Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Tuesday, September 12, 2017

September 12, 2017


International Trade

Recent cargo arrivals:

  • 30,000 tons of white corn aboard the DL MARIGOLD, at Puerto Cabello, for state agency CUSPAL
  • 30,000 tons of sugar aboard the MV POLA PACIFIC, at Puerto Cabello, for state agency CUSPAL
  • 1052 head of cattle aboard MV GLAMAR, at Puerto Cabello, for state agencies.
  • 330 containers aboard MV SAN ANTONIO from Cartagena-Colombia, at Guanta port, bearing food, basic products and medical supplies, for the GMAS government program. The same vessel reportedly offloaded 3048 tons of food, 544 tons of medicine and 21 tons of personal care products at La Guaira port,
  • 677 tons of basic products, 297 tons of medical products, and 95 tons of personal care products, aboard the CONTSHIP PRO, at La Guaira port
More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=37616;  http://www.bolipuertos.gob.ve/noticia.aspx?id=37623;  http://www.bolipuertos.gob.ve/noticia.aspx?id=37618; El Nacional, http://www.el-nacional.com/noticias/economia/llegan-puerto-guanta-2369-toneladas-alimentos_202933; El Universal, http://www.eluniversal.com/noticias/economia/maiz-blanco-bovino-pie-arribaron-puerto-cabello_669113;  Noticiero Venevisión, http://www.noticierovenevision.net/noticias/economia/treinta-mil-toneladas-de-maiz-blanco-arribaron-al-puerto-de-puerto-cabello; Notitarde, http://www.notitarde.com/llegaron-a-puerto-cabello-30-mil-toneladas-de-azucar/la-costa/2017/09/11/1075433/)

 

Oil & Energy

Saudi’s Al Falih discusses oil supply cuts extension with Venezuela, Kazakhstan

A further extension for at least three more months beyond March is now being discussed before OPEC meets again in November. The deal to curb output propelled crude prices above US$ 58 a barrel in January but they have since slipped back to a US$ 50 to US$ 54 range as the effort to drain global inventories has taken longer than expected. “Both countries agreed that the option to extend the voluntary market rebalancing effort, beyond the first quarter of 2018, would be considered in due course as market fundamentals may dictate,” the ministry said in a statement on Al Falih’s meeting with Kazakh Energy Minister Kanat Bozumbayev. Al Falih, who has held his meetings in Astana, also met Venezuelan Oil Minister Eulogio Del Pino and both ministers “agreed on the importance of leaving all options open” including the possible extension of the oil output cuts beyond the first quarter of 2018, if needed, according to a separate statement. Del Pino on Friday said global oil inventories remain too high and urged producers to look at exemptions granted to countries such as Libya and Nigeria and the effect of those exemptions on the market. Both ministers discussed oil market developments and how the OPEC-led pact “is improving market stability, contributing to the rebalancing of supply and demand, and drawing down excessive inventories,” the Saudi ministry said. “They both shared an optimistic outlook on market fundamentals in 2018.” (Gulf News: http://gulfnews.com/business/sectors/energy/saudi-s-al-falih-discusses-oil-supply-cuts-extension-with-venezuela-kazakhstan-1.2088370; Bloomberg, https://www.bloomberg.com/news/articles/2017-09-10/saudi-arabia-venezuela-agree-to-leave-rebalancing-options-open; AVN, http://www.avn.info.ve/contenido/venezuela-attends-kazenergy-eurasian-forum-kazakhstan)

 

Congressman Mike Coffman targets oil imports to slow Maduro regime in Venezuela

A House Republican introduced legislation last week to bar the U.S. from importing petroleum products from Venezuela in a push to cripple the growing authoritarian regime here. Rep. Mike Coffman, R-Colo., introduced the Protecting Against Tyranny and Responsible Imports Act, or the PATRIA Act, that would target Venezuelan President Nicolas Maduro after he stripped the countries democratically elected national assembly of its power and authority. According to the bill, the proposed ban on imports would last until the assembly's power is fully restored. "The goal is to change the conduct, the character of the Venezuelan government under Maduro. I think the window is closing," Coffman told the Washington Examiner. "They are dependent upon the export of oil really to fund their government, and without that, they can't pay their security forces." The Colorado Republican said passage of his bill is time sensitive given the actions taken by the Maduro regime and the suffering within the country, which he warns could become the next Cuban-style dictatorship. Coffman said he has not discussed the bill with either the White House or congressional leadership yet, but plans to do so soon. He estimates that a ban on importing oil from Venezuela would have a US$ 10 billion impact in lost income on the Venezuelan government. Despite criticisms of the ban and how it could hurt affected Venezuelans, Coffman believes the ban would be much preferred to the continued growth of the Maduro regime. All in all, Coffman is optimistic the PATRIA Act ("patria" is Spanish for "nation") could take hold and harm the regime, but he reiterates that time is of the essence. (The Washington Examiner: http://www.washingtonexaminer.com/mike-coffman-targets-oil-imports-to-slow-maduro-regime-in-venezuela/article/2633691)

 

Economy & Finance

Maduro announces 40% increase in minimum wages, which have shrunk 38% this year

President Nicolas Maduro has announced another 40% increase in minimum wages here, the second such increase in two months. This will bring the minimum wage to slightly above US$ 40, if estimated at the highest official foreign exchange rate. However, a report from TORINO Capital indicates that the real minimum wage here has shrunk 38% so far, this year, and says the recent increase remains below its projected 717% inflation scenario for this year. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/nacional/presidente-maduro-anuncio-aumento-de-40-del-salario-minimo; El Universal, http://www.eluniversal.com/noticias/economia/gobierno-aumento-salario-minimo-integral-325544-bolivares_669170; El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/torino-capital-afirma-que-salario-minimo-ha-caido-.aspx#ixzz4sSaamCQO)

 

Maduro regime radicalizes price controls

Claiming that “all prices used today are over 1000% inflated”, President Nicolas Maduro has proposed to again set price controls on over 50 basic products, including powdered and liquid pasteurized milk, margarine, mayonnaise, mortadella, baking wheat, pasta, some fish species, chicken, butter, canned sardines, hard white cheese, ham, soap, and oils. The new regulation incorporates a system of “vigilantes” from local distribution committees. Economist Luis Oliveros says: “The government is radicalizing price controls, that´s the difference from previous experiences.” More in Spanish: (El Nacional, http://www.el-nacional.com/noticias/economia/gobierno-radicaliza-control-precios-con-fiscales-los-clap_202976)

 

New economic measures by Maduro only benefit importers, 'bachaqueros

The economic measures announced by Nicolás Maduro on Thursday night are only aimed at favoring the different mafia organizations controlling various "businesses" being conducted in Venezuela. Among them are food importers and the so-called "bachaqueros," or resellers of foodstuff and other consumer staples at higher prices than those regulated by the Government or previously sold by retailers. Controlling prices is the same recipe they have been using for years without any positive results, because Venezuela’s "socialist" inflation is the highest in the world. Price controls have resulted in shortages. Such shortages are because domestic producers have decided to go out of business for not being cost-effective. Those still in business are struggling to survive trying to meet domestic demand, since they cannot make new investments. This increases the dependency on imports of what the country needs, while shortages is the best way to foster "bachaqueo" activities. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2442991&CategoryId=10717)

 

Venezuela has asked Russia for debt restructuring

Russian Finance Minister Antón Siluánov has announced that Venezuela’s debt with his country is being renegotiated both bilaterally and within the framework of the Paris Club. Last August, Russian opposition leader Alexéi Navalni reported that the Kremlin is financing the Maduro regime and has no intention of recovering US$ 8.8 billion credits it has granted Venezuela. Also, in August Russian state oil giant ROSNEFT advanced US$ 6 billion to Venezuela for oil supplies through 2019. More in Spanish: (El Universal: http://www.eluniversal.com/noticias/politica/rusia-negocia-reestructuracion-deuda-con-venezuela_669206)

 

Venezuela bond bull says sanctions may keep Maduro paying

One of the largest holders of Venezuelan bonds says U.S. sanctions are giving Nicolas Maduro’s government greater incentive to pay its debts. The penalties imposed late last month restrict the country’s ability to restructure its obligations, meaning the president’s only option is to keep scraping up enough cash to keep current on overseas notes. Maduro will put off default if possible because it would be catastrophic for the oil industry and ultimately lead to a government collapse, according to Bent Lystbaek, who oversees US$ 3.4 billion in emerging-market debt at Danske Capital. “The willingness to pay is extremely high and now they have further impetus to keep the boat afloat,” Lystbaek said from Lyngby, Denmark. "Default would be the death sentence of Maduro’s administration." Danske Capital is the 19th-largest holder of Venezuelan bonds and 21st-largest holder of PDVSA debt as of June 30, according to data compiled by Bloomberg. Here’s what else Lystbaek had to say about Venezuelan politics and investment opportunities: “I don’t think Maduro could survive a default. It would be very, very hard to export oil. Oil cargoes could be seized. Import compression is already substantial and they couldn’t import anything then. Social unrest would increase dramatically and I think that would be the end game.” “Now, they will turn to the Chinese and Russians to muddle through. I don’t think they even consider the alternative. The consequences of a default are devastating.” That said, “I don’t think they have a long-term chance. The Chavistas are just living from one day to the next. It cannot go on forever and the end day is moving closer and closer.” How would regime change impact bondholders? “If there was a regime shift, the opposition would go for a restructuring and they could be successful and strike a deal. There’d be a radical shift in policy: they’d invite the IMF and it would all be very, very positiveWe could envisage a benign debt restructuring characterized by high recovery rates substantially above the levels where low coupon, longer-dated PDVSA bonds are trading today at 30 cents per dollar In the case of a default, there will be a relatively swift transition of power and a pretty swift debt restructuring along the lines of what we saw in Ukraine in 2015.” Still, “there’s a risk that at a later stage when free elections have been held and the opposition regains power, they’ll say the loans weren’t legal and we annul all deals done with the Russians and Chinese.” (Bloomberg:  https://www.bloomberg.com/news/articles/2017-09-11/venezuela-bond-bull-says-sanctions-may-keep-maduro-paying-debt)

 

For Venezuela’s true believers, the ultimate risky bet beckons

For years, investors in Venezuela and its state oil company, Petroleos de Venezuela SA, took comfort knowing that in the event of a default, there’d be assets they could potentially seize to recoup some of their losses. But for bond buyers with an even bigger appetite for risk, those willing to throw themselves at the mercy of President Nicolas Maduro’s survival and track record of making good on debt payments, there’s another option: Electricidad de Caracas, the state-run electric utility. The company’s US$ 650 million of bonds coming due in April trade at just 67 cents on the dollar with a whopping 96% yield, making them the riskiest notes maturing over the next year in the world’s riskiest nation. And with good reason. In the event of default, PDVSA bondholders, and possibly even owners of Venezuela’s sovereign debt, could lay claim to the crude producer’s oil, tankers and U.S. refining unit. But ELECAR, which PDVSA bought a decade ago, has nothing for overseas investors to seize. (Bloomberg, https://www.bloomberg.com/news/articles/2017-09-08/for-venezuela-s-true-believers-the-ultimate-risky-bet-beckons)

 

Venezuela crisis raises talk of ‘odious debt’ doctrine

An archaic, often-mentioned but never-invoked legal doctrine called “odious debt” could get tested for the first time in history in Venezuela should the current regime be ousted from power. The concept of ‘odious debt’ has gained in prominence and been called a doctrine despite never being enshrined in any sovereign or international law, or having been in practice invoked by any country restructuring its debts after the previous regime has been ousted. But some legal experts think that the move by Venezuela’s government led by Nicolás Maduro to scrap its National Assembly for a more supine Constituent Assembly this summer, followed by the US government unveiling sanctions on the country, could open an unusually fertile environment for the legal gambit. If the current regime is ousted, a new government could invoke odious debt as an excuse to refuse to recognize any new loans incurred by the Constituent Assembly. Given Venezuela’s lack of market access that would probably primarily affect any new loans extended by the likes of China or Russia, not existing bondholders. (Financial Times: https://www.ft.com/content/fa6850cc-96c3-11e7-b83c-9588e51488a0)

 

OP-ED: Venezuela is about to ditch the dollar

President Nicolas Maduro said Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week. He will look to use the weakest of two official foreign exchange regimes (essentially the way Venezuela will manage its currency in relation to other currencies and the foreign exchange market), along with a basket of currencies. Maduro was referring to Venezuela’s current official exchange rate, known as DICOM, in which the dollar can be exchanged for 3,345 bolivars. At the strongest official rate, one dollar buys only 10 bolivars, which may be one of the reasons why Maduro wants to opt for some of the weaker exchange rates. He hinted that the country would look to using the yuan instead, among other currencies. “If they persecute us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said. (Lew Rockwell: https://www.lewrockwell.com/2017/09/no_author/venezuela-ditch-dollar/)

 

Politics and International Affairs

France says Venezuela talks to take place Wednesday, warns of sanctions

Venezuela’s government and opposition will hold a round of talks in the Dominican Republic tomorrow, France’s foreign minister said today, warning Caracas’s leadership that it risked EU sanctions if it failed to engage in negotiations. “I was happy to learn that dialogue with the opposition would restart tomorrow in the Dominican Republic,” Jean-Yves Le Drian said in a statement after meeting his Venezuelan opposite number, Jorge Arreaza Montserrat in Paris. He said the meeting would be under the auspices of Dominican President Danilo Medina and former Spanish prime minister José Luis Rodriguez Zapatero. Maduro routinely calls for dialogue with the opposition, but his adversaries see dialogue as a stalling mechanism that burnishes the government’s image without producing concrete results. A dialogue process backed by the Vatican in 2016 did little to advance opposition demands, which include release of political prisoners and respect for the opposition-run congress. Many Maduro critics believe opposition leaders were duped in that dialogue process, and have grown suspicious of former Zapatero as an intermediary. “This (dialogue) is good news and I hope that it will rapidly lead to concrete steps on the ground.” Le Drian said. Like fellow-EU member Spain a few days earlier, Le Drian also warned that if the situation continued there would be consequences. “I reminded him of the risk of European sanctions and the need to rapidly see evidence from Venezuela that it is ready to relaunch negotiations with the opposition and engage in a sincere and credible process.” (Reuters: https://www.reuters.com/article/us-northkorea-sanctions-treasury/treasurys-mnuchin-china-may-face-new-sanctions-on-north-korea-idUSKCN1BN1P1; The New York Times: https://www.nytimes.com/reuters/2017/09/12/world/europe/12reuters-venezuela-politics-france.html)

                                         

Venezuela sets Oct. 15 for regional vote favoring opposition

Venezuela’s government has set a date for long-delayed gubernatorial elections that the opposition is heavily favored to win. Electoral authorities say voting in all 23 states will take place Oct. 15. Monday’s announcement came a day after the main opposition alliance held primaries to select candidates to run against some of socialist President Nicolas Maduro’s closest allies. Francisco Castro, chairman of the Primaries Commission within the Democratic Unity opposition alliance said the primaries were “massively” attended “by hundreds of thousands of citizens”. Legislator Henry Ramos Allup said that participation in the primaries being to select single candidates for the gubernatorial elections next month is “above expectations.” The decision to participate in the elections had sparked tensions within the opposition since the government seated a special assembly to rewrite Venezuela’s constitution amid allegations that the elections to choose delegates were marked by fraud. The gubernatorial elections were supposed to have taken place last year but were scrapped as the country’s economic problems mounted and polls indicated Venezuelans heavily favored removing Maduro before the end of his term. (The Washington Post: https://www.washingtonpost.com/world/the_americas/venezuela-sets-oct-15-for-regional-vote-favoring-opposition/2017/09/11/42f958a4-9764-11e7-af6a-6555caaeb8dc_story.html; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2443067&CategoryId=10717; and more in Spanish: Noticiero Venevisión, http://www.noticierovenevision.net/noticias/politica/elecciones-de-gobernadores-se-realizaran-el-15-de-octubre; http://www.noticierovenevision.net/noticias/politica/oposicion-venezolana-voto-en-primarias-sin-incidentes-ni-aglomeraciones; El Universal, http://www.eluniversal.com/noticias/politica/cne-fija-elecciones-gobernadores-para-octubre_669719; http://www.eluniversal.com/noticias/politica/oposicion-anuncia-candidatos-entidades_669550; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/comicios-regionales-ser%C3%A1n-15-octubre; El Mundo, http://www.elmundo.com.ve/noticias/actualidad/politica/elecciones-de-gobernadores-se-realizaran-el-15-de-.aspx; El Nacional, http://www.el-nacional.com/noticias/oposicion/mud-anuncio-los-nombres-los-candidatos-las-regionales_203013)

 

U.N. rights boss sees possible "crimes against humanity" in Venezuela

The United Nations human rights chief said on Monday that Venezuelan security forces may have committed crimes against humanity against protesters and called for an international investigation. “My investigation suggests the possibility that crimes against humanity may have been committed, which can only be confirmed by a subsequent criminal investigation,” Zeid Ra‘ad al Hussein told the U.N. Human Rights Council. He said the government was using criminal proceedings against opposition leaders, arbitrary detentions, excessive use of force and ill-treatment of detainees, in some cases amounting to torture. However, Venezuela’s Foreign Minister Jorge Arreaza dismissed the allegations as "baseless" and demanded that Mr Zeid "cease his aggression against Venezuela". He also said that the report by the UN Office for Human Rights was "riddled with lies". He accused protesters of using firearms and “home-made weapons” against security forces, but noted that the last death was on July 30. “Our country is now at peace,” he added. Diego Arria, who was Venezuela’s ambassador to the United Nations in New York from 1991 to 1994, told a separate Geneva event organized by activists and action group UN Watch that Venezuela should be referred to the prosecutor of the International Criminal Court. “I am convinced that the killing in the streets equates to crimes against humanity,” he said. The Hague-based court defines such crimes as including torture, murder, deprivation of liberty, sexual violence and persecution, he said. (Reuters: https://www.reuters.com/article/us-venezuela-politics-un/u-n-rights-boss-sees-possible-crimes-against-humanity-in-venezuela-idUSKCN1BM0UI; BBC News: http://www.bbc.com/news/world-latin-america-41227441; Al Jazeera: http://www.aljazeera.com/news/2017/09/venezuela-warns-crimes-humanity-170911210836001.html)

 

OAS begins hearings this week on crimes against humanity in Venezuela

The OAS will begin hearings this week to determine whether the Venezuelan regime has committed “crimes against humanity”, and whether there is any basis to take the case to the International Criminal Court. The hearings will be run by former ICC Prosecutor Luis Moreno Ocampo, who has been specially appointed by OAS Secretary General Luis Almagro, Hearings have been scheduled with NGO and Armed Forces representatives.  More in Spanish. (El Universal, http://www.eluniversal.com/noticias/politica/oea-inicia-jueves-audiencias-por-crimenes-lesa-humanidad-venezuela_669711)

 

Pope Francis: United Nations must help in Venezuela crisis

Aboard his overnight flight from Colombia to Rome Sunday, Pope Francis touched on the dire political and human rights crisis that continues to unfold in Venezuela, stating that the U.N. needs to be involved in reaching a solution. “It seems that it's a very hard thing, and the most painful is the humanitarian problem, the many people who escape or suffer...we must help to resolve it in any way (possible). I think the U.N. must also make itself felt there to help,” the Pope said Sept. 10. “I think that the Holy See has spoken strongly and clearly,” he said, also mentioning the many times he has spoken about the situation in Venezuela during his Angelus addresses. Journalists also asked Pope Francis about President Nicolás Maduro’s conflicting rhetoric, in particular his claim to be “with” Pope Francis, while at the same time speaking out violently against the bishops. About this, Francis replied: “What President Maduro says, he can explain. I don't know what he has in his mind…” The Pope also mentioned the extensive work of the Holy See to promote dialogue in the country, including the agreement to send a group of four ex-presidents as facilitators in a meeting between the Venezuelan government and the opposition Oct. 30, 2016.  The group was made up of former Colombian president Ernesto Samper Pizano, the secretary general of UNASUR (the Union of South American Nations); José Luis Rodríguez Zapatero of Spain; Martín Torrijos of Panama; and Leonel Fernández of the Dominican Republic. The Vatican also sent Archbishop Claudio Maria Celli to participate as a nuncio of the Holy See. Pope Francis said that after “speaking with the people,” the Holy See has also spoken to Venezuela in a private manner, possibly referring to a private meeting that occurred between him and President Maduro at the Vatican last October. The country was on Pope Francis' mind throughout his visit to Colombia, beginning with the flight over the nation. As his plane took off for Bogota, he greeted journalists, telling them they were going to fly over Venezuela and asking them “to pray so there can be dialogue, that there will be stability, with dialogue with everyone.” He also met briefly with five bishops from Venezuela present in Colombia for his visit, welcoming them to the sacristy after celebrating Mass in Bogota Sept. 7. Among the prelates Francis met were Cardenal Jorge Urosa, Archbishop of Caracas; Cardenal Baltazar Porras, Archbishop of Mérida; Jesús González de Zárate, Auxiliary Bishop of Caracas; Bishop Mario Moronta of San Cristóbal; and Bishop José Luis Azuaje of Barinas, who is also President of the Latin American branch of CÁRITAS. (Angelus News: http://angelusnews.com/articles/pope-francis-united-nations-must-help-in-venezuela-crisis)

 

The Economist Intelligence Unit Country Report: Venezuela, August 2017

The results of the July 30th election and the events in the subsequent days have prompted a revision to our baseline forecast scenario. We had previously expected the government to hold the December 2018 presidential election as scheduled, under growing pressure from the international community, with the opposition well-placed to win power. However, we no longer believe that this will occur. Maduro seems little concerned about the ever more damning criticism from the international community, with even the veiled threat of US economic sanctions proving no deterrent to the president's plans for constitutional reform and consolidation of power. We no longer believe that he will feel pressured into holding an election that he risks losing. However, we do not expect that he will manage to cling to power for our entire 2017-21 forecast period, on the basis that international oil prices are not expected to rise to such a level to provide the funds to ease chronic consumer goods shortages. We therefore believe that a transition involving the opposition is likely. Given the highly volatile political situation, accurately forecasting when and how this will occur is challenging. We believe that there are two main ways in which a transition of power might play out. The most likely scenario (to which we attach a 60% probability) involves Maduro muddling through for the remainder of 2017 and much of 2018, running down reserves to pay external debt repayments, but being unable to avoid a debt default later in 2018 or in 2019. This would be likely to bring about Maduro's demise, as his allies in government and the military would be hit financially, and remaining popular support from his constituents (chiefly the poor and public-sector workers) would fade owing to heightened economic hardship. At the same time, Maduro's ability to muddle through until 2019 will be limited, and we view the main risk to our newly revised, baseline forecast to be a military coup at some point during the remainder of 2017 or in 2018, prompted by a worsening of the economic and humanitarian crisis. We believe that there is a 40% risk of this occurring. (FULL REPORT ATTACHED)

 

OP-ED: China, Russia increase leverage in Venezuela amid crisis, by Evan Ellis

The most important question regarding the unfolding crisis in Venezuela is not whether U.S. sanctions and international pressures will force its populist regime to restore democracy. That will not happen anytime soon. Rather, it is whether the Venezuelan regime will be able to successfully transition power to a more rationally managed authoritarian government, backed by Russian and Chinese resources, that protects those who have systematically looted the country, while providing a sufficient façade of democratic process and compromise that a weary and distracted international community lends it legitimacy. As the crisis in Venezuela has deepened, Russia and China have leveraged the Maduro regime’s growing international isolation, financial needs, and political receptivity, to increasingly control the country’s finances, oil, and markets. While Russian and Chinese companies in fact compete in Venezuela in these areas, their strategic and business interests arguably coincide in the survival of an anti-U.S. regime near the U.S., granting its benefactors privileged access to the country and its petroleum and mineral wealth. Of the two extra-hemispheric actors, it is the PRC which holds the greatest leverage over the fate of the Venezuelan regime, particularly as its access to conventional financial markets and oil sales are reduced by U.S. sanctions. The PRC has the money to lend, and indeed has already lent an estimated US$ 60.2 billion to the regime during the past decade. In addition, the PRC controls the financial instruments in Venezuela key to the regime’s survival. China’s CITIC bank currently manages PDVSA’s current accounts for its oil transactions, after the latter moved them from Portugal’s Banco Espiritu Santo (BES), probably to protect those accounts from claimants in lawsuits against the company. More importantly, China Development Bank manages the principal lines of credit for Venezuela’s “loans-for-oil” contracts, and thus controls the regime’s main vehicle for obtaining consumer goods for its supporters, and resources for building the petroleum, electricity, and transport infrastructure that the regime requires to bring the considerable deposits of heavy oil in the Orinoco tar belt and bring it to market, to pay its bills. During a recent meeting of the China-Venezuela High-Level Mixed Commission, the two nations signed 22 agreements involving US$ 2.7 billion in projects, including construction of the Jienyang refinery to process Venezuelan heavy oil in the PRC. While the PRC has been in talks with individual members of the Venezuelan opposition, China neither needs to turn against the current Venezuelan regime, and indeed, it is strongly in its interest not to do so. Because most Chinese loans to Venezuela over the past decade have been short-term and repaid on time, and because China has become stingier with credit as the Venezuelan crisis has deepened, its outstanding debt exposure in Venezuela may be as little as US$ 10-20 billion, hardly worth risking its relationship with a strategically useful regime sitting on top of 300 billion barrels of recoverable oil. Moreover, the recent successful seating of the Venezuelan constituent assembly raises the possibility that the regime could reform the constitution, permitting it to hand over even greater portions of Venezuela’s oilfields and other assets, in return for needed cash. Like China, Russia will also continue to support the Maduro regime or its replacement, for the same reasons as the PRC will, albeit with more limited resources and fewer financial and commercial instruments for doing so. In the oil sector, while the more commercially-oriented Russian oil firms such as LUKOIL have long-since pulled out of Venezuela, the state-owned firm ROSNEFT, led by former Russian senior intelligence operative and sometimes Putin ally Igor Sechin, has sunk an estimated US$ 6 billion into the country since 2010, including over US$ 1 billion in 2017 alone. As other companies have pulled out of Venezuela, ROSNEFT has negotiated to leverage Venezuela’s need for cash to gain expanded stakes in oil joint ventures such as PETROMONOGAS, PETROVICTORIA, and PETROMIRANDA. As the situation in Venezuela deteriorates, both Russia and China both have a strong interest in providing resources to ensure the continuation of a friendly, anti-U.S. regime in Caracas, but their resources are not infinite. In addition, each must move cautiously to avoid that the United States perceive hostile intent in their maneuverings in Venezuela, and attempt to block them. Moreover, both extra-hemispheric actors must use their leverage to advance a transition of power in the country toward a leadership at least minimally capable of managing the Venezuelan economy and oil sector in a sustainable fashion. Yet they must not pressure the regime so hard that it collapses, and the transition must give a sufficient appearance of legitimacy and legality so that the U.S. and international community accepts the domination over Venezuelan assets that Russia and China achieve. The U.S. is right to impose escalating sanctions on Venezuela, yet as they do so, they must also deny Russia and China from leveraging their position as an alternative source of capital and support, to expand their own positions in the country. One of the few worse problems than a hostile, unstable Venezuelan regime flirting with Russia and China, is a hostile, stable one economically and politically dominated by them. (NEWSMAX: https://www.newsmax.com/EvanEllis/venezuela-crisis-china-russia/2017/09/07/id/812212/)

 

Maduro makes whirlwind visit to the Middle East

President Nicolas Maduro arrived Saturday night in Kazakhstan’s capital of Astana, to attend an Organization of Islamic Cooperation (OIC) summit, trying to end to his regime’s diplomatic isolation, strengthen its financial independence and avoid Venezuela’s possible economic collapse due to a new round of US sanctions targeting his government-issued bonds. He met with Iranian President Hassan Rouhani and Turkey’s Recep Tayyip Erdogan. On Sunday night, he stopped in Algiers for a 24-hour visit on his way back from Astana, but it was not clear whether he met with his 80-year old counterpart Abdelaziz Bouteflika, and has now been reported to be back in Caracas. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2443064&CategoryId=10717); and more in Spanish:  (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/internacional/presidente-maduro-y-lideres-turcos-evaluaron-relaciones-bilaterales;  El Universal, http://www.eluniversal.com/noticias/politica/nicolas-maduro-llega-argelia-para-visita-horas_669549; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/presidente-maduro-regresa-venezuela-luego-gira-internacional-diplomacia-paz; El Mundo, http://www.elmundo.com.ve/noticias/actualidad/noticias/presidente-maduro-finalizo-visita-oficial-en-argel.aspx)

 

Britain’s Theresa May meets with Venezuelan democratic leaders

British Prime Minister Theresa May has met with the President of Venezuela’s National Assembly, Julio Borges, who is on a tour of Europe to present this nation’s political and humanitarian crisis.

May welcomed Borges and expressed “firm support for democracy and human rights in Venezuela”, the legislator reported. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/politica/primera-ministra-de-inglaterra-se-reunio-con-julio-borges)

 

Venezuela is aiding Cuba, Antigua and Barbuda after hurricane Irma

President Nicolas Maduro has ordered his government to prepare an assistance plan for Cuba following damages caused by hurricane Irma. Foreign Minister Jorge Arreaza also announced that Venezuela is sending humanitarian aid, supplies and medication to Antigua and Barbuda. He said two Venezuelan aircraft would participate, and seek material from other nations. 34 rescue specialist will be sent, with medical and paramedical teams. More in Spanish:  (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/internacional/venezuela-envia-ayuda-humanitaria-a-antigua-y-barbuda-tras-paso-de-irma; Agencia Venezolana de Noticias; http://www.avn.info.ve/contenido/venezuela-env%C3%ADa-ayuda-humanitaria-antigua-y-barbuda; El Universal, http://www.eluniversal.com/noticias/politica/venezuela-envio-ayuda-humanitaria-antigua-barbuda_669135; El Nacional, http://www.el-nacional.com/noticias/gobierno/gobierno-venezolano-prepara-plan-apoyo-para-cuba-tras-paso-irma_202987)

 

ODEBRECHT denies paying Venezuela politician US$ 100 million

Scandal-hit Brazilian construction company ODEBRECHT denied accusations it paid US$ 100 million to Venezuelan Socialist Party Vice President Diosdado Cabello, as alleged by the country’s fugitive chief prosecutor. In a statement, the company said: "After conducting a comprehensive search of its legacy systems and of the statements given by its former team members who collaborated in (investigations), Odebrecht denies the accusations that it made a $100 million payment to ... Cabello." Chief Prosecutor Luisa Ortega had said the payment was made through Spanish company TSE ARIETIS. ODEBRECHT denied payments to the company. (Reu https://af.reuters.com/article/commoditiesNews/idAFL2N1LO0UPters)

 

11 died in shootout with soldiers in Venezuela's southeast

Eleven people died in an exchange of gunfire with soldiers in Venezuela's southeast, where criminal gangs dispute control of gold mines, the national prosecutor's office said on Monday. The gunfight occurred on Sunday in the town of Tumeremo when a patrol following up reports of an "armed organization" in the area were "surprised by a group of unidentified individuals," the office said in a statement. The violence followed a similar confrontation on August 14 between a suspected gang and a mixed patrol of soldiers and police, in the nearby town of El Callao. Eight people died in that incident. The region has a reputation for lawlessness and violence, fueled by the mining and trading in gold. (AFP: https://sg.news.yahoo.com/11-die-shootout-soldiers-venezuelas-southeast-234116466.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.

 

Tuesday, August 29, 2017

August 29, 2017


International Trade

Venezuelan exports to the US drop to US$ 9.202 billion, which is a 75% decrease since 2006, according to a report from the Latin American Economic System (SELA). US exports to Venezuela dropped down to US$ 5.009 billion, a reduction of 41% since 2006. More in Spanish: (El Universal; http://www.eluniversal.com/noticias/economia/exportaciones-venezolanas-estados-unidos-descienden-9202-millones_667523)

Recent cargo arrivals:
  • 88,000 tons of white corn and rice, at Puerto Cabello, aboard the ERHAN, AEC ABILITY II and the
  • y UBC TARRAGONA
  • 557 containers bearing oatmeal, beef, beans, white rice, vehicle tires, toothpaste, corn flour, wheat flour, milk, medicine, shampoo and diapers, arriving from Colombia on the NIKOLAS, at Puerto Cabello.
  • 140 tons of fertilizer for state agency AGROPATRIA, aboard the SUDKAP, at Puerto Cabello.
  • 2477 pieces of steel tubing, aboard the QING HUA SHAN, also at Puerto Cabello
  • 6,101 tons of food packages for the government’s CLAP food distribution program have arrived at La Guaira port in 289 containers aboard MV VIKING MERLIN from Veracruz – México. Food items received include pasta, rice, beans, cooking oil, canned tuna, and powdered milk.
  • 2.878 tons of food, medicine and personal care products arrived at La Guaira port aboard the CONTSHIP PRO from Jamaica, and the MELBOURNE STRAIT, from Curazao. The products received include rice, milk, pasta, tuna, beans, kits for dialysis, disinfectants, cosmetics, detergents, soap and children’s products.
More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx; El Nacional, http://www.el-nacional.com/noticias/economia/arribaron-2800-toneladas-alimentos-productos-higiene-medicinas_200865; http://www.bolipuertos.gob.ve/noticia.aspx; Noticiero Venevisión, http://www.noticierovenevision.net/noticias/economia/aduana-principal-de-puerto-cabello-recibe-100-mil-toneladas-metricas-de-maiz-y-arroz; El Universal; http://www.eluniversal.com/noticias/economia/llegan-puerto-guaira-mil-800-toneladas-productos_667689; http://www.eluniversal.com/noticias/economia/alrededor-millones-alimentos-para-los-clap-llegaron-guaira_667188;  El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/mas-de-6-mil-toneladas-de-alimentos-clap-arribaron.aspx#ixzz4qlgcty2l)

 

Oil & Energy

Oil Minister and state oil firm chief switch roles, Del Pino heads for Russia ahead of OPEC meeting

Venezuelan oil minister Nelson Martinez and state oil company president Eulogio Del Pino will switch roles as the country’s production wanes and money dries up. Del Pino will soon go on a series of foreign trips to strengthen alliances ahead of a meeting of heads of state which will seek accords on oil and gas prices, President Nicolas Maduro said on state television. Maduro’s moves come after the almost 90% drop in profits at Petroleos de Venezuela SA last year amid declining output and a plunge in oil prices. Venezuela and PDVSA are under intense scrutiny from investors as U.S. sanctions against key government officials and a power grab by President Nicolas Maduro threaten to disrupt financial flows. Maduro said Martinez as head of PDVSA will seek to strengthen partnerships with foreign companies operating in the Orinoco Belt by improving their stakes, while increasing refining capacity and boosting production. Del Pino will visit Russia and Saudi Arabia ahead of a joint OPEC, non-OPEC monitoring ministerial committee meeting in Vienna set for Sept. 22, the TASS news agency cited the minister as saying on Monday. During his meeting with Russian counterpart Alexander Novak, the Venezuelan oil minister will discuss the implementation of the OPEC+ global oil output cut deal, and “the introduction of changes, if need be”, the agency reported, giving no detail. (Bloomberg: https://www.bloomberg.com/news/articles/2017-08-25/venezuela-oil-minister-pdvsa-head-to-switch-roles-maduro-says; Reuters, http://www.reuters.com/article/us-opec-meeting-venezuela-russia-idUSKCN1B80PP)

 

PDVSA negotiating Curacao refinery lease, open to China partners

Venezuelan state oil company PDVSA on Thursday said on Friday it was negotiating the continuation of its lease of Curacao’s Isla refinery but was open to Chinese partners following a preliminary deal between the island and China’s Guangdong Zhenrong Energy to operate the complex. PDVSA has for decades operated the refinery, which opened in 1918, under a lease agreement. But the cash-poor company has been reluctant to invest some US$ 1.5 billion that Curacao authorities requested several years back to modernize the 335,000 barrels-per-day facility. (Reuters, http://www.reuters.com/article/us-venezuela-refinery-curacao-idUSKCN1B52GM)

 

OP-ED: Why the oil market should not misread Venezuela

For trading markets every tragedy is a business opportunity. That is the spirit in which parts of the oil market are viewing the continuing trauma in Venezuela. The country is on the verge of becoming a failed state. But are these events likely to trigger the rise in oil prices that bulls in the market have long been hoping for? Will the implosion of the regime of President Nicolas Maduro and the open civil conflict that could follow push oil prices up to US$ 60, US$ 70 a barrel or even more? I don’t think so. There are good reasons, however, why the reality might be rather different. First, a complete cessation of production and exports is extremely unlikely. Venezuela depends on oil for 95% of its export revenues. Protecting that trade and maintaining production will be the absolute priority for any government. Oil installations will be guarded by troops if necessary and production will continue. If any of the producing facilities do grind to a halt the impact is likely to be limited. There could be a spike in prices but that is likely to be temporary. Venezuela is no longer the power in the oil market it was a decade ago, when it produced and exported around 2.5m b/d. Its crudes were an important part of the mix for refineries on the US Gulf coast. A loss of production of say half a million barrels a day would be inconvenient for the refiners accustomed to relying on the country’s supplies and damaging to the international companies involved, such as REPSOL and CHEVRON, but globally, any such shortfall could soon be matched by increased supplies from elsewhere. Nor would production stay cut off. Any government will need the export revenue and those who have invested in Venezuela or made loans in return for oil supplies also have a direct interest in seeing production maintained. That includes both China, which has stopped lending Venezuela new money but in 2016 still had a reported US$ 20 billion of loans outstanding, and Russia, which has recently increased its lending through the state-controlled oil company ROSNEFT. That debt is secured against the trading subsidiary of PDVSA, Citgo. No government can afford to alienate such powerful creditors. Venezuela could easily sustain production of 3m b/d or more and, given the existing infrastructure and the experience in what remains of the PDVSA, could probably reach that level within 18 months of a new administration. In countries dependent on oil revenue, production and exports become the imperatives of an incoming government — the way new leaders can secure power. Venezuela today is a sad and miserable place, its population the victims of dictatorship and mismanagement of the economy. But the market would be wrong to see what is happening on the streets of Caracas as a leading indicator of the next upward wave in oil prices. (By Nick Butler: Financial Times: https://www.ft.com/content/38c15c42-74e6-3410-9c70-eacc4b0fd449)

 

Commodities

35,000 hectares of citrus are endangered by spreading bacteria
The National Agriculture Producers Federation has called for a sanitary emergency due to the spread of a bacteria named HLB, which is endangering around 35,000 hectares of citrus. Carlos Romero, President of the National Fruit Growers Federation says the bacteria needs to be controlled through fumigation every 25 days, but it cannot be donet due to lack of pesticides at state agency AGROPATRIA. More in Spanish: (Ultima Hora Digital, http://ultimahoradigital.com/2017/08/una-bacteria-pone-en-riesgo-35-mil-hectareas-de-citricos-en-venezuela/)

ALCASA says it has been allocated US$ 403 million for projects

State company ALCASA reports the Maduro regime has given them US$ 403 million that it has invested in transforming, distributing and rolling aluminum, and will soon become the first transformation facility in Latin America. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/industrias/alcasa-recibio--403-millones-para-seguir-desarroll.aspx#ixzz4r91pzzBv)

 
SIDOR says it has completed a second delivery of tin foil for canning tuna and sardines

The state run SIDOR steel complex says it has delivered 1804 tons of tin foil to be processed into cans for tuna and sardines. It made a previous delivery in March to 27 processing companies. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/industrias/sidor-realiza-segunda-entrega-de-hojalata-para-env.aspx#ixzz4r92VnCNt)

 

Economy & Finance

Maduro now owns Venezuela’s economy—and its collapse
Venezuela’s socialist regime has consolidated near-total political control after installing an all-powerful constituent assembly. Resolving the economic crisis and coming up with US$ 3.5 billion for bond payments through November however will prove trickier. President Nicolas Maduro has thrived in the face of vicious street demonstrations, talk of military force by the U.S. and several rounds of sanctions. His new constituent assembly is bypassing congress and is expected to start rewriting the nation’s charter this week. But the result may be that Maduro has sole ownership of the once-rich nation’s terminal financial collapse. Maduro has been hunting for new financial lifelines in Russia as he’s slashed imports, called in debts and sold or mortgaged assets at a deep discount. As of July 31, the government had amassed US$ 2.8 billion for its November payments, according to Caracas-based consultancy ECOANALITICA. Beyond this year, however, director Asdrubal Oliveros was skeptical the government could make good if it continues to alienate investors and regional leaders. “The government remains trapped in the same dynamic,” he said. “It’s sustaining an unsustainable system.” The noose keeps tightening. Last week, the Trump administration barred trading of new debt issued by the Venezuelan government and state oil company PDVSA, and blocked dealing in some existing bonds owned by the country’s public sector. The ban is meant to keep Venezuelan government entities from selling bonds into the secondary market. As Venezuela has become economically isolated, inflation has spiked and the nation has been wracked by shortages of everything from car parts to basic medicines. Infant mortality and diseases like malaria have soared, while shaky services and unreliable food programs have fueled violent unrest among those once loyal to Maduro. Maduro has been vague about how he will improve Venezuela’s penury. He has hinted he may be tapping his Russian counterpart, Vladimir Putin -- whom he referred to as the world’s principal leader -- for even more financing, saying he would visit Russia soon to discuss accords. Still, Moscow’s aid hasn’t been enough. Venezuela’s ruling socialists have turned to printing money to maintain spendthrift policies. The nation’s money supply increased almost 30% in July alone, pushing prices even higher. Jose Manuel Puente, an economist at the Institute of Advanced Studies in Administration in Caracas, said Venezuela could be approaching hyperinflation. “It’s impossible to have a coherent macroeconomic policy while internal politics are in chaos,” he added. (Bloomberg: https://www.bloomberg.com/news/articles/2017-08-29/defying-logic-and-sanctions-venezuela-s-economy-slumps-alongI

 
White House sanctions may scare off Venezuela vulture investors
The Trump administration’s ban on new Venezuelan debt could scare off so-called vulture investors by making it nearly impossible for the country to restructure its obligations. That means in the event of default -- which investors view as pretty much a certainty within the next five years -- the country and its creditors may struggle to come up with an agreement that would assign any value to its outstanding bonds. It also will make smaller debt swaps much more difficult to get done, possibly hastening the day of reckoning. Such restrictions may throw a wrench into the tried-and-true methods of so-called vulture investors, typically hedge funds that swoop into a country’s distressed debt shortly before or in the aftermath of a default with the goal of extracting value from bonds too toxic for most investors. These funds may now demand a much lower price if there’s no regime change that would prompt the U.S. to lift restrictions, largely because of the complications in negotiating a restructuring.  Because a default with no hope of restructuring would expose the country to international lawsuits and seizures of its assets, it could increase the chances of a regime change in the aftermath of a missed payment. The same day the new sanctions were announced, Maduro asked holders of Venezuelan bonds to meet with Economy Minister Ramon Lobo this week to discuss the effects of the U.S. sanctions. U.S.-based holders of Venezuela bonds will be hurt the most by the penalties. The additional penalties strengthen Maduro’s argument that his nation is under attack from outside interests, likely pushing him toward lenders of last resort in China and Russia. The Treasury Department’s Office of Foreign Asset Control has traditionally interpreted sanctions broadly, so any attempt to circumvent their objective by clever structuring of a debt deal would be risky. The odds of a sovereign credit event over the next five years rose to 96% and Petroleos de Venezuela’s default probability hit 99%. (Bloomberg: https://www.bloomberg.com/news/articles/2017-08-28/white-house-sanctions-may-scare-off-venezuela-vulture-investors)


US sanctions to pile misery on moribund Venezuelan economy
While President Nicolas Maduro celebrates having calmed Venezuela’s streets after months of deadly protests, the country’s imploding economy poses an ever more severe threat. And the misery is likely to get even worse due to financial sanctions imposed by the Trump administration in efforts to isolate Maduro for taking the country down an increasingly authoritarian path. But while daylong bread lines have eased, the newest scourge is the way galloping inflation has reached even the basic staples whose prices were long controlled by rigid price and currency restrictions. In recent months authorities have started allowing companies to import everything from canned food to new cars and letting them pass the dollar prices on to consumers at the black-market exchange rate, where the greenback is worth 1,685 times more bolivars than it as at the strongest of three official exchange rates. The result of the de-facto dollarization has been a devil’s bargain: Shelves are fuller than Venezuela has seen for months, but with prices that are out of reach for the poor Venezuelans. Inflation, which has been running in the triple digits for more than two years, hit a record last month and has risen to 650% over the past 12 months. That’s not to say shortages have gone away. Most shelves contain a single variety of any given product, much of it imported from China. Former Foreign Minister Delcy Rodriguez, leader of the pro-government constitutional assembly whose creation triggered the U.S. action, said Sunday that the “financial blockade” means Venezuela won’t be able to pay for essential imports like food and medicine. The Trump administration denies it is seeking to punish ordinary Venezuelans. The sanctions, enacted by executive order last week, prohibit American banks from providing new money to the government or state-run oil company PDVSA. They also bar PDVSA’s U.S. subsidiary, CITGO, from sending dividends back to Venezuela. But they don’t affect financing for most commercial trade, including the shipment of crude oil, of which the U.S. is the OPEC nation’s biggest buyer. Still, by depriving Maduro of badly needed hard currency, the sanctions make it more likely that Venezuela will stop payment on its debt, or reduce what few goods it still imports at the official rates. Worse, if Maduro doesn’t yield to Trump’s demand to disband the constitutional assembly and call elections, even tougher sanctions are likely to follow. To cope, Maduro says he will look to increase commercial ties with China and Russia, although it’s not clear how generous its allies will be, given Venezuela’s growing reputation as an international outlaw in the mold of Cuba, Syria and North Korea. (AP: https://apnews.com/97841a2444b544fca6b4b3803f0e7d2c/US-sanctions-to-pile-misery-on-moribund-Venezuelan-economy)


Scraping the bottom of the barrel: Disposable reserves down to US$ 700 million; Capriles calls emergency
International reserves available for imports, debt service, contingencies and FOREX stabilization were down to US$ 9.855 billion on August 22nd, the lowest level in 15 years. And the situation is even worse because the nation is now more dependent on imports and has a heavier debt burden. Central Bank sources say disposable reserves are only US$ 700 million because most reserves are being held in gold bullion: This means even fewer imports and increased scarcity. The is not much chance disposable reserves can increase in the short term because PDVSA must pay US$ 2.900 billion in debt service during October and November. The government is considering using gold bullion to leverage additional resources. The ECOANALÍTICA think tank estimates gold reserves to be around US$ 7.8 billion, some of which it has reexported to the Bank of England. The government could sell some of this gold, or use it as collateral for loans, but this would liquidate available options, or as ECOANALÍTICA describes it: “scraping the bottom of the barrel”. Miranda state governor and opposition leader Henrique Capriles Radonski says “we are in an emergency. We are reaching a crossroads where we either pay debt or get embargoed; and if they pay debt, what will we do for imports?” More in Spanish: (Notiminuto: http://www.notiminuto.com/noticia/reservas-liquidas-caen-a-700-millones/#; http://www.notiminuto.com/noticia/segun-capriles-venezuela-entre-el-defaul-o-importar-alimentos/)

 

Venezuelan bonds drop sharply after sanctions

Venezuelan bonds dropped severely in secondary markets after new financial sanctions were announced by the Trump administration. PDVSA bonds were the hardest hit, dropping an average 4.3%. The PDVSA 21 bond fell by 6.37%, Sovereign bonds also receded an average 4%, with the Venezuela 2022 dropping 5.4%, The bonds were also hurt by an additional drop in oil prices. More in Spanish: (El Nacional: http://www.el-nacional.com/noticias/economia/bonos-venezolanos-cayeron-mas-luego-sanciones-estados-unidos_201005)

 

Walls close in on Venezuela with U.S. bond sanctions

Fresh restrictions on trading Venezuelan debt have drawn the financial noose more tightly around the neck of the struggling nation. The Trump administration on Friday barred the purchase in U.S. markets of new securities issued by the government and its state oil company and blocked dealing in some existing bonds owned by the country’s public sector to further clamp down on President Nicolas Maduro’s autocratic regime. Trump imposed sanctions designed to prevent Maduro from carrying out a "fire sale" of government assets. "We will not stand by as Venezuela crumbles," White House press secretary Sarah Sanders said Friday. "These measures are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela's corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance." That move won Trump bipartisan praise on Capitol Hill. The U.S., which will still allow the continued import of Venezuela’s lifeblood oil, acted in response to Maduro’s moves to consolidate authority amid a crippling recession and months of violent protests. The measures follow sanctions on top officials, and decrease maneuvering room for a nation fast running out of money. Venezuela has US$ 3.5 billion in bond payments coming due by November, which the government will struggle to pay as reserves dwindle. The Trump administration’s ban on new Venezuelan debt could scare off so-called vulture investors by making it nearly impossible for the country to restructure its obligations. That means in the event of default -- which investors view as pretty much a certainty within the next five years -- the country and its creditors may struggle to come up with an agreement that would assign any value to its outstanding bonds. It also will make smaller debt swaps much more difficult to get done, possibly hastening the day of reckoning. Such restrictions may throw a wrench into the tried-and-true methods of so-called vulture investors, typically hedge funds that swoop into a country’s distressed debt shortly before or in the aftermath of a default with the goal of extracting value from bonds too toxic for most investors. These funds may now demand a much lower price if there’s no regime change that would prompt the U.S. to lift restrictions, largely because of the complications in negotiating a restructuring. (Reuters, http://www.reuters.com/article/us-usa-venezuela-sanctions-idUSKCN1B5216; http://www.reuters.com/article/us-usa-venezuela-sanctions-market-idUSKCN1B52BD; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2442308&CategoryId=10718; Bloomberg, https://www.bloomberg.com/news/articles/2017-08-25/with-u-s-bond-sanctions-walls-close-in-on-venezuela-s-regime; https://www.bloomberg.com/gadfly/articles/2017-08-25/it-s-hard-to-quit-venezuela-s-debt-when-it-pays-so-well; https://www.bloomberg.com/news/articles/2017-08-28/white-house-sanctions-may-scare-off-venezuela-vulture-investors;)

 

.... and Goldman's hunger bonds dodge U.S. sanctions that bypass traders

The U.S. levied additional sanctions on Venezuela on Friday, but one of the nation’s largest bondholders may be breathing a sigh of relief. Goldman Sachs Asset Management, which bought US$ 2.8 billion of notes issued by the state oil company in May, has faced sharp criticism for a deal that appeared to supply fresh funds to President Nicolas Maduro. While observers thought the securities would be a prime target for new penalties, they were exempt from the order. In fact, the only bonds covered by the trading ban are notes due in 2036 that appear to never have been sold outside Caracas. “That was somewhat surprising,” said Francisco Rodriguez, the chief economist at Torino Capital in New York. “I guess the logic is that those bonds are already in the hands of bondholders, so you wouldn’t be really blocking new financing.” (Bloomberg, https://www.bloomberg.com/news/articles/2017-08-25/goldman-s-hunger-bonds-dodge-u-s-sanctions-that-bypass-traders)

 

Hausmann says Venezuela needs US$ 100 billion to begin recovery
Economist Ricardo Hausmann, Venezuela’s former Planning Minister and currently teaching at Harvard University’s Kennedy School of Government, estimates Venezuela will require US$ 100 billion to begin recovery. Following the nation’’s unprecedented collapse, with almost 40% reduction in GDP over the past 4 years and an 88% reduction in purchasing power, and a severe health crisis: “To get the country moving we must restore the ability to import, to a level of US$ 35 billion; and to do so we need to restructure sovereign debt, there is no other way. Besides, we of course will need specific international support.  We believe the documented debt is around US$ 118 billion, with another US$ 60 billion in unpaid commitments and delayed payments. All totaled, it is near US$ 170 billion. And our exports have dropped by US$ 26 billion. We are the most indebted nation in the world, as per the balance of debt and exports. We believe we will need around US$ 100 billion, half because of liquidity shock and the other half to restructure and reprogram our debt.  Venezuela has unfortunately been devastated and when the time to reconstruct comes it will be a terribly poor country”. Hausmann says that thanks to sanctions such as those implemented by the Trump administration US$ 500 million were located in accounts controlled by Vice President Tareck El Aissami. Also, “the latest sanction makes a lot of sense. Venezuela cannot now go to financial markets and that gives the international community leverage it has not had.” More in Spanish: (Clarin: https://www.clarin.com/mundo/venezuela-necesitara-100-000-millones-dolares-ponerse-marcha_0_rkvo6ryKZ.html)

 

Ramírez claims the US wants Venezuela to default, faults regime’s FOREX policy

Venezuela’s Ambassador to the UN, Rafael Ramírez, a former Vice President for Economic Affairs, has said that US sanctions on Venezuela are seeking to bring about a default, but he said sanctions are not the root of the crisis the nation has been undergoing for the past 3 years, but that restrictions on letters of credit will have an economic impact. He said the nation’s economy is afflicted by “serious” structural exchange rate problems. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/politica/ramirez-eeuu-busca-que-venezuela-caiga-estado-default_667727)

 

Pro-regime legislator claims Venezuela is negotiating bond sales to China

Juan Carlos Alemán, a member of the pro-regime “Constitutional Assembly” has claimed that the Maduro regime is negotiating with China for the resale of Venezuelan bonds, and that there soon will be an announcement in this. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/mercados/negocian-recompra-de-bonos-con-china.aspx#ixzz4r91jsi6A)

 

Cash scarcity now hits banks

Cash shortages hurting Venezuela over the past few months have now left the banking system with scarce tender available for clients, and in some cases with no cash at all. Employees at six government held banks report that ATM operations are now limited due to the cash shortage, and daily withdrawals at tellers are now limited to 50,000 bolivars per person.  The banking superintendent’s office (SUDEBAN) is denying it has ordered banks to cap withdrawals and cash transfers. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/economia/escasez-de-efectivo-deja-a-bancos-con-pocos-billetes-a-sus-usuarios; http://www.noticierovenevision.net/noticias/economia/sudeban-desmintio-que-se-haya-limitado-los-montos-para-retirar-o-transferir-dinero; El Mundo, http://www.elmundo.com.ve/noticias/economia/banca/hasta-bs-50-000-es-el-limite-de-retiro-en-agencias.aspx#ixzz4r926ONp2; http://www.elmundo.com.ve/noticias/economia/banca/sudeban-afirma-que-no-han-limitado-los-retiros-o-t.aspx; El Universal, http://www.eluniversal.com/noticias/economia/sudeban-desmiente-limites-retiros-banca_667612)

 

Politics and International Affairs

Venezuelan lawmaker says hunger, not politics, will drive Maduro from power
National Assembly member Gaby Arellano has travelled to Bogotá to warn local lawmakers about a looming humanitarian crisis across the border, as tens of thousands of Venezuelans continue to head to Colombia every day looking for food and refuge. She says the route to change will come through measures that “asphyxiate” the government, diplomatically or economically. Arellano believes that President Nicolás Maduro and the ruling United Socialist Party of Venezuela (PSUV) are on borrowed time. “The dictatorship is incredibly weak,” she said. “It’s only being propped up by the military, which has lost its legitimacy, and the errors of the political class — myself included — that opposes it. We had the dictatorship cornered,” Arellano said of the recent demonstrations. In the middle of the bloodshed and mass detentions, though, Maduro called for a National Constituent Assembly (ANC) to draft a new constitution — superseding all other branches of government. “It became clear that they were going to impose the [ANC] whether they had one vote or 100, whether there was one-person dead, or 1,000,” she says, adding that the opposition didn’t plan for how to confront the assembly once it was functioning. Even as Venezuela has quit seething with daily protests, Arellano says they’re lurking just beneath the surface, waiting for a new outrage to fan them back to life. She predicted the next “detonator” might come when the administration realizes it will lose October’s regional elections and postpones them or cancels them altogether. “Regardless of what the opposition does, or the dictatorship does, these protests are a product of the people’s needs,” she explains, and adds: “The barbarity is at the end, the worst is at the end, the most shocking is at the end.” (The Miami Herald: http://www.miamiherald.com/news/nation-world/world/americas/venezuela/article169903307.html)

 
ANC plans to begin rewriting Constitution this week, claim it is subject to referendum
Delcy Rodríguez, who heads the so-called National Constituent Assembly (ANC) says the group will begin rewriting Venezuela’s 1999 Constitution this week, focusing primarily on the justice and welfare systems. She announced that the group’s key operating rules have been approved, and that their work will be subject to approval by referendum, More in Spanish:  (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/politica/anc-empezara-a-redactar-capitulos-de-la-nueva-constitucion-la-semana-proxima; El Mundo, http://www.elmundo.com.ve/noticias/actualidad/politica/anc-empezara-el-lunes-a-redactar-una-nueva-carta-m.aspx; El Universal, http://www.eluniversal.com/noticias/politica/anc-aprobo-realizacion-del-referendum-aprobatorio-nueva-constitucion_667240)

 
Maduro regime eyes censoring social media after public shaming wave
The Maduro regime is considering banning messages that promote “hate” and “intolerance” on social media and messenger services, according to Delcy Rodriguez, the president of the country’s all-powerful constituent assembly. Rodriguez told reporters on Monday she is looking to limit messages that fuel bigotry and confrontation between Venezuelans in a so-called anti-hate law, which is currently being debated by the legislative super body, known as the “constituyente”. Rodriguez didn’t provide details on how the government plans to monitor social media and on penalties for offenders. The new assembly will meet again tomorrow. The anti-hate law comes as the government of President Nicolas Maduro has intensified a clampdown on the media, blocking the transmission of Colombian networks CARACOL and RCN last week. In a bid to consolidate power amid a crippling recession, Maduro installed the “consituyente” earlier this month with the mandate to rewrite the country’s constitution. The new legislative body has since bypassed the opposition-led congress and has been targeting the last strongholds of dissent in public institutions. Rodriguez singled out a growing practice among Venezuelan expats of publicly heckling top-ranking government officials on trips outside of the country. The practice, known locally as “escrache”, is filmed on smart phones and is wildly shared on services like Instagram, Twitter and WhatsApp. (Bloomberg: https://www.bloomberg.com/news/articles/2017-08-28/venezuela-eyes-censoring-social-media-in-wake-of-public-shaming)

 
Exiled Attorney General says contract killers set after her
Venezuela's exiled attorney general, Luisa Ortega, accused the government Monday of hiring contract killers to go after her and other justice officials denouncing alleged abuses committed under President Nicolas Maduro. "I have come specifically to lodge a complaint before the Costa Rican justice ministry and the Inter-American Commission on Human Rights," she told a news conference in Costa Rica's capital of San Jose alongside that country's chief prosecutor, Jorge Chavarria. "I have information that the persecution is continuing against me and that the government has contracted hitmen to end my life." Ortega, 59, is a fugitive from Venezuela. She fled with her husband on August 18, two weeks after a new loyalist assembly established by Maduro booted her from office. (AFP: https://www.yahoo.com/news/venezuela-ex-attorney-general-says-contract-killers-set-201550045.html)

 
MUD pro-democracy coalition supports US Sanctions, warns of unapproved transactions

Venezuela's Mesa de Unidad (MUD) pro-democracy coalition spoke out Sunday in a statement in which it set its sights on the decisions of President Donald Trump's government over Venezuela. Following is the MUD statement:
1. Sanctions for violators of human rights and looting of public resources will always have our support, in the absence of impartial justice in Venezuela. 2. We will also support and solicit all the world's diplomatic support that contributes to the constitutional and democratic restoration in Venezuela. 3. We urge the entire international community to warn all citizens and companies in their respective countries that they should refrain from carrying out financial transactions or contracts of national interest with the Venezuelan government that are in violation of the National Constitution because they have not been approved by the only Constitutional body to authorize them as the National Assembly. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2442371&CategoryId=10717)

 
US sanctions against Venezuela won’t work, warns Beijing
On Friday, US President Donald Trump signed an executive order prohibiting Americans from dealing with new debt and equity issued by the Venezuelan government and by its state oil company PDVSA. Beijing says the sanctions won't work. Chinese Foreign Ministry spokeswoman Hua Chunying said on Monday at a daily news briefing that: “The experience of history shows that outside interference or unilateral sanctions will make the situation even more complicated and will not help resolve the actual problem”. China and Venezuela have extensive business links; oil being the largest, where the countries have a loan-for-oil deal. Venezuela owes China more than US$ 62 billion and is behind in the oil shipments. (RT: https://www.rt.com/business/401167-us-sanctions-against-venezuela-wont/; Reuters, http://www.reuters.com/article/us-usa-venezuela-sanctions-china-idUSKCN1B811D)

 
Russia: US setting stage for Venezuela invasion
Russia accused President Trump's team of trying to set the stage for an invasion of Venezuela, in a condemnation of the latest U.S. sanctions on the Maduro dictatorship. "We are strongly against unilateral sanctions against sovereign states," Russian Foreign Ministry spokesperson Maria Zakharova said Monday. "We will carefully analyze the implications of the sanctions imposed by the United States, and their possible effect on the interests of Russia and Russian businesses. We can already say that they will not affect our willingness to expand and strengthen cooperation with the friendly nation of Venezuela and its people." That was just one salvo in an extended rebuke of U.S. policy, after Trump issued an executive order imposing new sanctions designed to cripple dictator Nicolas Maduro's regime. The Russians suggested that Trump is trying to destabilize Venezuela to provide a pretext for a U.S. invasion of the struggling country. "In these circumstances, the announced sectoral sanctions against Venezuela's financial and oil sectors are clearly aimed at further unbalancing the situation in the country, and exacerbating its economic problems," Zakharova said. Russia has now joined Cuba in defending Maduro and arguing that international powers should allow the new assembly to rewrite the constitution. (The Washington Examiner: http://www.washingtonexaminer.com/russia-us-setting-stage-for-venezuela-invasion/article/2632759#!)

 
Congressman reports the government spent US$ 22 billion on pending ODEBRECHT contracts
Congressman Juan Guaidó, Chairman of the National Assembly’s Comptroller Committee, reports that the Venezuelan government has expended around US$ 22 billion on unfinished ODEBRECHT projects that are 11 years overdue. He says that these contracts point to extensive corruption with officials who cannot account for the funds. Guaidó adds that the Committee, along with the exiled Attorney General, are promoting investigations and legal action in Brazil. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/economia/guaido-asegura-que-el-gobierno-gasto-22-mil-millones-de-dolares-en-contratos-de-odebrecht; El Nacional, http://www.el-nacional.com/noticias/politica/gobierno-malgasto-millardos-dolares-contratos-sobornos_200443)

 
Ortega’s revelations could implicate Spain’s Zapatero in Venezuelan shipbuilding surcharge
One of the files that Venezuela’s exiled Attorney General Luisa Ortega has delivered to the CIA and INTERPOL, refers to a case of possible corruption in surcharges on a sale conducted in 2005 by Spain’s former Defense Minister José Bono to Venezuela’s Navy. The operation took place under the administration of former Spanish President José Luis Rodríguez Zapatero, who is now leading mediation efforts between the Maduro regime and the democratic opposition. The sale involved the construction of 4 coastguard vessels and 4 ocean patrols, for a total documented cost of 1.207 billion Euros. The Chavez regime in fact paid 1.246 billion euros, a 38.6 million overprice to an intermediary named RABAZVEN HOLDING, which took 3,5% of the total money paid. The shipping company commissioned was NAVANTIA, an 100% publicly owned company and it was Bono who directly conducted the negotiations, as a result of a deal struck by Zapatero and Venezuela’s deceased President Chávez. More in Spanish: (ES Diario: http://www.esdiario.com/amp/702199265/Un-documento-airea-un-posible-caso-de-corrupcion-de-Zapatero-y-Bono-en-Venezuela.html)

 
Almagro says Ortega and exiled Supreme Court justices will investigate corruption
OAS Secretary General Luis Almagro reports that exiled Venezuelan Supreme Court justices will assist Attorney General Luisa Ortega Díaz, in investigating corruption charges made against President Nicolas Maduro and members of his regime. In 2004, the late President Chavez established an information sharing agreement with the United States designed to share “all cases and information in either country related to drug trafficking, money laundering, corruption, organized crime, illegal immigration, and all that which is inimical to the governments of both nations”, The flow of information was active up through 2007, when Luisa Ortega became Attorney General and no one advised her of the agreement. When she learned of it last year, information was gathered on government figures and business deals starting in 2004 and this is how the Attorney General’s office acquired all the information on ODEBRECHT, through the District Attorney and Federal Court in Brooklyn, N.Y. Information provided included accounts, front men, artificial schemes and cash deliveries for campaigns in each country. She was provided additional information in Brazil, and thus has ample information on Maduro’s imprisoned nephews and hundreds of other cases, including accounts with HSBC, and PDVSA and CITGO contractors. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/politica/almagro-ortega-diaz-magistrados-venezolanos-investigaran-corrupcion_667244; http://www.eluniversal.com/noticias/politica/runrunes_667772)

 
Venezuelan army, civil militias hold exercises after Trump threat

Venezuela held nationwide armed forces exercises on Saturday, calling on civilians to join reserve units to defend against a possible attack after U.S. President Donald Trump warned that a “military option” was on the table for the crisis-hit country. “Against the belligerent threats of the United States, all Venezuelans between the ages of 18 and 60 are required to contribute to the integral defense of the nation,” said an announcement broadcast early on Saturday on state television. Maduro used Trump’s threat to try to energize his political base, broadcasting images of rifle-carrying civilians negotiating obstacle courses and learning hand-to-hand combat. The government created the hashtag #EsHoraDeDefenderLaPatria, which translates as “It’s Time To Defend The Homeland,” to promote the exercises. (Reuters, http://www.reuters.com/article/us-venezuela-politics-idUSKCN1B60KA)

 

Colombia protests what it says was Venezuelan military incursion over border
Colombia has sent a letter of protest to Venezuela after it said security forces from the socialist country crossed the border into the Colombian province of La Guajira over the weekend. Sources told Reuters the Colombian Foreign Ministry had given the letter to Venezuela’s embassy in Bogota, although the government of Venezuelan President Nicolas Maduro denied on Sunday that the crossing into Paraguachon, La Guajira, took place. The governor of La Guajira criticized the crossing on Twitter over the weekend, saying the security forces came over the border on Saturday night and stole money and cellphones from residents. (Reuters: https://www.reuters.com/article/us-venezuela-colombia-idUSKCN1B82HZ)
 

Colombia sets up refugee camps due to the arrival of thousands of Venezuelans

Juan Carlos Restrepo, President Juan Manuel Santos’ National Security Advisor, has been put in charge of organizing refugee camps for thousands of Venezuelans fleeing the crisis here, and is seeking assistance from the government of Turkey, due to their experience with Syrian refugees. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/politica/gobierno-colombiano-levanta-campos-refugiados-para-venezolanos_667687)


French President Macron says he is worried by Venezuela 'dictatorship'
French President Emmanuel Macron said on Tuesday he was worried by events in Venezuela where he said that a “dictatorship” was trying to survive. He said he was ready to work with regional actors to prevent further escalations, including across the region. (Reuters: http://www.reuters.com/article/us-france-diplomacy-venezuela-idUSKCN1B915F?il=0)

 
OP-ED: A military option in Venezuela is not really an option for the U.S. military
Let’s leave aside the near unanimous repudiation from U.S. allies in the region and the near-consensus view among analysts that Trump’s unfortunate suggestion of a military option was not only reckless but counterproductive. Instead, let’s focus on whether it makes sense for an over-extended military to use its finite resources to resolve Venezuela’s political turmoil. First, the Pentagon does not consider the Western Hemisphere a theater for planning and conducting conventional military operations.  There are simply no military threats or competitors to the U.S. in a region considered to be a “zone of peace.” The 2017 Southern Command (SOUTHCOM) engagement statement highlights as part of its main efforts the need to counter threat networks, prepare for and respond to disasters and crises, build relationships to meet global challenges, and conduct detention operations—none of those involve or foresee direct military intervention in the region.  Although it can certainly plan for one, SOUTHCOM is not in the business of planning military interventions or occupations in the hemisphere. There are only two goals for which the military instrument of power could be used: regime change or forcing a change in the behavior or policies of the Maduro government.  If the goal is regime change, and assuming U.S. forces will not encounter much resistance, the Pentagon will have to plan for at least a force of 150,000 that can quickly overwhelm any conventional and irregular resistance during the intervention and subsequent occupation. The Maduro government is very likely to collapse almost immediately, leaving no government in place to assume the responsibilities of law and order.  As a result, U.S. forces will have to remain until at least stability and a legitimate government is restored.  Significant naval, air and ground forces and capabilities will have to be transferred from active theaters that are real threats to U.S. and global security, such as Syria, Iraq, North Korea and Afghanistan. If the political objective is to change the Venezuelan dictatorship’s behavior such that it will allow for elections and the restoration of the rule of law, it will at a minimum require a show of force that still requires the transfer of forces and equipment from much more vital conflict zones. Of course, when you go down this path, one must be ready to use force if the regime doesn’t change its behavior.  Surgical air strikes are sure to create chaos, violence among competing political actors and a collapsed state, leaving the U.S. with no other option than to intervene. In short, from a strictly military standpoint, the last thing the U.S. armed forces want, already over-stretched and on high levels of alert in key conflict zones, is to have to plan and execute a military intervention and likely occupation of a country that does not represent a grave threat to U.S. security and that is likely to lead to strong anti-U.S. sentiment across a region where the US military has done much to build goodwill in the last decade or so. The last thing this administration needs is another empty threat. (By Frank O. Mora: The Global Americans: http://theglobalamericans.org/2017/08/military-option-venezuela-not-really-option-u-s-military/)

 

OP-ED: Who’s Saving Venezuela? The U.S.? The UN? The Pope? No. But They Could. Here's How. The list of international players that have wrung their hands about Maduro’s tyranny, but failed to take effective action, is long and shameful. The U.S. policy of incrementalism, gradually turning the screws on the dictatorship with ever-broader unilateral sanctions is not enough. The EU needs to get on board with the U.S. and Latin America, backing up its words with actions. Few doubt the Maduro regime is heavily involved in drug trafficking, supporting terrorism, and looting the country’s economy. The international community must treat the regime as an active criminal enterprise, using criminal investigations to pierce the veil of banking secrecy in places such as Andorra, Switzerland, and the Cayman Islands to access the ill-gotten gains hidden there by Venezuelans made wealthy by their corrupt dealings. Publicize who they are and how they live in luxury abroad. Revoke their visas, freeze their assets and make it clear that a comfortable exile will not be an option if democracy does not return soon to Venezuela. That will drive a wedge among members of the regime in a way that will hurt them, not the Venezuelan people. (By Antonio Mora. The Daily Beast: http://www.thedailybeast.com/whos-saving-venezuela-the-us-the-un-the-pope-no-but-they-could-heres-how)

 

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.