Venezuela’s Overripe Revolution Crossing
Venezuelan President Maduro, after seizing more multinational company food warehouses and banning jailed opposition leaders from end-year parliamentary elections, ordered the closure of border trading with Colombia and the expulsion of immigrants as he branded the neighbors as “criminals and smugglers.” The crackdown came as CDS spreads rocketed to 6000 basis points on $40/barrel oil and $1100/ounce gold dwindling reserves to $15 billion in August, around half this year’s external financing gap. Sovereign and state oil debt repayments are $6.5 billion for the rest of 2015 and $11 billion next year, and the EMBI component has been the worst performer with a 20 percent loss as benchmark yields top 25 percent. The government has sold a US refinery and raised cash from Caribbean neighbors with early concessional aid redemption, but ruled out large state enterprise unwinding which could bring $50-$75 billion. PDVSA’s 2016 bond still trades above 80 cents implying low near-term default risk, but hyper-inflation and devaluation may spark immediate crisis. Official price data is not regularly published but triple-digit increases are reported in social media and the informal market exchange rate, previously based on Colombian border sources, is in the 650 range to the dollar as the acute shortages persist under the new commercial auction mechanism between banks and brokers.
On social issues the President has only built half of promised working class housing and the murder rate is now the highest in the region, as another foreign couple was killed in a headline robbery outside Caracas. After selective sanctions were imposed by Washington for anti-democratic behavior he began blaming outsiders for economic collapse and extended the strategy to Bogota in a strategy foreshadowed by his predecessor Chavez, who supported the rebel FARC and applied his own import ban during a diplomatic feud. According to opinion surveys, opposition parties are ahead for the December polls and even allies Bolivia and Ecuador acknowledge that outcome may be recognized as the tripartite South American Community strives to maintain viability as a rival hemispheric bloc. Ecuador’s President Correa faces natural disasters from volcanic eruption and El Nino at the same time China’s woes have drained the loan spigot. Demonstrators in Guayaquil jeered tax proposals to fund public spending equal to almost half of GDP. Foreign reserves are just $4.5 billion and external bonds are now prohibitive at a cost over 10 percent, so a framework has been introduced for alternative electronic money to ease the dollar regime. He has accused labor, business, indigenous and journalist groups of coup plotting and may try again to change the constitution to permit unlimited terms.
Colombian stocks were down 45 percent on the MSCI Index at Latin America’s bottom with the Caracas confrontation added to commodity export and peace process woes. Pacific Rubiales also listed in Canada has run into debt repayment trouble with the peso off 35 percent against the dollar the past year. The current account deficit is 6 percent of GDP, and the central bank has been on hold on projected 3 percent growth mainly from domestic demand including a $50 billion multi-year infrastructure program. After three years of negotiation a guerilla attack killing a dozen soldiers may have indefinitely scuttled resolution of outstanding “war crimes” issues, as President Santos’ 30 percent public approval also defies reconciliation.
