What I’m about to narrate here is grim and lengthy, I urge you, I request you, please read it. And try not to vomit along the way.
What the International Monetary Fund says: The average inflation rate in Latin America is expected to be 5.7% in 2016 and 4.3% in 2017. Oh dear, but Venezuela’s inflation will end 2016 at 500%. That’s 87 times more than our neighbors. And 1,600% in 2017. 372 times more. My God! Holy Virgin! Regarding recession and decline, the drop in production is even “worse.” The blessed GDP is collapsing in the homeland of the Eternal. We plummeted 5.7% in 2015. We’re heading towards an 8% cliff this year and another 4.5% drop in 2017. The second-highest inflation rate in 2016 will be 9.4% in Uruguay, followed by 8.4% in Brazil and 7.3% in Colombia. To put it simply, by late 2017, one dollar may cost 20,000 bolívares, and a chicken egg (roosters don’t lay eggs) about 1,100 bolívares. A carton of eggs will be 40,000 strong bolívares. As for black gold, oil, according to the IMF, it will fall by 32% this year. It’s a hairy situation.
What the World Bank says: The drop in international oil prices, combined with macroeconomic policies that are pure nonsense and micro-level inadequacies, has significantly impacted Venezuela’s economic performance. It was clear. Come on, it’s obvious. The country has a high external and fiscal dependency on hydrocarbons (oil represents 96% of its exports). During the boom, Venezuela failed to save for a reversal in terms of trade and to soften the necessary macroeconomic adjustments. They stole everything. In the short and medium term, Venezuela faces significant financing needs, with an estimated fiscal deficit of around 20% of GDP by the end of 2016 and external financing needs estimated between 25 and 30 billion dollars. Where on earth are we gonna get that money? Access to external financing is restricted, and the public deficit has largely been monetized. The Central Bank just keeps printing and printing… This type of financing, coupled with controls on prices and the involvement of the private sector in providing some basic goods and access to foreign currency, has generated one of the highest inflation rates in the world, with an official rate of 180.9% by the end of 2015, though unofficial estimates are much higher.
What Barclays Bank says: With plummeting oil prices and skyrocketing inflation ravaging Venezuela’s economy, President Nicolas Maduro is requesting emergency powers to make policy changes. Ummh. What he’s asking for is cocoa. It may be too late, Barclays Plc says. Tarde piaste pajarito. The South American country will struggle to come up with the cash required to honor $4.5 billion in foreign bond payments this year (we’re broke as hell) after the price of its crude dropped 75 percent since 2014 to a 13-year low.
What Bank of America states: The Bank of America issued inflation projections for Venezuela that contrast with those revealed by the International Monetary Fund, which predicted a remarkable acceleration to over 400% this year and 1600% on average for 2017. For the American financial entity, accumulated inflation could be around 177.3% by January 2017. Not exactly great news. “We expect inflation to slow down to 177.3% annually in January 2017 based on our model… given the persistence of the monetization of the deficit under strict price and exchange controls.” The entity indicated that inflation is expected to start slowing down in 2017 based on policy changes. Oh dear, Bank of America! There aren’t any policy changes to tie a little rooster to. Get down from that cloud. If you woke up from such a dream, go back to sleep. This indicates that the U.S. entity anticipates changes in the political and economic direction of the country. Ummh. Another president, hopefully. Maybe, just maybe: the recall referendum.
What ECLAC says: With an estimated GDP drop of 6.9% in 2016, Venezuela will register the worst regional performance, followed by Brazil, the largest economy in the region, which will contract by 3.5% amid the political crisis faced by President Dilma Rousseff’s government. One by one, the Chávez cronies are falling. The Brazilian economic and political crisis, which erupted two years ago, gained new momentum recently due to the ongoing investigation of corruption facing former President Lula Da Silva and the impeachment request against Dilma Rousseff. Argentina, under the new right-wing government of Mauricio Macri, would register a 0.8% decline in 2016, while Ecuador might see a slight contraction (0.1%). What a band of thieves this Unasur and ALBA.
What the gossips from Bloomberg say: The world’s leading financial news agency warned in an article published on April 14 that Venezuela could default due to its inability to pay international commitments due in October and November 2016. Verga, they guessed it. “Unless Maduro cuts government subsidies and devalues the currency, Venezuela will not have enough dollars to pay what it owes and buy food.” You reinvented hot water. Doubts center around the $4.1 billion that is due in October and November 2016 from Pdvsa. It’s like a laundress’s check in the market. Bloomberg suggests there’s a 76% chance, Na´guará, of Venezuela defaulting in the next 12 months of 2016. If unable to meet international commitments, Venezuela will be putting its foreign assets at risk. They’re going to seize even our IDs. According to the agency, the country has an estimated $8 billion in oil assets abroad (valued with crude at $50). Venezuela’s total debt, the so-called sovereign debt of the Republic, is $35.6 billion in bonds that rise to $67 billion when interests are included. Meanwhile, Petróleos de Venezuela’s (Pdvsa) debt stands at $33.5 billion, totaling $52.6 billion with interests. If it defaults, it would be the second-largest in the world, only surpassed by Greece, which defaulted on a debt of $261 billion in March 2012. Argentina, often compared to Venezuela, ranks third, having ceased payments on a debt of $95 billion in 2001. Bloomberg outlines four recovery options. The first suggests the government must implement the necessary reforms regarding fiscal or subsidy policies. This isn’t gonna be an easy road. Also considered is a potential rise in oil prices or a new loan from the Chinese government, which has already contributed $17 billion in loans. The Chinese are getting a bit ticked off. Finally, it considers the possibility that the opposition, from the National Assembly, can achieve some positive changes in the economy. Hard to say.
What The Economist asserts: A serious magazine, you bet.
The endgame in Venezuela. The country is on the brink of a social explosion that only a negotiated transition can prevent. That’s our bet. The one from Henri Falcón and Avanzada Progresista. The Pope’s as well. By Ban Ki-moon and others. Read this; At 9:30 am on a Thursday, six Venezuelans await a guided tour of the former military museum now functioning as Hugo Chávez’s mausoleum, the country’s populist president from 1999-2013. Across the road, around 120 people are queuing for food at government-controlled prices from a state-run supermarket. The food line starts at 3 am. “Sometimes there’s food, and sometimes there isn’t,” one shopper says. There’s a shortage of everything. In this district of Caracas, once a Chávez stronghold, his aura is fading amidst the struggle for daily survival. Long gone are the days when he used a massive oil windfall to impose his “Bolivarian revolution”—a hodgepodge of subsidies, price controls, social programs, expropriations, and grand theft by officials. That’s what sank us. The collapse in oil prices has exposed the revolution as a monumental swindle. The government admitted that in the 12 months ending September 2015, the economy shrank by 7.1%, and inflation reached 141.5%. A partial confession. Even Nicolás Maduro, Chávez’s hapless successor, called these numbers “catastrophic.” The IMF predicts worse is on the horizon: it estimates inflation will soar to 720% this year and that the economy will shrink by 8%, after contracting by 10% in 2015. The Central Bank keeps printing money to cover a fiscal deficit of around 20% of GDP. Merentes and his money-making machines. Most in the opposition and some chavistas believe a negotiated transition is the only way to prevent a descent into bloodshed. Yes sir, that is the way. The outlines of such a deal are clear. The regime would grant amnesty for political prisoners and agree to restore the independence of the judiciary, electoral authority, and other powers. In return, the opposition would support essential yet likely unpopular measures to stabilize the economy.
Now, let’s turn to the Financial Times:
Venezuela: the case for default. A shipment of gold to Switzerland has reassured investors, just like we said. They’re taking the gold to pay irresponsible debts. The government in Caracas has shown its determination to keep foreign bondholders content even as its own citizens are deprived of basic goods like milk and medicine. A shipment of 35.8 tonnes of gold registered by Swiss customs in January 2016, valued at SFr1.27 billion ($1.28 billion), clearly serves to maintain that record. There are valid reasons for President Nicolás Maduro’s government to avoid defaulting on Venezuela’s debts, not just because they risk losing their jobs and freedom in the chaos that would ensue. If it defaults, Venezuela, like its regional neighbor Argentina, could find itself shut out of international capital markets, possibly for years. It might also, similar to oil producer Iran, be denied access to the international banking system. They’re going to blackball us. For what Russ Dallen of Latinvest, a Venezuelan bond specialist, terms a “one-dimensional economy,” this would be catastrophic. “Venezuela is a trading nation, dependent on a single commodity and susceptible to asset seizures,” he states. They’re going to seize everything we have, as we said, even our ID cards. “They would have a problem and they know it.” So while Caracas has spent years seizing the assets of local and multinational companies, scaring off almost all foreign investment and accumulating judgments against it in international courts, it has been careful to make timely bond payments. They scare the rich and deceive the poor. By sending gold to Switzerland in January, recertifying it as reserve-quality, Caracas reassured bondholders they had the means to pay. It also placed the gold on neutral ground, making it accessible. Chávez brought in the gold, and now we’re spending a fortune; now we have to take it back to certify it. What a brutal stupidity. Default seems inevitable, if not in February, then later this year.
Finally, what the Japanese at Nomura say.
The Japanese investment bank believes that the National Assembly will continue facing blockages from the highest court, as has happened with initiatives like the Amnesty and Reconciliation Law.
Therefore, it considers that the initiative to reform the law of the Supreme Court to increase the number of magistrates and balance the political tendencies within the judicial body will also be rejected by this instance, according to the latest report on the country from the Fixed Income Strategy Department for Latin America of the mentioned firm. According to Siobhan Morden, the analyst responsible for the report, the current economic crisis will serve as a “catalyst” to break the political deadlock. Siobhan estimates that, after the Swiss shipment and taking into account recent price increases, Venezuela is left with gold worth around $11.3 billion. Together, the government, state-owned oil company Pdvsa, and its affiliates face repayments this year of $10.5 billion. The crunch months are October and November 2016. We’re heading straight for the rocky cliff where we will inevitably crash if things don’t change.
For this, Siobhan takes into account figures such as a 31% increase in mortality in hospitals by the end of 2015, coinciding with a medicine shortage of about 85%.
She also notes in her writing that the announcement of reduced activities by the oil services provider Schlumberger threatens to impact crude output. Furthermore, she believes that following the announcements about the implementation of the new exchange system “Dicom,” there continues to be a “marginal” flow of foreign currency at the alternative market rate, and that there has been no effective result regarding the dollar. The analyst believes that if the authorities had the opportunity to liquidate assets—such as outstanding invoices from Petrocaribe partners—they would have done so to tackle the situation and alleviate the decrease in import figures. The lack of decision-making capacity within Venezuela’s government is so acute that the country is likely to default by accident later this year, according to Nomura International Plc. Another one predicts bankruptcy. The country’s cash shortage means it would need to cut imports by $32 billion to almost zero this year in order to avoid running out of money, Siobhan, who heads Latin American fixed-income strategy at Nomura, wrote in a note to clients. Venezuela’s Sovereign Debt Yield Curve. The nation depends on imports for most of its consumer goods and relies on oil exports to pay for these purchases. If crude remains below $30 a barrel, Venezuela won’t have enough funds to meet the $6.3 billion bond payments due in the latter half of the year, according to Morden. She calculates that the minimum breakeven oil price for Venezuela is $65 a barrel. “We have not seen any coherent approach to policy management that would suggest a thoughtful approach to debt default,” Coherencia, coherencia, there’s not even a trace of it. Morden wrote. “Instead, our base case remains an accidental default with cash flow stress that eventually forces non-payment later in the year on the bulkier debt maturities.”
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