Blame the Empire.
Venezuela’s socialist President Nicolás Maduro on Wednesday accused the United States of oversupplying the market -in his words, “inundating the market”- to rattle oil prices. His government is maybe having a tough time coping with a sliding crude price as oil accounts for some 95 per cent of export revenues of the energy rich country.
The toxic combination of dropping oil prices, an economy in shambles and lower levels of foreign reserves, has been reinvigorating fears of a debt default. Alejandro Grisanti, head of Latin America economics research at Barclays, said on Wednesday in report titled “Venezuela: The perfect storm”:
By Pan Kwan Yuk and Andres Schipani
Thumbing his nose at critics, Venezuela’s finance minister, Rodolfo Marco Torres, said on Wednesday via a series of tweets that the socialist government has paid a $1.5bn government bond that was due.
As fastFT reported, Mr Torres took to Twitter, under the hashtag #VenezuelaSeRespeta, or Respect for Venezuela, to write:
Acknowledging the instruction of our president Nicolás Maduro, today we paid #GlobalBond2014 #RespectForVenezuela
Today we paid $1.561.665.000 in capital and corresponding interests of #GlobalBond2014 #RespectForVenezuela
The Boliviarian government shows its commitment to the Motherland and the capacity to honour its obligations #GlobalBond2014 #RespectForVenezuela
Venezuela’s black market foreign exchange rate, the innombrable – or unmentionable in Spanish – broke the supersonic barrier of a 100 bolívares per dollar on Friday afternoon.
Amid the country’s deepening malaise, the fall has been a fast one: a year ago, a greenback fetched less than 40 bolívares fuertes. The fuerte – or strong in Spanish – has since become a wisp of a thing with the country’s biggest banknote – the 100 bolivar – now changing hands for a mere US dollar.
Nevertheless, Venezuelans are desperate to get hold of greenbacks to hedge against runaway inflation at 63 per cent. But due to tight controls imposed over a decade ago, the government sells a limited amount of dollars at overvalued rates ranging from 6.3 to roughly 50 bolívares, depending on the country’s multiple exchange rates.
Venezuela’s economy is in disarray and many blame its tight foreign exchange system. Some within the socialist government are resistant to reform it, so for a while now, officials have instead opted to tinker with it. One could say they did so, albeit slightly, again on Thursday by allowing the state-owned oil company, PDVSA, to sell dollars at different rates.
PDVSA, the cash cow of the country with the world’s largest oil reserves, will now be able to use any of Venezuela’s three legal exchange rates when it contributes to the government’s social development fund, Fonden.
Nicolás Maduro, Venezuela’s president, made his debut at the United Nations this week. While in New York he talked about Citgo, the US-based subsidiary of his country’s state oil company PDVSA, which is supposedly up for sale. Only last month, a government minister said Caracas was open to proposals.
Maduro seemed keen to scotch that idea. He said his government’s plans for Citgo were to keep on “strengthening our investments” – and to keep on warming the homes of some 150,000 families in the US through a subsidised heating oil programme launched by his mentor and predecessor, the late Hugo Chávez.
Clorox, the cleaning products company, has finally bit the dust in Venezuela, announcing on Monday it was pulling the plug on the embattled Caribbean nation amid the country’s growing economic woes and restrictions.
“This is a very difficult situation for our company,” Don Knauss, chairman and chief executive, said in a statement.
Aside from price controls, foreign companies operating in the country have to deal with runaway inflation, which drives up operating costs. They also have to watch the money they make depreciate because Venezuela’s tight capital controls mean they cannot easily repatriate it.
No devaluation here
One could say that a clear sign that Venezuela – a country where beauty enhancements are a serious issue – has hit rock bottom is that there is now a shortage of breast implants. But as FastFT reports, the real nervousness appears to lie elsewhere.
Growing concerns over the embattled Caribbean country’s ability and willingness to make $4.5bn of debt repayments next month has pushed the cost of insuring against a default to the highest in seven months.
By Eric Platt and Andres Schipani
Another lurch lower for Venezuela: the country’s sovereign credit rating was cut deeper into junk territory to ‘CCC+’ by Standard & Poor’s on Tuesday as it grapples with recession, rocketing inflation, dwindling foreign reserves and widespread shortages of goods.
S&P lowered its rating one notch from ‘B-’, which the agency said indicated a “one-in-two likelihood of default over the next two years”.
Sometimes it’s hard to worry about Venezuela’s bondholders even as the possibility is raised of default. After all, the country’s citizens still have to deal with one of the world’s highest rates of inflation when they go to the shops.
This week, after some months of silence on the subject, the central bank reported that Venezuela’s annualised inflation rate hit 63.4 per cent in August.
On Tuesday night, halfway through announcing what he had trailed earlier would be a major cabinet re-shuffle, Nicolás Maduro (pictured) let slip a telling phrase. The Venezuelan president praised outgoing oil minister Rafael Ramírez because, as Maduro said, he had rescued the country from “the claws of the meritocracy”. No kidding.
A long-proposed sale of Citgo, the US subsidiary of Venezuela’s state oil company PDVSA, is once again making some waves. Rafael Ramírez, the powerful boss of PDVSA who is also oil minister and deputy president for the economy, said this month that a sale could go ahead “as soon as we receive a proposal that serves our interests.”
But in the US on Wednesday, Joe García, an energy savvy Democratic Congressman from Miami, urged the Obama administration to block the sale.
For more than 50 years, citizens of Communist Cuba have been assured access to basic foodstuffs by the libreta, or ration book. But the subsidised system in increasingly controversial and last year Raúl Castro, the country’s president, rubbished it as “paternalistic, irrational and unsustainable”.
Nevertheless, across the Caribbean, Castro’s friend and colleague Nicolás Maduro of Venezuela is planning a similar system in a bid to combat the shortages that are ravaging the home of 21st century socialism. Maduro said his government would introduce a rationing system using mandatory fingerprinting in supermarkets, calling it “perfect” and an “anti-fraud blessing”.
There has been an outpouring of bitter comments under the hashtag #GuisoChino – “Chinese Stew”, slang for fraud and corruption – in Venezuela sparked by this week’s visit by Chinese president Xi Jinping, who granted more financial support to the cratering economy of president Nicolás Maduro.
China has granted some $50bn in loans to Venezuela in recent years according to the Inter-American Dialogue/Boston University China-Latin America Finance Database, far more than to any other country in the region. Venezuela, after all, has the world’s biggest oil reserves.
With Venezuela’s economy in tatters, corruption allegations abounding and political infighting the name of the game, it may be time for changes at the top.
A fortnight ahead of the ruling socialist party’s third congress at the end of July, President Nicolás Maduro (pictured) is expected to make the first announcements of a government restructuring this week. What’s at stake in the country with the world’s largest oil reserves, but where shoppers struggle to find basics such as toilet paper and powdered milk?
As your correspondent found out while visiting Caracas this week, it can be hard to take a shower there these days because of drought-fuelled water rationing. But it is also hard to find bottled water if you want to give yourself a splash instead. Of course, you can always just reach for the deodorant and hope it does the job in the heat of the Venezuelan tropics. Or rather, you can’t, because it is increasingly hard to find deodorant.
No hay – Spanish for “there isn’t any” – is a mantra often heard in today’s Venezuela.