Venezuela’s Galling Gas Station Giveaway
Venezuelan bonds and CDS were hammered as the US Citgo gas station chain was reportedly put up for $10 billion sale to reinforce official foreign reserves at double that level, and oil and economy policy chief Ramirez a relative moderate, was relieved of his posts amid rumors of default and restructuring intent stoked by commentators. Benchmark sovereign and state petroleum company instrument prices fell to respective 65 and 50 cents on double-digit yields with swap spreads reflecting 60 percent disruption odds over the next five years. October combined payments are $5.5 billion and a multiple of that figure is in arrears to international airlines and suppliers as national account statistics have not been updated for months. President Maduro’s opinion approval is 35 percent with three-quarters of the population negative about the future as crime, opposition crackdown, power and staple shortages and stagflation worsen. Washington has imposed sanctions on individuals responsible for harassing and jailing political challengers with Cuban advisers helping to orchestrate operations. Finance Minister Marco Torres from the army will assume the top economic post and a senior PDVSA division head will become chief executive. Ramirez was a Chavez rule holdover and with the transition launched investor meetings in New York and London and at multilateral bank gatherings to outline possible currency, subsidy and other reforms which may be indefinitely shelved. The President has embraced a proposal to consolidate off-budget funds in a transparent reserve figure but true reserves will remain murky and the multi-tier exchange rate could send the informal fix toward 100 bolivars/dollar. The Venezuelan director of Harvard University’s Development Institute suggested external bond default would be preferable to the internal squeeze imposed by price distortions and import scarcity under the Maduro regime’s “moral bankruptcy.” The move to unload Citgo may further unsettle longtime buyers with sizable positions in light of EMBI weighting who took solace in available collateral seizure. However in an emergency they note that funds could be redeployed from the Petrocaribe oil aid program with neighboring islands despite the diplomatic and local economy fallout as “solidarity” initiatives from the flush Chavez times of $125/barrel oil are reconsidered.
Jamaica, which just returned to the international bond market with good compliance under its $950 million IMF facility, could be affected as Q2 growth over 1 percent continued recovery despite drought. A fiscal rule was adopted aiming to halve public debt/GDP to 60 percent of GDP over the next decade with an immediate 7.5 percent of GDP target. The Dominican Republic has also benefited with 7 percent growth through the first half on mining, tourism and remittances. President Medina has pledged rough budget balance by the end of his term in 2016 and may tackle tax exemptions which have outlived their rationale according to experts. Adjacent Haiti relies heavily on Caracas’ commodity and donor assistance as parliamentary elections delayed since the earthquake may finally go ahead and generate their own tremors.
