January 14, 2014

Economics & Finance

Dollar drought worsens amid uncertain FOREX policy in Venezuela

Delayed implementation of a new FOREX system is stoking the US dollar drought in the Venezuelan private sector, drying up inventories and making the shortage of goods worse. The new register of companies authorized to buy US dollars from the National Foreign Trade Corporation has not been opened yet. Nor has the amount of the US dollar budget and general guidelines for defining the exchange policy by sector been announced. Further, it is not known which companies will be allowed to buy US dollars via the Ancillary Foreign Currency Administration System (SICAD), the Foreign Exchange Administration Commission (CADIVI), or the institution that could eventually replace the latter. (El Universal, 01-13-2014; http://www.eluniversal.com/economia/140113/dollar-drought-worsens-amid-uncertain-forex-policy-in-venezuela)

Inflation up 398% since 2008 despite monetary conversion

Inflation has accelerated over the last six years, and the accumulated rate from January 1, 2008 (when reconversion was first applied), to December 31, 2013 was 398%, according to the Central Bank of Venezuela. During the six-year period prior to the monetary conversion, the accumulated changes in the consumer price index had been 225.5%. (El Universal, 01-11-2014; http://www.eluniversal.com/economia/140111/inflation-has-reached-398-since-2008-despite-monetary-conversion)

Venezuelan government additional expenditure rose 60% in 2013

Increased wages and pensions and increasing demand for funds by government institutions and state-run companies hit public accounts last year. The FY2013 initial budget was VEB 396.4 billion (U$D 62.9 billion), and additional spending was VEB 279.9 billion (U$D 44.4 billion), up 60% from 2012 (VEB 174 billion – U$D 27.6 billion). The FY2013 budget closed at VEB 676.3 billion (U$D 107.3 billion). (El Universal, 01-13-2014; http://www.eluniversal.com/economia/140113/venezuelan-govt-additional-expenditure-up-60-in-2013)

Venezuela's country risk closed 2013 as the highest

The close of 2013 was not all positive for Latin America in terms of economic confidence as per the EMBI economic country risk index. Venezuela remains in the last place with 1138 points but is the one with a lowest rate of 0.96%. Similarly, Argentina with 872 integers and up 7.92% in the month presents the worst results. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/infografia---riesgo-pais-de-venezuela-cerro-el-201.aspx#ixzz2qGwSfmxT)

Oil & Energy

PETROVIETNAM halts PETROMACAREO project

PETROVIETNAM, which holds 40% in the PETROMACAREO project within the Orinoco Oil Belt, has announced it is halting crude extraction at the project due to economic difficulties in Venezuela. The information was published by The Saigon Times, quoting Phung Dinh Thuc, Chairman of PETROVIETNAM's Board of Directors, who said no investor can put money into projects under such unfavorable market conditions, nor can they hire local companies due to the rise in prices. More in Spanish: (El Universal, 01-14-2014; http://www.eluniversal.com/economia/140114/petrovietnam-anuncio-paralizacion-de-petromacareo)

REPSOL plans U$D 1.2 billion investment to double Orinoco Oil Belt production

REPSOL President Antonio Brufau plans to visit Venezuela this week to sign a U$D 1.2 billion financing agreement with PDVSA to develop capacity at PETROQUIRIQUIRE to over 100,000 BPD. The project is currently pumping 40,000 BPD. More in Spanish: (Noticias 24, 01-13-2014; http://www.noticias24.com/venezuela/noticia/217251/presidente-de-repsol-viajara-esta-semana-a-venezuela-para-firmar-financiamiento-millonario-con-pdvsa/)

RELIANCE eyes stake in Venezuela crude oil block

RELIANCE Industries is looking at buying PETRONAS' 11% stake in Venezuela's U$D 20 billion Carabobo-1 project, a company official says. RIL, which had in 2009 dropped out of the winning bid made by an ONGC-led consortium for developing the giant Carabobo-1 project, is "looking at taking over the participating interest of PETRONAS," says RIL senior vice-president Swagat Bham. The Orinoco Oil Belt field, which had about 50 billion barrels of proven reserves, can produce a minimum of 400,000 bpd of oil. Petroliam Nasional Bhd, Malaysia's state-run oil company, has decided to withdraw from the Carabobo-I project in August last year following dispute over terms with Venezuela's state explorer Petroleos de Venezuela SA (PDVSA). Besides Indians, REPSOL too informed of the decision not to buy PETRONAS stake before the expiry of the 30-day deadline on September 27, 2013. The Indians had, however, promised to look for a suitable replacement for PETRONAS. (India Times, http://economictimes.indiatimes.com/news/news-by-industry/energy/oil-gas/reliance-eyes-stake-in-venezuela-crude-oil-block-mexico-exploration-assets-executive/articleshow/28789808.cms)

Venezuela oil price starts 2014 at low

Venezuela's weekly oil basket stayed below the country's desired U$D 100 a barrel floor for 2013 and fell further in the first week of 2014. According to figures from the Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending January 10 was U$D 94.34, down U$D 2.45 from the previous week's U$D 96.79. (Latin American Herald Tribune, 01-10-2014; http://www.laht.com/article.asp?ArticleId=1461325&CategoryId=10717; El Universal, 01-10-2014; http://www.eluniversal.com/economia/140110/venezuelan-oil-basket-price-averages-usd-9949-per-barrel-in-2013)

Commodities

One million bag wheat flour deficit estimated

Bread sales have been restricted at bakeries due to exhausted flour inventories. Flour distribution was hit by two strikes at state-run MONACA mills during 2013. Tomás Ramos, President of the Venezuelan Bakery Association (FEVIPAN) reports the situation translated into a 410,000 bag hit in supplies which led bakeries nationwide to use up their inventories. He reports there is now a one million bag deficit in the market which has brought scarcity to around 30-40%. More in Spanish: (El Universal, 01-14-2014; http://www.eluniversal.com/economia/140114/estiman-en-un-millon-de-sacos-el-deficit-de-harina-de-trigo)

National chemical inventories running out

Juan Pablo Olalquiaga, President of the Chemical and Petrochemical Industry Association (ASOQUIM) reports supply problems in several key areas, calling the situation with inventories "very bad". He said: "I cannot provide the number of days, but I can say there are very low inventories and an important number of products are not available to markets.". More in Spanish: (El Universal, 01-14-2014; http://www.eluniversal.com/economia/140114/se-agotan-los-inventarios-de-la-industria-quimica-nacional)

International Trade

Bolivia sold Venezuela 60% fewer textiles due to late payments

Bolivian textile exports to Venezuela dropped by 60% in 2013 due to late payments. "In 2012 a record of exports was reached and sales were U$D 180 million, and this year it has dropped to about 60 million. Thing is that Venezuela is not paying in currency," says the president of the Chamber of Exporters the region of Santa Cruz, Wilfredo Rojo. More in Spanish: (El Nacional; http://www.el-nacional.com/)

Logistics & Transport

Trapped airline cash in Venezuela rises to U$D 3.3 billion

International airlines operating in Venezuela have U$D 3.3 billion trapped in the country because of currency controls, the International Air Transport Association said. Valued at the official exchange rate of 6.3 bolivars per dollar, the amount of cash airlines have in Venezuela has risen 27% from U$D 2.6 billion in November, Jason Sinclair, an IATA spokesman, said yesterday. Companies including Brazil’s GOL Linhas Aereas Inteligentes, S.A. and Panama’s COPA Holdings, S.A. (CPA) are among those affected by the restrictions. Airlines have to wait around 12 months for the government to convert their Bolivar earnings into dollars, with the time lag growing, according to the Venezuela Airline Association. Madrid-based AIR EUROPA said Jan. 8 it suspended ticket sales from Venezuela as its cash in the country totaled U$D 100 million. “We are looking for formulas to resolve these issues,” Tourism Minister Andres Izarra told reporters in Caracas today. “We will make announcements shortly.”  COPA said in a statement the same day that it had about U$D 392 million “pending repatriation” from Venezuela. Carriers including AMERICAN AIRLINES (AAL) Inc., Grupo AEROMEXICO SAB and AVIANCA Holdings SA have been reducing their sales in the country since late 2012, as tighter currency controls make it difficult for companies to expatriate earnings amid 56% annual inflation and gradual devaluation. (Bloomberg, http://www.bloomberg.com/news/2014-01-09/trapped-airline-cash-in-venezuela-rises-to-3-3-billion.html)

BOLIPUERTOS blames state-run CASA for port congestion

Venezuela's Port Authority corporation BOLIPUERTOS says government imports are partly to blame for congestion at Puerto Cabello. In a press release, the institute admits that "massive imports" carried out by the Supply and Agricultural Services Corporation (CASA) - another government agency - are at the root of the problem: "Massive imports by the government during the last months of last year have generated a large number of empty containers that must return to their points of origin, in this case, Brazil." Shipping sources have often pointed to "unplanned" food imports by the government as the main cause for congestion at Venezuelan ports. Delays in the return of containers also bring about fines. Las year shipping companies were pressing PDVSA to pay U$D 196 million in overdue containers. At that time, the Venezuelan Shipping Association reported PDVSA had not returned "some 2900 containers", some of which remained in country for up to 700 days. More in Spanish: (El Universal, 01-10-2014; http://www.eluniversal.com/economia/140110/bolipuertos-culpa-a-la-estatal-casa-por-congestion-en-puertos)

Panama Canal dispute enters crucial week

Negotiations are starting this week between the Panama Canal authority and the consortium charged with the Canal's expansion, in order to keep works going after a 20 January deadline. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/internacional/disputa-por-ampliacion-del-canal-de-panama-entra-e.aspx#ixzz2qMnDm3gE)

Politics

24,000 murders last year confirm Venezuela as one of the world's most dangerous countries

Venezuela made headlines last week, for wretched reasons. Late last Monday a former beauty queen, Monica Spear, 29, and her British ex-husband, Thomas Henry Berry, 39, were murdered on a lonely stretch of highway in front of their five-year-old daughter. The couples were assaulted in an altogether too common way: an obstacle left in the road punctured the tires of their car, forcing it onto the hard shoulder. A tow truck came to their rescue, but as their vehicle was being lifted to safety a gang of up to 11 people attacked. Their deaths have shocked and infuriated the already violence-numbed Venezuelans. Murders such as these usually go unreported on account of their tragic frequency, but Spear's fame made this different."We are all Monica," said a protester's poster in Caracas, as people gathered to mourn and voice their anger. Last year Venezuela was branded the most dangerous country in Latin America. A 2010 UN report places it among the top four most murderous countries in the world. While the government has refused to release its own statistics for years, a recent report by an NGO, the Venezuelan Observatory on Violence, estimates that 24,000 people were murdered in 2013 alone, a 14% rise on 2012, with nine out of 10 homicides going unsolved. In a country of 29 million people, there is roughly one gun for every two people. (The Guardian)

Number of departing Venezuelans on the rise

Venezuelans are leaving. In 2005-2010, the number of Venezuelan residents abroad climbed from 378,000 to 521,000. The figures are shown in "Emigration from Venezuela in the last decade," by Anitza Freitez, Director of the Economic and Social Research Institute, Andrés Bello Catholic University (IIES-UCAB).
Freitez arrived at this number by reviewing estimates by the United Nations Population Division and the World Bank. "In Venezuela, there is no access to national statistical sources that allow making some approach of the quantification of international emigration of people born in Venezuela," said the scholar. (El Universal, 01-13-2014; http://www.eluniversal.com/nacional-y-politica/140113/number-of-outgoing-venezuelans-on-the-rise)

Economy related ministries overhauled

President Nicolás Maduro is revamping the central public administration to adapt it to a socialist model. Changes include new deputy-ministries at the Ministry of Agriculture and Lands, and the Ministry of Food.
The Ministry of Agriculture will now comprise the Office of the Deputy Minister of Agriculture; Office of the Deputy Minister of Livestock Production; Office of the Deputy Minister of Vegetable Farming; Office of the Deputy Minister of Fishing and Aquaculture Production; and the Office of the Deputy Minister of the Agro-industry. (El Universal, 01-13-2014; http://www.eluniversal.com/economia/140113/venezuelan-economy-related-ministries-overhauled)

Iranian Deputy FM planning to visit Venezuela

Iranian Deputy Foreign Minister for European and American Affairs Majid Takht Ravanchi plans to pay a three-leg tour of Latin America in the next few days. He is to visit Cuba, Venezuela and Bolivia to hold talks with officials of those countries to pave the way for boosting ties. Iran's strong and rapidly growing ties with Latin America, especially with Venezuela, have raised eyebrows in the US and its western allies since Tehran and Latin nations have forged an alliance against the imperialist and colonialist powers and are striving hard to reinvigorate their relations with the other independent countries which pursue a line of policy independent from the US. (Fars, http://english.farsnews.com/newstext.aspx?nn=13921022000474)

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.

January 10, 2014

Economics & Finance

Growing international concerns over Venezuela's economic collapse

International banks and economic analysts are issuing warnings about Venezuela's economic crisis, which is further aggravated by lack of safety, corruption and official incompetence. The Bolivar is now a weak, devalued currency in a nation sunk in the world's highest rate of inflation, and a gigantic internal and external debt - which it is impossible to audit. Warning signs:

■ Raising domestic gasoline prices cannot be further put off.

■ Bank of America Merrill Lynch considers devaluation necessary.

■ Moody’s lowered Venezuelan debt rating, as did Standard & Poor’s after alarms were raised by JP Morgan, Barclays Capital y Bank of America.

■ ECOANALÍTICA estimates that FOREX generating oil exports are 1.3 million BPD at the close of 2013, which is 800,000 BPD lower than 2006, with an estimated income loss of U$D 29.2 billion.

■ JP Morgan forecasts 60% inflation during the first semester of 2014, and a 1% GDP drop over the next year.

■ The Moody's report emphasizes that "government policies have exacerbated these problems, the risk of economic and financial collapse has risen considerably". The report continues to say that the government is "highly fragmented into different groups" and none of them has sufficient power to "establish an adjustment with coherent policies". José Guerra, who heads the economic team for the opposition Democratic Unity Conference (MUD) says PDVSA's financial deficit with the Central Bank rose to U$D 65.272 billion by 22 November 2013. He adds that major currency devaluation and higher domestic gasoline prices will increase supply, inflation will accelerate and real income will drop. More in Spanish: (CAN, http://impactocna.com/alerta-internacional-sobre-el-colapso-economico-de-venezuela/)

FOREX: The wait continues

For nearly nine months, President Maduro has been announcing a strengthening and regularization of the FX supply through CADIVI and SICAD that has not yet materialized. Moreover, he has talked several times about the proximity of a “new exchange rate market”, but Venezuelans do not known what this means yet.  After December’s mayoral elections, some of the measures that had been postponed were expected to be announced, particularly a devaluation of the official rate (both of CADIVI and SITME) and the possibility of selling dollars at the non-official rate to reduce the gap between those rates that is producing a slow-motion balance of payment crisis. However, a month has already passed and little movement is seen of the government’s taking any significant actions. The central bank (BCV) has just announced a new FX auction through SICAD targeting sectors that have been considered priority (food and medicine) - a short-run action to try to satisfy immediate and specific FX demands for those sectors. Meanwhile, the lack of urgency that the government continues to show is a signal that if it makes any adjustment, it is likely to stay short of market expectations. At this point, Venezuela remains in the worst of all worlds. The private sector does not have a reliable permanent source of FX, which will continue to widen the distortions in the FX market, generate scarcity problems and/or feed inflation. On the other hand, the government accounts are being affected by the inconsistency between the FX and fiscal policies. While the government is trying to maintain a rigid exchange system in a context of high inflation, it has kept a very expansionary fiscal policy that has led to a fiscal deficit of double digits in terms of GDP in the past four years. It seems that divisions inside the government and ideology continue to keep it in paralysis, which gives Venezuela/PDVSA assets a very uncertain outlook. (Barclay's)

Venezuela in data denial after inflation tops 50%

Venezuela’s economic distress is so acute that the central bank stopped releasing regular statistics for the first time ever, threatening to increase borrowing costs further as the nation faces U$D 10 billion of financing needs. “This is not the right way to manage macroeconomic data,” Benjamin Wang, a money manager at PineBridge Investments LLC, which oversees U$D 5 billion of emerging-market debt and holds Venezuelan bonds, said by telephone from New York. “There’s no transparent data to measure the risk.” Yields on Venezuela’s sovereign bonds surged in the past year to 13.97%, the highest among 50 emerging markets tracked by JPMorgan Chase & Co., as consumer prices soared the most in the world and President Nicolas Maduro vowed to radicalize the Socialist Revolution started by his predecessor, Hugo Chavez, to combat enemies of the nation’s economy. (Bloomberg, 01-09-2014; http://www.bloomberg.com/news/2014-01-09/venezuela-in-data-denial-after-inflation-tops-50-andes-credit.html)

Oil & Energy

Halt in Amuay flexicoker unit likely to last one month

Although information related to operations in Venezuela's oil industry has been concealed, workers at the Paraguaná Refining Complex (CRP), northwest Venezuela, report a downtime at a distillation unit in Amuay is likely to linger for one month. Further, workers warned about the effects of the halt on the CRP's production capacity if the unit is eventually stopped for four weeks. The flexicoker unit "produces 64,000 barrels per day of oil byproducts such as gasoil and naphtha. This would lower production, which was already down particularly after the fire in the distillation unit," they indicated. (El Universal, 01-09-2014; http://www.eluniversal.com/economia/140109/halt-in-amuay-flexicoker-unit-likely-to-last-one-month)

Gasoline subsidy at U$D 91 billion since 2002

Freezing gasoline prices in Venezuela for more than 15 years has implied a substantial subsidy taken up by state-run oil holding Petróleos de Venezuela (PDVSA) and the government. The Energy Guidance Center (COENER), an organization comprising former managers and directors of PDVSA, have said in a press release that PDVSA "has directly borne the cost of subsidy of the fuel marketed in the domestic market, which cost has significantly increased, particularly since 2002." PDVSA's former managers estimate "this subsidy in fuel for vehicles is over U$D 91 billion since 2002." (El Universal, 01-09-2014; http://www.eluniversal.com/economia/140109/gasoline-subsidy-at-usd-91-billion-since-2002)

Commodities

Bakeries report no flour for bread, no milk for sale

"This is chaos" says a bakery owner who reports he has not received flour for 15 days, leading to early store closures, milk is also unavailable to the public. More in Spanish: (Notitarde; http://www.notitarde.com/La-Costa/Falta-harina-para-el-pan-y-no-hay-leche-para-la-venta-en-panaderias-2082984/2014/01/09/295076)

International Trade

Hunt for food sends Venezuelans to Colombian border towns

Venezuelan taxi driver Jose Sotomayor drives four hours through army checkpoints every week from the city of Maracaibo to buy rice in Colombia for his family at 10 times the government-set price back home. “You can’t get anything in the shops here, I don’t even bother going to them for basics anymore,” Sotomayor, 39, said in a phone interview. “All of our food is taken to Colombia, it’s like a locust plague.” Sotomayor hasn’t seen rice for sale in the shops of Venezuela’s second-largest city since July, as smugglers snap up the staple for a maximum of 7.2 bolivars (U$D 1.14) per kilogram, just U$D 0.11 at the black market exchange rate. While many Venezuelan shelves go bare, the country’s rice exports to Colombia have doubled this year and now represent 11% of the market, according to the U.S. Foreign Agricultural Service and Colombian rice growers association Fedearroz. (Bloomberg, 01-08-2014; http://www.bloomberg.com/news/2014-01-08/hunt-for-food-sends-venezuelans-to-colombian-border-towns.html)

Logistics & Transport

BOLIPUERTOS says CASA is partly responsible for port congestion

As congestion at Puerto Cabello continues, the National Port Authority (BOLIPUERTOS) says part of the problem stems from massive imports by the government itself, through the CASA official supply agency. More in Spanish: (El Universal; http://www.eluniversal.com/economia/140110/bolipuertos-culpa-a-la-estatal-casa-por-congestion-en-puertos)

Air Europa halts Venezuela sales as dollar drought hits airlines

Air Europa has suspended all ticket sales from Venezuela as currency controls make it difficult for international companies to convert bolivars into U.S. dollars that can be transfered abroad. Ticket sales are temporarily suspended until further notice, Julio Fernandez, a spokesman for the airline’s parent, Globalia Corporacion Empresarial SA, said by phone from Madrid. He declined to give a reason for the suspension. The Madrid-based airline, which according to data compiled by Bloomberg flies six days a week between Madrid and Caracas, has an equivalent of U$D 100 million in Venezuela at the official exchange rate of 6.3 bolivars per dollar, he said. (Bloomberg, 01-08-2014; http://www.bloomberg.com/news/2014-01-08/air-europa-halts-venezuela-sales-as-dollar-drought-hits-airlines.html)

Politics

Politicians appear jointly against crime. President Nicolas Maduro has met the governors of all 23 states and mayors from the most violent cities to co-ordinate action against crime. The meeting comes after a public outcry over the murder of a former beauty queen and actress, Monica Spear, who was shot dead. Ms Spear, 29, was murdered along with her British-born ex-husband Thomas Berry, 39, in their car. Maduro urged all politicians to put their differences aside and work together to end rising violence. Venezuelan opposition leader, Henrique Capriles, who is the governor of Miranda state, also met and shook hands with the president. It is the first time the two men have met since last year's disputed presidential election. Capriles has never conceded victory to Maduro, but had posted a message on Twitter addressed to the president calling for a nationwide drive against violence: "Nicolas Maduro, I suggest we put aside our deep differences and get together to fight the lack of security, as one bloc," he wrote. Vice-President Jorge Arreaza termed the meeting as just a first step to face the challenge of security. "We appreciate the willingness of all state governors and mayors yesterday," he said. (BBC)

Government releases surplus revenue to regional governors. President Nicolas Maduro on Wednesday gave the order to transfer petroleum and tax surplus revenues to regional governors in the country, as required by law. Regional governments will receive 10,749 million bolivares (Bs.), said the President, adding that such resources may be invested to support local police bodies. (AVN, 01-09-2014; http://www.avn.info.ve/contenido/government-allocated-surplus-revenues-regional-governors)

Maduro has rotated some Cabinet positions. President Nicolás Maduro has made some "necessary changes" changes in Venezuela's cabinet. The only change in the economic area involves rotating Major General Wilmer Barrientos, formerly Defense Minister and a member of the 1992 Chavez coup attempt, to the position of Minister of Industries, replacing Ricardo Menendez, who was moved to the Ministry of Education. A veteran activist in extreme leftist movements, labor lawyer Jesús Martínez, takes over as Labor Minister, replacing long time office holder María Cristina Iglesias. More in Spanish: (Infolatam)

Maduro has proposed Puerto Rico as CELAC member. President Nicolás Maduro will propose the inclusion of Puerto Rico in the Community of Latin American and Caribbean States (CELAC) in the next meeting to be held in Havana. "Free Puerto Rico will be independent," he exclaimed. Puerto Rico's Undersecretary of State Javier González responded that the proposal "has not been considered" by island authorities. (El Universal, 01-09-2014; http://www.eluniversal.com/nacional-y-politica/140109/venezuelas-maduro-to-propose-puerto-rico-as-celac-member and more in Spanish: Martinoticias, http://www.martinoticias.com/content/puerto-rico-celac-membresia-integracion-/30903.html)

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.

January 07, 2014

Economics & Finance

Venezuela hikes minimum wage 10% amid galloping inflation, 69.2% liquidity at close of 2013

President Nicolas Maduro on Monday announced a 10% increase in the minimum wage and pensions in efforts to maintain consumer spending power amid spiraling inflation that reached 56.2% last year. He claimed the increase would leave the minimum wage rising faster than inflation over 12 months. The hike would put the monthly minimum wage at VEB 3,270 bolivars. That is equivalent to U$D 519 at the official rate, which economists say is vastly over-valued.  Critics note the country's monetary liquidity -- a key measure of the money supply -- expanded by 69% in 2013 compared with economic growth of less than 2%, resulting in more money chasing the same amount of goods and services. (REUTERS, http://www.reuters.com/article/2014/01/06/venezuela-wage-idUSL2N0KG1EB20140106, and more in Spanish: El Universal, http://www.eluniversal.com/economia/140106/maduro-announces-minimum-wage-increase-of-10-effective-from-january, and http://www.eluniversal.com/economia/140106/monetary-liquidity-up-692-ending-2013)

Deficit is driving additional Bolivar devaluation planning

Under pressure of a huge 15% GDP budget deficit, the Maduro administration is looking at further devaluation in order to generate more Bolívars to the U$D. A new plunge in the exchange rate seems imminent after a 28% drop in reserves during 2013, and an inflationary jump that makes dollars at current 6.3 parity the cheapest item after gasoline. Reports indicate economic authorities are considering two scenarios: one would raise the base parity toward 11 VEB/U$D and the SICAD auction rate to around 16 VEB/U$D. The second scenario would keep the 6.3 rate for public sector imports and a list of basic goods and carry the SICAD rate to 16 VEB/U$D. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140107/deficit-fiscal-obliga-al-gobierno-a-prever-devaluacion-del-bolivar)

Chinese loans to Venezuela total U$D 49.5 billion in seven years

At the end of 2013, Venezuelan President Nicolás Maduro announced an additional disbursement related to the last loan signed with China. Over the past 7 years Venezuela and state-run oil company PDVSA have signed vast loan agreements amounting to U$D 49.5 billion in 2007-2013, according to official data. (El Universal, 01-06-2013; http://www.eluniversal.com/economia/140106/chinese-loans-to-venezuela-total-usd-495-billion-in-seven-years)

Oil & Energy

PDVSA seeks private partners for Mariscal Sucre project

With pending offshore projects in the states of Falcón, Sucre and Delta Amacuro, state-run oil holding Petróleos de Venezuela (PDVSA), sorely needs to increase domestic gas supply, diminish deficits and curb high consumption of liquid fuels (mostly gasoline and diesel). It is amenable to private partners in the Mariscal Sucre project in order to cope with planned investments by sharing a portion of the capital stock. Mariscal Sucre implies gas reserves amounting to 14.3 TCF, and is estimated to reach as much as 1.25 million cubic feet per day (mmpcd) of gas and 27,000 barrels per day (bpd) of natural gas condensates by 2017. (El Universal, 01-06-2013; http://www.eluniversal.com/economia/140106/pdvsa-in-quest-of-private-partners-for-mariscal-sucre-project)

Oil companies concerned over Venezuelan Navy actions

Oil companies working on oil prospecting in Essequibo waters and the Venezuelan Atlantic front under the concessions granted by Guyana recently voiced their concern to Georgetown over the determination of the Venezuelan Navy to prevent the survey. Executive officers of the oil companies which operate under Guyana authorization met last December with Guyana's Minister of Environment Robert Persaud and the Commissioner of Geology and Mines Neweel Denison in the United States. (El Universal, 01-06-2013; http://www.eluniversal.com/nacional-y-politica/140106/oil-companies-worried-about-action-of-venezuelan-navy)

PETROPAR managers visit Venezuela to deal with debt

Paraguayan state-run oil company PETROPAR has an accrued debt of at least U$D 265 million with PDVSA and its Board believes the amount due will be renegotiated. Paraguayan daily newspaper ABC Color reports that PETROPAR authorities plan to visit Caracas next week to discuss new ways to pay off debt for fuel supply owed by the Paraguayan company to its Venezuelan counterpart. (El Universal, 01-06-2013; http://www.eluniversal.com/economia/140106/petropar-managers-visit-venezuela-to-deal-with-debt)

Commodities

Supermarkets are short on basic supplies

A survey of major public and private supermarkets by ULTIMAS NOTICIAS daily newspaper reveals empty shelves in areas reserved for key products such as beef, chicken, flour, sugar, vegetable oils, milk and toiled paper - among others. More in Spanish: (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/red-de-supermercados-esta-corta-de-cesta-basica.aspx#ixzz2pi5wFgih)

International Trade

Companies report snags while attempting to set up import bonds

Companies importing food and consumer products must post Bolivar bonds at the new National Foreign Trade Center (CENCOEX) in order to apply for FOREX allocations. Company representatives report that in addition to the new requirement, companies cannot determine what rate will be used for import operations, nor what to do to get them. "CENCOEX now  handles dollars and it will establish a FOREX fund do determine which activity gets the 6.3 parity rate or the SICAD 11.3 parity rate, or whether more devaluation is on the way." More in Spanish: (El Nacional; http://www.el-nacional.com/)

Logistics & Transport

Lack of spare parts snares transports

Cargo dispatching sources report at least 25% of Venezuela's 36,000 unit truck system is currently paralyzed due to lack of spare parts, and is now hurting distribution of imported goods from ports to urban centers while scarcity worsens. (El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/falta-de-repuestos-complica-flota-de-transporte-de.aspx#ixzz2pi8Jhmim)

SPECIAL REPORT: Panama Canal fracas

A Spain-led consortium building a new set of locks for the 100 year old Panama Canal says it miscalculated the cost of the job and would need an additional sum to finish the work: U$D 1.6 billion. The effects are rippling through Europe and in global shipping and maritime circles. The consortium says it may halt work on Jan. 20 unless it is paid, further delaying the expansion of the canal, which handles roughly 5% of world trade each year. The expansion is already 72% complete. But delays have already pushed the ribbon cutting back till June 2015. And this may delay it further. That means shippers worldwide taking delivery on what are called POST-PANAMEX vessels - over 30% of all global shipping - in 2015 have to figure out what to do with their ships until the new set of wider locks that can accommodate them open. This pushes shipping costs up. The company at the center of the overrun storm is SACYR Vallehermoso, one of Spain’s largest construction firms. According to Madrid’s El Pais newspaper. SACYR had reported as income the cost overruns it hoped to collect from Panama. In many ways, the cost overrun was a tale foretold. Back in 2009 when Panama awarded the bidding for the canal project, the consortium led by SACYR bid U$D 3.2 billion, versus the U$D 4.3 billion bid by a group led by U.S. firm BECHTEL. A third bid from another Spanish group was for U$D 6 billion. The wide variance raised suspicions.“A BECHTEL representative noted that the concrete cannot even be poured at SACYR's price,” noted a U.S. diplomatic cable signed by then-Ambassador Barbara Stephenson on July 8, 2009. The SACYR led group now says the cost override is due to unforeseen geological faults, while the Panama Canal Authority says it is only an attempt to fatten up the contract. Spain's Development Minister Ana Pastor is now in Panama meeting with President Ricardo Martinelli - who had previously announced he would travel to Spain to deal with the problem - and all sides in the argument in search of an arrangement with the Panama Canal Authority, which is willing to accept a cost override "as long as it is fully justified".  Panama Canal officials said cost overruns of 5 to 10% are expected in jobs as big as the canal expansion, but not the nearly 50% claimed by the SACYR consortium, which also includes Italy’s IMPREGILO, Belgium’s Jan de Nul and a Panamanian construction firm. The contract is insured and the SACYR-led consortium obtained a U$D 400 million bond in case of a dispute over costs. The bond is backed in part by a parastatal credit agency under Spain’s Secretariat of Commerce. The administrator of the Panama Canal, Jorge Quijano, told reporters Thursday that he’s got a Plan B for finishing the expansion project. What that is, he didn’t say. To be continued... To be continued... (McCLATCHY: http://www.mcclatchydc.com/2014/01/03/213464/spains-troubles-and-the-panama.html, and more in Spanish: Infolatam)

Politics

President Maduro calls for debate on separation of powers

At a recent meeting with legislators President Maduro says: "There is criticism from the opposition that there is no separation of powers in Venezuela: well, let us debate these matters, how it was, how it is and how it should be". The selection of a new Attorney General, People's Advocate, National Comptroller is due this year, along the months overdue replacement of 3 out of 5 members of the National Elections Board, and one third of the Justices on the Supreme Court. He added: "We must move toward a communal Elections authority to consult everything all the time, fearlessly. Practice democracy beyond formalities and bourgeois election carnivals, how to practice and live democracy in such complex societies, we believe it is through communes. A communal democracy will warrant a more democratic, more extended, more capable Elections Board". More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/140107/presidente-maduro-propone-ir-a-un-poder-electoral-comunal)

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.

January 03, 2014

Economics & Finance

2013 inflation at 56.2%, highest since 1996; economic growth reported at 1.6%. Venezuela's Central Bank published its November National Consumer Price Index with a 20 day delay, reporting it at 4.8%. November's figure, which was weeks behind schedule, was released simultaneously with December's, which was released early. The announcement was made by President Nicolás Maduro, who did not provide detailed inflation data for November and December, nor the 2013 year to date results. Inflation was way over the 2013 national budget projection of 14-16% and the highest since 1996 when it rose to 103.2% due to the removal of price and exchange controls that year. The Bank's press release echoed much of Maduro's discourse about "economic warfare" in order to explain inflation results. Maduro said the economy grew by an estimated 1.6% this year, well short of his administration's target of 6% growth and the 5.6% rate recorded last year. Maduro told reporters: "If we hadn't acted in time, inflation would have reached 10% in November and 15% in December, which would have generated chaos and violence." and claimed drastic moves he initiated last month, which included new laws to cap retailers' profits, would help inflation turn negative in November, a prediction that did not pan out. Critics say Venezuela's high inflation is due to economic mismanagement and the failure of government policies, including a decade of currency controls that were set up by Chavez. The opposition Democratic Unity coalition accused the government of withholding key economic data from the public. "Venezuela is witnessing a serious and dangerous process of the concealment of vital statistical information needed to analyze the economy," the opposition said in a statement. Monetary liquidity, often a key measure of the total money supply in a country's economy, grew 70% in the 12 months to November as the central bank provided financing to state oil company PDVSA to help it make social expenditures. (Reuters: http://www.reuters.com/article/2013/12/30/venezuela-inflation-idUSL2N0K90PL20131230; and more in Spanish: http://www.el-nacional.com/economia/Inflacion-cierra-alta_0_328167301.html)

Outlook for 2014:  more than 70% inflation, scarcities and devaluation. Venezuela's economic outlooks for 2014 are no better than last year's results. Domestic and international analysts agree that inflation will be higher than the 56.2% officially admitted for 2013, and will go beyond 70%. They foresee devaluation and negative or insignificant growth. There is also a consensus that price controls will tighten and scarcities will not let up. Asdrúbal Oliveros of ECOANALÍTICA says inflation will top 76% and sees no intention of ending Central Bank subsidies to PDVSA and other government owned companies. Orlando Ochoa believes that since "cost pressure is enormous and they cannot reduce scarcity they (the government) is going to selectively level some prices". Bank of America Merrill Lynch reports that a lack of FOREX will lead to a devaluation of no less than 74%, to VEB11/U$d1,  but anticipates greater radicalization in supplying FOREX and adds the economy will contract by 4%. Barclays Capital estimates economic growth around 0,5% anual and believes the government will have to increase foreign debt through bond tenders. An announcement on exchange policy is expected at any moment. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Expertos-advierten-inflacion-escasez-devaluacion_0_329967168.html

Official economic data is non transparent. A new problem has entered Venezuela's economic crisis, facing runaway inflation and shortages: Lack of reliable official economic data. In November, President Maduro sais inflation "should be minus 5%, at least" after he forced stores to slash prices, and went on to say: "Do experts at the Central Bank and Statistics Institute realize this, beyond technocracy". His statements were interpreted as a form of pressure on financial authorities. Víctor Olivo, former Central Bank manager for macroeconomic programming and analysis says delays by the Bank in providing essential data are part of "a process of clear institutional decay", and adds that this is "part of what happens when and institution is taken over by politics and loses its core objective, because it stopped operating as a Central Bank a long time ago". Olivo says "the Bank has already lost a lot of credibility". Firms such as GRUPO SOLUCIONES say the Central Bank's methodology has long been distorted as it calculates inflation simply on the basis of a group of products that operate under strict price controls. They say true inflation for 2013 is much higher than the officially released 56.2% if overall prices are taken into account. More in Spanish: El Nuevo Herald, http://www.elnuevoherald.com/2013/12/27/1644074/venezuela-cifras-economicas-bajo.html)

Devaluation can only partially cover Venezuela's deficit. Analysts say devaluation will not be sufficient to close the gap for Venezuela's deficit, which is estimated at 15-17% GDP. ECOANALÍCA has projected scenarios which would adjust FOREX rates through the SICAD system to VEB 11.3/U$D1, but says this would reach a mere 1.7% of GDP and other means will have to be sought to meet the deficit. More in Spanish: (El Universal, http://www.eluniversal.com/economia/140103/la-devaluacion-solo-garantiza-cobertura-parcial-del-deficit)

Stock market up 480%. Caracas stocks rose 3.3% for the week ending December 27 on extremely low volume as the local exchange was closed two days of the week for the Christmas holidays. The Venezuela Stock Market is now up 480.48% for the year to date in bolivar terms, though only 296.21% in official rate dollar terms because of February devaluation. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1401740&CategoryId=10717)

Oil & Energy

Venezuela output declines in December as funds slow to arrive. Venezuela’s oil production slid for an eighth consecutive month in December, a Bloomberg survey showed, as delays obtaining external financing hamper efforts by Petroleos de Venezuela, S.A. to arrest production declines. Venezuela produced 2.45 million barrels a day in December, down 235,000 barrels from November, according to a Bloomberg survey of oil companies, producers and analysts. Monthly output has been falling since April, the survey showed. PDVSA’s ability to offset output declines at mature fields and invest in new developments is slowed by the state-run producer’s increasing financial commitments with the Venezuelan government coupled with delays obtaining financing from partners, says Carlos Rossi, president of Caracas-based Energy Nomics. (Bloomberg, 01-02-2014; http://www.bloomberg.com/news/2014-01-02/venezuela-output-declines-in-december-as-funds-slow-to-arrive.html)

Venezuelan oil price ends 2013 on the wane. Several market factors pushed the price of the Venezuelan oil down in 2013. During 2014, the possible return of Iran's exports, rising production in Iraq and the addition of new non-OPEC barrels may shape a scenario which could hurt the expected stability of oil prices. By December 20, 2013 the Venezuelan oil basket's annual price was U$D 99.87 per barrel, below U$D 100 per barrel (the average price last year has not been published yet by the Ministry of Petroleum and Mining). (El Universal, 01-02-2014; http://www.eluniversal.com/economia/140102/venezuelan-oil-price-ends-2013-on-the-wane)

PDVSA reports at least 31 malfunctions and fatalities during 2013. Petróleos de Venezuela is ending 2013 with at least one security event, accident or fatality every 12 days, according to reports released throughout the year by both the workers and the state company. At least 31 accidents were recorded, including explosions, power outages, fires, the sinking of a barge and electrical discharges on operating facilities, where several workers were injured. On Monday, a "minor fire (took place) at the Distillation Unit No. 3 of Amuay refinery, belonging to the Paraguaná Refining Center (CRP), which was quickly controlled and extinguished by firefighters of the oil industry," according to PDVSA. (El Universal, 12-31-2013; http://www.eluniversal.com/economia/131231/pdvsa-recorded-at-least-31-malfunctions-and-fatalities-during-2013)

Maduro: There is no rush to raise gasoline price. The planned increase in gasoline and diesel prices, which have remained unchanged for more than 15 years, will take place with "no rush," says President Nicolás Maduro. He says that "there is no hurry with hydrocarbons, because what we really want is to set a fair price, with all the benefits that should exist in any oil producing country." (El Universal, 12-31-2013; http://www.eluniversal.com/economia/131231/maduro-there-is-no-rush-to-raise-gasoline-price)

Commodities

SIDOR assigned 96% of its 2013 steel production to government housing plans. 1.4 million tons of steel products were contributed during 2013. More in Spanish: (AVN; http://www.avn.info.ve/contenido/sidor-destin%C3%B3-96-su-producci%C3%B3n-gran-misi%C3%B3n-vivienda-2013; El Universal, http://www.eluniversal.com/economia/140103/rendimiento-de-sidor-en-2013-fue-el-peor-en-30-anos)

"Fair" vehicle prices will be published next week, according to a press release from the Ministry for Industries. It says the decision is based on cost structure information provided by assembly plants in Venezuela. More in Spanish: (AVN; http://www.avn.info.ve/contenido/precios-justos-veh%C3%ADculos-ser%C3%A1n-publicados-pr%C3%B3xima-semana; El Universal, http://www.eluniversal.com/economia/140103/la-proxima-semana-inicia-regulacion-de-precios-de-vehiculos)

Politics

Government publishes list of alleged opposition vacation sites. Delcy Rodríguez, Venezuela's Minister of Communication and Information, has released a list of international holiday season destinations of opposition leaders, journalists and entrepreneurs -- clearly obtained from their private airport departure information as they exited immigration -- while at the same time noting that President Nicolas Maduro received 2014 "with his people". Opposition leader Henrique Capriles - who was listed as receiving the New Year in Aruba - said "the list does not deserve a reply" and charged the regime with "paranoid madness", adding that "there's nothing wrong with travelling to other countries". (Latin American Herald Tribune: http://www.laht.com/article.asp?ArticleId=1418021&CategoryId=10717; and more in Spanish: TalCual, http://www.talcualdigital.com/Nota/visor.aspx?id=97063&tipo=AVA)

Violence increases at year end. According to official data the Caracas morgue received 565 bodes in December, 70% of them homicides. The total numbers of bodies received in Caracas during 2013 were 5722. More in Spanish: (Caracol, http://www.caracol.com.co/noticias/internacionales/violencia-en-venezuela-se-agudizo-durante-la-temporada-de-fin-de-ano/20140102/nota/2047155.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.