Venezuela’s Endless Permutation Puttering
Venezuelan bonds were off double-digits at the bottom of the EMBI ranks as President Maduro jailed opposition party chief Lopez following mass rallies demanding his resignation and officials previewed another foreign exchange control outlet for cash and bonds to bridge the 80 peso divide between the formal and informal rate against the dollar. Short-term yields spiked to 20 percent as the government has refused to pay $50 billion in outstanding bills to oil contractors, food suppliers and airlines while continuing to honor the same amount of outstanding foreign debt. Reported international reserves were off one-quarter to $20 billion as servicing costs are put at $15 billion and another $40 billion was promised to consumer staple importers this year with the record “scarcity index.” Petroleum output is stuck at 2.5 million barrels/day and exports are sold at a heavy discount to repay Chinese loans and fulfill Caribbean ally aid pledges as US domestic fracking reduces energy appetite there. With inflation at 50 percent and the economy in recession without hard currency access and labor dismissal permission carmaker Toyota suspended operations as the President continued to decry the “parasitic bourgeoisie” after reshuffling his cabinet in favor of state intervention advocates. The military is part of the commercial crackdown and Cuban officers are close advisers to the regime. Confrontations have spread from Caracas to other cities and precarious security conditions have been underlined by high-profile kidnappings and killings. Former mayor Lopez has taken direct action to challenge the administration after it won elections in contrast to the cautious approach by previous candidate Capriles, as anti-incumbent unity remains elusive. Capital flight persists despite the inability to purchase tickets for air travel and Latin neighbors’ diplomatic refusal to denounce harsh rhetoric and policies. Washington however has been singled out for “coup-aiding” after a brief relationship warming as several embassy personnel were expelled.
Argentina debt has also lost big but after exchange rate and political shocks but the central bank has since intervened and shifted reserve requirements to brake depreciation as a new inflation reading was unveiled in compliance with IMF practice and the Repsol nationalization dispute was settled. The updated price gauge reflects a 30 percent annual rate which will be used as a cap for labor wage increases in the current bargaining round. Farmers who have stockpiled soybeans in revolt against runaway living costs agreed to monetize their horde to aid foreign reserves. The commodity has held firm in world markets on uncertain harvests elsewhere and steady Chinese claims, although the trade surplus continues to dwindle on power imports to handle the withering summer. Provincial dollar-bond yields have soared with the peso swoon but outright defaults are not imminent. On the US Supreme Court swap case, the government has formally petitioned for a review of the New York appeals decision rewarding holdouts and acceptance could take the saga into next year for a final twist before President Fernandez’s 2015 departure.
