Venezuela’s Yacht Harbor Reverie
Venezuelan bonds extended double-digit EMBI losses at 20 percent yields as President Maduro spurned default talk with scheduled repayments and tackled fiscal crisis with new luxury goods taxes on yachts and rum as $4 billion in Chinese loans were added to official reserves under $20 billion. Twenty-five other laws were passed under economic emergency powers pending new legislative elections next year that could end ruling party dominance as suggested by the President’s meager 30 percent approval rating. Although only inflation has been reported statistically at 65 percent with a lag, output will contract 3-5 percent on widespread staple shortages without authorized dollars or profits. Consumer giant Proctor & Gamble was the latest to cease operation as price controls pinched further and rigid labor practice prevented worker shedding. With world petroleum value declining OPEC representation has focused on supply restraint as domestic production capacity will be flat through 2015. Beijing will allow minimal shipments of around 300,000 barrels/day to service debt and the Finance Minister has committed to maintaining Citgo US service station ownership even if assets are sold. International cash reserves are just $1 billion with the rest held in gold and an equivalent $15-20 billion stash may be in off-balance sheet accounts according to estimates. To smooth the debt profile the sovereign and state oil company may soon conduct liability management exchanges, but participation could be limited by sustainability doubts and mounting Washington sanctions against the regime for anti-democratic moves including the arrest and jailing of opposition leaders. A small current account deficit will be run this year on falling oil exports and the overvalued multi-tier exchange rate. Currency devaluation and unification remain on the table but reform proponents were purged several months ago and only gradual changes from the progressive 6-50 bolivar/dollar formal levels are expected against the parallel rate above 100, especially with the military benefiting from the preferences. Domestic fuel subsidy adjustment has also been shelved indefinitely for fear of social explosion, although unaddressed crime and health concerns also rank high in public anger.
Border closings with Colombia to squeeze smuggling and normal trading are part of the “economic war” strategy and contributed to negative stock market results there as the FARC peace negotiations temporarily unraveled after a general was captured by the guerillas. President Maduro has not pronounced on the talks which were facilitated by his predecessor, and Colombia’s business community which suffered from extortion and kidnappings is split on the prospects. President Santos in turn inherited the office from now Senator Uribe who has spearheaded opposition to any deal in Havana as sympathy with “Castro-Chavismo.” The dispute has overshadowed solid 5 percent growth on a mix of domestic and external support as the peso weakens against the dollar without intervention amid a clamor for redenomination dropping zeroes. A $25 billion public-private infrastructure medium term infrastructure program has also been reformulated after early criticism for smoother commercial sailing.
