October 08, 2013

Economics & Finance

Finance Minister Merentes replaced by Oil Minister Ramirez as Vice President for Economic Affairs

Oil and Mining Minister and PDVSA President Rafael Ramírez has just been named Vice President for the Economy, replacing the current Finance Minister. General Hebert García Plaza was named Vice President for Territorial Development in place of Ramírez. Jorge Giordani remains as Vice President for Planning within the Maduro Cabinet. The Cabinet is now headed by Executive Vice President: Jorge Arreaza; Vice President for Planning: Jorge Giordani; Vice President for Social Affairs: Héctor Rodríguez; Vice President for Economic Affairs: Rafael Ramírez; Vice President for Territorial Development: General Hebert García Plaza; and Vice President for Political Affairs: Elías Jaua. Many see this as a gain by the more radical members of government, although analyst Luis Vicente León says on Twitter that exchange policy proposals under discussion in PDVSA are even more "open than the Merentes proposal". More in Spanish: (El Universal; http://www.eluniversal.com/economia/131008/remueven-a-merentes-de-la-vicepresidencia-del-area-economica#.UlQN5kD24iI.twitter

IMF now projects 1% growth for Venezuela in 2013

The International Monetary Fund has released their "Global economic perspective" report estimating Venezuela will achieve greater growth than previously expected at 1% - up from 0.1% in April - and projects 1.7% growth for this country in 2014, despite higher inflation and unemployment. Hyperinflation will remain a key challenge to authorities, up 4.8% this year and 4.1% in 2014. More in Spanish: (Confirmado; http://confirmado.com.ve/fmi-preve-para-venezuela-un-crecimiento-economico-del-1-este-ano/)

Galloping inflation forces the highest wage raise in 16 years in Venezuela

President Nicolás Maduro has announced the third minimum wage increase this year. The 10% raise was based on the National Consumer Price Index (NCPI). Rampant inflation -averaging 32.9% in January-August- was the main driving force behind the highest wage increase in the last 16 years. The new minimum wage will be VEN 2,972.97 (around U$D 471.9 at the official exchange rate of VEB 6.3 per US dollar, a fraction of that on the parallel market). This is a 45.2% raise in 2013 to date. (El Universal, 10-07-2013; http://www.eluniversal.com/economia/131007/galloping-inflation-forces-the-highest-wage-raise-in-16-years-in-venez)

Central Bank is still analyzing new FOREX system

Speaking in Uruguay, Central Bank President Eudomar Tovar remarked "We are working on this matter and there will soon be announcements. We are determining the steps to take and decisions are upcoming on exchange policy". Tovar also urged Uruguay to join the "Sucre" currency that is used by some countries within the ALBA alliance. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/bcv-prepara-anuncios-sobre-control-de-cambio.aspx)

Commodities

GLENCORE has a monopoly on aluminum in Venezuela

GLENCORE representatives in Venezuela buy most of the aluminum the Venezuelan Corporation of Guayana (CVG) produces for the foreign market in dollars. At the same time, it also purchases a part of the products from the government in the domestic market, only to companies registered in the country, and at the official exchange rate. In recent years GLENCORE entered into major agreements with the Venezuelan government, which tipped the scale in its favor. For example, officers of GLENCORE representatives are also shareholders of domestic companies operating in the domestic market of aluminum. Some GLENCORE representatives in Venezuela are simultaneously officers of other private firms buying products from state-run companies BAUXILUM, VENALUM and ALCASA, among other basic industries. Executive officers of EXTRUDAL, TREFYMACA, Alambres del Yaracuy and ARMCO in Venezuela are the same people who, three years ago and on behalf of GLENCORE, renewed futures contracts under which they secured purchase of Venezuela's aluminum production during recent years. GLENCORE has aroused great controversy since it monopolizes aluminum exports through Noble Resources. Andrés Velásquez, an opposition deputy for the state of Bolívar, has asked the Attorney General's Office to investigate GLENCORE contracts. Last week, the Accountability Committee, National Assembly, vowed to assess GLENCORE businesses in Venezuela. None of GLENCORE's futures contracts have been previously examined by the Venezuelan Comptroller's Office or the relevant committees in the National Assembly. There was not even a public call for bids, and the agreements even included confidentiality clauses. (El Universal, 10-07-2013; http://www.eluniversal.com/economia/131007/glencore-has-the-monopoly-of-aluminum-in-venezuela)

SIDOR remains paralyzed as workers reject CVG offer; FERROMINERA resumes work

The SIDOR steel processing complex remains paralyzed after 21 days as workers remain assembled at Gate 3. José Luis Hernández, president of the United Steelworkers Union, has announced they will not accept a proposal set forth by the Guayana Corporation which does not include a cash advance on their demands. He called the offer "a trap". Iron workers at FERROMINERA did reach an agreement with management after a 10 day stoppage. More in Spanish: (Globovision; http://globovision.com/articulo/sidor-continua-en-paro-y-los-trabajadores-no-aceptan-propuesta-de-cvg)

Government electricity company "intervened" for six months

Electric Power Minister Jesse Chacon has announced the "intervention" of the national electricity corporation CORPOELEC, which is a government controlled operation. His decree says: "The demand for electricity has experienced excessive growth in recent years, far above actual power requirements, deepening even more this year given the sabotage of electrical services, resulting in reasons to justify the intervention of CORPOELEC". (AVN, 10-07-2013; http://www.avn.info.ve/contenido/national-electricity-company-be-taken-over-six-months)

Opposition warns of deteriorating PDVSA refineries

Jorge Larrañaga, a member of the Democratic Unity Conference Oil and Gas Committee, says the government does not have the funds to pay for international commitments in oil, and says this is why Brazil gave up on Venezuela's taking part in the Pernambuco refinery. He also said the drop in productivity in processing oil derivatives, as well as in profitability at refineries is due to PDVSA abandoning safety and maintenance: "Both Amuay and Cardon are beneath their processing levels, and the El Palito refinery's catalytic cracking unit was stopped due to deteriorating installations." He said the US Energy Department report shows 110,000 BPD fuel imports by PDVSA in June. More in Spanish: (El Universal; http://www.eluniversal.com/nacional-y-politica/131008/mesa-alerta-aumento-del-deterioro-de-las-refinerias-de-pdvsa)

Venezuela's oil shipments to India average 400,000 per day

Rafael Ramírez, head of PDVSA and Minister for Petroleum and Mining says working groups have been set up with Indian investors, in an attempt to boost bilateral oil business. He said oil shipments to India have progressively increased, averaging 400,000 barrels per day so far in 2013. "Venezuela is meeting nearly one third of India's oil demand," Ramirez said. (El Universal, 10-07-2013; http://www.eluniversal.com/economia/131007/venezuelas-oil-shipments-to-india-average-400000-per-day)

GAZPROM NEFT is staying in Venezuela, its CEOf Alexander Dyukov said the company would remain at the Junín-6 bloc on the Orinoco Belt due to its high profitability. He added GAZPROM is evaluating the sale offer FROM LUKOIL, Russia’s second oil producer, which wants to pull out of the project. (Veneconomy, 10-06-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36619&idc=4)

PDVSA forecasts 4 million BPD oil output at the Orinoco Oil Belt by 2014

PDVSA estimates oil output at 4 million barrels per day by December 2014 at the Orinoco Oil Belt, says Rafael Ramírez, president of the company and minister of petroleum and mining.
This would be a 33% increase over current production, which stands at 3 million bpd. Previously, PDVSA had forecast oil output at 3.5 million BPD by 2013, yet in April, the goal was lowered to 3.32 million BPD.
(El Universal, 10-07-2013; http://www.eluniversal.com/economia/131007/pdvsa-forecasts-oil-output-at-the-orinoco-oil-belt-at-4-million-by-201)

Two new oil tankers arrived

Ramírez also inspected two oil tankers on Friday: the ”Ayacucho,” the first of four such ships built in China and the Suezmax “Río Arauca.” Both are to be incorporated into the PDVSA fleet. (Veneconomy, 10-06-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36621&idc=4)

Logistics & Transport

Sugar laden ship remains 47 days at bay

Despite government talk about "economic warfare", Bahamas based "Podlasie" loaded with 33,000 tons of sugar for the state Supply and Agricultural Services Corporation has been at bay at Puerto Cabello for 47 days awaiting dock facilities. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131008/buque-cargado-con-azucar-para-casa-acumula-47-dias-fondeado)

BOLIPUERTOS and DIANCA workers blocked access to docks

Workers from the DIANCA and BOLIPUERTOS state corporations at Puerto Cabello blocked access to docks for two hours in protest over 5 years with no collective bargaining agreement. More in Spanish: (El Nacional; http://www.el-nacional.com/)

Politics

Assembly convenes to debate Special Powers amid challenges on Maduro's nationality

A special session of the National Assembly is scheduled this afternoon during with President Nicolás Maduro will present his request for special powers to deal with corruption as well as what he calls "economic warfare". Such powers require a 3/5th majority vote and Government forces claim they have the 99 votes required, which implies one opposition legislator may switch sides. Maduro has called on his partisans to go with him to the National Assembly to deliver the request for powers. and Assembly President Diosdado Cabello has been saying "the people" are "legislator # 99", which suggests force and intimidation may be used. At the same time, Attorney General Luisa Ortega Díaz has sought to disqualify independent deputy María Mercedes Aranguren, and bring in her substitute for the crucial vote. Aranguren has charged the PSUV government party tried to "buy" her substitute, Carlos Flores. Concurrently, opposition legislators are calling the special powers "another coup", and demanding that Maduro show his birth certificate to dispel doubts as to his nationality amid charges he was born in Colombia and thus barred from being President by the Constitution. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/maduro-reitera-que-ira-este-martes-a-la-an-para-so.aspx#ixzz2h7naWX00; El Universal, http://www.eluniversal.com/nacional-y-politica/131008/unidad-pedira-partida-a-maduro-ante-la-solicitud-de-habilitante; http://www.eluniversal.com/economia/131008/maduro-quiere-habilitante-para-superar-el-rentismo-petrolero; Confirmado; http://confirmado.com.ve/diputado-99-y-nacionalidad-de-maduro-controversia-parlamentaria-ante-la-habilitante/)

Venezuela, on the path to implosion, expels diplomats

The expulsion of three U.S. diplomats by Venezuelan President Nicolás Maduro last week should be taken as one more symptom of the unraveling of the crackpot socialist regime inflicted on the country by the late Hugo Chávez. Maduro, a former bus driver picked by Chavez to replace him as he was dying of cancer, accused Charge D’Affaires Kelly Keiderling and two colleagues of plotting to sabotage the crumbling national electric grid, histrionically shouting “Yankee, go home” for good measure. The charges are ridiculous, but there is logic to their timing. Maduro’s government is besieged by the consequences of 14 years of disastrous economic policies: inflation that has risen above 45%; severe shortages, including of food staples and toilet paper; chronic power outages, including one that turned out lights in 70% of the country last month; and one of the world’s highest rates of violent crime. Two weeks ago the president travelled to China in the hope of extracting a cash loan from one of Venezuela’s biggest oil customers. According to reports in the Venezuelan press, he was turned down. Incredibly, a country that receives U$D 90 billion a year in oil revenue lacks the cash to import basic consumer goods. Unwilling or unable to take steps to stabilize the economy, combat the mounting violence in the streets or stop rampant corruption, Maduro has taken to ranting about supposed conspiracies to cause shortages or power outages as well as plots to kill him. He said he had learned of a secret White House meeting at which a plan to destabilize Venezuela was hatched, called “Total Collapse.” Sadly, “total collapse” is where Mr. Maduro’s regime appears to be headed. (The Washington Post Editorial; http://www.washingtonpost.com/opinions/venezuela-on-the-path-to-implosion-expels-diplomats/2013/10/06/19288850-2b8f-11e3-b139-029811dbb57f_story.htm)

Maduro government backs official arrested with 407,000 Euros in Bulgaria

Venezuela has denied that the official of the National Institute of Sports (IND) arrested last week in Bulgaria for carrying 407,000 undeclared Euros was involved in money laundering. Ovidio Almeida, the arrested official of the IND, attached to the Ministry of Sports, arrived in Bulgaria, allegedly to pay the training costs for several sports delegations in that country. Almeida did not declare the 407,000 Euros (U$D 549,450) as the law provides and Bulgarian authorities detained him, amid media speculation implying that the Venezuelan official was involved in money laundering. (El Universal, 10-07-2013; http://www.eluniversal.com/nacional-y-politica/131007/venezuela-stands-up-for-official-arrested-with-407000-euros-in-bulgari)


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.

October 04, 2013

Economics & Finance

Drop in dollar denominated bonds deepens amid rumors of a Merentes resignation, PDVSA refinancing

The price of Government and PDVSA bonds continues trending downward signaling that investment funds are not optimistic about Venezuela's economy. Brokers interviewed say there is an increasing perception that the government is incapable of making decisions to correct fiscal, monetary and exchange imbalances. The drop is being stoked by rumors about the alleged resignation of Finance Minister Nelson Merentes, and that PDVSA will not honor bonds due this year and will seek to refinance. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131004/se-acentua-la-caida-de-bonos-en-divisas-de-la-republica)

Venezuelan implicit inflation hit 255% by September 30, 2013, the highest of the six countries included in the "Troubled Currencies Project" by Steve H. Hanke for the Cato Institute. This study collects black-market exchange-rate data for troubled currencies and estimates the implied inflation rates for each country. In the case of Venezuela, the information can be accessed at: http://www.cato.org/research/troubled-currencies-project?tab=venezuela. (Veneconomy, 10-03-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36600&idc=2)

“The country could be on the verge of two devaluations” with the overhaul of the Law Against Foreign Exchange Crimes, according to the opposition coalition (MUD) economic coordinator José Guerra. He explained the first devaluation would be immediate as the new foreign exchange scheme is announced by the government. The second one would “inevitably occur at the end of December or the beginning of January 2014, which would place the official dollar at Bs.10-12:$.” (VENECONOMY, 10-03-2013;

http://www.veneconomy.com/site/index.asp?ids=44&idt=36599&idc=2)

Maduro will seek a U$D 20 billion credit extension with China

President Maduro has announced that Venezuela will seek to negotiate an extension on a U$D 20 billion credit line granted by China in 2010. China has loaned Venezuela some U$D 41 billion since 2007. Maduro said negotiations have begun on renewing the so-called "Long Term" fund. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/venezuela-negociara-extension-de-credito-de-20-mil.aspx#ixzz2gkPz55AF; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/venezuela-negociara-extension-de-credito-de--20-00.aspx)

Commodities

ROSNEFT likely to buy LUKOIL's assets in Orinoco Oil Belt project

Russian state-owned oil company ROSNEFT could purchase LUKOIL's assets in a Russian consortium involved in a heavy oil project in Venezuela, says ROSNEFT's chair Igor Sechin. His statements came after LUKOIL, Russia's second largest oil producer, announced it would sell its 20% stake in a Russian consortium developing a gigantic project at the Orinoco Oil Belt, east Venezuela, on grounds that it is not a priority. (El Universal, 10-03-2013; http://www.eluniversal.com/economia/131003/rosneft-likely-to-buy-lukoils-assets-in-orinoco-oil-belt-project; Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=36595&idc=4; Reuters, http://www.reuters.com/article/2013/10/03/rosneft-venezuela-idUSL6N0HT2BR20131003)

Iron and steel companies on strike

Workers at state-run iron producer CVG Ferrominera del Orinoco have stopped operations in order to demand payment of labor liabilities accumulated over the last months. Workers rejected the offer made by the president of the company, Jesús Zambrano in a worker's general assembly, and decided to continue on strike. Rubén González, the Secretary General of Ferrominera trade union, argued that the employer's proposal did not meet the real needs of workers; therefore, supply of iron ore would remain suspended. Workers also stopped operations at state-run steelmaker Siderúrgica del Orinoco (SIDOR) amidst labor claims. The president of SIDOR's trade union, José Luis Hernández, gave a 24-hour deadline to the Venezuelan Guayana Corporation (CVG) to respond to worker's claims; otherwise, workers would demonstrate on the streets. (El Universal, 10-03-2013; http://www.eluniversal.com/economia/131003/venezuelan-iron-and-steel-companies-on-strike)

Print industry in "critical" condition due FOREX restrictions

Edgar Fiol, Executive Director of the Industrial Graphic Arts Association says the lack of raw material places the industry in a very "critical" situation, saying the "situation is untenable. There is no paper, neither local nor imported, no inks, no cardboard, no self adhesive paper." He says industries in this area have no more inventories due to FOREX restrictions, and that the process to obtain FOREX can take up to 8 months. "Without these elements they will not be able to market mass consumption products, either". More in Spanish: (El Universal, http://www.eluniversal.com/economia/131004/industria-grafica-en-situacion-critica-por-escasez-de-insumos)

International Trade

VENAMCHAM says Venezuela-US trade to continue

Carlos Tejera, General Manager of the Venezuelan-American Chamber of Commerce and Industry (VENAMCHAM) believes that recent tensions between the United States and Venezuela following the eviction of diplomats from both countries would not hinder trade relations. "Venezuela provides oil to US refineries and companies, designed exclusively to operate with Venezuelan black gold," Tejera explained. For its part, the United States ships vehicles, food, finished products, among other equipment, to Caracas. (El Universal, 10-03-2013; http://www.eluniversal.com/economia/131002/venamcham-venezuela-us-trade-to-continue-despite-political-impasse; Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=36591&idc=3)

China related iron producers exempted from income tax

The Government has granted a tax exemption on the territorial earnings for companies producing iron under the Economic and Technical Cooperation Agreement between Venezuela and China. Companies must present a certificate from the Ministry of Industries attesting that the projects are being developed under the China-Venezuela agreement. (El Universal, 10-02-2013; http://www.eluniversal.com/economia/131002/iron-producers-exempted-from-income-tax)

Logistics & Transport

Puerto Cabello port workers are at limit over collective bargaining

Employees and port workers at Puerto Cabello have begun protests and say they are reaching "Zero hour" following a 764-day delay in the initial report on their collective bargaining.  Karina Ordóñez, Secretary General of the Puerto Cabello port union, which represents 2,800 workers and over 3,000 contrators, charged management by Elsa Gutiérrez Graffe with the delays. (El Carabobeño; http://www.el-carabobeno.com/impreso/articulo/78303/portuarios-se-declararon-en-hora-0-para-exigir-contrato-colectivo; Notitarde, http://www.notitarde.com/La-Costa/Con-protesta-trabajadores-de-Bolipuertos-exigen-contrato-colectivo/2013/10/03/268976; El Mundo, http://www.elmundo.com.ve/noticias/economia/laboral/inician-protestas-trabajadores-del-puerto-de-puert.aspx; El Universal, http://www.eluniversal.com/economia/131004/obreros-portuarios-reclaman-firma-de-contrato-colectivo)

Puerto Cabello is not ready to receive imports

National Assembly opposition legislator Deyalitza Aray says the Puerto Cabello docks do not have the conditions to accommodate all the food imports to guarantee product supplies in the country. “They cannot avoid or hide the ships that are anchored in the middle of the sea, nor can they hide when the food supplies spoil because people perceive the smell.” (Veneconomy, 10-03-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36593&idc=1)

Politics

Tensions are building in Venezuela. Events in Venezuela over the past week suggest the country is entering a more unstable political phase in the post-Chavez era. President Nicolas Maduro expelled three U.S. diplomats, including the Charge d' Affaires. The officials were accused of meeting with the vote-monitoring NGO SUMATE and opposition mayoral candidates in Bolivar state, and with promoting destabilizing actions ahead of December municipal elections. The same day, Maduro announced the creation of a Strategic Center for Security and the Protection of the Homeland to collaborate with three of the country's military and intelligence bodies -- the Strategic Operational Command, the Bolivarian National Intelligence Service and the Director General of Military Counter-Intelligence -- to eliminate threats against the country. Maduro also met with the country's Military High Command and reportedly agreed to adhere to the recommendations of the body for organizational changes in the armed forces. And now, Maduro hastily cancelled a planned trip to meet with Bolivian President Evo Morales and Ecuadorian President Rafael Correa in Cochabamba. Though some 60 Venezuelan officials had preceded him on a military plane, Maduro cancelled at the last minute and later tweeted he had the flu. Alone, each of these incidents might not raise too much attention. At the same time, the head of the ACCIÓN DEMOCRÁTICA party charged that the Attorney General intends to press charges against opposition leader and Miranda state Gov. Henrique Capriles, currently campaigning for the December municipal elections in Bolivar state. Attorney General Luisa Ortega Diaz also lodged her fourth impeachment request targeting opposition lawmakers. The ruling party is one vote shy of the three-fifths majority needed to pass a controversial law that would enable Maduro to pass decrees without congressional approval. Facing difficulty lining up support, the government could be attempting to get its way by forcing out a lawmaker on accusations of incompetence. These actions are well within the classic framework pursued by the late President Hugo Chavez of blaming political opponents for economic problems, but Maduro lacks his predecessor's charisma and credentials and there is a very real possibility he could lose support if he cannot manage the economic situation without alienating factions within his own party. The 100-day honeymoon period is over for Maduro, and his to-do list is only getting longer. The events of the past week suggest the strains are starting to show. (STRATFOR: http://www.stratfor.com/sample/geopolitical-diary/tensions-are-building-venezuela)

Maduro hits peak tinfoil; diplomatic ear with U.S. escalates. Nicolás Maduro has been known to promote conspiracies of Western sabotage of everything from Caracas's power grid to its toilet paper supply. But in recent days, President Nicolás Maduro has reached new heights of paranoia - expelling U.S. diplomats over charges that they're threatening to destabilize the country. In response, the State Department told three Venezuelan diplomats to leave the United States. State Department spokesman Peter Velasco said. "It is counterproductive to the interests of both our countries and not a serious way for a country to conduct its foreign policy." Maduro is raising eyebrows with the frequency at which he doles out claims of sabotage and foreign meddling. "The announcement of conspiracies and assassination attempts followed by sharp diplomatic downturns didn't begin with Nicolás Maduro," Patrick Duddy, former U.S. ambassador to Venezuela says "It seems, however, to be accelerating with President Maduro, and there may be a correlation with how badly things are going domestically." Since taking office, Maduro has made at least 11 accusations of alleged plots to assassinate the president or efforts to destabilize his government, according to CNN en Español. The spate of accusations has led experts to look decisively toward the Dec. 8 nationwide municipal elections as evidence of Maduro's erratic behavior. "Given the political contestation in Venezuela over the outcome of the presidential elections in April, these municipal elections are likely to be seen as a referendum on Maduro's government," says Harold Trinkunas, a senior fellow at the Brookings Institution. Duddy says the economy can't be ignored. "It's important to note just how badly things are going domestically for Maduro," he said. "Inflation is now running at about 45%. The dollar, on the parallel market, is trading at multiples of the official rate. Hundreds of percent higher. Violent crime in the country is extraordinarily high. Caracas may well be the most violent capital city anywhere in a country not at war." (FOREIGN POLICY)

Phil Laidlaw, new US chargé d'affairs to Venezuela

Phil Laidlaw was appointed new US Chargé d'affairs to Venezuela. He was Director of the Office of Andean Affairs at the Bureau of Western Hemisphere Affairs of the US Department of State, and has been in Caracas since June 2013. (El Universal, 10-03-2013; http://www.eluniversal.com/nacional-y-politica/131003/phil-laidlaw-new-us-charge-daffairs-to-venezuela; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1057818&CategoryId=10717)

"Hoarders" to be imprisoned

Attorney General Luisa Ortega Díaz was warned that "hoarders" will be severely punished and ordered her prosecutors to seek arrest orders against them. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131004/privaran-de-libertad-a-acaparadores-de-alimentos)

Diosdado Cabello met with Russian Foreign Minister

Diosdado Cabello, President of Venezuela's National Assembly met Wednesday with Russian foreign minister Sergey Lavrov. Cabello is on the first official visit carried out by a parliamentary spokesperson to the Asian nation. Cabello is also expected to meet Sergey Naryshkin, Chairman of the State Duma of the Federal Assembly of the Russian Federation, as well as its first vice-president Alexander Zhukov. (AVN, 10-02-2013; http://www.avn.info.ve/contenido/head-venezuelan-parliament-meets-russian-fm)


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.

October 01, 2013

Economics & Finance

Government finances worsen

Venezuela's FOREX reserves currently appear too low to reliably finance government spending, at least in the midterm, and the nation will probably have to allow the Bolivar to depreciate substantially through a new exchange system and sell gold from its reserves to inject sufficient foreign currency into the domestic market to ameliorate shortages. Reports show Central Bank of Venezuela's liquid cash reserves have fallen to U$D 900 million --down from approximately U$D 3 billion in July. Another report indicates China denied a Venezuelan request for a cash loan. Financial pressure on the government stems from declining oil exports and sustained high levels of government spending. Venezuela only exported an estimated 1.7 million BPD of oil in 2012, down from 2.3 million BPD in 2004 and 3.1 million BPD in 1997. Meanwhile, imports of refined products from the United States jumped nearly six-fold, from U$D 568.9 million in 2011 to U$D 3.3 billion in 2012. With less inflow and high demands for FOREX to finance imports, official Central Bank reserves have fallen sharply this year, from U$D 29.8 billion in January to U$D 22.3 billion in late September. But most of Central Bank reserves are held in gold, and the recent fall in futures prices is not reflected in Caracas' accounting. The shortage in foreign exchange could total about U$D 8 billion in 2013. As a result, the value of the Bolivar on the unofficial exchange markets has plummeted, and government leadership is currently discussing a new FOREX exchange system whereby currency and bond exchanges would link private and public entities in a more open trading environment than is currently possible. Even with PDVSA promising to inject some U$D 6 billion through the new system, the Bolivar in all likelihood would nonetheless lose its value in such a market exchange. Growing inflation will cause political problems for President Nicolas Maduro, and totaled 31.4% between January and August. Inflation in 2013 may reach as high as 44%, compared to reported inflation in 2012 of 20%. Political discussions over the exchange system have pitted PDVSA President Rafael Ramirez and Planning Minister Jorge Giordani against Finance Minister Nelson Merentes and Central Bank President Eudomar Tovar. Giordani had previously opposed the devaluation of the bolivar in early 2013 because of the inflation it would create. The new exchange system's potential effect on inflation will likely delay its implementation until after Dec. 8 municipal elections. Currency devaluation created by the new exchange system now seems inevitable as the government faces the politically unpopular choice of undoing economic problems inherited from the previous administration or remaining in an untenable economic situation. (STRATFOR; http://www.stratfor.com/sample/analysis/venezuelas-finances-worsen)

Exchange control imbalance is now the worst in history

Never in Venezuela's history has the difference between the official currency value and the parallel market gone up as high as 600%, as is currently the case. The previous record high was in the 1980's when it rose to 235%. Such a large difference makes the demand for cheap FOREX practically infinite, and access to such currency slow and difficult. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131001/desajuste-del-control-de-cambio-es-el-mas-grave-de-la-historia)

Caution is advised in acquiring Venezuelan bonds

For the first time, reports by international firms agree that domestic political and economic conditions are increasing risks in acquiring Venezuelan debt. BCP Securities says successive loans from China, the drop in PDVSA output and in crude oil prices, PETROCARIBE commitments, and refusal to pay off SIDETUR debts show the nation's vulnerability. It says "the number of recent events at the state oil company, which will continue to occur, has been negative and has increased the credit risk for that industry". The BCP Securities report adds: "the hostile and erratic rhetoric, and the paranoid behavior" of President Nicolás Maduro do not make markets more confident. "Venezuela now has the 4th costliest debt in the world, only Argentina, Ukraine, and Greece are worse. Even Egypt and Pakistan are better rated than Venezuela ". More in Spanish: (El Nacional; http://www.el-nacional.com/)

Government sells assets abroad in order to raise funds

Recent balance of payments information published by the Central Bank show that assets held abroad by the government have diminished by U$D 1.457 billion; and external holdings by FONDEN and the National Treasury have gone down by U$D 2.616 billion. ECOANALITICA think tank analysts believe this is due to the need to pay for imports and finance investments. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/gobierno-liquida-activos-en-el-exterior-para-mejor.aspx#ixzz2gSozxdg3)

Venezuelan oil tumbles under U$D100 per barrel

Venezuela's weekly oil basket tumbled below its desired U$D 100 a barrel floor as easing worries over Syria and the Middle East continued to be calm international oil markets. According to figures from the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending September 27 was U$D 99.39, down U$D 3.75 from the previous week's U$D 103.14. (Latin American Herald Tribune, 09-29-2013; http://www.laht.com/article.asp?ArticleId=1047050&CategoryId=10717)

BCV raises funding to PDVSA; triggers parallel dollar

From August 23 through September 20, the US dollar escalated in the parallel market and pushed up the prices of a wide array of goods since business uses this indicator as a benchmark to estimate replacement costs. The 15% hike of the US dollar in the unofficial market is mainly due to Central Bank funding of state-run companies, particularly PDVSA. The Bank prints out Bolivars to buy PDVSA bonds, and PDVSA uses such funds to fulfill commitments, such as construction of houses and payment to suppliers who in turn acquire FOREX on the parallel market. (El Universal, 09-30-2013; http://www.eluniversal.com/economia/130930/bcv-lifts-funding-of-pdvsa-triggers-parallel-dollar)

New public debt to be issued during third quarter

The Finance Ministry has announced the start of public debt placement during the 3Q 2013 in order to absorb domestic liquidity. Treasury notes are aimed at the financial system in order to take up approximately VEB 500 million per week. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/anuncian-emision-de-deuda-publica-nacional-para-el.aspx#ixzz2gSocBDOA)

Government "intervenes" four state companies

Industrias Diana, Palmeras Diana del Lago, Indugram and Productos La Fina, as part of the so called "Efficiency or Nothing Mission". In addition, General Wilmer Barrientos, Minister for the Office of the President, announced that the chief of the National Dikes and Shipyards Company (DIANCA), the Cojedes state MERCAL coordinator, Plaza Venezuela’s BICENTENARIO supermarket manager and the heads of PROESCA and FERROMINERA have all been replaced in their posts “because they did not do their job.” (Veneconomy, 09-30-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36531&idc=1; El Universal; http://www.eluniversal.com/economia/130930/government-takes-over-four-state-run-companies)

Commodities

Industry inventories are coming down

José Manuel González, President of the Venezuelan Packing Chamber says delays by the Ministry of Industries in granting import permits have risen from 20 to 90 working days, which is hurting inventory replacement. "There is no crisis, but timing must change ", he said.  Industry representatives from textiles, graphic arts, chemicals and footwear also say delays have become more acute, and inventories are going back down to levels reported before talks began between the government and the private sector in May. Inventories new range between 30-60 days. More in Spanish: (El Nacional; http://www.el-nacional.com/)

FERROMINERA Orinoco paralyzed due to labor strife

Operations at CVG FERROMINERA Orinoco were paralyzed yesterday after workers declared a stoppage over unpaid debts by the company. Rail and iron ore processing operations came to a standstill last week, and yesterday administrative personnel along with mining operators at Ciudad Piar stopped working: Iron ore supplies are currently stopped. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131001/paralizan-fmo-por-incumplimiento-en-pago-de-pasivos)

Strike lifted at steelmaker SIDOR

A 10-day strike at steelmaker SIDOR is over after workers reached agreement with management over benefits claims stretching back years, union and company sources said. "Operations re-started on Sunday with the 3-11 pm shift," the local Sutiss union's president Jose Luis Hernandez told Reuters, confirming agreement over the back payments. "We're back to work. The production lines are totally operative," added a company source, who asked not to be named. SIDOR has an installed annual capacity of 5 million tons, but output has tumbled since its nationalization five years ago due to frequent protests and insufficient investment. (Reuters, 09-30-2013; http://www.reuters.com/article/2013/09/30/venezuela-steel-idUSL1N0HQ0SA20130930)

International Trade

PDVSA-YPFB projects in Bolivia are lagging

Four out of five projects at PETROANDINA SAM, a partnership in Bolivia between YPFB and PDVSA are falling behind because environmental licenses have not been granted. The leader of PDVSA's project in Bolivia, Naim Issa, says:"We have plenty of environmental constraints in some blocks. Madidi is one of them, under special treatment; there are many environmental constraints to operate it, as it were; this has been the difficult part to implement the projects". (El Universal, 09-30-2013; http://www.eluniversal.com/economia/130930/pdvsa-ypfb-projects-in-bolivia-lag-behind)

CAVECOL says food staple imports from Colombia are not coming through yet and one of the matters under discussion is the payment the Venezuelan government intends to make with PDVSA bonds. CAVECOL’s Chief Luis Alberto Russian explains that talks between governments have “advanced” and added among staples to be imported there is cattle, powdered milk, butter, oil and baby chickens. (Veneconomy, 09-30-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36521&idc=3)

FOREX distortions hit the Colombia-Venezuela border economy

Business representatives on the Venezuelan border with Colombia say distortions due to Venezuela's FOREX have hurt domestic trade in the Colombia-Venezuela border region. Daniel Aguilar and José Rozo, president and former president of the FEDECÁMARAS-Táchira state chapter, are warning that the Venezuelan bolivar (VEB) to Colombian peso (COP) exchange rate has reached its highest gap so far this year. According to Rozo, FOREX operators have noted an over-supply of Venezuelan bolivars in the FOREXn currency market at the border, thus lowering the value of Venezuelan currency. (El Universal, 09-28-2013; http://www.eluniversal.com/economia/130928/forex-distortions-hit-colombia-venezuela-border-economy)

Politics

Venezuela expels 3 US diplomats

President Nicolas Maduro announced the expulsion of 3 US diplomats - including the Charge d'Affaires - during a live speech to Venezuela soldiers. Maduro asked Foreign Minister Elias Jaua to expel the 3 US diplomats, giving them 48 hours to leave the country. Maduro accused the 3 unnamed US diplomats of meeting with the country's "right wing" to plan electricity system sabotage. “We have sufficient evidence collected of the hostile, illegal and interventionist attitude of the officials,” Maduro said. “Out of Venezuela. Yankee, go home! Enough with the abuse.” He did not provide any evidence or name the diplomats.  “I don’t care what actions Barack Obama’s government may take," Maduro told the soldiers. "We’re not going to allow an imperial government to bring money and see how they shut down the basic industries, how they turn off electricity to black out all Venezuela. What is that?” (LATIN AMERICAN HERALD TRIBUNE; http://www.laht.com/article.asp?ArticleId=1049644&CategoryId=10717; http://www.eluniversal.com/nacional-y-politica/130930/nicolas-maduro-gives-three-us-diplomats-48-hours-to-leave-venezuela; Reuters, http://www.reuters.com/article/2013/09/30/venezuela-usa-idUSL1N0HQ24V20130930; CNN, http://edition.cnn.com/2013/09/30/world/americas/venezuela-us-diplomats-expelled/index.html?iref=allsearch; Fox News, http://www.foxnews.com/world/2013/09/30/venezuela-expels-three-us-embassy-diplomats/)

Obama names Venezuelan advisor

Venezuelan economist Andrés R. Gluski, has been named Export Advisor by US President Barack Obama. Gluski, is President and CEO of the AES Corporation since November 2011 and has a PhD in Economy and International Finance from the University of Virginia. More in Spanish: (El Nacional; http://www.el-nacional.com/)

Recording of 'kidnapped' Chavez is fake, says Maduro

President Nicolas Maduro says right-wing opponents have unleashed a new weapon in their push to destabilize his government and demoralize his supporters: an imitation of Hugo Chavez's voice. An audio recording widely circulated on social media purports to be the late Venezuelan leader saying he's still alive. The recording comes nearly seven months after authorities announced Chavez's death from cancer and just a few months before municipal elections in the politically polarized country. President Maduro says the recording implying that Chavez has been kidnapped is fake, and he isn't taking it lightly. (CNN, 09-29-2013; http://edition.cnn.com/2013/09/29/world/americas/venezuela-chavez-recording/index.html?iref=allsearch)

Sabaneta jail search yields weapons arsenal

A security sweep of Venezuela's Sabaneta prison, where 16 inmates were killed in gang violence, has uncovered more than a hundred weapons and tens of thousands of rounds of ammunition. Inmates were temporarily moved from Sabaneta, near the city of Maracaibo, after the violent fight between rival gangs two weeks ago. Some of the victims were reportedly decapitated and dismembered. Prisons in Venezuela are notoriously overcrowded and riots are not uncommon. Prison Minister Iris Varela said guards had searched about half of the prison grounds so far, seizing more than 22,000 rounds of ammunition, as well as pistols and rifles. The sweep also uncovered tunnels of up to 15m (50ft) depth, in which more than 12kg (26lb) of marijuana and cocaine were stored. Venezuela has one of the highest crime and homicide rates in Latin America and the judicial system is struggling to cope with the caseload. The prison population has been increasing with many of those incarcerated waiting for trial. The Venezuelan Prison Observatory says that 80% of jails are run by armed inmates, with the security forces having little or no control. (BBC; http://www.bbc.co.uk/news/world-latin-america-24329536)


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.