January 06, 2015

International Trade

 

Venezuela's balance of trade with Colombia slips 19%

Trade between Venezuela and Colombia was US$ 2.02 billion through November 2014, versus US$ 2.50 billion over the same period in 2013, which represents a 19% contraction, according to the Venezuelan-Colombian Economic Integration Chamber (CAVECOL). Venezuelan exports to Colombia rose by 2%, from US$ 388 million between January and November 2013, to US$ 397 in the same period of 2014. Imports of Colombian products to Venezuela fell 23% in the study period. In 2013, they stood at US$ 2.19 billion, while in 2014, they totaled US$ 1.62 billion. (El Universal, http://www.eluniversal.com/economia/150105/venezuelas-balance-of-trade-with-colombia-slips-19)

 

 

Oil & Energy

 

Venezuelan crude oil down to USD 47.05 per barrel

The price of Venezuelan crude oil lost US$ 2.47 and hit US$ 47.05 last week, according to the Ministry of Petroleum and Mining. (El Universal, http://www.eluniversal.com/economia/150105/venezuelan-crude-oil-down-to-usd-4705-per-barrel)

 

Venezuela blocks US oil company Harvest Natural resources sale for second time

Harvest Natural Resources, Inc. has announced that the sale of its Venezuela assets to Argentina-based PlusPetrol has collapsed -- Harvest's second failure to close a signed deal because of the failure of the Venezuela government to approve it. "The Share Purchase Agreement between PETROANDINA Resources Corporation N.V. (Petroandina), Pluspetrol Resources Corporation B.V., Harvest and HNR Energia B.V., a wholly-owned subsidiary of Harvest, for the purchase of Harvest’s remaining interests in Venezuela for a purchase price of US$ 275 million in cash has been terminated as a result of the failure to obtain approval of the transaction from the Government of Venezuela by December 31, 2014," Harvest said. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2367736&CategoryId=10717)

 

PDVSA may now register income at any official rate

The Central Bank and Finance Ministry have established rules that allow state oil company PDVSA to sell income from oil cooperation agreements at any of the three official exchange rates currently established. More in Spanish: (AVN; http://www.avn.info.ve/contenido/pdvsa-cambiará-divisas-al-bcv-acuerdos-energéticos-cualquier-tasa-oficial; El Universal, http://www.eluniversal.com/nacional-y-politica/150106/pdvsa-podra-vender-divisas-al-bcv-a-cualquier-tasa-oficial; El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/descargue---el-convenio-cambiario-numero-32-del-bc.aspx, http://www.elmundo.com.ve/noticias/petroleo/pdvsa/convenio-cambiario-n--32--pdvsa-cambiara-a-cualqui.aspx; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/convenio-cambiario-32-pdvsa-cambiara-a-cualquier-t.aspx; El Nacional; http://www.el-nacional.com/)

 

 

Economy & Finance

 

Venezuela recession confirmed as Maduro attacks US 'oil war'

The Venezuelan economy is now officially in recession after the central bank released figures showing that it has been shrinking all year. The bank said the economy had declined by 2.3% in the third quarter of 2014. It also revealed for the first time that GDP contracted by 4.8% and 4.9% respectively in the first and the second quarters of 2014. President Nicolas Maduro said the economy had been hit by political instability and falling oil prices. He accused the United States of flooding the markets with oil as part of an economic war against Russia. The central bank also said inflation had reached 63.6% in the 12 months to November, one of the highest rates in the world. Maduro announced a number of measures to boost economic growth and control inflation, including reforms to Venezuela's currency control system. "The details will be extensively explained after the New Year's greeting," Maduro told reporters. He said his country was suffering the consequences of an economic war launched by US President Barack Obama "to destroy" the oil producers' cartel, OPEC.  Maduro said "the US wants to impose a unipolar world controlled from Washington. That is madness." The Venezuelan opposition blames the socialist policies of Maduro and his late predecessor, Hugo Chavez, for a shortage of many staples, such as corn oil and milk, amid a serious economic crisis. (BBC News, http://www.bbc.com/news/world-latin-america-30638770?utm_source=Sailthru&utm_medium=email&utm_term=%2AMorning%20Brief&utm_campaign=2014_MorningBrief%2012.31.14; Reuters, http://www.reuters.com/article/2014/12/31/venezuela-economy-idUSL1N0UE1K420141231)

 

Maduro names new CENCOEX board, again announces there will be an economic recovery plan

President Nicolás Maduro has told pro-government mayors and state governors there will be "eight strategic lines" within the National Plan for Economic Recovery, which will include funds to set up a Reserve Strategic Fund, denominated in local currency at the Central Bank of Venezuela (BCV). The fund is designed to ensure the payment of pensions, wage increase and the social welfare programs known as "missions." Economist Rocco Albisinni has been named as head of the Foreign Trade Center (CENCOEX); and attorney Fany Beatriz Márquez Cordero was named his deputy. (El Universal, http://www.eluniversal.com/economia/150105/maduro-names-new-cencoex-board-replaces-toll-motorway)

 

Venezuela's tax agency to contribute 68.8% of 2015 national budget

The National Customs and Tax Administration Service (SENIAT) says it is prepared to contribute 68.8% of the national budget in 2015, 11.4% above the goal set in 2014. (AVN, http://www.avn.info.ve/contenido/venezuela039s-tax-agency-contribute-688-2015-national-budget)

 

Venezuelan bonds decline to two-week low as crude oil plummets

Venezuelan bonds, the worst-performing in emerging markets last year, fell to a two-week low amid a plunge in crude oil.  West Texas Intermediate oil dropped below US$ 50 a barrel for the first time since April 2009. Venezuela’s benchmark bonds due in 2027 decreased 3.75 cents to 43.50 cents on the dollar, set for the lowest since Dec. 17. Petroleos de Venezuela SA’s bonds maturing in 2017 slid 3.51 cents to 53.13 cents on the dollar. “The oil price is just killing it,” Donato Guarino, a strategist at Barclays Plc in New York, said in a telephone interview. “The fundamentals haven’t changed. What has changed is the oil price.” (Bloomberg, http://www.bloomberg.com/news/2015-01-05/venezuelan-bonds-decline-to-two-week-low-as-crude-oil-plummets.html)

 

Venezuelan 1,000% inflation seen by BOFA without weaker bolivar

President Nicolas Maduro needs to devalue the bolivar or risk inflation passing 1,000% as soon as next year, according to Bank of America. Under the current system, Venezuela’s overvalued bolivar means that the government effectively sells the dollars it gets from oil exports at a discount, compelling policy makers to print extra currency to cover domestic spending needs. Currency controls that limit Venezuelans’ access to dollars have spawned a black market in which the greenback fetches 172 bolivars, compared with officially sanctioned exchange rates that range from 6.3 to about 50 bolivars per dollar. (Bloomberg, http://www.bloomberg.com/news/2014-12-30/venezuelan-1-000-inflation-seen-by-bofa-without-weaker-bolivar.html)

 

 

Politics and International Affairs

 

Maduro's popularity hits new low

President Nicolas Maduro's approval rating has slipped to 22%, the lowest of his nearly two-year rule as a result of economic problems, a local pollster said on Friday. Maduro, 52, won election to replace his mentor Hugo Chavez after the latter's death from cancer in early 2013, but has seen his popularity eroded since as the OPEC nation suffers an economic slowdown, product shortages and soaring prices. "His popularity has gone down a lot, he's at 22% approval. People are waiting for solutions," DATANALISIS director Jose Antonio Gil told a local TV station. (Reuters, http://www.reuters.com/article/2015/01/02/us-venezuela-maduro-idUSKBN0KB12520150102)

 

Maduro heads to China to seek financial aid

President Nicolas Maduro began a trip to China and OPEC member countries late Sunday in search of financial support as his country reels from falling oil prices and a tattered economy. "It's a very important tour... to tackle new projects to address the circumstances affecting our country, including the depletion of revenues due to plummeting oil prices," Maduro said in a radio and television address. Maduro said he would discuss economic, financial, energy, technological, educational and development projects with Chinese President Xi Jinping. China has already agreed to a US$ 42 billion loan for Venezuela, of which it has already paid out US$ 24 billion. During his visit, Maduro will also participate in the summit between China and the Community of Latin American and Caribbean States, or CELAC, scheduled for January 8 and 9. He will then head to several OPEC countries to "continue making efforts at the highest level for a strategy to recover" oil prices, though he did not specify which countries he would tour or when. Economist José Guerra, of the opposition Democratic Unity Conference, says Maduro is touring to "further mortgage the nation since we must pay US$ 11.2 billion and lack the funds to do so". He calls exchange controls a "corruption factory" and says "the President's trip will only further compromise national assets". (AFP: http://news.yahoo.com/venezuelas-maduro-heads-china-seek-financial-aid-224753936.html and more in Spanish:

 

Maduro met with Russian Deputy Foreign Minister

President Nicolas Maduro has met with the Deputy Foreign Minister of the Russian Federation, Sergey Alexeevich Ryabkov. Maduro made a stopover in Russia before beginning an international tour that will take him to China and nations of the Organization of the Petroleum Exporting Countries (OPEC). (AVN, http://www.avn.info.ve/contenido/maduro-met-monday-russian-deputy-foreign-minister; El Universal, http://www.eluniversal.com/nacional-y-politica/150105/president-maduro-makes-stopover-in-russia-on-his-way-to-china; Reuters, http://www.reuters.com/article/2015/01/04/us-venezuela-maduro-idUSKBN0KD0NQ20150104; El Universal, http://www.eluniversal.com/economia/150105/president-maduro-heads-for-china-opec-countries; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2367993&CategoryId=10717)

 

Why does Venezuela think Russia is its friend?

Venezuela’s imports from Russia have increased by an astonishing 2,081% since 2009: the fastest growing imports are turbo-jets and electricity-generating machinery. A large proportion of the import increase is "uncoded" not subject to exchange controls, generally regarded as a proxy for under-the-counter arms deals. Venezuela is estimated to have been responsible for three-quarters of all Russian armament purchases in Latin America in the last decade. In 2011, the Moscow-based Center for Analysis of World Arms Trade reported that Venezuela was Russia’s largest purchaser of armaments for ground forces. Russia has also been helping Venezuela to develop its own arms manufacturing capability, of a sort. But the huge increase in "uncoded" imports from Russia represents a substantial loss of dollar income for Venezuela. The fact is that Russia has been draining dollars from Venezuela for the last five years. The loss of dollars is one of the factors threatening to bankrupt Venezuela. In reality, the friendship is largely one-sided. Arms sales, official or not, have only one objective as far as Russia is concerned: gaining access to Venezuela’s oil revenues. And bears can turn very nasty when they don’t get what they want. The “friendship” will evaporate like the morning mist if those dollar flows are impeded or stopped. Russia will not protect Venezuela from the consequences of its folly. Nor will China. They may look friendly, but in the end they are only interested in themselves. They will bleed Venezuela dry if it suits them. (Forbes, http://www.forbes.com/sites/francescoppola/2014/12/31/why-does-venezuela-think-russia-is-its-friend/)

 

Opposition says "war among mafias" is holding up policy decisions

Jesús Torrealba, Executive Secretary of the opposition Democratic Unity Conference, says the delay in economic policy decisions is due to a "war among mafias" and "rent seekers" within the ruling group. More in Spanish: (El Universal: http://www.eluniversal.com/nacional-y-politica/150105/mesa-alerta-que-gobierno-hace-un-tour-para-liquidar-activos)

 

Venezuela, Brazil to invigorate economic, commercial and agricultural cooperation

To invigorate joint work on economic, commercial, agricultural and energy sectors, by applying innovative arrangements of mutual cooperation, was one of the issues addressed by President, Nicolas Maduro, and his Brazilian counterpart Dilma Rousseff, after holding a meeting in Brasilia. (AVN, http://www.avn.info.ve/contenido/venezuela-brazil-invigorate-economic-commercial-and-agricultural-cooperation; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2367767&CategoryId=10717)

 

Biden, Maduro discuss improving relations

Last year saw a rapid deterioration of relations between their countries, but on New Year's Day, U.S. Vice President Joe Biden and President Nicolas Maduro shook hands and expressed their desire for restored ties. According to a U.S. administration official traveling with the vice president, Maduro told Biden he wants to improve U.S.-Venezuela ties, but is concerned about the sanctions. The official insisted on not being quoted by name in discussing what was a private diplomatic conversation. Biden said that one step Venezuela could take toward improving relations would be to release political prisoners, but Maduro responded that the opposition was destabilizing the country and sanctions would do the same, the official said. Speaking to reporters afterward, Maduro described the meeting with Biden as "cordial." "What do we ask of the United States? I told Vice President Biden, and have said it 1,000 times in public and in private, we want respectful relations, nothing more," Maduro said. (AP, http://news.yahoo.com/biden-venezuelas-maduro-speak-sanctions-okd-201341073.html)

 

US rejects Venezuela's offer of prisoner swap for Lopez

The US has ruled out a prisoner swap to secure the release of jailed Venezuelan opposition leader Leopoldo Lopez, who has been in prison since last February on charges of inciting violence during mass anti-government protests held at the beginning of 2014. On Sunday, President Nicolas Maduro said he would free Lopez in exchange for the release of a Puerto Rican nationalist held in the US. He called Leopoldo Lopez "the monster of Ramo Verde" after the prison where the politician is held. Lopez Rivera, 72, was convicted in 1981 of seditious conspiracy for seeking to secure Puerto Rican independence from the US. According to US officials, the FALN was involved in more than 100 bombings in New York, Chicago and other US cities. US state department spokeswoman Jen Psaki said the case of Lopez and Lopez Rivera could not be compared, and lamented that "President Maduro proposes to send into exile opposition figures instead of having a discussion about the real concerns and problems confronting Venezuela". (BBC News, http://www.bbc.com/news/world-latin-america-30694482?utm_source=Sailthru&utm_medium=email&utm_term=%2AMorning%20Brief&utm_campaign=2014_MorningBrief%2001%2006%2014%20B)

 

New authorities of the National Assembly for 2015 sworn in

Captain Diosdado Cabello was ratified as Speaker of the Venezuelan National Assembly. Pro-government deputies Elvis Amoroso and Tania Díaz will be first and second vice-presidents, respectively. (El Universal, http://www.eluniversal.com/nacional-y-politica/150105/new-board-of-directors-of-venezuelan-parliament-for-2015-sworn-in; http://www.eluniversal.com/nacional-y-politica/150105/new-venezuelan-national-assembly-to-be-installed)

 

Jackson Diehl: Obama is overlooking deep trouble in Venezuela

President Obama has ignored the slowly mushrooming crisis that ought to be the focus of U.S. energies in Latin America. That is the slow but potentially catastrophic collapse of Venezuela, a major U.S. oil supplier with three times Cuba’s population that, as 2015 begins, is well on its way to becoming a failed state. Oddly, the only discernible policy the Obama administration has toward this unfolding implosion is the one it just repudiated for Cuba: sanctions. The day after announcing the normalization with Havana, Obama signed legislation mandating visa bans and asset freezes for senior Venezuelan officials linked to violations of human rights, including the killing of dozens of street demonstrators last year. Venezuela’s opposition supports those sanctions. But its leaders have also been saying that the country desperately needs outside diplomatic intervention. Now the region’s big governments, like the White House, focus on the political rehabilitation of Cuba while ignoring the situation in Caracas. That’s particularly wrongheaded because there is a clear role for foreign mediators to play in brokering a deal between the government and moderate opposition that could allow for a political truce, the release of prisoners and emergency measures to stabilize the economy. (The Washington Post, http://www.washingtonpost.com/opinions/jackson-diehl-obama-is-overlooking-deep-trouble-in-venezuela/2015/01/04/d16cd6b0-910e-11e4-ba53-a477d66580ed_story.html)

 

Bloomberg View: New Year's Wishes for Venezuela

Venezuela had a banner year in 2014: the world's highest misery index (inflation plus unemployment), a fresh recession, and a currency whose black-market value plunged faster than even the Russian ruble. As if that weren't enough, Venezuela's homicide rate has risen to second highest in the world. Unfortunately, President Nicolas Maduro doesn't seem to have any good ideas -- any ideas at all, really -- for improving things. In his year-end review, he used the phrase "economic war" more than 60 times but offered no concrete plans for waging it. At any rate, with Maduro's popularity at an all-time low, and parliamentary elections later this year, bold economic initiatives will be hard to pull off. His only option is to build consensus for some difficult economic reforms. Maduro said he plans "to perfect the currency system," but he should instead junk the controls already in place that, along with a multi-tiered exchange system, have raised black-market currency rates to 27 times higher than official ones. In a nation that imports three-fourths of its goods, this would greatly reduce the shortages of everything from medicines to milk and toilet paper. Despite having the world's largest oil reserves, Venezuela can no longer afford to provide its citizens with the world's cheapest gasoline, a subsidy that costs the government more than US$ 12 billion a year and benefits Venezuela's rich more than its poor. Better to phase the subsidy out, with cash payments to blunt the impact on the poorest. Maduro said he would also trim unnecessary spending, hinting at cuts to Venezuela's diplomatic presence. Why not cut military spending instead? From 2009 to 2013, Venezuela was the largest arms importer in South America and the 17th largest in the world. Venezuelans need less guns, more butter. To achieve these and other reforms, Maduro will have to work with his political opponents -- and he might start by, say, letting them out of jail. Opposition leader Leopoldo Lopez, in particular, needs to be released from prison, and Maduro should drop his far-fetched allegations against other opposition members. To preserve the integrity of this December's parliamentary vote, he also needs to stop monkeying with Venezuela's election processes. This won't happen without some quiet but firm pressure from Maduro's fellow Latin American leaders, whose economies have also been hurt by Venezuela's economic dysfunction, beginning with its failure to pay for imports. Happily, President Barack Obama's gambit to normalize relations with Cuba has given these leaders more ideological room to apply such pressure. Even before Obama's Cuban surprise, Venezuelans already preferred the U.S. to Cuba. Now, with oil prices low, store shelves barren and no Castros in his corner, Maduro's brand of Chavismo is beginning to look more and more like an empty red beret. (Bloomberg, http://www.bloombergview.com/articles/2015-01-02/new-years-wishes-for-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.

 

April 19, 2013

Economics & Finance

Venezuelan bonds do the collapse

It’s been a rough few days for Venezuelan bonds. Since peaking on April 10 ahead of this past weekend’s elections to replace Hugo Chavez as president of that Latin American nation, a 10-year government bond has dropped 5.3% and is down 8.7% since its high on Mar. 5. And now the once popular bonds are also losing their appeal to strategists and investors, as close elections raise questions about the stability of the county. Venezuela’s bonds were once much loved by investors. With their big coupons and the country’s capacity to pay thanks to hefty oil revenues, many bond managers found them more appealing than those of other high-yielding nations like Ukraine and Argentina. (Latin American Herald Tribune, 04-17-2013; http://www.laht.com/article.asp?ArticleId=750431&CategoryId=10717)

Fitch: Close Venezuelan election fails to dispel uncertainty

The unexpectedly close election outcome in Venezuela’s presidential race has created a more dynamic and uncertain political situation, which could influence the new government’s approach to economic policy and its ability to govern effectively, according to Fitch. President-elect Nicolas Maduro’s failure to capture a clear electoral mandate could complicate the task of making policy adjustments to rebalance the Venezuelan economy. This could slow progress toward the reduction of fiscal and external vulnerabilities that could undermine growth and erode sovereign creditworthiness. (Latin American Herald Tribune, 04-17-2013; http://www.laht.com/article.asp?ArticleId=750342&CategoryId=10717)

Commodities

Russian oil giant ROSNEFT to participate in Orinoco Oil Belt development

Russian oil company ROSNEFT will participate in blocks Carabobo 2 north and Carabobo 4 west in the Orinoco Oil Belt, Venezuela. ROSNEFT's share is 40% while PDVSA holds 60%. The agreement is for construction of a refinery with annual total output estimated at ten million tons to enhance the quality of the oil extracted for export 2 oil reserves total 40 billion barrels approximately. (El Universal, 04-18-2013; http://www.eluniversal.com/economia/130418/russian-oil-giant-rosneft-to-participate-in-orinoco-oil-belts-activiti)

Fire lashes refinery in Northwest Venezuela

A fire was reported at Cardón refinery in Northwest Venezuela, after midnight on Wednesday. The incident seems due to a leak in one of the plant's pumps. No one was reported injured but damages extend to a large part of the plant's MEK de-waxing unit (MDU). Iván Freites, Executive Secretary of the United Federation of Venezuelan Oil Workers (FUTPV) explained that a defective seal in pump G-18 caused a leak of oil transferred to furnace A-18 in the MDU. He said fire destroyed nearly 70-80% of the unit which " needs to be rebuilt." (El Universal, 04-18-2013; http://www.eluniversal.com/economia/130418/fire-event-lashes-refinery-in-northwest-venezuela)

Venezuela says OPEC may hold special meeting

Members of the Organization of Petroleum Exporting Countries are discussing holding a special meeting following the recent drops in international oil prices, Venezuela Oil Minister Rafael Ramirez told reporters Thursday. "We're watching the price of oil, and we're being careful," Mr. Ramirez said at the central office of state energy company Petroleos de Venezuela SA, which is also headed by the minister. "We've been in discussions over whether or not they are going to call a special meeting of OPEC. We've maintained that there is oversupply of oil in the market," said Mr. Ramirez, repeating his government's frequent calls to hold a "floor" of $100 a barrel. (Fox Business, 04-18-2013; http://www.foxbusiness.com/news/2013/04/18/venezuela-says-opec-may-hold-special-meeting/#ixzz2QrBgeN8b)

Politics

Conceding to opposition, election council to audit Venezuela vote

Government supporters began filling the streets of Caracas today to celebrate the inauguration of Nicolás Maduro, even as opponents greeted officials’ surprise announcement they will accept an audit of the disputed vote that handed a narrow margin of victory to the heir of late President Hugo Chavez. Opposition candidate Henrique Capriles said the audit announced late last night will prove he won the presidency, but officials appear to be confident there will be no reversal of the result when the count is finished, long after Nicolas Maduro is legally sworn in for a new term as president. Still, the audit was a sudden reversal for a government that insisted all week that there would be no review of Sunday’s vote and took a hard line against the opposition that included allegedly brutal treatment of protesters. The announcement appeared to be the result of pressure from at least some of the South American leaders who called an emergency meeting in Lima, Peru, Thursday night to discuss Venezuela’s electoral crisis — and wound up endorsing Maduro’s victory. Even if it leaves the vote standing and calms tensions in the country, the recount will strengthen the Venezuelan opposition against a president whose narrow victory left him far weaker than his widely popular predecessor Chavez, analysts said. That will complicate Maduro’s effort to consolidate control of a country struggling with steep inflation, shortages of food and medicines, chronic power outages and one of the world’s highest homicide and kidnapping rates. Venezuela’s National Electoral Council said just before the start of the meeting in Lima that it would audit 46% of the vote not already scrutinized on election night. An electoral official told The Associated Press that the new process, to start next week, would replicate the one from election night. (The Washington Post, 04-18-2013; http://www.washingtonpost.com/world/the_americas/post-election-venezuela-crackdown-deemed-worst-in-years/2013/04/18/df5f153a-a88f-11e2-9e1c-bb0fb0c2edd9_story.html)

JP Morgan: Signs of a negotiated solution

New developments overnight suggest an attempt at a negotiated solution to the political crisis that followed the narrow victory of the government candidate Nicolas Maduro over opposition leader Henrique Capriles. Currently with 99.2% of votes counted the CNE has given Maduro 50.75% of the valid vote, compared to 48.98% for Capriles -- a difference of some 262k votes.  Last evening, in chronological order: 1. Venezuela's electoral authority (CNE) announced that it would grant a full audit of the 46% of ballot boxes that were not audited immediately after April 14.  This does not entail a full vote-by-vote recount; rather a relevant sample of the paper receipts of each ballot box will be compared with the official electronic tabulation.  The CNE said this process will take 30 days and they would provide regular updates every 10 days. 2. Henrique Capriles held a press conference in which he said he was satisfied with the CNE's response and confident that his concerns over irregularities would be revealed in the 46% of remaining ballot boxes. Capriles said he was prepared to go to a regional UNASUR presidential summit last night to discuss the crisis, but he stayed in Caracas to respond to the CNE ruling. He also called for calm and "no anarchy" at today's inauguration, which his supporters should peacefully protest by banging pots and pans (cacerolazo) and blaring salsa music. 3. The UNASUR summit in the early morning hours of Friday issued a declaration recognizing Maduro's election but praising the CNE's audit decision, and calling on all sides to respect the CNE's final conclusions. The summit declaration also deplored the violence that followed the result and agreed to send a commission to follow the investigation into those events. In our view, the way the events unfolded suggest some kind of negotiated solution took place yesterday. In sum, regional leaders agreed to recognize Maduro, but only on the condition of the CNE conceding the vote audit. For his part, Capriles would agree to recognize the CNE results and not disrupt Maduro's inauguration today. The successive timing of these announcements yesterday night (1. CNE, 2. Capriles, 3. UNASUR -- with all the presidents up well after midnight) suggests this agreement was to some degree negotiated beforehand and coordinated, which should help reinforce its goal in easing the crisis. Indeed, barring some unexpected twist we think the immediate crisis should ease, and the immediate risks that the crisis will escalate into outright institutional breakdown are lower. Market focus should gradually shift to analyzing Maduro's relative political strength going forward and his ability to address economic concerns. We think there are still major questions surrounding both issues, and will watch for signals in the coming days to hopefully provide more clarity. (JP Morgan Latin America Emerging Markets Research; https://markets.jpmorgan.com/research/EmailPubServlet?action=open&hashcode=-c9n0tnb&doc=GPS-1099819-0.html)

Opposition legislators to refrain from attending presidential inauguration

Venezuelan opposition legislators announced they will not quit the National Assembly although Speaker Diosdado Cabello has barred from speaking those who have not recognized Nicolás Maduro as newly elected president of Venezuela. Opposition deputy Leomagno Flores says ruling party legislators simply seek the withdrawal of opposition deputies from the National Assembly to freely appoint representatives in the National Electoral Council, judges in the Supreme Tribunal of Justice, the Comptroller, among others. (El Universal, 04-18-2013; http://www.eluniversal.com/nacional-y-politica/130418/opposition-legislators-to-refrain-from-attending-presidential-inaugura)

Maduro trades barbs with U.S. over Venezuela election

Venezuela's opposition leaders feared persecution over post-election protests while the U.S. government backed their calls for a recount and said on Wednesday it was still deciding if it would recognize President-elect Nicolas Maduro.

The narrow victory by Maduro in Sunday's presidential vote has been rejected by his rival, Henrique Capriles, who is alleging thousands of irregularities at polling centers and wants a full audit of the ballots. Washington said it had not decided whether to recognize Maduro, a former bus driver-turned-foreign minister who was picked as successor by the late socialist leader Hugo Chavez. (Reuters, 04-17-2013; http://www.reuters.com/article/2013/04/18/us-venezuela-election-idUSBRE93F0RU20130418)

Kerry Encourages Venezuela Recount

Secretary of State John Kerry said Wednesday that Venezuela should hold a recount of votes cast in its presidential election, which the country’s electoral authorities say was narrowly won by a protégé of former President Hugo Chávez. Mr. Kerry, in comments to a House committee, said, “We think there ought to be a recount.” He added that he had not yet evaluated whether Washington would recognize Mr. Maduro’s victory. (The New York Times, 04-17-2013; http://www.nytimes.com/2013/04/18/world/americas/kerry-encourages-recount-in-venezuela.html?_r=0)

HRF calls for peaceful solution of Venezuela's political crisis

Following the political crisis arising from the results of the presidential election held in Venezuela on April 14, the Human Rights Foundation has called on Venezuelan authorities and opposition leaders to come to terms.

The organization also expressed in its statement its rejection to reported physical aggressions against opposition deputies Julio Borges and William Dávila by Government's supporters. (El Universal, 04-18-2013; http://www.eluniversal.com/nacional-y-politica/130418/hrf-calls-for-peaceful-solution-of-venezuelas-political-crisis)

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.