The Obama Administration’s new approach to Cuba has jolted Western Hemisphere leaders preparing for next week’s Summit of the Americas in Panama. According to senior host nation officials, the Summit will be historic as the first time since the Eisenhower Administration that all hemispheric leaders will meet together at the same time. Coupled with a recovering US economy regaining attractiveness to regional partners, the Summit offers a tailor-made opportunity to find new ways to cooperate on energy, agriculture, technology and innovation.
Unfortunately, this scenario is at risk of being undermined needlessly by hemispheric reaction to the Obama Administration’s sanctions on seven Venezuelan officials and the declaration that Venezuela is an “unusual and extraordinary threat” to the US. Read more
Venezuela has one of the worst managed economies on the planet and its bonds are trading at levels that suggest a default is priced in. But it is unlikely to default on its sovereign debt this year.
That is not a view widely held in the markets. Prices of credit-default swaps on Venezuelan debt, a form of default insurance, suggest a 60 per cent chance of default in the next year and a 90 per cent probability in the next five years. But investors may well be underestimating the government’s determination to keep paying its debts on time. Read more
Last week Diezani Alison-Madueke, Nigeria’s oil minister and the president of Opec, called for an extraordinary meeting of the oil exporters’ cartel in the face of falling prices. Rafael Correa, president of Ecuador, Opec’s smallest member, rallied behind her saying prices were “unnecessarily low”.
They may not achieve much – Saudi Arabia and other Gulf exporters are against production cuts – but the calls will nevertheless be welcome in Venezuela, where the sudden collapse of oil prices has been especially bad news. Read more
As Venezuelans queued to buy dollars last week to protect their savings from the world’s fastest inflation, intelligence agents arrested Antonio Ledezma, the opposition mayor of Caracas, on suspicion of being part of a coup plot backed by the US.
The news at least provided some distraction for a country mired in economic crisis, where GDP is expected to shrink 7 per cent this year and where citizens are reeling from effects of the latest back-door devaluation. Read more
“You want milk? Low fat? Skimmed?” asked a man who identified himself only as Juan. “I can get you milk, but it is going to cost you!”
My arrival for a three month reporting stint in Caracas has schooled me in some simple rules of life in the Venezuelan capital. One is that supermarkets almost never have milk, so if people want something to add to their coffee they need to find the telephone number of someone like Juan, a fixer.
The next rule is that once they’ve heard the price, they’ll prefer black coffee. Juan was charging 150 bolivares a litre ($24 at the official rate of 6.3 per US dollar). That is roughly ten times the cost of pasteurised milk at the regulated price in state-run supermarkets. Read more
Instead of clarity, still more confusion out of Venezuela on Tuesday as officials made yet another announcement on a long-awaited reform of the country’s dysfunctional foreign exchange system.
The government said dollars to cover 70 per cent “of the economy’s needs” would be supplied at the official rate of 6.3 bolívares, with the remaining 30 per cent offered at a variable rate starting at 12 bolívares to the dollar. That still left room for a third channel, to be known as Simadi, supposedly left to float freely according to supply and demand. Read more
By Francisco Toro
As stories proliferate of Venezuelans waiting in line for hours for basic staples and people paying $755 for a pack of condoms, it’s been been easy – too easy – to fit Venezuela’s economic collapse into the “falling oil prices” narrative. After all, when 95 per cent of your export earnings come from one commodity and its price drops by more than half, you’d expect a bit of turbulence, wouldn’t you?
Well yes, but only if you’re not prepared. The oil market’s volatility is nothing new: wild boom and bust episodes have been with us since the 1970s. Which is why smart oil-dependent countries realized long ago they’d better save up during boomtime, so they could have some sort of cushion during the busts. Smart oil-dependent countries such as…Venezuela. Read more
By Simon Quijano-Evans of Commerzbank
Today’s surprise visit by President François Hollande and Chancellor Angela Merkel to Moscow must be seen as the final attempt to find peace in Ukraine. This can only be brought about through: 1) full coordination between the EU and Russia at all levels, with clear pledges from the Ukrainian government and separatist forces to do the same and 2) the presence of a meaningful international peacekeeping force to secure the agreed-on buffer zone in eastern Ukraine. Indeed, as we hear from the US debate on providing arms to Ukraine, the alternative to peace would be full escalation and definitely not a “frozen” conflict, given that Russia’s military doctrine sees Nato as one of the main threats to national security. Read more
By Russ Dallen of Caracas Capital Markets
Investing in Venezuela has always been like praying mantis love. On first acquaintance, Bolivarian Venezuela has those big, beautiful Miss Venezuela eyes and those angelic clasped praying hands inspiring trust and confidence, all backed up by glorious profits and yields. But while other investors in Venezuela – from oil companies, to airlines, to consumer products corporations – have been lured to their demise, bondholders have until the past two years been spared from most praying mantis cannibalism, and the action for bondholders has been great! Even if Venezuela has not paid shareholders of ExxonMobil, ConocoPhillips, or the Koch brothers’ Fertinitro, Venezuela paid the bondholders handsomely! Always! But then came the first sign of trouble, from steel company Sidetur, which the Venezuela government expropriated in 2013 and then didn’t pay its bondholders (or shareholders). Read more
The late Hugo Chávez once rubbished Citgo as a “bad business”. But the US refining unit of PDVSA, Venezuela’s state oil group, may now be coming to the rescue of its socialist owners in Caracas, and in a thoroughly capitalist way.
Venezuela is in deep recession, its citizens are struggling to buy food and the government is struggling to meet debt commitments of at least $10bn this year. Step forward Citgo, which is reportedly preparing to issue $2.5bn in loans and bonds to raise some much-needed cash for its embattled parent company, and hence its embattled sovereign. Read more
Shortages in Venezuela are leading to unrest and worrying bond markets. Russ Dallen, head of Caracas Capital Markets, explains that policy failures have reduced production capacity and the country cannot afford to import or pay its debts.
While crude prices extended losses, Venezuela’s President Nicolás Maduro extended his trip abroad, seeking support to stop the collapse in the price of oil, which accounts for some 96 per cent of his country’s foreign earnings.
Meanwhile, back home, something else also extended: queues and discontent. Read more
Investors used to studying Venezuela’s financials for signs of impending default might want to switch their attention to the queues building outside supermarkets across the country, as Venezuelans find it harder and harder to buy the most basic household goods.
The threat of rising social unrest leaves the government in Caracas with a choice: should it use its scarce resources to pay bondholders, or to put groceries on the country’s shelves? Read more
There are few more sure signs of economic meltdown than a run on a country’s banks. In Venezuela, however, the currency is losing its value too quickly to be worth running after. Instead, Venezuelans are going after groceries. The country is seeing a run on its supermarkets that is gathering pace by the hour. Read more
Venezuela’s President Nicolás Maduro had many words of praise for his Chinese counterpart, Xi Jinping, after their meeting in Beijing this week.
However, as fastFT reports, the announcement that he had taken more than $20bn in investment from China for various types of projects left many wondering if the president of the oil-dependent Caribbean nation had really got what he wanted. Read more
Another year, another announced change to one of the world’s tightest and most complex foreign exchange regimes. Unsurprisingly, however, the long-awaited change has fallen short of the full scale reform of currency controls promised last week by Nicolás Maduro, Venezuela’s increasingly isolated president. Read more
By Russ Dallen, Caracas Capital Markets
Trying to predict what will happen in South America’s wildest emerging markets in 2015 has the degree of difficulty of trying to compute pi to the 100th digit in your head.
With Venezuela, in particular, the range of options of what could happen next year is almost as infinite – ranging from more of the same and muddling through, to default, violence, coup, civil war and international brigades. On the economic front, whether Venezuela survives 2015 will depend almost purely on the price of oil, however. Read more
Last week, Cleary Gottlieb – the US law firm representing Argentina in its debt negotiations – held a packed closed-door session on Venezuela. The question of the day was: what if Venezuela defaults? This week, the US Senate passed a bill that seeks to sanction Venezuelan officials for alleged human rights violations. Although these two events are not obviously related — and the sanctions bill still has to be approved by Congress, and signed into law by Barack Obama — they could become so. They both also illuminate the horrible mess that Venezuela could be heading into. Read more
By John-Paul Rathbone and Andres Schipani
Socialist Venezuela would never sell out its friends to Wall Street, right? Yet it appears that is exactly what Caracas wants to do. Pressed by the oil price collapse, rattled by fears of default, facing rising social tension as imports collapse due to lack of foreign exchange, and seemingly unable to put its economic house in order, the country is trying to raise desperately-needed cash by selling debts owed to it by the Dominican Republic and Jamaica on to Goldman Sachs. Chavismo turns to the vampire squid?
The idea has been circulating for a while in the investment banking community. But now details have emerged in the press, as reported by El Nuevo Herald, and Petroleum Argos. Essentially, the trade involves Venezuela securitizing debts owed under its $3.5bn a year subsidised oil program, called Petrocaribe. Read more