December 10, 2013

Economics & Finance

Maduro to raise pressure on business after local vote

President Nicolas Maduro pledged to deepen his "economic offensive" to force businesses to cut prices after his ruling Socialist Party won the most votes in weekend municipal elections. "This week we are going to deepen the economic offensive to help the working class and protect the middle class," Maduro told supporters in a rally after the results were announced. "This week it's going to be the housing and food sectors. We're going in with guns blazing, keep an eye out." But extending the price cuts may worsen product shortages and reduce the productivity of a private sector already battered by years of nationalizations. Nor does the plurality in local polls help him address the structural imbalances of a state-driven economy struggling with slowing growth, the highest inflation in the Americas and embarrassing shortages of goods such as toilet paper. Economists were left guessing Maduro's next move. "This might strengthen the radicals who pushed for the tightening of price controls that appears to have provided Maduro with the needed electoral boost," Bank of America analyst Francisco Rodriguez said. "On the other hand, it gives the government sufficient room to devalue now that the elections are behind." "This is further evidence that President Nicolas Maduro and Chavismo have more staying power than some observers believe," the Eurasia group political consultancy said of Sunday's vote. "These mixed results are unlikely to fundamentally change political dynamics, and policy will remain highly interventionist as challenging macroeconomic dynamics keep the government on the defensive." (Reuters, http://www.reuters.com/article/2013/12/09/us-venezuela-election-idUSBRE9B707720131209)

Fitch rates PDVSA’s proposed US$4.5 billion issuance ‘B+/RR4’

Fitch Ratings expects to rate Petroleos de Venezuela, S.A.’s (PDVSA) proposed senior unsecured debt issuance of up to US$4.5 billion at ‘B+/RR4’. The company plans to use the proceeds to refinance upcoming maturities and for general corporate purposes. PDVSA’s credit quality reflects the company’s linkage to the government of Venezuela as a state-owned entity, combined with increased government control over business strategies and internal resources. This underscores the close link between the company’s credit profile and that of the sovereign. PDVSA’s ratings also consider the company’s strong balance sheet, sizeable proven hydrocarbon reserves, and strategic interests in international downstream assets. (Latin American Herald Tribune, 12-07-2013;

http://www.laht.com/article.asp?ArticleId=1282966&CategoryId=10717)

Labor reduction freeze extended to 2014

President Maduro has signed a new decree extending the standing freeze on personnel reduction through December 31st, 2014. Public and private personnel cannot be dismissed, nor can their working conditions "worsen" More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/oficializan-inamovilidad-laboral-por-un-ano.aspx#ixzz2n4ATD0lU; El Mundo, http://www.elmundo.com.ve/noticias/economia/laboral/oficializan-inamovilidad-laboral-por-un-ano.aspx; El Nacional; http://www.el-nacional.com/)

Commission created to cut down on red tape

The government has created a Presidential Commission, headed by Executive Vice President Jorge Arreaza, to cut down on red tape here, aiming to "improve the handling of import and export procedures for industrial basic supplies for medium and small companies". More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/crean-comision-presidencial-para-simplificar-trami.aspx#ixzz2n4ABZUN2; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/crean-comision-presidencial-para-simplificar-de-tr.aspx; El Universal, http://www.eluniversal.com/economia/131210/crean-comision-que-facilitara-tramites-al-area-productiva)

Oil & Energy

Regime considers raising gasoline prices

Executive Vice President Jorge Arreaza is saying the government will discuss raising local gasoline prices with "the people" and business. Arreaza has just said: "We must have great debates in Venezuela, on fiscal matters, for example; on the price of gasoline, to begin charging for gasoline, it is not sold, we give away more in tips". He added that such moves could "definitely balance Venezuela's economy". The price of gasoline has been frozen for over 20 years and a decision to raise it in 1989 was one of the causes for massive and looting. More in Spanish: (Globovision, http://globovision.com/articulo/gobierno-venezolano-estudiara-posible-alza-en-precio-de-gasolina-segun-arreaza

Russia's LUKOIL in talks with oil majors on Venezuela stake

Russia's No. 2 oil producer, LUKOIL, has been in talks with international majors about selling its stake in a consortium developing a large oil project in Venezuela. The company said in October that it wanted to sell its 20% stake in the Russian Junin-6 consortium developing heavy oil in the Orinoco basin to focus on other projects. The group is led by Russian state oil major ROSNEFT and also includes GAZPROM NEFT. (Reuters, 12-06-2013; http://www.reuters.com/article/2013/12/06/lukoil-venezuela-idUSL5N0JL0U320131206; El Universal, 12-09-2013; http://www.eluniversal.com/economia/131209/lukoil-deals-with-sale-of-stake-in-venezuela)

Venezuela oil price jumps

Venezuela's weekly oil basket stayed below the countries desired U$D 100 a barrel floor, but rose on unexpectedly depleted inventories in the United States.  According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending December 6 was U$D 96.42, up U$D1.93 from the previous week's U$D 94.69. (Latin American Herald Tribune, 12-08-2013; http://www.laht.com/article.asp?ArticleId=1287860&CategoryId=10717)

Logistics & Transport

Registration of port users launched

The Port Authority (BOLIPUERTOS) is launching an electronic registry of all port users that service passenger and cargo vessels. The system will improve the process of issuing temporary passes, permanent ID, and vehicle passes into the port area. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=7745; Notitarde; http://www.notitarde.com/La-Costa/Registro-de-Operadores-Portuarios-comenzo-el-lunes-2062573/2013/12/09/287916; El Carabobeño, http://www.el-carabobeno.com/impreso/articulo/86722/-bolipuertos-inici-registro-de-operadores-portuarios)

Politics

High voter turnout, government maintains plurality, opposition triumphs in iconic cities

Pro-government candidates and opponents of President Nicolás Maduro split Venezuela’s disputed mayoral elections Sunday, prolonging a political stalemate in the face of mounting economic problems. Maduro's government won the greatest share of votes in local elections. With votes in from three-quarters of the nation's 337 mayoral races, the ruling party and allies had combined 49.2% support. The opposition coalition and its partners' had 42.7% percent, and independents had 8.03%, the election board said. Opposition leader Henrique Capriles said: "Remember that Venezuela does not have a single owner. A divided country needs dialogue." Candidates of the opposition alliance Unified Democratic Panel (MUD) scored victories in iconic mayoralties nationwide, namely the capital cities of the states of Barinas (the hometown of late Hugo Chávez), Carabobo, Lara, Mérida, Monagas, Nueva Esparta, Táchira, Zulia and the Mayoralty of the Metropolitan District of Caracas. Tibisay Lucena, President of the National Electoral Council, announced that the ruling United Socialist Party of Venezuela (PSUV) won 196 mayoralties, while the MUD obtained 53. Turnout in the municipal vote hit 58.92%, based on 97.52% of the ballots."Out of 355 municipalities, there is an irreversible trend in 257," Lucena noted. Nationwide, the PSUV obtained 4,584,477 votes (44.16%); MUD, 4,252,082 ballots (40.96), the Communist Party of Venezuela, 167,049 votes (1.6%) and other political parties got 1,376,056 ballots (13.26%); (The Washington Post, 12-08-2013; http://www.washingtonpost.com/world/venezuelan-president-faces-first-electoral-test/2013/12/08/b870e8de-6038-11e3-8beb-3f9a9942850f_story.html; Reuters, 12-09-2013; http://www.reuters.com/article/2013/12/09/venezuela-election-idUSL1N0JN0AA20131209; Bloomberg, http://www.bloomberg.com/news/2013-12-09/maduro-claims-victory-after-mayor-races-show-venezuelans-divided.html; Fox News, http://www.foxnews.com/world/2013/12/09/venezuelan-opposition-gains-ground-in-cities-but-no-real-blow-to-maduro-in/; The Washington Post, http://www.washingtonpost.com/world/the_americas/venezuelan-president-faces-first-electoral-test/2013/12/08/ec695668-606e-11e3-a7b4-4a75ebc432ab_story.html; Bloomberg, http://www.bloomberg.com/news/2013-12-09/maduro-claims-victory-after-mayor-races-show-venezuelans-divided.html; El Universal, http://www.eluniversal.com/nacional-y-politica/131209/ruling-party-wins-196-mayoralties-opposition-triumphs-in-iconic-towns; http://www.eluniversal.com/nacional-y-politica/131208/turnout-in-venezuelan-local-election-hits-5892; BBC, http://www.bbc.co.uk/news/world-latin-america-25292322; and more in Spanish: CNN, http://cnnespanol.cnn.com/2013/12/09/el-oficialismo-logra-mas-votos-pero-la-oposicion-gana-en-municipios-clave-de-venezuela/?iref=allsearch)

The Economist: A country divided

No one can really feel satisfied after Venezuela's municipal elections on December 8th. Urban Venezuela is turning its back on the ‘socialist revolution’ of the late Hugo Chávez and his successor, President Nicolás Maduro. But polls that the opposition Democratic Unity (MUD) alliance had sought to turn into a plebiscite against the eight-month-old Maduro government have, in the short term at least, consolidated his grip on political power. A total of 335 municipalities and two metropolitan districts were up for grabs in Sunday's poll. As expected, the MUD made important advances in urban districts. It held on to the second city, Maracaibo, and now controls at least seven of the 23 state capitals, including four of the five biggest. The PSUV held strong in rural areas, however. Though much more thinly populated, these account for the vast majority of municipalities. The government also fended off a challenge to its most important electoral asset, Libertador municipality, which covers the western half of Caracas and includes the historic heart of the city. The opposition’s biggest disappointment was that it fell well short of its goal of polling more votes than the government nationwide. With over 97% of the votes counted, the PSUV and its allies had obtained more than 49% and the MUD and its allies less than 43%. Independents and dissidents accounted for the rest. A result like this, amid the country’s worst economic crisis in 30 years, is testimony to the efficiency of the government’s electoral machine, and to its lack of scruples in employing all the resources of the state for partisan advantage. With the government’s grip on radio and TV now almost complete, the opposition was rendered virtually invisible in media terms. Opposition leader Henrique Capriles will need to do some hard thinking about where to go from here as there will be no more elections until the parliamentary vote in 2015. Maduro, too, faces difficult questions. Some think that with the elections out of the way he will be freer to seek a more pragmatic solution to the economic crisis, including a rapprochement with the private sector. The alternative could be severe social unrest and a further crackdown on dissent. (The Economist, http://www.economist.com/blogs/americasview/2013/12/venezuelas-local-elections)

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

December 06, 2013

Economics & Finance

EUROMONEY: Fears of Venezuelan instability increase.

PDVSA is going ahead with U$S 4.5 billion of bond issuance despite a growing economic crisis in the country and a jump in the yield on Venezuelan debt. Rafael Ramirez, Venezuela’s oil minister and the president of PDVSA, says the firm will sell U$D 1.5 billion in bonds to the central bank while the remaining U$D 3 billion would be offered to service providers to pay down billions of dollars in accumulated debts. “I don’t think there is any way that PDVSA and the government will cancel the bond offering despite the hike in bond yields,” says Alberto Ramos, Venezuela analyst at Goldman Sachs. “They would lose too much face. We are becoming more and more concerned about the country. It has now entered a hyperinflation situation, and we don’t see the loose monetary dynamics letting up soon. It’s difficult to predict whether there could be a full-blown macroeconomic crisis, but there is a chance of a social unrest as frustrations with the government grow.” This would be the first time that PDVSA has sold bonds directly to suppliers; previously it has sold them on the open market and repurchased them to pay off contractors. The company has already taken on U$D 10 billion in private loans this year, mostly from China and Russia. The latest issue means PDVSA would have issued U$D 32 billion in bonds since 2007.  Alejandro Arreaza, Venezuela analyst at Barclays, says: “The economy would need a largely contractive adjustment to stabilize it, which would imply a high political cost for the government.” He adds: “The risk we see now is that a strong setback for the government in the December elections could further weaken Maduro’s leadership, limiting the government’s capacity to make the necessary economic adjustments and increasing political and economic uncertainty, which would continue to put pressure on Venezuela/PDVSA curves.” Barclays says that although the authorities are still expressing willingness to make some economic adjustments after the elections, the risk of an incomplete adjustment is increasing. (Euromoney; http://www.euromoney.com/Article/3285183/CurrentIssue/90426/Fears-of-Venezuelan-instability-increase.html)

Experts forecast FOREX adjustments in 2014 in Venezuela.

Venezuela's economy is likely to shrink next year due to a major adjustment in the foreign exchange rate beginning in January 2014, according to a report issued by Bank of America's Merrill Lynch and entitled, "LatAm's Moment of Truth." Devaluation could push up the official FOREX rate from VEB 6.30 to VEB 11 per US dollar, with a chance of a second adjustment to VEB 18, for an average of VEB 14.5. Moreover, inflation is likely to hit 75%, thus spurring the risk of social unrest and discontent. (El Universal, 12-05-2013; http://www.eluniversal.com/economia/131205/experts-forecast-forex-adjustments-in-2014-in-venezuela)

Industrial inventories down 40.3%.

According to the regular quarterly poll taken by the National Council of Industries (CONINDUSTRIA) there has been a 40.3% drop in supply stocks available to industries here. Difficulties in accessing FOREX and electricity rationing have brought about severe inventory drops in areas such as: Textiles and foot wear (-61,5%); Paper (-52,2%); Wood (– 47,8%); Metal products (-43,6%); Chemicals (-37,3%); Basic metals (-27,3%); Food (-23,5%). CONINDUSTRIA President Eduardo Garmendia says that this situation, plus Christmas holidays, will seriously impact product supplies in early 2014. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/industrias/los-inventarios-en-las-industrias-han-bajado-40-3-.aspx#ixzz2mVJYZQPC; http://www.elmundo.com.ve/noticias/economia/empresas/fedecamaras-reporta-la-caida-de-inventarios-en-26-.aspx; El Universal, http://www.eluniversal.com/economia/131204/53-de-los-industriales-redujo-produccion-en-el-iii-trimestre; http://www.eluniversal.com/economia/131204/desconfianza-desacelera-reposicion-de-inventarios; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/el-ranking-de-los-8-sectores-con-mayores-caidas-en.aspx#ixzz2mVGisEVS)

US dollar account holders not required to declare FOREX to Central Bank.

Individuals residing in Venezuela may now open and hold bank accounts in US dollar in the country without informing the Central Bank about the amount and nature of their FOREX. The resolution was published following a presidential decree amending the Law against Foreign Exchange-Related Offenses. (El Universal, 12-05-2013; http://www.eluniversal.com/economia/131205/us-dollar-account-holders-not-to-declare-forex-to-central-bank)

Over 52,000 new US dollar account holders reported in public banks.

Public Banking Minister Rodolfo Marcos Torres says a total of 52,575 US dollar-denominated bank accounts have been opened this week to import new automobiles following a decree by President Nicolás Maduro that allows individuals who deposit U$D into the local banking systems to import foreign vehicles. Once an account is opened, the owner can request a license to import the vehicle from the Ministry of Trade and subsequently present it to SUVINCA (Venezuelan Industrial Supplies Company). (El Universal, 12-04-2013; http://www.eluniversal.com/economia/131204/over-52000-new-us-dollar-account-holders-in-venezuelan-public-banks)

Oil & Energy

PDVSA reports 517% profit increase due to devaluation, welfare contributions drop 42%.

PDVSA's results during the first semester 2013 were impacted by fewer barrels sold and lower oil prices, with profits at U$D 59.1 billion, a 5.5% drop from 2012. The company admits average export oil prices were U$D 97.5, down from U$D 105.41 last year. PDVSA also exported less oil: During the first semester 2.4 million BPD were sold, down from 2.5 million the previous year, mainly due to a decrease in derivate products. Despite all of this, overall profits rocketed to U$D 12.9 billion, up from U$D 2.09 billion in 2012. The company admits "these results are due to the difference in exchange rates. Although profits rose 517% during the first semester we do not expect a significant increase in the remainder of the year ending 31 December 2013". PDVSA benefitted from 46.5% devaluation in February which raised the official rate from 4.3 to 6.3. Bolivars to the US dollar. On the other hand, PDVSA's social contributions have dropped 42%, down to U$D 4.5 billion from U$D 7.2 billion in 2012. More in Spanish: (El Universal; http://www.eluniversal.com/economia/131206/crecen-517-las-ganancias-de-pdvsa-pero-cae-su-aporte-social)

CITGO said to plan Lemont vacuum unit restart in mid-January.

CITGO Petroleum Corp. will try to restart the vacuum section of a crude unit at its Lemont refinery in mid-January that was shut after an October fire, according to a person familiar with the progress of repairs. The company is repairing areas around the vacuum unit, including pipe racks that were damaged in the fire, said the person, who asked not to be identified because the information isn’t public. Fernando Garay, a spokesman for CITGO in Houston, didn’t immediately reply to a request for comment today. A fire on Oct. 23 shut the atmospheric and vacuum portions of a crude unit at CITGO’s 170,500-BPD refinery in Illinois, which processes mostly heavy Canadian crude. (Bloomberg, 12-05-2013; http://www.bloomberg.com/news/2013-12-05/citgo-said-to-plan-lemont-vacuum-unit-restart-in-mid-january.html)

Commodities

Production at government held companies plunges 13.5%.

The government has set up a complicated conglomerate of new and expropriated companies in the areas of food, paper, chemicals, metals, cement, glass, and mining, but results are not what they expected. According to a Central Bank report by the close of this year's 3Q companies managed by the government are reflecting a severe drop in production which generates scarcities, a drop in non-oil exports and a heavier load on oil income. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131206/la-produccion-de-las-empresas-publicas-se-desplomo-135)

CVG says SIDOR strike lifted.

According to the CVG, workers at the SIDOR steel complex have agreed to lift their ongoing strike after agreeing to postpone collective bargaing talks to January 2014. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131206/cvg-dice-que-tras-acuerdo-de-trabajadores-se-levanto-el-paro-en-sidor)

Government to fix automotive prices.

President Nicolas Maduro said his government will set car prices in a bid to lower their cost. Maduro, using a newly-acquired power to rule by decree, ordered in an address on state television that "car production be regulated and strengthened in Venezuela, ... to lower the prices of new cars made in Venezuela, and of imports and of used cars." The decree was to have been signed Monday, Maduro said, but is now awaiting a meeting Tuesday with members of his economic team and the auto industry. People who open foreign currency accounts in state banks, in the coming months, will be granted a license to buy an imported car, Maduro added. No date was given. (France24; http://www.france24.com/en/20131203-maduro-says-govt-venezuela-will-set-car-prices; Reuters, 12-05-2013; http://www.reuters.com/article/2013/12/05/us-venezuela-cars-idUSBRE9B40ZH20131205)

International Trade

Paraguayan President calls on Congress to endorse Venezuela's entry into MERCOSUR.

Paraguayan President Horacio Cartes has signed the Accession Protocol of Venezuela to the Southern Common Market of the South (MERCOSUR) and submitted it to Congress to be endorsed by the Legislature. Cartes asked the senators of the ruling Colorado party "to revise" their position on Venezuela's incorporation into Mercosur, which became effective in July 2012 and to approve this protocol. (AVN, 12-05-2013; http://www.avn.info.ve/contenido/paraguayan-president-calls-congress-endorse-venezuela039s-entry-mercosur)

US trade deficit with Venezuela spikes to U$D 1.94 billion in October.

The United States deficit with Venezuela climbed from U$D 1.25 billion in September to U$D 1.94 billion in October. In January-October, the US deficit hit U$D 15.6 billion, down from U$D 17.9 billion recorded during the same period in 2012. (El Universal, 12-04-2013; http://www.eluniversal.com/economia/131204/us-trade-deficit-with-venezuela-spikes-to-usd-194-billion-in-october)

U$D 62 million a day losses are being generated due to sealing off the Venezuelan border with Colombia in Táchira state which was ordered without prior notice last Monday, six days into the local elections, says opposition lawmaker Miguel Ángel Rodríguez. (Veneconomy, 12-04-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=37387&idc=3)

Government signs agreement with CHERY.

Nicolás Maduro has announced that his government has signed an agreement with CHERY to set up a factory to manufacture engines for all of their premier vehicles. (Veneconomy, 12-04-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=37386&idc=3)

Politics

Local vote to test Maduro's strength.

Nationwide local polls this weekend are President Nicolas Maduro's first electoral test since taking power and will show what Venezuelans think of his socialist government's radical response to deepening economic problems. Sunday's vote for 337 mayors' and 2,523 council posts is theoretically a local affair, with humdrum issues such as pot-holes and street-lights sure to influence voters. Yet both sides in the country also view their candidates' fortunes as a snapshot of national mood and measure of their relative strength for future battles. (Reuters, 12-05-2013; http://www.reuters.com/article/2013/12/05/venezuela-election-idUSL2N0JH0RS20131205)

CNE director: "This is the most outrageous campaign in Venezuelan history".

This upcoming municipal election campaign is "the most outrageous campaign Venezuela ever had in many years; I'd dare say in Venezuelan history," says Vicente Díaz, a member of the board of the National Electoral Council (CNE).
Diaz says the current campaign is marked by the "institutionalization of the government advantageous position" and public servants' engagement in electioneering "on behalf of political candidates without stepping down, as appropriate." "We have seen the president of the Republic on mandatory simultaneous broadcasts, attacking, stigmatizing, questioning, lambasting opposition candidates and leaders," he lamented. (El Universal, 12-05-2013; http://www.eluniversal.com/nacional-y-politica/131205/cne-director-this-is-the-most-outrageous-campaign-in-venezuelan-histor)

Maduro calls for meeting with all elected mayors on December 10th.

President Nicolás Maduro has announced he will call a meeting with all mayors elected next Sunday - "without exceptions" - on Tuesday, December 10th. He said all elected mayors certified by the Elections Board "whoever they may be, will be here in Miraflores (Palace) in a meeting with the head of State, and I am also going to invite all governors in the country so that we devise a united plan, so that we join efforts". More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/131206/maduro-plantea-reunion-con-todos-los-alcaldes-electos

Article by Roger Noriega: Venezuela headed for chaos.

"Venezuela is in a death spiral that could produce a crisis for the United States. Economic collapse, incompetent leadership and Cuban meddling may provoke a showdown among well-armed chavista rivals, with civilians caught in the crossfire. US diplomats, who've spent years ignoring or minimizing threats emanating from Venezuela, must act urgently to prevent a Syria scenario on our doorstep. The late dictator Hugo Chávez left behind a mess: His divisive, illegitimate regime polarized society and devastated the economy. Inflation is running at 50 percent, while the vital oil sector is faltering. The bloated, bankrupt state can't sustain the social spending that kept the peace; the nation already faces food shortages, power outages and rampant crime. Nicolás Maduro's mismanagement since has only hastened the country's decline - for example, dealing with toilet-paper shortages by confiscating paper companies. As he further tightens economic controls, Venezuelans will have to settle for what the government provides. Their only other choices: Flee the country, turn to crime - or oppose the regime. Maduro is most worried about the last. He recently ordered the detention of several civic leaders who'd been mobilizing protest rallies. Most blame these draconian measures on Maduro's Cuban handlers. By pushing Maduro to purge powerful chavistas - many with ties to the military - who disapprove of Havana's heavy hand, the Cubans have likely overreached. This crackdown has stoked tension within the military between those aligned with Maduro and nationalists who've never been comfortable in a Cuban harness. The regime has very little room to maneuver. All sides in the military are busy weighing their options. Any act of repression, street brawl, electoral fraud or corruption scandal could unleash all the fury built up over the regime's 15 years." (Interamerican Security Watch: http://interamericansecuritywatch.com/venezuela-headed-for-chaos/)

BITLY gets caught in Venezuela's crackdown on websites that track black market exchange rates.

Venezuelans have been scrambling for dollars for weeks, taking refuge in the greenback as their own currency is in free fall. Rather than address the economic imbalances behind the bolivar's plunge, the government is going after the bearers of the bad news — it's taking down websites people use to track exchange rates on the black market. Cyber-activists say the crackdown goes to absurd lengths, even targeting BITLY, the popular site for shortening Web addresses to make it easier to send them as links via Twitter and other social media. For more than two weeks, access to the service has been partially censored by several Internet service providers in Venezuela, apparently because Bitly was being used to evade blocks put on currency-tracking websites. The New York company says such restrictions have only previously been seen in China, which has one of the worst records for Internet freedom, and even then not for such an extended period. Opponents of Venezuela's socialist government say the restrictions are designed to obscure reporting of the nation's mounting economic woes. (Fox News, 12-05-2013; http://www.foxnews.com/world/2013/12/05/bitly-gets-caught-in-venezuela-crackdown-on-websites-that-track-black-market/)

Government media say UN-ECLAC reports poverty down 5.6 points in Venezuela 2011-2012.

According t government media, the UN's Economic Commission for Latin America (ECLAC) has reported that poverty rated in Venezuela dropped 5.6 percentage points to 23.9% in 2011-2012. The information appears in its "Latin America's Social Outlook in 2013". More in Spanish: (AVN; http://www.avn.info.ve/contenido/cepal-pobreza-venezuela-se-redujo-56-puntos-entre-2011-y-2012; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/venezuela-tiene-menos-pobres-destaca-cepal.aspx)

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

December 03, 2013

Economics & Finance

Sovereign bonds drop as investors fear further radicalization. Investors see the official decision to increase controls over rents as a sign of more radicalization and less chance for reform that could stabilize Venezuela's economic system. As a result, sovereign bonds dropped an average 0.65 points, and PDVSA bonds were down 1.25 points, according to a report by ARCA. Analysts see that as hopes for economic change after the death of Hugh Chavez are dashed, Venezuelan bonds are dropping back to where they were before his illness was announced. This means any bond issue will meet with high interest rates. More in Spanish: (El Universal, http://www.eluniversal.com/economia/131203/inversionistas-temen-radicalizacion-y-caen-bonos-de-la-republica)

Controls have failed to curb cost and price rises. Efforts by the Venezuelan regime to force down inflation by decree are not new. Many mechanisms have been set up in the last 10 years seeking to curb inflation, counter speculation, and ensure the supply of goods and services to the population. They all considered reining in corporate earnings. Both the 2008 Law for the Defense of People's Access to Goods and Services and the 2011 Law on Fair Costs and Prices were passed under enabling powers granted to Hugo Chavez. They spawned a host of business inspection plans that became diluted over time, but had no effect on inflation and product supply. Even if they had an immediate effect in lowering inflation, in the mid-term not only did prices go up, but this gave rise to short supply of products regulated by SUNDECOP (the government's price controls agency). Business-inspection mechanisms applied today are the same used by SUNDECOP in the past: auditing of costs, including costs and fiscal burdens, in order to determine a net price on the profit margin considered by the government to be "fair." (El Universal, 11-30-2013; http://www.eluniversal.com/economia/131130/controls-have-failed-to-curb-cost-and-price-rise)

Central Bank of Venezuela raises savings interest rate to 16%. The Central Bank has officially adjusted the interest rate on savings by 3.5 percentage points, from 12.5-16% for account balances up to VEB 20,000 (USD 3,174). The rate of interest on term deposits will remain unchanged at 14.5%. (El Universal, 12-02-2013; http://www.eluniversal.com/economia/131202/central-bank-of-venezuela-raises-savings-interest-rate-to-16)

Oil & Energy

PLATT excludes PDVSA from its global ranking. Oil and energy information provider PLATTS has just published its ranking of the 250 largest oil companies in the world and - for the first time - has left Venezuela's state oil company PDVSA off the list. PLATT provides data on company oil reserves, production, refining, sales, profits and work force. Experts say Venezuela has 147 natural gas reserves, and yet must import gas from Colombia; it has the largest oil reserves in the world and two refineries, and yet must import gasoline from the United States, all of which points to weakness. According to the latest figures, production is down more than 400,000 BPD, exports are down 300-500,000 BPD, and its tax contributions are significantly lower. Malaysia's PETRONAS, Russia's LUKOIL, PETROVIETNAM, Brazil's PETROBRAS and the Byelorussian oil company have all chosen to withdraw from Orinoco Oil Belt operations. Charges of corruption and irregularities have raised concerns and create a negative perception as PDVSA's cash flow is considered drawn out due to a broad range of non productive activities. Foreign investment has dropped steadily over 14 years, debt to joint ventures, foreign and domestic suppliers have grown, and equipment acquisitions must be prepaid. Production continues to decrease, Orinoco Oil Belt production is feeble despite grandiose announcements, and new bond issues are considered "junk" in markets. More in Spanish: (Tal Cual Digital, http://www.talcualdigital.com/Nota/visor.aspx?id=95962&tipo=AVA)

PDVSA considers renting VALERO Energy facilities in Aruba. Venezuela's state-run oil company PDVSA and U.S. refiner Valero Energy Corp are running tests to evaluate the restart of five units at the 235,000 barrel per day (bpd) Aruba refinery, which was shut last year over high costs, according to three sources familiar with the situation. The Aruba refinery was closed in September 2012 when its owner, Valero, reduced its workforce and stopped units at the plant - which cannot convert heavy crudes into light products because of a lack of deep conversion plants. The Aruba refinery would offer PDVSA output of heavy fuels to mix with its own heavy crudes, along with storage space it partially lost in 2012 after several fires in its domestic refining network. The sources said PDVSA could lease the units from Valero and pay for their use in oil. PDVSA and its private partners in Venezuela need to obtain heavy naphtha to mix it with increasing output of heavy crudes in the Orinoco belt and create diluted crude oil (DCO), as production of light crudes that were used to generate blends such as Merey 16 declines. (CNBC, http://www.cnbc.com/id/101239773)

Venezuela oil price up. Venezuela's weekly oil basket stayed below the country's desired U$D 100 a barrel floor, but rose on "cuts in supply from northern Africa." According to figures released by the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending November 29 was U$D 94.69, up U$D 0.71 from the previous week's U$D 93.98. (Latin American Herald Tribune, 12-01-2013; http://www.laht.com/article.asp?ArticleId=1252510&CategoryId=10717)

Commodities

SMURFIT KAPPA says company "intervened" by Venezuela. SMURFIT KAPPA confirms that officials from the Venezuelan government have announced a temporary intervention at the Group’s subsidiary SMURFIT KAPPA Carton de Venezuela (‘SKCV‘). This is part of a nationwide programmed of inspections and audits at both locally and internationally owned companies, conducted by a number of government Ministries and agencies. The intervention allows for further inspections and audits covering areas such as tax, costs, pricing and employment practices. SKCV retains management of the company and is co-operating fully with the government officials. SMURFIT KAPPA is one of the leading producers of paper-based packaging in the world, with around 41,000 employees in approximately 350 production sites across 32 countries and with sales revenue of €7.3 billion in 2012. (Latin American Herald Tribune, 12-02-2013; http://www.laht.com/article.asp?ArticleId=1253960&CategoryId=10717; Bloomberg, http://www.bloomberg.com/news/2013-11-30/venezuela-temporarily-takes-over-smurfit-plant-in-valencia.html; Reuters, http://www.reuters.com/article/2013/11/30/venezuela-smurfitkappa-idUSL2N0JF0KF20131130)

International Trade

Imports centralized as the government tightens control on foreign trade. Supplies for public and private companies must now go through the newly created Venezuelan Foreign Trade Corporation (VENECOM), which includes all public companies linked to foreign trade and will be charged with "coordinating, supervising and setting guidelines" on their activities. Private companies will also be directed by VENECOM. The new corporation will preserve the same infrastructure that has had problems in the past. The entire structure has been designed to increase government control. Economist Francisco Faraco says "they are bringing imports under state control, having the government deal with suppliers, and this is a plan which has brought shortages wherever it has been applied as it is extremely complicated. There is no single price for a same product, quantities and time frames must be considered. A car has about 20,000 parts and some 2,000 suppliers." More in Spanish: (El Universal, http://www.eluniversal.com/economia/131203/se-centralizan-importaciones-con-la-misma-infraestructura; and  http://www.eluniversal.com/economia/131203/el-gobierno-refuerza-el-control-sobre-el-comercio-exterior)

Non-oil exports down 56% since 2007. One of the objectives of the First Socialist Plan 2007-2013 was to diversify exports of goods and services from Venezuela. However, since then non-oil exports have plummeted by 56%, from U$D 5.45 billion in January-September 2007 to U$D 2.48 billion during the same period in 2013, according to information provided by the Central Bank of Venezuela (BCV). In 2012-2013, non-oil exports, that is, commodities and natural resources plunged by 44%, from U$D 973 million in January-July 2012 to U$D 545 one year later, according to the National Statistics Institute (INE). (El Universal, 12-02-2013; http://www.eluniversal.com/economia/131202/venezuelas-non-oil-exports-down-56-since-2007)

Venezuela may send granite to Ecuador, Uruguay, Colombia and Cuba. Arnoldo García, President of the National Association of Granite Producers (ANAGRAVEN) said on state television that Venezuela has reached an agreement with Ecuador, Uruguay, Colombia and Cuba, in order to export non-metallic processed minerals, mainly granite to these countries. More in Spanish: (AVN; http://www.avn.info.ve/contenido/venezuela-exportar%C3%A1-granito-ecuador-uruguay-colombia-y-cuba; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/venezuela-exportara-granito-a-ecuador-uruguay-colo.aspx)

Politics

Maduro steps up economic offensive days before elections. President Nicolas Maduro announced new steps in his battle against “speculation” and ordered the arrest of merchants who have raised the prices of their products after being inspected to make sure they had lowered them.
Just days before municipal elections, which the opposition has framed as a referendum on his government, all the nation’s radio and television outlets were forced to broadcast an appearance by Maduro, surrounded by his entire Cabinet at the Miraflores presidential palace, in which he called for an “economic revolution” to protect the “productive middle class.” (Latin American Herald Tribune, 11-30-2013; http://www.laht.com/article.asp?ArticleId=1248824&CategoryId=10717; Fox News, http://www.foxnews.com/world/2013/11/29/venezuela-caps-commercial-real-estate-prices-as-crackdown-on-inflation-expands/)

Capriles urges people to stay at poll centers to protect votes. Miranda State Governor and opposition leader Henrique Capriles Radonski has urged dissenters to organize themselves and vote in the local election to be held next December 8. "I urge people with difficulties to mobilize and senior citizens to vote first thing in the morning. Then, after 2:00 in the afternoon, it will be the time for the avalanche of young people," Capriles said. (El Universal, 12-02-2013; http://www.eluniversal.com/nacional-y-politica/131202/capriles-urges-people-to-stay-at-poll-centers-to-protect-votes)

Blackout darkens half of Venezuela before local elections. Half of Venezuela lost power last night, six days before voters choose mayors across the country in the first electoral test for President Nicolas Maduro’s government. Electricity Minister Jesse Chacon said on state television last night that power would be restored by the end of the day, and investigators were dispatched to the Arenosa substation in southern Bolivar state where the failure occurred. He had blamed “sabotage” for a Sept. 3 breakdown at the same station that left about 60% of the country without power. Maduro, who temporary stopped his speech during the blackout, said nothing will stop the local vote from being held. “This is sabotage, live and on air,” Maduro said in a televised speech from the presidential palace last night. “Attention all armed forces of the state: the fascists are getting desperate before the elections.” The Venezuelan opposition has blamed a lack of investment and poor management for regular blackouts. “The country is in a blackout and the government is offering pathetic declarations,” opposition leader Henrique Capriles wrote in a Twitter post last night. “Take the responsibility for once!”  State television said at least 12 out of the country’s 24 states and districts, including three states with refineries, temporarily lost power. State-owned Petroleos de Venezuela SA said in an e-mailed statement that all oil facilities were functioning normally. (Bloomberg, http://www.bloomberg.com/news/2013-12-03/blackout-darkens-half-of-venezuela-before-local-elections.html)

Venezuela ranked as the most corrupt nation in Latin America. Transparency International has published its 2013 Corruption Perception Index (CPI) and finds Venezuela and Paraguay are seen as the most corrupt countries in Latin America, while Uruguay and Chile take the lead in transparency. On a scale of 0 (extremely corrupt) to 100 (very transparent), Venezuela ranks last at 20, followed by Paraguay (24), Honduras (26), Nicaragua (28) and Guatemala (29). More in Spanish: (Infolatam)

Venezuela's oil diplomacy wanes as impact of its economic problems spread beyond borders. The late President Hugo Chavez's dream of leveraging Venezuela's oil wealth to spread revolution across Latin America is crumbling under the weight of an economic crisis that is forcing his hand-picked successor to cut back on generous foreign aid. Signs of the country's waning influence are becoming more apparent. In early November, Guatemala withdrew from the PETROCARIBE oil alliance launched by Chavez, saying it didn't receive the ultra-low financing rates it had been promised by Venezuela when it first sought to join the 18-nation pact in 2008. Also in recent weeks, representatives of Brazil and Colombia have held meetings with their Venezuelan counterparts to collect overdue payment for food, manufactured goods and other imports. While Venezuela has fallen behind on payments before, the latest cash crunch is more severe, and the economic outlook more uncertain, than any time in 15 years of socialist rule. The reason is a dependence on oil, which accounts for 95% of exports. Although Venezuela sits atop the world's largest reserves, production has steadily declined in recent years. Global prices for crude are also lower as hydraulic fracturing technology boosts supplies in the U.S. at a time that Europe's economic woes and weaker growth in China limit global demand. (Fox News, 12-02-2013; http://www.foxnews.com/world/2013/12/02/venezuela-oil-diplomacy-wanes-as-impact-its-economic-problems-spread-beyond/)

Brazil lobbies for Guyana's consolidation in the Essequibo. The Maduro regime claims Brazil is Venezuela's closed ally, yet when it comes to Venezuela's dispute over the Essequibo, Brazil supports Guyana's consolidation in the territory in dispute. According to information from Wikileaks in October 2009. US Chargé d'Affaires to Brasilia, Lisa Kubiske, relayed statements by Brazilian Ambassador Rubem Barbosa about Brazil's interests in the Essequibo. Referring to Brazil's investment in a hydroelectric power generation plant in the Essequibo and answering whether Venezuela's claim would not spoil Brazil's plans, Barbosa was reported as confident that the political reasons to carry out the project were convincing. (El Universal, 11-30-2013; http://www.eluniversal.com/nacional-y-politica/131130/brazil-lobbies-for-guyanas-consolidation-in-the-essequibo)


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.