December 13, 2016

International Trade

Venezuela must renegotiate 5 major infrastructure projects with Brazil’s BNDES

Brazil’s “Lava Jato” anti-corruption drive has forced that country’s National Social and Economic Development Bank (BNDES) to paralyze and renegotiate ongoing infrastructure projects worth US$ 3.6 billion it is financing throughout Latin America, carried out by companies implicated in the corruption scandal. The nation hardest hit by the move is Venezuela, which must renegotiate 5 major projects: including two Metro lines, the Abreu de Lima steel plant, a cleanup project in the Tuy river basin, and the ALBA shipyards. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Venezuela-debera-renegociar-proyectos-Bndes_0_974302576.html)

 

MERCOSUR turns its back on a diminished Venezuela

It couldn’t have come as a total shock when on Dec. 2, four South American nations ruled to suspend Venezuela from the continental trade compact to which it never ought to have been admitted. And yet, for the keepers of the Bolivarian Republic, the ouster from MERCOSUR might have been a diplomatic outrage. President Nicolas Maduro called the move a “coup”; Foreign Minister Delcy Rodriguez denounced it as “an illegal action” and vowed to appeal. Assorted sympathizers and fringe militants as far away as Uruguay and Paraguay joined the chorus. What’s at stake isn’t the future of regional commerce. Venezuela’s economy is such a shambles that trade in any conventional sense of the word ceased to matter long ago. But the choler in Caracas and the initiative by Venezuela’s once-accommodating neighbors said a good deal about the state of play in Latin American relations, where over a decade of diffidence and indulgence before the region’s stumbling autocracy has given way to umbrage and confrontation. (Bloomberg, https://www.bloomberg.com/view/articles/2016-12-09/mercosur-turns-its-back-on-a-diminished-venezuela; el Universal, http://www.eluniversal.com/noticias/daily-news/venezuela-attend-mercosur-meeting-despite-suspension_630971)

 

Maduro says he has planned Venezuela’s future course with MERCOSUR with Uruguay’s Vasquez

President Nicolás Maduro says he has agreed with his Uruguayan counterpart, Tabaré Vásquez, on a working plan to resolve Venezuela’s case with MERCOSUR by using the organization’s Olivos Protocol for conflict resolution. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/maduro-acordamos-uruguay-ruta-para-solventar-situaci%C3%B3n-mercosur)

 

Medicine, food and toys have arrived at Maracaibo from Jamaica

213 containers bearing medicine, food, personal care products, tires, and toys have arrived at Maracaibo’s port, consigned to several recipients. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34833)

 

Oil & Energy

Venezuela oil price jumps up for 3rd week

The price Venezuela receives for its mix of medium and heavy oil rose 8.7% this week as oil prices strengthened in the wake of a November 30 OPEC agreement to cut production to 32.5 million barrels per day. As per figures released by the Ministry of Petroleum and Mining, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending December 9 was US$ 44.01, up US$ 3.54 from the previous week's US$ 40.47. Official data shows the average price in 2016 for Venezuela's mix of heavy and medium crude is now US$ 34.52 for the year to date. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2426922&CategoryId=10717)

 

Oil production cut agreement comes into force in January 2017

The agreement signed between the Member States of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC independent oil producers to reduce oil output by 1.7 million barrels will come into force in January 2017. Meanwhile, during the first half of 2017, both OPEC members and independent oil producers will be monitoring the oil market to verify compliance with production cuts agreed upon by each of the 25 nations that signed the agreement on Saturday in Vienna, Austria, with a view to recovering oil prices. Non-OPEC nations that agreed to reduce oil production are Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Republic of Sudan, and Republic of South Sudan. (El Universal, http://www.eluniversal.com/noticias/daily-news/oil-production-cut-agreement-comes-into-force-january-2017_630960)

 

Commodities

"Food apartheid" leaves some citizens starving here

The current "food apartheid" in Venezuela means that if you don't support the president, you won't be getting any help from the government. Food is in short supply in Venezuela, where falling oil prices and inflation have caused an unstable state. But reports from the country, which has a population of over 30 million, reveal that the government is selectively handing out subsidized food. Since April 2016, a system called "CLAPs" (Local Committees of Supply and Production) has been going to homes in Venezuela's poorest neighborhoods peddling subsidized groceries. The socialist-affiliated organizations managing the CLAPs program are community groups that don't have much oversight and can do what they want. "Given the way that the country is currently falling apart, [President Maduro] is using this to shut up his opponents by starving them," Monica Baumgarten de Bolle, senior fellow focusing on Latin America at Peterson Institute for International Economics, said. (Food. Mic. https://mic.com/articles/158075/venezuela-s-food-apartheid-leaves-some-citizens-starving#.92oEjD0FF)

                 

Government to distribute personal care products starting 2017

Freddy Bernal, head of the regime’s CLAP basic product distribution system, says he will meet with the managers of COLGATE PALMOLIVE and PROCTER & GAMBLE to ensure that 50% of their personal care products are distributed through the official system starting in 2017. More in Spanish: (Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/clap-distribuir%C3%A1n-art%C3%ADculos-higiene-personal-partir-2017)

 

Maduro called a 'Grinch' after massive toy seizure by government

Venezuelan officials have confiscated nearly 4 million toys from a toy distributor, accusing the company of planning to sell them at inflated prices during the Christmas season. On Saturday, the government initially said it had confiscated 4.8 million toys. It revised the figure Sunday, putting it at 3.821 million. Critics say the consumer protection agency, which targeted the toy warehouse this week, has become "the Grinch that stole Christmas" because many families won't be able to buy the confiscated toys for the holiday. Agency head William Contreras disputed that, saying executives at toy distributor KREISEL-Venezuela, the largest of its kind in the country, "don't care about our children's right to have a merry Christmas." The government said the 3.821 million toys will now be made available to families in impoverished neighborhoods at lower-than-market prices. Officials also detained at least two people as part of the operation. It's not clear what effect, if any, the confiscation of the millions of toys will have on the toy market in Venezuela just two weeks before Christmas. FEDECÁMARAS President Francisco Martínez says the government is "acting in an irresponsible way," discouraging job creation and endangering private property. "This was plundering of inventory. The government didn't even respect the company's right of due process," Fernández said. (CNN: http://edition.cnn.com/2016/12/10/americas/venezuelan-government-toy-seizure-grinch/index.html; Bloomberg, https://www.bloomberg.com/news/articles/2016-12-09/venezuela-seizes-millions-of-toys-accuses-importer-of-hoarding)

 

Venezuela discusses importing medicines with UN agencies

Foreign Minister Delcy Rodriguez met with representatives of the Food and Agriculture Organization (FAO), the UN Development Program (UNDP), the World Health Organization (WHO), and the Pan American Health Organization (PAHO) to discuss the creation of mechanisms to streamline medical imports coordinate efforts to guarantee access to key imported medicines here. The left-leaning government has resisted calls by the United States and European Union in recent months to accept “humanitarian aid”, which it considers an attempt to interfere in its internal affairs.  (Venezuela Analysis: https://venezuelanalysis.com/news/12832)

 

Economy & Finance

Venezuela struggles with hyperinflation

Venezuela’s struggling economy just passed another grim milestone: it’s the seventh country in Latin America to ever experience hyperinflation. The term “hyperinflation” is often bandied about, but it’s quite rare, and only happens when monthly inflation exceeds 50% for more than 30 consecutive days. On Dec. 3, Venezuela did just that, becoming the 57th known case of hyperinflation since France suffered the malaise in 1795.  “Venezuela, welcome to the record books,” said researchers at Johns Hopkins University as they added the country to their Hanke-Krus World Hyperinflation Table. “You have now entered the inglorious sphere of hyperinflation. It is a world of economic chaos, wrenching poverty and death. Its purveyors should be incarcerated, and the keys should be thrown away.” While Venezuela’s case is obviously bad, history shows it could be worse. The country’s implied daily inflation rate is 3.96%, meaning it takes 17.8 days for prices to double. That ranks it at No. 23 on the Hanke-Kraus table. The leaders of that list are Hungary (1945), when prices were doubling every 15 hours, and Zimbabwe (2007), when prices doubled every day. “Only seven countries have hyperinflated in Latin America, but Venezuela’s case is still rather mild by hyperinflation standards,” said Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore and the co-author of the Hanke-Krus World Hyperinflation Table. The other countries in the hemisphere that have seen hyperinflation are Argentina (1989), Bolivia (1984), Brazil (1989), Chile (1973), Nicaragua (1986) and Peru (1988 and 1990). On the streets of Venezuela, however, even the “mild” hyperinflation is generating real pain, as people see their purchasing power sapped amid rolling food shortages and massive shopping lines. The Central Bank hasn’t put out inflation data all year, but Hanke and his team say annual inflation as of Dec. 9th, is 375%. Others have said the number could be running twice that high. The country has been trying to tame its inflation for years, but it began spiraling out of control between 2012 and 2013, when it jumped from 20 percent to 56 percent. By 2015, annual inflation hit 181%, according to official figures.  Hanke said there are only two ways for the government to stop hyperinflation: Establish a currency board (like Bulgaria or Estonia) or to dollarize, as Ecuador did in 2000. So far, Venezuela seems to be resisting taking the painful measures. But printing higher-denomination bills is a tacit surrender to market forces, Hanke said. “This is very typical of what happens in hyperinflation; it goes with the territory,” he said of printing bigger bills. “And it does in a way mean that the government has thrown in the towel.” (The Miami Herald: http://www.miamiherald.com/news/nation-world/world/americas/venezuela/article120451593.html)

 

Government pulls highest-value banknote 'to strike against mafia'

The Maduro regime has announced it will remove the country's highest-denomination banknote from circulation within 72 hours to combat contraband. Central bank data suggests there are more than six billion 100-bolivar notes in circulation, making up almost half of all currency. Venezuelans will have 10 days from Wednesday to exchange the notes for coins and new, higher-value bills. President Nicolas Maduro said the move would stop gangs hoarding the notes. In a surprise announcement, Maduro said on Sunday that the 100-bolivar note, worth about 2 US cents on the black market, would be taken out of circulation on Wednesday. The president said the aim was to tackle transnational gangs which hoard the Venezuelan notes abroad, a move he has in the past described as part of the "economic war" being waged against his government. He said the gangs held more than 300 billion bolivars worth of currency, most of it in 100-bolivar notes. President Maduro said there were "entire warehouses full of 100-bolivar notes in the [Colombian cities of] Cucuta, Cartagena, Maicao and Bucaramanga", as well as in Brazil, Germany, the Czech Republic and Ukraine, where criminal organizations are stockpiling Venezuelan currency,. He said part of the plan was to block any of the 100-bolivar notes from being taken back into the country so the gangs would be unable to exchange their hoarded bills, making them worthless. The “operator” behind the plan targeting Venezuela’s currency is a non-governmental organization “hired by the U.S. Treasury Department,” Maduro said. "I have given the orders to close all land, maritime and air possibilities so those bills taken out can't be returned and they're stuck with their fraud abroad," he said speaking on television. Analysts say the move is likely to worsen the cash crunch in Venezuela, where people have already been limited in the amount of cash they can take out at automated teller machines. Critics slammed the move as economically nonsensical, adding there would be no way to swap all the 100-bolivar bills in circulation in the time the president has allotted. Central bank data showed that in November, there were more than six billion 100-bolivar bills in circulation, 48% of all bills and coins. "Ineptitude rules! Who would possibly think of doing something like this in December amid all our problems?" says opposition leader Henrique Capriles. (BBC: http://www.bbc.com/news/world-latin-america-38284485; Bloomberg, https://www.bloomberg.com/news/articles/2016-12-11/venezuela-orders-largest-bills-turned-in-ahead-of-new-bank-notes; https://www.bloomberg.com/news/articles/2016-12-12/venezuelans-rush-to-stash-cash-before-biggest-bill-is-nullified; Reuters, http://www.reuters.com/article/venezuela-economy-idUSL1N1E60I1)

 

Interior Minister claims NGO involved in capital flight worth VEB 300 billion

Minister of the Interior, Justice, and Peace met on Monday with representatives of the Banking Association of Venezuela to coordinate the collection of VEB 100 banknotes. The minister said an investigation had been launched into the smuggling of VEB 100 bills out of the Venezuelan territory. “Until now, we have found that VEB 300 billion were smuggled out of the country through organizations hired by the US Department of the Treasury in to take the money out of our country, suffocate the local financial system, and leave our country without circulating money,” Minister General Reverol explained. In addition, he claimed that foreign non-governmental organizations (NGO) were linked to organized mafias to smuggle Venezuelan banknotes into Colombia. He added that large amounts of money have been deposited in Switzerland, Poland, Spain, Ukraine, Germany and the Czech Republic. (El Universal, http://www.eluniversal.com/noticias/daily-news/interior-minister-ngo-involved-capital-flight-worth-veb-300-billion_631009)

 

Politics and International Affairs

Time for a call from the Venezuelan opposition to President-Elect Trump?

President-elect Donald Trump’s conversation with Taiwan’s President has put the People’s Republic of China on notice that his administration will not necessarily self-censor its activities to avoid a conflict. As with China, there is another regime whose advances have been similarly emboldened by the perceived unwillingness of the Obama administration to stand up for U.S. interests. In Venezuela, the country’s “Bolivarian socialist” regime has systematically dismantled democratic institutions and made it a hub for narcotrafficking, Russian and Chinese arms and the activities of Iran, and terrorist groups such as the FARC. There are few regimes more in need, and more deserving, of being put on notice by a phone call and a few well-placed tweets from the incoming U.S. president, than that of Nicolás Maduro in Venezuela. Although the incoming Trump administration has many demands on its attention, “putting America first” implies putting those on notice who, such as Maduro, are working against U.S. interests, and where the implosion of a failed regime threatens neighboring U.S. friends and allies. A hopeful sign that the integral connection between Latin America and U.S. security interests will be highlighted to President Trump is his selection of retired Marine General John F. Kelly, former head of U.S. Southern Command, to serve as head of the Department of Homeland Security. For the chavistas, the nomination by President-Elect Trump of Exxon Mobil CEO Rex Tillerson as Secretary of State should further dampen their spirits. Tillerson arguably will bring an in-depth understanding of the machinations of the Venezuelan government, which mistreated Exxon in the country for years, expropriated its assets, and violated its contractual rights, for which Exxon was awarded US$ 1.6 billion in damages in 2014. Official negotiations between Venezuela’s chavista regime and the opposition, mediated by the Vatican, are now on hold until the end of the Christmas holiday and scheduled to resume January 13, 2017, just a week before Donald Trump is inaugurated in the United States. The first week of January would be an ideal time for Donald Trump to take a friendly call from Henry Ramos Allup and others in Venezuela’s democratic opposition. The position of democracy in Venezuela will be strengthened if President Maduro (and those who stay out of jail so long as he remains in power) returns to the bargaining table knowing that the incoming Trump administration is paying attention, and not entirely sure what he will do once he takes office. (Latin America Goes Global: http://latinamericagoesglobal.org/2016/12/time-call-venezuelan-opposition-president-elect-trump/)

 

Venezuela oil deal reportedly laundered ‘hundreds of millions’ into Iran

A new report in Bloomberg reveals that U.S. authorities are investigating evidence suggesting that the socialist government of Venezuela paid Iran “hundreds of millions” as part of a money laundering scheme designed to avoid human rights sanctions imposed on the Islamic Republic. Bloomberg’s report cites an engineer for the state-owned oil corporation Petroleos de Venezuela (PDVSA), who says documents exist that show the government of Venezuela paying Iran to build housing units at US$ 74,000 an apartment, far more than the construction costs. “The documents appeared to detail the housing deals and payments to Swiss bank accounts through JPMorgan Chase—a potential violation of U.S. law. The investigation is ongoing; PDVSA hasn’t been charged with illegal activity involving Iran,” Bloomberg reports. The scheme may have resulted in a total of US$ 3 billion in revenue for Iran, the leading U.S.-designated state sponsor of terrorism in the world. While PDVSA officials are not yet facing formal charges for deals with Iran, Bloomberg notes that the corporation is embroiled in a sweeping corruption scandal. Up to US$ 1.9 billion have allegedly gone missing from PDVSA’s internal coffers in recent funding audits. The opposition-controlled National Assembly found US$ 11 billion went missing from PDVSA funds between 2004 and 2014, “more than the budget of five Central American countries.” The PDVSA corruption scandal has spilled over into the United States, where a Houston court is expected to see a criminal investigation into a million-dollar money laundering scheme that, like Petrobras is suspected of doing, overcharged on vast government projects, allowing officials to pocket the change. Venezuela and Iran have enjoyed close diplomatic relations for the past 17 years, since socialist dictator Hugo Chávez took power. Chávez’s government has been accused of illegally purchasing weapons from a sanctioned Iran. The two governments routinely support each other’s interests on the global stage. Iran and Venezuela’s ties are far from merely economic, however. Venezuela has long tolerated the presence of Iranian “cultural centers” national security officials have accused of helping spread the influence of Iran’s terrorist proxy organization Hezbollah in the region. Multiple reports — including a confession from a former diplomat at the Venezuelan embassy in Baghdad — have alleged that Venezuela has used its embassies to issue false national documents to members of Hezbollah. Armed with Venezuelan passports, birth certificates, and other identifying documents, these individuals can travel more freely through Latin America and the United States. One report estimates that up to 300 Hezbollah operatives have acquired false Venezuelan government documents. (Breitbart: http://www.breitbart.com/national-security/2016/12/12/venezuela-oil-deal-laundered-millions-iran/; Bloomberg: https://www.bloomberg.com/news/features/2016-12-08/why-witnesses-to-venezuela-s-catastrophic-corruption-keep-turning-up-in-the-u-s)

 

Ramos Allup says failed talks defined key policy matters, will lead to further confrontation

National Assembly President Henry Ramos Allup says that for the MUD Democratic Unity coalition talks with the government sector, international organizations and the Vatican were no waste of time, even though no solutions were found to the country’s ongoing crisis. Ramos Allup says that “the agreements defined in the dialogue table are those specified by Cardinal Pietro Parolin (a Vatican’s envoy) in a letter he sent the government representatives as a formal request.” As per the document, the agreements achieved by the talks include humanitarian crisis, setting of the electoral schedule, respect for the National Assembly, and release of political prisoners. He added that the government’s non-compliance with agreements reached will lead to renewed confrontation between the regime and the democratic opposition. (El Universal, http://www.eluniversal.com/noticias/daily-news/ramos-allup-halted-talks-will-lead-political-confrontation_631012)

 

Chilean government concerned about detained Chilean-Venezuelan Braulio Jatar

Chilean Foreign Affairs Minister Heraldo Muñoz stated that Chile was “constantly worried” about the detention of Chilean-Venezuelan journalist Braulio Jatar, and that it has undertaken efforts to achieve his release. Jatar’s sister, Ana Julia Jatar, travelled to Chile this weekend to denounce human rights abuses against his brother. Braulio Jatar was born in Chile, but his parents are Venezuelan. He was charged with “legitimation of capital” after he was arrested in September, as the police found large amounts of cash in his vehicle when he was heading to work in an internet radio station. (El Universal, http://www.eluniversal.com/noticias/daily-news/chilean-govt-concerned-about-detained-chilean-venezuelan-braulio-jatar_630963)

 

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.

01 December , 2016

International Trade

One day before suspension, Venezuela offers to adhere to MERCOSUR Economic Complementation Agreement

Foreign Minister Delcy Rodríguez says Venezuela is ready to adhere to the MERCOSUR (Common Market of the South) Economic Complementation Agreement #18, which aims at creating conditions for a common market by coordinating macroeconomic policies, tariff reductions and eliminating non-tariff barriers to trade, among others. Her announcement comes one day before a deadline for compliance by Venezuela set by MERCOSUR founding members: Argentina, Brazil, Paraguay and Uruguay. The founding members set December 1^st as a deadline for Venezuela to comply with all MERCOSUR standards or have its voting rights suspended indefinitely. In a joint statement, MERCOSUR demanded that Venezuela adopt “close to 300 rules” to comply with its obligations as a full member of the organization. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/venezuela-se-adhiere-al-acuerdo-de-complementacion.aspx#ixzz4RUDDRYfP; Infolatam: http://www.infolatam.com/2016/11/29/venezuela-comunica-resto-socios-se-adecuara-normativa-mercosur)

 

89 metric tons of optic fibers have arrived at La Guaira port from Curacao for the National Telephone Company (CANTV), to be used in repairing and maintaining company cables. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=34802)

 

Oil & Energy

The OPEC deal is done. Here's what to expect from oil markets next

The Organization of the Petroleum Exporting Countries has committed its fractious members to their first oil production limits in eight years. The impact on the energy world was immediate: benchmark oil prices gained as much as 10% in New York and the share prices of energy companies around the globe jumped alongside the currencies of large exporters. Now comes the hard part. OPEC has agreed to cut production by about 1.2 million barrels per day, or about 4.5% of current production, to 32.5 million barrels per day. Top oil exporter Saudi Arabia faces the unenviable tasks of policing cartel members and keeping crude prices within a range that will relieve pressure on oil-producing countries' economies, but which will dissuade non-OPEC producers from increasing output. Analysts broadly expect an agreement to boost oil prices above US$ 50 a barrel and keep them there. Prices have wavered between about US$ 40 and US$ 54 since the spring Commodity watchers also believe the deal will set up a long-awaited balance between oil supply and demand in the first half of next year. But OPEC now has a difficult needle to thread. Oil rigs began popping up in U.S. oil fields when prices approached US$ 50 a barrel, and analysts believe high-cost producers outside OPEC will further ramp up production if crude prices rise above US$ 55 a barrel.  That includes U.S. shale drillers, which have built a backlog of partially completed wells in anticipation of a price recovery. Once prices rise, they could switch on that production-in-waiting. Goldman Sachs believes the deal will cause crude prices to spike in the first half of 2017, and then moderate in the second half as both OPEC and U.S. shale producers capitalize on the rally. But JPMorgan sees prices rising slowly but steadily quarter after quarter. The bank cautioned that the deal is essentially aimed at preventing an even larger buildup of oil stockpiles. Skeptics have long warned that OPEC members are notorious cheaters and may not stick to quotas agreed to in Vienna. But RBC Capital Markets said adherence may not matter so much this time for a simple reason: OPEC members are near full-tilt, and they don't have much more capacity to pump.  Beyond OPEC, other countries aren't helping out those who hope for higher prices, the International Energy Agency said in its latest oil market report. Demand for oil around the world is expected to increase by 1.2 million barrels a day in 2017, a rate of growth that would match this year. The IEA also projects Russia, the world's largest oil producer, to increase its crude output by 230,000 barrels a day this year. The agency says Russia could boost production by another 200,000 barrels a day next year. OPEC said it is seeking to secure 600,000 barrels per day of cuts from non-OPEC producers, and that Russia has committed to temporarily cut production by about 300,000 barrels per day, “conditional on its technical abilities,” Energy Minister Alexander Novak said in Moscow. But implementing the cuts will be difficult for Russia. The Russian government, which owns a majority share in that country's big oil companies, would face a revolt from minority shareholders if it sought to limit production, he said. From a technical perspective, Russia can't turn off the taps, because much of the production comes from areas with freezing temperatures where drillers must keep oil flowing, he added. Prior to OPEC's announcement, the IEA said it also expects Brazil, Canada and Kazakhstan to pump more in 2017. That would push total non-OPEC output growth to 500,000 barrels a day next year, compared with a projected decline of 900,000 barrels a day this year. "This means that 2017 could be another year of relentless global supply growth similar to that seen in 2016," IEA said. OPEC will meet again on May 25 next year, at which point it intends to extend the cuts by another six months, Qatari Energy Minister Mohammed Al Sada told reporters in Vienna. (CNBC: http://www.cnbc.com/2016/11/30/the-opec-deal-is-done-heres-what-to-expect-from-oil-markets-next.html; Bloomberg: https://www.bloomberg.com/news/articles/2016-11-30/opec-said-to-agree-oil-production-cuts-as-saudis-soften-on-iran; The Wall Street Journal: http://www.wsj.com/articles/opec-deal-to-curb-production-in-doubt-oil-prices-rebound-1480481281)

 

Venezuela to cut 95,000 BPD, but will haunt oil long after Vienna

President Nicolas Maduro has welcomed the OPEC consensus on cutting 1.2 million barrels per day (bpd) in the joint oil production. "I congratulate and thank our OPEC partners for the important agreement we have reached today to stabilize the market," he said in his Twitter account. Oil Minister Eulogio Del Pino said this country will cut 95.000 barrels per day, a 4.6% reduction from 2.06 million BPD to 1.97 million BPD, starting January 1^st; and Venezuela, Kuwait and Algeria will be part of a Ministerial Monetary Committee, established today by OPEC to monitor the development of the oil market.  But Venezuela's officials can't be so sanguine. Venezuela's real GDP per capita has gone from its highest in 3 decades to almost its lowest in the space of about 5 years. So even if Saudi Arabia OPEC does agree to cut production to support prices, Venezuela's problems won't disappear. Which means its status as a wildcard in global oil supply won't, either. PDVSA’s problems are structural, rather than cyclical. The company has never fully recovered from the general strike and subsequent purging under late president Hugo Chavez in 2002 and 2003, with production drifting down even during the boom in oil prices for much of the decade after 2004. Part of the problem is that, as is often the case with state-owned oil companies, PDVSA was a piggy bank for the government. Social expenditure outpaced investment in exploration and production consistently over the past decade. The decline is worse because PDVSA's production has been shifting toward heavier grades of crude oil from the so-called Orinoco oil belt. Heavy oil from the Orinoco belt has risen from 38% of Venezuela's falling output to almost half. This oil is harder to process, and gets priced at a discount. So along with simply producing fewer barrels, Venezuela gets less for each one. Meanwhile, as its lighter oil production declines, it has fewer of those barrels to blend in with the heavier crude to make it palatable to refiners. The consequent need to import more light oil effectively raises the cost of each barrel and drains the country of precious dollar reserves. The traditional discount on Venezuela's basket crude oil price versus Brent has widened out even more in the past couple of years. At this point, PDVSA is straining to keep going. It just got an extension on some debt coming due after weeks of brinkmanship with bondholders. Contractors such as Schlumberger Ltd. -- crucial to holding the line against further declines in oil production -- have reduced activity in Venezuela until unpaid bills are settled. And a large proportion of PDVSA's output is effectively mortgaged to creditors, such as China, or earmarked for subsidized customers, such as Cuba. For all its tribulations, PDVSA will do everything it can to avoid defaulting on its debts, for fear of what would happen if the bond market were closed to it. If oil prices do increase from here, perhaps as result of an OPEC freeze/cut, then that would provide more breathing room for both the national oil champion and the government. Venezuela's structural problems mean it needs more than just temporary breathing room, though. In an extreme scenario, food shortages, rampant inflation and an unpopular government's effective blockage of a recall referendum could lead to widespread civil unrest and possibly a collapse in both oil production and consumption, taking perhaps 1.5 million barrels a day of exports off the global market. That would be the scale of cut OPEC has talked about -- only a de facto one coming out of Caracas rather than Vienna. If prices plunge again in the absence of a credible OPEC cut, then this potential reality comes a bit more into focus. Yet, even if Venezuela avoids such chaos, its existing problems will haunt the oil market for years to come anyway. Remember, even when prices were high, PDVSA's output was declining and turning heavier. Having dropped by about 300,000 barrels a day this year, it could easily drop by the same amount next year -- which would equate to one quarter of the expected increase in global oil demand. That would, in turn, support prices -- but mainly to the benefit of rivals such as U.S. shale drillers and OPEC's more stable members, rather than Venezuela itself. (Bloomberg: https://www.bloomberg.com/gadfly/articles/2016-11-30/opec-meeting-venezuela-will-haunt-oil-long-after-vienna; and more in Spanish: El Economista: http://www.eleconomista.net/2016/11/30/ecuador-reducira-su-bombeo-en-26000-barriles-diarios-y-venezuela-en-95000; El Universal: http://www.eluniversal.com/noticias/economia/opep-acordo-recortar-produccion-petroleo_629328)

 

Economy & Finance

Venezuela's currency is in 'free fall'

It's the latest sign of Venezuela's extreme economic, political and humanitarian crisis. Sky high food prices -- or massive shortages of basic food and medicine -- have plagued Venezuelans for years and have gotten worse this year. Inflation in Venezuela is expected to rise 1,660% next year, according to the IMF. The country has been in recession for three years now.  One dollar fetched 1,567 bolivars on November 1. On November 28, a dollar was worth 3,480 bolivars on the widely-used unofficial exchange rate monitored by Dolartoday.com. "It's a currency that's going down the toilet," says Russ Dallen, managing partner at Caracas Capital Markets, an investing firm in Miami. "No one wants to hold on to something that's going to be worth 50% less in a month."  A few factors are behind the bolivar's most recent plunge. The government has been forced to pump cash into its system because the money in circulation isn't enough to pay for goods that cost a lot more. But with the value of the bolivar falling so dramatically, Venezuelans are desperately trying to exchange their bolivars for dollars, which are seen as a more a more valuable and stable currency. That's led to a scarcity of dollars. That's boosted the dollar's value versus the bolivar even more. 

1. Food prices have skyrocketed this fall as the government stopped enforcing some price controls following a food scarcity. Many vendors had stopped selling food because the price controls was forcing them to sell at a loss. Now, with the price controls gone, there's food available on supermarket shelves, but at such exorbitant prices that few Venezuelans can afford. 
2. The government recently increased the minimum wage by 40%.
3. Venezuela fully reopened its border with Colombia earlier this summer, allowing Venezuelans to go and exchange money to buy basic food and medicine. That drove up demand for dollars and more bolivars disappeared from circulation.
4. Finally, the government cut the cash requirements at banks in Venezuela, which also helped juice the number of bolivars in circulation.

Central Bank data shows liquidity grew 201% - 1.61 trillion bolivars – between September 30th and November 18th, from 3.6 trillion in November 2015 to 8.29 trillion now, an increase of 130.2%, which has caused devaluation and soaring inflation. Against this backdrop, there's no end in sight for Venezuela's cash crisis. "It's absolutely a worthless currency," says Siobhan Morden, head of Latin America fixed income strategy at NOMURA HOLDINGS. "1,000 to 2,000 to 3,000 -- it's just crazy. It's in free fall." (CNN Money: http://money.cnn.com/2016/11/29/investing/venezuela-worthless-currency/; and more in Spanish: (El Nacional, http://www.el-nacional.com/economia/gobierno-Bs-billones-economia-inflacion_0_967703387.html)

 

Venezuela will release even bigger bills to help shrink wallets

After years of soaring prices reduced the value of the largest 100-bolivar bill to just a few U.S. cents, Venezuelan authorities are finally preparing to issue larger-denomination bank notes, much to the relief of shoppers.  The notes -- 500 and 5,000 bolivars -- will be released toward the middle of next month, said a senior government official who isn’t authorized to talk about the plans publicly. Additional bills of 1,000, 2,000, 10,000 and 20,000 bolivars will enter circulation in the first half, the official said. The refusal of the authorities to issue bigger bills had forced Venezuelans to ditch wallets in favor of bags of cash for everyday transactions. Things have got so bad that some shopkeepers weigh wads of bank notes instead of counting them to save time. Venezuela’s money supply has risen 130% over the past year, according to the latest data available from the Central Bank in Caracas. On the black market, where a dollar costs more than six times as much as the weakest legal rate of 662 bolivars per dollar, the currency has slumped 65% this month alone. (Bloomberg: https://www.bloomberg.com/news/articles/2016-11-30/venezuelan-inflation-hits-currency-with-arrival-of-bigger-bills)

 

Venezuelan gold reserves to increase with artisanal ingots

President Nicolás Maduro has announced that the first artisanal gold ingots manufactured in the Orinoco Mining Arc, south Venezuela, would be sent to the vaults of the Central Bank of Venezuela (BCV), with a view to strengthening the country’s international gold reserves. (El Universal, http://www.eluniversal.com/noticias/daily-news/venezuelan-gold-reserves-grow-with-artisanal-ingots_629200)

 

Politics and International Affairs

Oppositions will pull out of talks if the government does not honor commitments

The Democratic Unity (MUD) opposition coalition has formally told Vatican and UNASUR mediators that they will not attend a second meeting on December 6^th, if the Maduro regime does not honor the commitments it made at their first meeting. It says: “Any form of dialogue, meeting or negotiation is useless if there is no guarantee that both sides will honor the agreements that are reached.” Mayor Carlos Ocariz, of the Primero Justicia party, said “we have complied with all that we formally agreed to on 11-12 November, and the government has complied with nothing”. He explained that the government has disregarded the agreement to call of the Supreme Tribunal’s ruling that the National Assembly is in contempt, to replace two members of the National Elections Council (CNE), free the political prisoners, and open a route for humanitarian aid. He said the opposition had suspended the political trial of President Maduro, called off demonstrations and withdrawn 3 contested legislators from Amazonas state. It said it will not return to the negotiating table if the government doesn’t urge the Supreme Tribunal to nullify its ruling of contempt along with sentences that have restricted the National Assembly’s powers; name two new members of the National Elections Council by December 4^th, when the term of Socorro Hernández and Tania D’Amelio expires; free political prisoners and set up a bilateral Truth Commission; open a humanitarian relief channel to import food, and medical supplies; call for new elections in Amazonas state at a mutually agreed upon date, through a Supreme Tribunal sentence. If the government has not complied by December 6^th, the MUD will announce its final decision and call for constitutional, electoral, democratic and peaceful action to overcome the political, institutional, social and economic crisis Venezuela is undergoing. It adds that “the obstinate refusal of the government to comply with its part of the agreements clearly points to internal divisions that prevent them from compliance and therefore sits down to talks to gain time and fool the people….the Democratic Unity coalition wants a dialogue that has results that allow this country to constitutionally and democratically elect a national unity government that is able to stop the economic crisis, recover political governability, rebuild social coexistence, and fully respect human rights.”  More in Spanish: (El Universal: http://www.eluniversal.com/noticias/politica/mud-amenazo-con-abandonar-dialogo-gobierno-cumple-acuerdos_629415)

 

Church authorities toughen stance on regime’s non-compliance with dialogue agreements

Roman Catholic Church authorities are witnessing the lack of commitment by the Maduro regime in complying with what it has offered at talks with the opposition sponsored by the Vatican and UNASUR. Monsignor Diego Padrón, Chairman of the Roman Catholic Bishops Conference, says “the government must comply with two things: freeing political prisoners and opening up a humanitarian channel to aid citizens needy of food and medicine…The Conference is not happy with the dialogue process and most of the people aren’t happy either….The people feel the government wants to control the dialogue, and the manner in which the government presents the dialogue to media transmits that negative impression”. At the same time, Jesuit father José Virtuoso, Rector of the Catholic University said “democracy in Venezuela is in a parenthesis because the government has managed elections arbitrarily. If there are no elections, dialogue must be abandoned.” More in Spanish: (El Universal: http://www.eluniversal.com/noticias/politica/runrunes_629257)

 

AI urges Venezuelan authorities to stop police raids.

Human rights organization Amnesty International urged Venezuelan authorities to stop implementing anti-crime operations called Operation Liberation and Protection of the People (OLP) and to develop “plans for comprehensive citizen safety which respect human rights.” In a communiqué disclosed on Wednesday, the organization noted that security plans needed to include the broad and diverse participation of civil society and the guidance of the Inter-American Commission on Human Rights and the Office of the United Nations High Commissioner for Human Rights. “The so-called OLP has been reported by civil society organizations and individual cases of arbitrary detentions, torture and other cruel, inhuman and degrading treatment such as forced disappearances and executions carried out by officials who should be responsible for ensuring compliance with the law,” the communiqué reads, EFE reported. Last weekend, 12 bodies were found in two mass graves in the Barlovento area, northern Miranda state. They had been detained a month ago, in the context in one of the security operations in question and had no criminal record, according to Venezuelan Ombudsman Tarek William Saab. (El Universal: http://www.eluniversal.com/noticias/daily-news/urges-venezuelan-authorities-stop-police-raids_629426)  

 

Judge Afiuni's case to be presented at National Assembly

Following an Opinion from the United Nations Working Group on Arbitrary Detention, the National Assembly’s Domestic Policy Committee, headed by opposition lawmaker Delsa Solórzano, will review the case of judge María Lourdes Afiuni, who was accused of releasing businessman Eligio Cedeño. Afiuni spoke at a private hearing, and claimed her case “has revealed the horror that the country’s justice system has been turned into.” “Afiuni, who was released on parole in 2013, also said that: “Here (in Venezuela) the fear of judges prevents things from being clarified; they only follow instructions from the Executive Office. Thus, legal autonomy and independence are gone”. (El Universal, http://www.eluniversal.com/noticias/daily-news/judge-afiunis-case-presented-venezuelan-congress-meeting_629431)

 

As Venezuela talks stutter, detained Maduro foes languish

A hundred or so opponents of President Nicolas Maduro have been detained on accusations or formal charges of plotting to overthrow his socialist government. Their fate is high on the agenda of Vatican-brokered talks between the government and opposition, intended to halt unrest and prevent further bloodshed in a deeply divided country in the midst of a crippling recession. Though the month-long talks have been faltering, several of the detainees - whom the opposition call political prisoners but Maduro says are coup-plotters and criminals - were released as early goodwill gestures around Pope Francis' initiative. But the opposition is demanding freedom for all, raising families' hopes. "None of them should be there in the first place. They use the prisoners as hostages, bargaining chips," said Adriana Pichardo, a legislator and rights spokeswoman for the hardline Popular Will party whose members have taken the brunt of arrests. Local rights group Penal Forum lists 108 political prisoners currently, up from 11 when Maduro was elected president following Chavez's death from cancer in 2013. The opposition coalition puts the current number higher, at 135. In the last two years, there have been 6,811 politically-motivated detentions, though most of those were short-term and spiked during a wave of anti-Maduro protests in 2014, according to Penal Forum which tracks cases and offers free legal assistance. The accusations range from stashing arms and explosives, to inciting violence and hate via Twitter and political ads. Of 53 new detainees in 2016 on Penal Forum's list of political prisoners, 49 were taken after former government leaders from Spain, Panama and the Dominican Republic began promoting talks in May, the rights group said. "They free some, but they've already taken more, so where is the gain?" Penal Forum director Alfredo Romero said. "That's their game." (Reuters: http://www.reuters.com/article/us-venezuela-politics-prisoners-idUSKBN13P1YT)

 

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.