July 12, 2013

Economics & Finance

Central Bank to sell U$D 200 million in FOREX auction, reserves at lowest level this year

Venezuela's central bank has announced it will sell U$D 200 million at auction under its revamped currency exchange system, as the government seeks to boost the flow of dollars to importers and address voters' complaints about nagging product shortages. The bank said that U$D 170 million would be allocated to businesses and $30 million to individuals in the auction under the revamped system, known as SICAD. SICAD operations are starting with international reserves at the lowest level YTD (U$D 24.8 billion as of July 9), without funds from state-owned oil company PDVSA. FOREX is expected to come mainly from the National Development Fund (FONDEN), yet contributions to the Fund have declined as well. (Reuters, 07-11-2013; http://www.reuters.com/article/2013/07/11/venezuela-currency-idUSL1N0FH1DL20130711; El Universal, http://www.eluniversal.com/economia/130711/central-bank-of-venezuela-puts-usd-200-million-for-auction; and http://www.eluniversal.com/economia/130711/sicad-starts-without-pdvsa-and-amid-low-international-reserves)

Annual inflation of 42.7% hits the poorest in Caracas

A hike in food prices and the increase in transport rates seriously hits the poorest families in the Caracas Metropolitan Area. Central Bank statistics on the consumer price index in the area show that inflation in June was 4. 3% for Stratum I population, which are the poorest. In six months, inflation in this segment was 25%, and inflation for the year stands at 42.7%. No similar level has been recorded since September 2008. (El Universal, 07-11-2013; http://www.eluniversal.com/economia/130711/annual-inflation-of-427-hits-the-poorest-in-caracas)

Stock market up 160%

The Venezuelan Stock Market continued to rise again this week closing up 6.90% above its level of last week at 1,229,487. The rise was mainly due to Banco Provincial closing at Bs. 380, 11.76% over its level of the previous week, as well as SIVENSA, up 13.64% at Bs. 25 and Mercantil Servicios Financieros A, up 17.65% at Bs. 400. The biggest gainer though was container-maker Envases Venezolanos which rose 21.43% to end the week at Bs. 170, up from the Bs. 140 at which it closed last week. (Latin American Herald Tribune, 07-09-2013; http://www.laht.com/article.asp?ArticleId=847281&CategoryId=10717)

Commodities

Oil exports to the US dropping in 2013

Venezuelan oil exports to the United States during the first half of 2013 hit their lowest level since the 1990, as the country tries to prioritize clients and allies such as China or India and curb oil shipments to the US.

Preliminary US Department of Energy data shows oil exports to the US in January-June this year were 754,000 BPD, down 8.3% from 823,000 BPD in 2012. The US has cut oil imports from Venezuela from a peak of 13.06 million barrels in 2006 to 10.59 million barrels in 2012, a 18.9% drop. US local oil output rose from 5.07 million bpd in 2007 to an average of 7.18 million bpd in 2013. (El Universal, 07-10-2013; http://www.eluniversal.com/economia/130710/venezuelas-oil-exports-to-the-us-fall-in-2013)

Ramirez says Venezuelan oil sales will not to be hit by Snowden asylum

Oil and Mining minister Rafael Ramirez says granting asylum here to former CIA agent Edward Snowden would not affect the oil market. "There is no way that it affects us. We also have our intelligence service and we know what we are doing and we are advancing," said Ramirez at a meeting with the media in Caracas. (AVN, 07-11-2013; http://www.avn.info.ve/contenido/venezuelan-oil-market-not-be-affected-asylum-measures; El Universal, http://www.eluniversal.com/economia/130711/minister-rafael-ramirez-rules-out-effects-on-venezuela-us-relationship)

OPEC reports 1.35% slide in Venezuelan oil production

According to data from the Organization of Petroleum Exporting Countries (OPEC), Venezuela showed another month of lower crude oil production. OPEC shows Venezuelan oil production in June 2013 stood at U$D 2.77 barrels per day (bpd) of oil, a 1.35% drop from the same month last year. Data directly supplied by Venezuela to the OPEC Secretariat show as well a 0.58% hike in Venezuelan oil production in May-June 2013, from 2.75 million bpd to 2.77 million bpd. (El Universal, 07-11-2013; http://www.eluniversal.com/economia/130711/opec-reports-135-slide-in-venezuelan-oil-production)

PDVSA expanding El Palito refinery

Refinery Manager Jesús Sánchez says PDVSA is about to kick off a project intended to double current output up to 280,000 barrels per day (BPD) at El Palito Refinery, located in Puerto Cabello, central Carabobo state. He says completion of the project is slated for 2016-2017, given the size of the works. "The issue of conceptual engineering is done. Basic engineering is well underway. Some equipment to be delivered in the long term is being procured," he said. (El Universal, 07-11-2013; http://www.eluniversal.com/economia/130711/pdvsa-implements-expansion-projects-in-el-palito-refinery)

Politics

Venezuela says Snowden has still not formally responded to asylum offer

Venezuela has still not received a formal response to its offer of asylum to former U.S. spy contractor Edward Snowden, Venezuelan Foreign Minister Elias Jaua told Reuters on Thursday. "We communicated last week, we made an offer and so far we haven't received a reply," Jaua said on the sidelines of a regional foreign ministers' meeting in Montevideo, Uruguay. Venezuela along with leftist allies Bolivia and Nicaragua have offered asylum to Snowden, who is wanted by Washington on espionage charges for divulging details of extensive, secret U.S. surveillance programs. (Reuters, 07-11-2013; http://www.reuters.com/article/2013/07/11/us-usa-security-snowden-venezuela-idUSBRE96A0SJ20130711; Fox News, http://www.foxnews.com/world/2013/07/11/venezuela-says-snowden-yet-to-reply-to-asylum-offer/)

Peter Wilson: ¡Bienvenido, Señor Snowden!

I see in the press that you're considering asylum in Venezuela. If that's true, I'd like to make you a business proposal. I think you and I could make millions of dollars here using your new expertise on applying for asylum abroad. You'll soon see that there are thousands of Venezuelans who would love to flee and start over in other countries. Long lines of people hoping to snag visas or passports form each morning outside the U.S. and European embassies in Caracas. After you arrive, we could counsel them on the best way to leave. You'll do fine down here, Señor Snowden, and hundreds of thousands of Venezuelans support you and your crusade. But many more down here wonder why you would ever want to come to a country that constantly violates the very principles you're fighting for. (Foreign Policy Magazine)


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.

July 09, 2013

Economics & Finance

Private banks now authorized to trade FOREX through SICAD, currency limits for travel eliminated

The Central Bank has authorized the private banking system to trade FOREX or denominated dollar denominated securities through the Ancillary FOREX Administration System (SICAD). It also changed standing regulations by eliminating the amount of FOREX individuals can request for travel, studies abroad, health, scientific investigation, sports, culture, special cases, and payment for goods needed for professional services. The Central Bank will have the power to call each tender and set minimum and maximum amount each person can request, and can use this power to limit demand on FOREX. More in Spanish: (El Universal; http://www.eluniversal.com/economia/130709/bcv-elimina-limite-a-la-compra-de-divisas-para-viajes-en-el-sicad; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/sin-topes-solicitud-de-divisas-de-personas-natural.aspx; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/bcv-autoriz%C3%B3-entidades-bancarias-tramitar-operaciones-del-sicad; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/sicad-autoriza-a-bancos-compra-y-venta-de-divisas.aspx; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/se-amplia-el-numero-de-operadores-para-transar-div.aspx)

Government likely to increase debt to supply SICAD with US dollars

Further indebtedness will probably be used to procure US dollars for the Ancillary Foreign Currency Administration System (SICAD). The central government and decentralized institutions may issue US dollar denominated bonds for purchase by companies or individuals in bolivars and then traded abroad to obtain FOREX. SICAD is also expected to be fed with US dollars from the National Development Fund, the Central Bank of Venezuela (BVV); and interested private companies. (El Universal, 07-08-2013; http://www.eluniversal.com/economia/130708/venezuelan-govt-likely-get-into-debt-to-supply-sicad-with-us-dollars)

Barclay's estimates the Government will receive an additional 43 billion VEB through SICAD

Barclay's Capital estimates SICAD can sell around U$D 4.8 billion this year and projects an average parity of VEB 15. Based on these figures, they believe FOREX sales by government agencies can generate an additional 2% of GDP, which would be around VEB 43 billion. More in Spanish: (El Universal, 07-09-2013; http://www.eluniversal.com/economia/130709/calculan-que-el-fisco-tendra-bs-43-millardos-adicionales)

International reserves are down U$D 4.139 billion in the first half of 2013

Central Bank data reveals a drop in international reserves between January and June this year. Venezuela's international reserves were U$D 29.890 billion at the close of 2012 and were U$D 25.751 billion at the end of last month. More in Spanish: (El Mundo, 07-09-2013; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/reservas-internacionales-cayeron--4-139-millones-e.aspx#ixzz2YXrZO05e)

Companies banned from settling pending debts with SICAD FOREX

Based on a BCV's resolution, private companies will be barred from using US dollars to meet liabilities arising from prior imports. Aura Palermo, director of the AP Consulting Group, says this means companies with foreign debts to suppliers undertaken after the Transaction System for Foreign Currency Denominated Securities (SITME) was shut down, will have no legal framework for meeting these liabilities. (El Universal, 07-05-2013; http://www.eluniversal.com/economia/130705/companies-in-venezuela-banned-from-settling-debts-with-sicads-us-dolla)

BCV activates its website link for SICAD applicants

The Central Bank of Venezuela (BCV) has activated its website link for enrolling individual bidders within the so-called Register of the Ancillary Foreign Currency Administration System (RUSICAD). The link rusicad.extra.bcv.org.ve/RUSICAD/se provides registration in order to bid for FOREX. Online procedures can be undertaken on weekdays from 8:00 a.m. to 3:00 p.m., according to the Central Bank. (El Universal, 07-06-2013; http://www.eluniversal.com/economia/130706/bcv-activates-link-on-its-website-for-sicad-applicants)

Commodities

Gulf gasoline reached 3-week high on PDVSA plant outage

U.S. Gulf Coast gasoline strengthened to the smallest discount to futures in almost three weeks on speculation that a power failure at a Petroleos de Venezuela, S.A. refinery may boost exports. The discount for conventional, 85-octane gasoline, or CBOB, on the Gulf Coast tightened 0.75 cent to 19.75 cents a gallon versus New York Mercantile Exchange futures at 1:58 p.m., the lowest level since June 18, according to data compiled by Bloomberg. The conventional 87-octane grade gained 1 cent to a discount of 13.75 cents. The differentials shrank after PDVSA’s 355,000-barrel-a-day Curacao plant was hit by the outage yesterday. (Reuters, 07-08-2013; http://www.bloomberg.com/news/2013-07-08/gulf-gasoline-reaches-3-week-high-on-pdvsa-plant-outage.html)

Blackout halted Isla oil refinery in Curacao

A blackout on the Caribbean island of Curacao temporarily halted operations at its 335,000 barrel per day (bpd) Isla oil refinery, workers at the facility said on Sunday. The refinery, which is crucial to the Dutch island nation's economy, is run by Venezuelan state oil company PDVSA. The power cut hit the whole of Curacao, the workers said, including the plant that provides Isla with electricity, water and steam. That plant is operated by the Curacao government. Workers at Isla said power began to return across the island within minutes of the blackout. PDVSA officials were not immediately available to comment on the stoppage. (Reuters, 07-07-2013; http://www.reuters.com/article/2013/07/07/curacao-refinery-idUSL1N0FD06J20130707)

Chemical industry: Production lines are paralyzed by lack of supplies

Juan Pablo Olalquiaga, President of the Chemical and Petrochemical Industry Association says delays up to 180 days in acquiring FOREX have made it impossible to import supplies. "We cannot say companies have stopped, but the situation has caused production lines to stop for lack of supplies", he said - and added that FOREX deliveries have been insufficient to keep operations going in his industry. More in Spanish: (El Nacional; 07-09-2013; http://www.el-nacional.com/)

International Trade

Panama's Martinelli in talks here with Maduro over Venezuelan debts: Venezuela is one of the key importers from Panama's Free Zone and Panamanian President Ricardo Martinelli is currently in Caracas to talk to his Venezuelan counterpart about the heavy debt Venezuelan companies owe the Free Zone. According to Panamanian Foreign Minister Nuñez Fábrega there are "very substantial figures, adding up to hundreds of millions of dollars", and Martinelli will try to "reach some sort of agreement to speed up payments".  More in Spanish: (INFOLATAM: http://www.infolatam.com/2013/07/08/martinelli-discute-con-maduro-deuda-de-empresas-venezolanas/)

116 thousand tons of food await offloading

Port activity during the second week in June show there are 116 thousand tons of primary food at bay on 5 vessels at Puerto Cabello. This includes 81 thousand tons of yellow corn and 25 thousand tons of crude sugar, as well as 1700 tons of toilet paper and 444 tons of base paper. Most of the pending imports have arrived from the United States. More in Spanish: (El Carabobeño; 07-09-2013; http://www.el-carabobeno.com/impreso/articulo/67124/116-mil-toneladas-de-alimentos-esperan-para-ser-desembarcadas)

Politics

Snowden has formally requested asylum in Venezuela: President Nicolás Maduro says he received a formal petition for asylum from Edward Snowden, currently in the transit area of Moscow's Sheremetevo Airport. "We received a letter requesting asylum", said Maduro, and added that Snowden "will have to decide when he flies here." Snowden has also asked Nicaragua for asylum. When asked about possible US reprisals if Snowden is granted refuge, Maduro answers: "The US does not rule the world. We are a free and sovereign nation". The White House has warned that Snowden must not be allowed to any country but the US. More in Spanish: (INFOLATAM)

THE ECONOMIST: A circus without a ringmaster. During the presidency of Hugo Chávez the domineering personality of the "Comandante" left no doubt as to who was in charge of Venezuela. By contrast Chávez’s successor, Nicolás Maduro has yet to convince people that he is the one running the show. His disputed, razor-thin election victory on April 14th undermined his legitimacy (indeed, the Supreme Court has yet to resolve the opposition’s claim of fraud). Now the president faces problems within the ranks of the ruling coalition, and in particular his United Socialist Party of Venezuela (PSUV). In the absence of Chávez, there are worries that the PSUV will turn out to be held together, as the colorful Venezuelan metaphor has it, “with parrot spit”. Managing rival factions has forced the PSUV to suspend internal party democracy and cancel all the primaries that were to have been held ahead of local elections, which have been postponed until December 8th. (The Economist, http://www.economist.com/news/americas/21580477-radicals-former-soldiers-and-cuban-spies-jostle-control-venezuelan-ring-circus)

Maduro replaces entire military high command

Admiral Carmen Melendez has been named Admiral-in-Chief and Minister of Defense, making her the first female to head the country’s Armed Forces, as President Nicolas Maduro replaced the entire military high command. Melendez has several decades of experience, serving as Internal Management Director of the Office of the Presidency. Though she maintained close relations with Chavez, who promoted her to Admiral, Melendez has been described as a military "institutionalist". In 1992, she fought against Chavez’s unsuccessful military coup of President Carlos Andrés Pérez from the San Bernardino Naval Command in Caracas; and in 2002, during a brief coup against Chavez, she remained in the Miraflores presidential palace. She showed discomfort in an interview earlier upon being asked whether she belonged to the United Socialist Party of Venezuela (PSUV), the country’s largest left-wing party founded by Chavez in 2008. “I am an active member of the military,” she responded, explaining that those matters should be left to experts. Maduro later announced the appointment of Admiral Diego Molero Bellavia as ambassador of Venezuela to Brazil. He also announced the appointment of Major general Wilmer Barrientos as minister of the Office of the President and Major general Carlos Alcalá Cordones as head of the Central Region government. (VENEZUELANALYSIS: http://venezuelanalysis.com/news/9816; and El Universal, 07-07-2013; http://www.eluniversal.com/nacional-y-politica/130707/maduro-designates-ex-defense-minister-as-ambassador-to-brazil)

Five arrested for corruption in China Fund: President Nicolas Maduro has announced the arrest of 5 officials presumably responsible for embezzling U$D 84 million from the China-Venezuela Fund and the state owned Economic and Social Development Bank (BANDES). He said the arrests were made during raids after an "investigation which took several weeks". More in Spanish: (INFOLATAM)

Cabello in China: National Assembly President Diosdado Cabello has begun an official visit to China saying "more cooperation among political forces is needed". He met first with his Chinese counterpart, Zhang Dejiang, President of China's Popular National Assembly, and with Wang Jiarui, Director of the International Department of China's Communist Party. Cabello also said China "can count on us as an important supplier of energy", but added: "where we are weakest is in the relationship between political parties, and part of my visit is to strengthen that area". Vice President Jorge Arreaza is expected to visit China within a few days, and President Maduro is scheduled for a visit in September. More in Spanish: (INFOLATAM)

Paraguay will not rejoin MERCOSUR if Venezuela presides

Paraguay's Foreign Minister José Félix Fernández says his country will not rejoin MERCOSUR if Venezuela becomes the groups pro tem chair on July 12. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/internacional/paraguay-no-volvera-a-mercosur-si-venezuela-asume-.aspx#ixzz2YXrHjSea)

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.

July 05, 2013

Economics & Finance

Venezuela to boost dollar supplies through FOREX system revamp

Venezuela has revamped the currency exchange system to increase the flow of dollars into the economy and ease nagging product shortages, a move that further devalues the local currency and may aggravate spiraling inflation. Changes to the SICAD foreign exchange system, which operates in parallel with a decade-long currency control mechanism, will include holding at least two dollar auctions per month and loosening restrictions that business leaders had called cumbersome. But the system will provide greenbacks at a rate weaker than the official exchange rate of 6.3 bolivars per dollar, further weakening the currency after devaluation in February helped push annualized inflation above 35%. (Reuters, 07-03-2013; http://www.reuters.com/article/2013/07/03/venezuela-currency-idUSL2N0F91YS20130703)

Chavez’s 70% gold bet unravels as reserves plunge

The bet on gold that former Venezuelan President Hugo Chavez made in the final years of his life is collapsing at the wrong time for his country. Chavez, who argued that Venezuela should move away from the “dictatorship of the dollar,” stockpiled more than 70% of Venezuela’s foreign reserves in gold by 2012, the highest percentage among all emerging-market countries and more than 50 times that held by neighbors Colombia and Brazil, according to the World Gold Council. (Bloomberg, 07-04-2013; http://www.bloomberg.com/news/2013-07-04/chavez-s-70-gold-bet-unravels-on-reserves-plunge-andes-credit.html)

SPECIAL REPORT: PETROCARIBE : a financial hemorrhage

According to figures from the Central Bank member countries of PETROCARIBE owe Venezuela over U$D 22 billion in unpaid petroleum bills, and it is becoming increasingly clear that this debt will never be paid. PETROCARIBE is an organization created in 2005 by the late President Hugo Chavez to supply subsidized oil to Caribbean countries. Terms are extremely generous: 40% of the cost can be paid back in goods and services, including bananas, black beans, khaki trousers and the like. The cash portion is paid in 17-25 years, with two years grace and an interest rate of 1%, practically a giveaway. Paradoxically the amount owed Venezuela by PETROCARIBE member countries is very similar to the amount owed by Venezuela to China, for loans received during the last five years. For all practical purposes Venezuela has been borrowing money from A to give it away to B, C, etc. With Chavez now dead, the new leaders of the regime have suddenly realized that this extreme prodigality cannot go on. But the solution proposed recently seems to be too little too late: raising the interest rate on the unpaid portion of the bill from 1% to…. 2%, or even, up to 4%. Since payment is dubious, this rise in interest rates will mostly have a negative psychological impact on the organization, as the real payment from the countries to Venezuela has not been in cash but in political loyalty. Through PETROCARIBE Venezuela has essentially bought the vote of the 18 member countries in the OAS and/or the U.N. This strategy has allowed the authoritarian Venezuelan government to escape action from these organizations. Especially in the OAS the votes of the Caribbean block have been decisive to put to rest attempts by other countries to penalize the Venezuelan regime for their constant human rights violations and abuse of power. As reality catches on with the Venezuelan regime one of the early casualties could be PETROCARIBE. (Las Armas de Coronel Blogspot; http://lasarmasdecoronel.blogspot.com/2013/07/petrocaribe-financial-hemorrhage.html?m=1)

Commodities

Small explosion hits Venezuela's Amuay oil refinery

A small explosion and fire hit the flexicoker unit of Venezuela's 645,000 barrel per day Amuay refinery on Wednesday, but no one was hurt and firemen brought the blaze under control. The oil workers union at the huge facility said the flexicoker unit had been stopped a day earlier due to a fault. "A pipeline broke and caused an explosion and fire, which is now under control. The (flexicoker) plant was stopped yesterday because of a fault in its compressor," said Ivan Freites, president of the workers union at the refinery. State oil company PDVSA confirmed the small explosion and said the fire had been extinguished. It said no one had been hurt. (Reuters, 07-03-2013; http://www.reuters.com/article/2013/07/03/refinery-operations-pdvsa-amuay-idUSL2N0F923H20130703)

International Trade

Grain imports down 71% year to date

Data from the National Statistics Institute indicates that during the first half of 2013 cereal imports have dropped 71.5% from last year. 2.43 million tons of cereals were imported during last year's first semester, and this amount dropped to 692,574 tons during the same time frame this year. Rice imports dropped 88-37% during the same time period. At the same time processed white rice imports grew 121.2%, from 10,066 tons to 22,268 tons. Corn imports fell by 78.7%, from 1.44 million tons to 308,434 tons. No sorghum imports were reported for the first half of 2013. These reductions do not mean domestic production has increased: Instead, they reflect obstacles placed on imports. More in Spanish: (El Universal, 07-04-2013; http://www.eluniversal.com/economia/130704/importaciones-de-cereales-cayeron-71-en-primer-semestre

US trade deficit with Venezuela up to U$D 1.5 billion

The US Commerce Department reports the US trade deficit with Venezuela, mainly due to oil imports, stands at U$D 1.5 billion, a slight decrease from April. The overall US trade deficit with Latin America soared 24% in May to U$D 6.3 billion amid reports of higher imports from Mexico. (El Universal, 07-04-2013; http://www.eluniversal.com/economia/130704/us-trade-deficit-with-venezuela-accounts-for-usd-15-billion)

Politics

The Carter Center calls for impartial institutions in Venezuela

A preliminary report by Carter Center on Venezuela's presidential election on April 14 focuses on the need for clear rules pre election rules and "impartial" institutions. The final report will not be released until Venezuela´s Supreme Tribunal renders a ruling on actions contesting the April 14 vote and as long as Election Board authorities refuse to disclose the results of the audit of fingerprint duplication. The Center insisted that "no voting system in and of itself can guarantee the confidence of the population in the process and outcomes. Whether manual or automated, confidence in elections is built by clear rules, transparency in all aspects of the process, (and) impartial institutions to administer elections and adjudicate disputes." (El Universal, 07-04-2013; http://www.eluniversal.com/nacional-y-politica/130704/the-carter-center-notes-need-for-impartial-institutions-in-venezuela; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=837363&CategoryId=10717)

Maduro again reviews relations with Spain: Barely three weeks since Foreign Ministers Elías Jaua (Venezuela) and José Manuel García Margallo (Spain) met in Madrid in an attempt to patch up diplomatic relations, President Nicolás Maduro is now saying he will revise relations with Spain after the episode enacted by Bolivian President Evo Morales as he transited through Europe to La Paz. Bolivia says Spain initially allowed them landing rights and then reversed the decision, an action Maduro has condemned in the harshest terms: "What the Spanish Government has done is infamous, seeking to search the aircraft of a South American president. ¿What does this President Rajoy think: that we South Americans are your slaves?". Rajoy has called the entire debate "artificial". Paradoxically, Maduro did not specifically mention Portugal and France, nations which actually revoked Morales' transit permit, as he had recently visited these countries and signed several agreements with them on infrastructure, technology and industrial development. (INFOLATAM)


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.

July 02, 2013

Economics & Finance

Multinationals taking hit on weaker Bolivar

U.S. companies from Procter & Gamble Co. to Pfizer Inc. are facing a hit to earnings as Venezuela’s government limits access to dollars and the currency falls further. BlackBerry said yesterday that currency restrictions in the Latin American country contributed to a surprise loss in the quarter ended June 1. Venezuela’s government has limited access to dollars because of currency controls during the past decade, making it difficult for companies with foreign headquarters to repatriate cash at the official exchange rate. The losses are likely to continue as analysts surveyed by Bloomberg estimate the Bolivar will fall an additional 16% against the dollar by the end of 2014. Clorox Co. and Pfizer have said their earnings will continue to show the impact in the coming quarters. Consumer-products companies with a large presence in the market are recording losses. Cincinnati-based P&G said in February that it would record a charge of as much as U$D 275 million to revalue its Venezuelan balance sheet after the devaluation that month. Avon Products Inc., the beauty products manufacturer, saw revenue in Venezuela decline 15% in part because of the devaluation in the first quarter. Clorox is projecting losses in its Venezuela business in its fiscal 2014. Energy companies operating in the oil-producing nation are also facing losses. Schlumberger Ltd. reported a U$D 92 million pretax cost in the first quarter due the currency devaluation, and service provider Baker Hughes Inc. said it had a U$D 23 million loss. Merck & Co. in February said it had U$D 140 million of exchange losses in its Venezuelan business in the first quarter. Pfizer reported an U$D 80 million loss from the devaluation and said it expects the currency to have an ongoing impact on earnings. (Bloomberg, 07-01-2013; http://www.bloomberg.com/news/2013-06-28/p-g-to-pfizer-profit-seen-taking-hit-on-weaker-bolivar.html)

Foreign reserves down U$D 4.4 billion YTD

Data published by the Central Bank of Venezuela (BCV) indicates foreign reserves have dropped U$D 4.4 billion so far this year. As of December 2012, Central Bank assets were U$D 29.8 billion and by June 20th, they were down to U$D 25.4 billion, apparently due to FOREX allocations for imports as the Bank has not reported transfers to the National Development Fund (FONDEN). Bank Director Armando León recently said: "The economy runs on the flow of foreign currency and different funds. Reserves are also aimed at commitments and later replenished." (El Universal, 06-29-2013; http://www.eluniversal.com/economia/130629/venezuelan-foreign-reserves-have-dipped-usd-44-billion-so-far-this-yea)

Gold reserve value drops U$D 2 billion as the price of gold drops worldwide from U$D 1.687 in December 2012 to U$D 1.342 in June 2013. This change can strongly impact Venezuelan international reserves, 65% of which are held in gold bullion. More in Spanish. (El Universal, 07-02-2013; http://www.eluniversal.com/economia/130702/se-reduce-en-2-mil-millones-el-valor-de-las-reservas-en-oro)

Allies owed Venezuela U$D20.5 billion for oil in 2012, up 40% from the U$D 14.6 billion they owed in 2011, according to PDVSA’s audited documents published in its web page. The non-current bills to charge (that is those long-term bills corresponding to agreements with the allied countries) in 2012 are also included in the report and amount to $5.3 billion, up 64.5% from 2011 ($3.2 billion). (Veneconomy, 07-01-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=35304&idc=4)

Liquidity grew 66% in one year

Official Central Bank data shows monetary liquidity grew 66% over the past year, and was 829.295 billion Bolivars on June 21, as compared to 500.549 billion Bolivars last year. More in Spanish: (El Mundo, 07-02-2013; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/liquidez-monetaria-aumento-66--en-un-ano.aspx)

Venezuela stock market up 144%

Venezuela's stock market continued rising during the week ending 28 June, with the index gaining 17.4% this week to close at 1,114,640, making it by far the best performing stock market in the world for the first half of the year.  Banking stocks continued their relentless rise, with MERCANTIL SERVICIOS FINANCIEROS A rising 15.25% at Bs. 140, BANCO PROVINCIAL gaining 13.3% at Bs. 340. MERCANTIL SERVICIOS FINANCIEROS B rose 13.3% at Bs. 340 and container-maker ENVASES VENEZOLANOS lost 10.2% at Bs. 140. The Venezuela Stock Market closed the first six months of the year up 143.96% in Bolivar terms, making it number one in the world. However, because of official rate devaluation in February, the market was only up 66.52% in official rate US dollar terms, but still the best in the world to Japan's 32% and Nigeria's 29% rise. (The Latin American Herald Tribune; http://www.laht.com/article.asp?ArticleId=830612&CategoryId=10717)

Capital flight up to $177.5 billion in the last 14 years despite the restrictions imposed by the government, according to an article published in the daily La Verdad. A report by Barclays Capital indicates an amount equal to 27% of oil revenues was taken out of the country during 10 years of controls. (Veneconomy, 07-01-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=35305&idc=2)

As of today: fines for employers who fail to comply with the Labor Organic Law and its partial norms concerning the enforcement of the new work day. Fines will range from Bs.3,210 to Bs.6,420, equivalent to 30 and 60 tax units. The Venezuelan Labor Ministry will begin inspections nationwide and employers who refuse to pay the fine will have their labor certificate (solvencia laboral) revoked. (Veneconomy, 07-01-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=35308&idc=3)

Commodities

Venezuela proposes finance fund for gas exporting countries

Within the framework of the Second Gas Summit of the Heads of State and Government of Gas Exporting Countries Forum (GECF) held in Russia, Venezuelan President Nicolás Maduro proposed the incorporation of either a finance fund or a bank comprising gas exporting countries aimed at boosting investments in the area. He stressed that one of the main goals of the summit should be consolidation of the forum as a common platform to exchange experiences and policies for bettering the management of gas resources. Maduro spoke of the need to discuss the principles of gas international trade, including joint mechanisms, and strengthen a common ground to finance large-scale projects in the long term. Another proposal made by the Venezuelan president was to boost scientific research to improve gas production and exports. (El Universal, 07-01-2013; http://www.eluniversal.com/economia/130701/venezuela-proposes-finance-fund-for-gas-exporting-countries)

Oil minister regrets environmental damages caused by non-conventional oil

Development of non-conventional oil, also known as shale oil, was criticized by Venezuelan Minister of Petroleum and Mining Rafael Ramírez, who claimed the United States, is causing an environmental "disaster." Ramírez said the production of shale oil "bears a very high environmental cost." Hence, "what is going on in North Dakota is a disaster." He added: "That society faces the dilemma of resorting to such production (of shale oil) in order to sustain its consumption mode," Ramírez said. A technique called hydraulic fractioning is used to drill the shale oil. (El Universal, 07-01-2013; http://www.eluniversal.com/economia/130701/oil-minister-regrets-environmental-damages-caused-by-non-conventional-)

BP estimates domestic oil consumption up 2.5%: Venezuela's domestic consumption of gasoline and related products increased by 17,000 barrels to 781,000 barrels per day, according to estimated by British Petroleum in their 2013 Yearly Statistical Report. More in Spanish: (El Universal, 07-02-2013; http://www.eluniversal.com/economia/130702/bp-calcula-alza-de-25-en-consumo-petrolero-en-el-pais)

Pdvsa budgets 12.8% more domestic sales

Venezuela's fuel market keeps on rising in a scenario of increasing needs of thermoelectric power generation and frozen gasoline and diesel prices. PDVSA's 2013 shows domestic sales day of refined products and natural gas projected at 1.11 million barrels per day. This is a 12.8% hike over 986,000 barrels per day in the 2012 budget. Growth is higher in liquid fuels, including gasoline, diesel for vehicles and electricity, and fuel oil, among others. Based on the FY2013 budget, Pdvsa will trade some 766,000 bpd of byproducts, or 16% over 660,000 bpd estimated in 2012. (El Universal, 07-01-2013; http://www.eluniversal.com/economia/130701/pdvsa-budgets-128-more-domestic-sales)

International Trade

PETROCARIBE leaders agree to focus efforts on boosting trade

Delegations from over a dozen countries that are members of the Venezuelan-led oil alliance PETROCARIBE agreed on Saturday to adopt a framework for promoting trade within the block. At the close of the eighth-annual PETROCARIBE summit hosted by Nicaraguan President Daniel Ortega in this Central American capital, leaders agreed to focus efforts on boosting trade in regional transportation, communication, agriculture, tourism and social service projects. "The journey has been very encouraging because in short order ... we have organized the essential components of a PETROCARIBE economic zone," said Venezuelan President Nicolas Maduro at the close of the summit. (Reuters, 06-29-2013; http://www.reuters.com/article/2013/06/30/nicaragua-petrocaribe-idUSL2N0F602120130630; Fox News, http://www.foxnews.com/world/2013/06/30/petrocaribe-summit-in-nicaragua-ends-with-agreements-to-promote-trade-bloc/; The Washington Post, http://www.washingtonpost.com/world/the_americas/petrocaribe-summit-in-nicaragua-ends-with-agreements-to-promote-trade-bloc/2013/06/30/9438e426-e13a-11e2-a0de-145598a7b2b7_story.html)

Logistics & Transport

Modernization works at La Guaira port estimated at 45% completed, according an official publication by the BOLIPUERTOS Port Authority. More in Spanish: (Bolipuertos, 07-01-2013; http://www.bolipuertos.gob.ve/noticia.aspx?id=7364)


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.