year's campaign. Ocariz says fully one quarter of Chavez voters will not vote for Maduro (El Universal, 03-30-2013; http://www.eluniversal.com/nacional-y-politica/130330/25-of-chavezs-supporters-would-not-vote-maduro)

Maduro calls Venezuela opposition "heirs of Hitler"

Acting President Nicolas Maduro on Saturday called the country's opposition "heirs of Hitler," accusing them of persecuting Cuban doctors working here the way Jews were persecuted in Nazi Germany. His barbs added to weeks of insults in the run-up to the April 14 presidential elections. (Reuters, 03-30-2013; http://www.reuters.com/article/2013/03/30/us-venezuela-election-idUSBRE92T0AR20130330)

"Do not aggravate emotions", says Elections Board

Elections Board President Tibisay Lucena says this Presidential campaign has begun in a "sensitive emotional state" and called on candidates and parties to avoid excess, unnecessary aggravation, and to "eliminate expressions that may set the election process on edge". More in Spanish: (El Nacional, 04-02-2013; http://www.el-nacional.com/)

1,364 people dead in Caracas so far this year

A total of 1,364 corpses have been taken to the morgue in Caracas, over the past three months, a number 7% above that recorded in 2012 (1,265). Official sources said off the record that at least 65% of the cases (886) were murder victims, while the remaining 35% was related to car accidents, occupational accidents, death investigations and natural deaths. (El Universal, 04-01-2013; http://www.eluniversal.com/nacional-y-politica/130401/1364-people-dead-in-caracas-so-far-this-year)

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

February 19, 2013

Economics & Finance

Public Stock Exchange considered as alternate FOREX supply

Unofficial economic sources report the government is considering the use of the Public Stock Exchange as a substitute for the now defunct FOREX Denominated Transaction System (SITME), and say the decision came after the new supreme FOREX authority analyzed the Exchange Authority´s (CADIVI) ability to manage increased demand. Although no decision has been made, an internal memo describes conditions for a new market. Nelson Merentes, Central Bank President has recently admitted that the exchange market is in an altered state and that authorities will not remain inactive in this situation. More in Spanish: (El Nacional, 02-19-2013; http://www.el-nacional.com/  and El Mundo, http://www.elmundo.com.ve/Noticias/Economia/Politicas-Publicas/Merentes--BCV-enfrentara-las-perturbaciones-del-me.aspx)

Income surplus for 2012 was VEB 57 billion in unused funding, deposited in parallel special funds operated by the National Treasury and now available to the government for further spending plans. The amount is the result of differences between authorized budget items and actual disbursements. More in Spanish: (El Universal, 02-19-2013; http://www.eluniversal.com/economia/130219/excedentes-de-2012-del-gobierno-suman-bs-57-millardos)

PDVSA accounting benefits from devaluation

José Luis Saboin, senior analyst at ECOANALÍTICA, points out that "all recent economic decisions favor PDVSA"; and César Aristimuño, of Aristimuño Herrera & Associates adds: "one of the key beneficiaries from devaluation is PDVSA as it improves the government's income in local currency, and partly reduces its' local currency indebtedness". PDVSA's indebtedness with the Central Bank is now down 31.7% as a result of devaluation; and it's dollar indebtedness has been reduced from U$D 38.4 billion to U$D 26.2 billion. PDVSA's financial debt is lower by U$D 1.9 billion on Bolivar denominated loans financed by the Central Bank. As a result, PDVSA should provide the government an additional VEB 84.5 in taxes and royalties. More in Spanish: (El Nacional, 02-19-2013; http://www.el-nacional.com/)

Commodities

PDVSA is a big lie, says Gustavo Coronel

According to senior oil analyst Gustavo Coronel: PDVSA claims to be sending to China an average of 34% more oil than the China say they are receiving. Sometimes, like in 2009, the differences have been as high as 72% less oil sent to China than PDVSA claims. This is a lie among the many lies coming out of PDVSA on a daily basis. They lie about their proven reserves, about their level of oil production, about the number of drilling rigs active in the country, about the production of natural gas, about the price they obtain for their oil, about the level of exports, about the refinery runs, about their imports of gasoline and diesel, about their contracts, about their many non-oil related activities such as house building, food imports or pig raising. The company under Rafael Ramirez is an immense lie. As such it has lost all international credibility. PDVSA bonds are no longer accepted by many brokers, due to the shaky financial situation of the company and the nation. (Las Armas del Coronel, 02-13-2013; http://lasarmasdecoronel.blogspot.com/2013/02/pdvsa-is-big-lie-pdvsa-es-una-gran.html)

International Trade

Soto Rojas denies mining contract with CITIC violates sovereignty

Fernando Soto-Rojas, chairman of the National Assembly's Committee on Energy and Petroleum, defended the contract between the Government and China's CITIC Group granting the latter Venezuela's gold, diamonds, coltan, tin, iron and bauxite deposits. "They have experience in that area. Nowadays, with technology, we can determine the presence of gold thousands of meters deep. Who knows what Guayana has 5000 meters underground? Here in Venezuela we only were able to evaluate 500 meters. " More in Spanish: (El Nacional, 02-18-2013; http://www.el-nacional.com/)

Politics

Chavez makes surprise return from Cuba

President Hugo Chavez made a surprise return from Cuba on Monday, more than two months after surgery for cancer that has jeopardized his 14-year rule. The middle-of-the-night homecoming by Chavez, 58, implies some medical improvement - at least enough to handle a flight of several hours - and will again fire up supporters with hope he could return to active rule. Yet there was no new information on the socialist leader's condition, nor images of his arrival, and aides say his condition remains "complex." Chavez could be returning to govern behind the scenes or could be hoping to ease political tensions in Venezuela and smooth a transition to Vice President Nicolas Maduro. (Reuters, 02-18-2013; http://www.reuters.com/article/2013/02/18/us-venezula-chavez-idUSBRE91H05F20130218; AVN, http://www.avn.info.ve/contenido/president-chavez-venezuela; Bloomberg, http://www.bloomberg.com/news/2013-02-18/chavez-says-he-s-back-in-venezuela-after-cuba-treatment.html; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=687857&CategoryId=10717; The Washington Post, http://www.washingtonpost.com/world/the_americas/hugo-chavez-returns-home-to-venezuela-after-more-than-2-months-of-cancer-treatment-in-cuba/2013/02/18/812b30a6-79b0-11e2-9c27-fdd594ea6286_story.html; CNN, http://edition.cnn.com/2013/02/18/world/americas/venezuela-chavez-return/index.html?iref=allsearch; Fox News, http://www.foxnews.com/world/2013/02/18/hugo-chavez-returns-home-to-venezuela-after-more-than-2-months-cancer-treatment/)

Opposition leader Capriles welcomes Chávez back in Venezuela

Opposition leader Henrique Capriles welcomed President Hugo Chávez, and said he hoped that Chávez's return brings "common sense" to his government. (El Universal, 02-18-2013; http://www.eluniversal.com/nacional-y-politica/130218/opposition-leader-capriles-welcomes-chavez-back-in-venezuela)

Students chained to Cuban embassy end protest

Emyly Vera, a spokesperson for the university students who demonstrated near the Cuban Embassy to Caracas for five days, announced the end of the protest after the Government reported the return of President Hugo Chávez.

"We asked for his return. We said that if he was able to rule, he had to do it in his own country and not abroad," she added. Vera pointed out that although the demonstration is over, "the battle is not." (El Universal, 02-18-2013; http://www.eluniversal.com/nacional-y-politica/130218/students-chained-to-cuban-embassy-end-protest-in-venezuela)

US says elections should be called if Chavez cannot rule

Unidentified US government sources are saying "if he (Chavez) cannot carry out the duties of his office, the Constitution calls for the election of a new President". The source, who asked not to be identified, added "we note his return and repeat our best wishes on his illness". More in Spanish: (El Nacional, 02-19-2013; http://www.el-nacional.com/; El Universal, http://www.eluniversal.com/nacional-y-politica/130219/eeuu-plantea-elecciones-si-chavez-no-puede-gobernar)

Government party says swearing in will take place when he is "good and well"

The ruling party is not saying when or where Hugo Chavez will be sworn in as President for the 2013-19 terms. Anzoátegui Governor Aristóbulo Istúriz avoided recent questions on the matter, said the party has not discussed it, and simply said swearing in will take place whenever Chavez is "good and well". More in Spanish: (El Nacional, 02-19-2013; http://www.el-nacional.com/)

Venezuela targets better relation with the US, but no rush

Foreign Minister Elías Jaua says Venezuela seeks "good relations" with the United States and ratified that President Hugo Chávez's Government has been taking steps to improve US-Venezuela bilateral relations. However, he stressed that Venezuela is by no means "desperate" to reach said goal. "We look forward to having good relations with the US, but we are by no means desperate to do so. We have learned and demonstrated that it is possible to live with dignity without having a US ambassador in Venezuela," the foreign minister stated. (El Universal, 02-19-2013; http://www.eluniversal.com/nacional-y-politica/130218/venezuela-targets-better-relation-with-the-us-without-rush)

Fidel Castro applauds President Chávez's return to Venezuela

Former Cuban leader Fidel Castro applauded Chávez's come back after more than two months in hospital in Havana, saying: "I am very pleased that you have been able to get back to the piece of land of the Americas that you love so much, and to that fraternal people, who has given you so much support. A long and distressing wait, your amazing physical resilience and the total dedication of the medical team (...) were necessary to obtain such a goal". (El Universal, 02-18-2013; http://www.eluniversal.com/nacional-y-politica/130218/fidel-castro-welcomes-president-hugo-chavezs-return-to-venezuela)


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

February 12, 2013

Economics & Finance

Devaluation is insufficient; further adjustments will be needed

Pressured by a growing fiscal imbalance, the Government has devalued the currency over 32%, taking the official exchange rate from VEB 4.30 to VEB 6.30 per US dollar. This step falls short and further adjustments are expected in the midterm. Luis Vicente León, economist and director of DATANÁLISIS, explains that "with the exchange rate at VEB 6.30 per US dollar, demand for foreign currency will continue to be huge. Consequently, the Government has two choices: either burning a lot of international reserves by selling cheap US dollars or causing shortages." (El Universal, 02-10-2013; http://www.eluniversal.com/economia/130210/devaluation-is-insufficient-further-adjustments-will-be-needed)

Only FOREX board is to manage US dollar sales in Venezuela

Pro-government legislator Ricardo Sanguino, Chairman of the National Assembly Finance Committee, says only the FOREX Administration Commission (CADIVI) will assign dollars to all imports. As for the possibility of creating another mechanism for selling foreign exchange, Sanguino said authorities would await results after the new decisions. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/only-forex-board-is-to-manage-us-dollar-sales-in-venezuela)

Devaluation raises Venezuela's debt burden to 70% of GDP

The move to devaluate creates negative effects on public finances and raises the debt burden. The increased debt burden means that the market perception of risk worsens and the country has to pay higher interest rates for new financing. Also, the government will have to pay higher amounts for current principal and interests. This will absorb most of the budget and limit funds available for areas such as health, education and infrastructure. Economist and Central University professor Jose Guerra, who has researched Venezuelan debt trends along with Luis Oliveros, says devaluation dilutes the Bolivar denominated debt as fewer petrodollars will be needed to repay domestic debt, but the move also shrinks the economy, that is, GDP, and leaves foreign currency debt remains unchanged. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/devaluation-raises-venezuelas-debt-burden-to-70-of-gdp)

Opposition slams Venezuela devaluation, shoppers fret

Opposition leaders derided another currency devaluation by President Hugo Chavez's government as evidence of economic incompetence, while some anxious Venezuelans hit the shops on Saturday in fear of price increases. Although Chavez has not been seen in public since cancer surgery two months ago in Cuba, ministers said he personally ordered the fifth devaluation of the Bolivar in a decade of socialist economics - this time by 32%. Seen as an imperative by economists but widely unpopular among Venezuelans, the measure is the biggest test yet for Vice President Nicolas Maduro, who has been in charge of the government since Chavez's December 11 operation. (Reuters, 02-09-2013; http://www.reuters.com/article/2013/02/09/us-venezuela-economy-idUSBRE91807920130209)

Venezuelan bonds gain after Bolivar devaluation

Venezuelan government bonds rallied, with benchmark yields falling to a five-year low, after the government devalued the Bolivar, helping cut the budget deficit by generating more local currency from its oil exports. The yield on the dollar-denominated bonds maturing in 2027 dropped eight basis points, or 0.08 percentage point, to 8.61% at 1:40 p.m. in New York, according to data compiled by Bloomberg. The yield on state-owned Petroleos de Venezuela SA’s securities due in 2017 slid two basis points to 8.41%. (Bloomberg, 02-11-2013; http://www.bloomberg.com/news/2013-02-11/venezuela-pdvsa-bond-yields-fall-on-devaluation-caracas-mover.html)

Commodities

PDVSA admits it raised debt to sustain dollar sales system

In June 2010, the Venezuelan Government eliminated the swap market and ordered the Central Bank of Venezuela (BCV) to create a system to sell US dollar-denominated bonds in order to put an end to "speculation."  Thirty-two months after its creation, the Transaction System for Foreign Currency Denominated Securities (SITME) was eliminated. Authorities claimed the system failed to meet its goals. While operational, however, SITME forced state-owned oil company PDVSA to increase its debt. When the SITME began, BCV chairman Nelson Merentes said it would be used to meet US dollar demand and tackle "speculation." He also emphasized the system had been created in a way that it could feed back itself; "therefore, it may last 50-100 years." The goal was only partially accomplished,
and fed on bond sales by banks, particularly state-run banks, and PDVSA. Based on official data, the largest numbers of US dollar bonds were issued by the oil company. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/pdvsa-concedes-it-raised-debt-to-sustain-dollar-sales-system)

International Trade

Colgate-Palmolive sees "extraordinary losses" over devaluation in Venezuela

Multinational company Colgate-Palmolive said Monday that due to the devaluation of the Venezuelan currency, it will record extraordinary losses at U$D 120 million, or U$D 25 cents per share, in the first quarter of 2013.
Colgate expects a reduction in its earnings per share of some U$D 5-7 cents per quarter in 2013, because of the conversion of the financial statements to the new Venezuelan exchange rate.
However, the devaluation will have no impact on the company's results or financial position in 2012, said the New York-based firm, according to Reuters. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/colgate-palmolive-sees-extraordinary-losses-over-devaluation-in-venezu)

BBVA, Telefonica exposed to Venezuela devaluation

Venezuela's currency devaluation is likely to take a heavier toll on Telefonica and BBVA than other Spanish companies, shrinking the value of their dividends and assets in the country by as much as a third. Both are major players in Venezuela, which said on Friday it was devaluing the bolivar to 6.3 per U.S. dollar from 4.3 per dollar from Feb. 13 in an attempt to shore up government finances. (Reuters, 02-11-2013; http://www.reuters.com/article/2013/02/11/spain-venezuela-idUSL5N0BBAF720130211)

Logistics & Transport

Port charges to rise 46.5% with new FOREX rate

Devaluation will have an immediate impact on the cost of importing. Although the Government says US dollar requests by some sectors prior to the announcement of the new foreign exchange rate (6.30) will be processed at VEB 4.30 per US dollar, seaport services and charges will go up next Wednesday. As per Article 4 of Official Gazette 40,078, dated December 26, 2012, port charges and services are based on an updated schedule set by the port authority Bolivariana de Puertos (BOLIPUERTOS), which applies the official exchange rate to calculate tariffs and services. (El Universal, 02-11-2013; http://www.eluniversal.com/economia/130211/venezuelan-seaport-tariffs-to-hike-465-upon-new-forex-rate)

Politics

After 2 months without Chavez, Venezuela's government voices optimism but some expect new vote

Two months have passed since President Hugo Chavez climbed the stairs of the presidential jet, blew kisses to his supporters and flew to Cuba to undergo his fourth cancer-related surgery. Chavez hasn’t been seen or spoken publicly since that departure to Havana on Dec. 10, and the mystery surrounding his condition has deepened while the government’s updates have remained optimistic but have lately offered few specifics. (The Washington Post, 02-10-2013; http://www.washingtonpost.com/world/the_americas/after-2-months-without-chavez-venezuela-government-voices-optimism-but-some-expect-new-vote/2013/02/10/bfda3c4a-7396-11e2-9889-60bfcbb02149_story.html; More in Spanish: CNN, http://cnnespanol.cnn.com/2013/02/09/chavez-sin-voz-y-deprimido-no-podra-volver-a-presidir-venezuela-segun-el-diario-abc/?iref=allsearch)

VP: Chávez is going through a slow recovery process

Executive Vice-President Nicolás Maduro said Friday that President Hugo Chávez is going through a "slow" recovery and is "in a battle, clinging to Christ." Maduro said the Venezuelan people are "ready to face difficulties, whatever they are." "None of us is Chávez, but we all together are Chávez, if we are united." (El Universal, 02-09-2013; http://www.eluniversal.com/nacional-y-politica/130209/vp-chavez-is-going-through-a-slow-recovery-process; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=678193&CategoryId=10717)

Foreign Minister says Chavez in charge and making decisions

Upon meeting with his Brazilian counterpart Antonio Patriota, Foreign Minister Elias Jaua said the president is in charge of government and making decisions. "The president is in charge and making decisions for the economic and productive development of the nation," said Jaua and added that he has held meetings with president Chavez in which he has approved resources for the the Housing Mission and a soybean production project that is being developed jointly with Brazil. (AVN, 02-09-2013; http://www.avn.info.ve/contenido/chavez-charge-and-taking-decisions-country039s-development)

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.