Saturday, January 23, 2016
Thursday, January 21, 2016
Venezuela, Default Imminent?
Venezuela has been on default watch for months. Its credit rating is already in the gutter, at CCC at Standard & Poor’s. With oil now $20 lower thant it was when the S&P made that call, a default is no longer a question of if, but when.
A recent emergency economic decree is likely too late to save anyone but president Nicolas Maduro. After two years of inaction and the recent decline in oil prices, Barclays Capital analyst Alejandro Arreazaa said a ” credit event” in 2016 is ” increasingly difficult to avoid.” In other words, oil major PDVSA and the government it bankrolls is going bankrupt.
With oil under $30, Venezuela would need to use 90% of PDVSA’s oil export revenue to meet debt obligations to local and foreign creditors.
Figures released Wednesday by the Central Bank of Venezuela show that foreign currency reserves were just around $20 billion in the third quarter, but by the end of November they hit just $14 billion, the lowest ever. Net assets are also seen shrinking to around $24 billion, roughly $10 billion less than a year ago. Considering current oil prices, any reasonable additional import cuts may be insufficient to cover the financing gap.
Maduro keeps reiterating his government’s willingness to pay its debts, but his anti-Yankee rhetoric and is hardline against multinationals there makes him hard to believe. The official position shows a lack of understanding of the magnitude and roots of the crisis, making for this default to be the biggest Latin America has seen since Argentina’s in 2001 and its more strategic default on the same debt in 2014.
Venezuela has about four weeks to figure this out or the first sovereign default of 2016 will come from the radical socialist government of Hugo Chavez and his successor Maduro.
In theory, they could still make the February payment using its available assets, which includes a Chinese loan of around $5 billion, but it will still not be enough to finance the gap of nearly $30 billion that Venezuela faces in 2016. How is Venezuela going to keep its social programs intact, keep public education funded and public pensions paid when there is no money coming into the economy?
One way is to tax the living hell out of the foreigners. Goodyear Tire and Rubber (GT) may have to pay a one-time pretax charge of more than $500 million, Reuters reported.
American Airlines has had difficulty repatriating profits, and others like Clorox (CLX) have left. Ford and Pepsi-Cola have written off nearly their entire investment in Venezuela.
“I wouldn’t be surprised if in a year or two, most U.S. and multinational companies have packed up and left Venezuela. How can anyone make any money there?” asks Peter Kohli, head of DMS Funds in Leesport, Pa.
Venezuelan politics have been a mess for 10 years. The Bolivarian dream has become a nightmare for the ruling party, now faced with a real opposition and increased disparity. It is no longer easy, charming or picturesque to be poor in Maduro’s Venezuela. The country is in a severe recession, with an accumulated contraction of approximately 16% in the past two years, and considering the contraction expected this year, Venezuela has lost roughly a quarter of its GDP…in three years!
Maduro blames it all on a Western conspiracy against the Chavez’s “Bolivar Revolution” in Venezuela. Maduro says the newly elected leaders of the opposition are making matters worse to drive him out of power.
Inflation was 141.5% by the end of the third quarter. Yields on Venezuela’s 2022 debt is over 25%. Inflation will worsen, making life more expensive for the poor. And Maduro may be faced with an Argentine decision of paying its public employees and retirees, or paying its debts. It’s not hard to see which choice this president will make as he fights for his political career, and the legacy of “Robin Hood” Chavez in Venezuela.
Tuesday, January 19, 2016
Friday, January 15, 2016
Maduro Steals a March on Opposition Congress
Caracas (AFP) - Venezuela's President Nicolas Maduro decreed a two-month state of "economic emergency" Friday, seizing the initiative ahead of a key showdown in his standoff with the opposition in the oil-rich nation.
The move gives the socialist leader an edge for a few weeks in his maneuvers against the center-right opposition which has vowed to devise within months a way to oust him.
"A state of economic emergency is declared across the whole territory of the nation... for 60 days," read the decree published by the official state gazette.
Maduro's new economy minister, Luis Salas, was expected to give further details later Friday.
The announcement came hours ahead of a state of the nation address by Maduro, scheduled for 2130 GMT.
That will be his first face to face encounter with his rivals in the National Assembly since the opposition took control of it last week.
The opposition's new legislative powers have deepened a political struggle in the recession-stricken South American nation of 30 million people.
The center-right opposition vowed to launch legislative measures to oust Maduro this year and has vowed to fix the economic crisis.
Maduro branded the opposition a US-backed "bourgeoisie" and vowed to defend his socialist policies.
He had already promised to launch an emergency plan for the economy, which was expected to propose new forms of production to reduce Venezuela's reliance on oil exports.
Venezuela has the world's biggest known oil reserves but the big fall in crude prices over the past year and a half has slashed its revenues.
- Political squabbles, economic crisis -
The institutional arm-wrestle threatened to paralyze the National Assembly legislature this week, until last-minute compromises set the stage for Maduro to deliver his annual presidential report.
"We will receive him calmly and respectfully," said the new speaker of the assembly, Henry Ramos Allup, a leading opponent of Maduro.
Leaders have been wary of fanning tensions during the past two weeks of political maneuvering, mindful of deadly street clashes in 2014.
Maduro secured a Supreme Court injunction limiting the opposition's legislative powers to cut short his mandate.
The opposition responded by giving some ground in the power struggle on Wednesday. It bowed to pressure from the court, which Maduro's rivals say is controlled by his allies.
Three opposition lawmakers agreed to quit while the court investigates them over government allegations of electoral fraud.
The court responded to that by lifting an injunction that had declared the assembly's motions would be null and void if the three banned deputies took part.
The departure of the three deprives the opposition MUD coalition of a two-thirds majority.
That so-called "supermajority" would have allowed the opposition to launch constitutional measures to cut short Maduro's mandate, which expires in 2019.
Ramos said Wednesday that the MUD still aimed to do that, though its majority is cut to three-fifths for the time being.
"The crisis cannot be overcome with this government," he said, branding Maduro's policies of social spending financed by oil "a failed model."
Maduro has accused the opposition of planning a "coup" against him. He accuses capitalist forces of waging "economic war" against Venezuela by starving it of goods.
The opposition has vowed to rescue Venezuela from an economic crisis that has sparked soaring inflation and shortages of goods as basic as soap and toilet paper.
Analysts say the political deadlock is not helping resolve the hardship that drove voters to hand the opposition a landslide election victory.
"If Maduro's discourse continues to be the same, the only way the results can change is by getting worse," said economist Luis Vicente Leon, head of the polling firm de Datanalisis.
Thursday, January 14, 2016
Maduro Bullies His Way Into a Defacto Dictatorship
Roughly a quarter of the way into a multi-hour speech last week, Venezuelan President Nicolás Maduro recalled a conversation he claimed to have had nine years ago with Hugo Chávez, his deceased predecessor. In Maduro’s telling, despite his electoral success, el Comandate had long harbored a secret desire to “break definitively” with the “old bourgeoisie structures of representation” that he felt distanced the government from the people. “This is a task we have still to carry out,” Maduro announced. Five days later, his government made good on that promise.
Over the past few days, tensions between the chavista government and the new opposition-dominated National Assembly, which was inaugurated last week after December’s landslide election, reached a fever pitch. On Monday, the constitutional chamber of Venezuela’s supreme court — which in over 45,000 decisions over the last dozen years has never ruled against the presidency — suspended the assembly and declared its leadership to be “in contempt” of the court’s authority.
It’s unclear what this determination means, since there is no constitutional basis for any of this. The supreme court claims that its ruling nullifies in advance any legislation the assembly might try to pass — unless the opposition acquiesces to the suspension of three of its legislators, whom the government accuses of buying votes in the remote state of Amazonas. The stakes are high, since the loss of even a single legislator could neutralize the opposition’s two-thirds supermajority, threatening its ability to reform the constitution or initiate a recall referendum against Maduro.
The road to Venezuela’s constitutional quagmire has been paved with brinksmanship from both sides of the country’s widening political chasm. Soon after the opposition’s electoral landslide, Maduro stripped the unicameral legislature of its oversight over the Central Bank and the national finances, while the outgoing assembly rushed to pack the supreme court with loyalists through an expedited, ad hoc process that had no constitutional grounding. Concurrently, Maduro called for the creation of a novel “communal parliament,” to be set up in parallel to the one he had lost. Meanwhile, the court dutifully pushed forth the suspension of the Amazonas delegates: three from the opposition and one from the ruling socialists for good measure.
The opposition, too, has upped the ante. In electing the assembly’s leadership, the smaller parties within the opposition coalition joined forces to sideline its largest member, the moderate Primero Justicia party, denying them its highest offices. The assembly’s new president, Henry Ramos Allup, is a wily and colorful holdover from the pre-Chávez era. With his trademark folksy bombast, Ramos Allup soon announced that Maduro would step down within six months, while quickly and unceremoniously disposing of the Chávez portraits and other chavista symbols that had become ubiquitous in the assembly building. Ignoring the supreme court, he swore in the suspended Amazonas delegates anyway. Such aggressive measures, while providing much-needed catharsis to many within the long-suffering opposition, risk alienating Venezuelans who dislike Maduro but haven’t quite given up on Chávez, while enraging the government and its more strident supporters.
In the immediate aftermath to Monday’s ruling the opposition waxed defiant, its leaders disputing both the court’s legitimacy and its jurisdiction over the National Assembly. But with every other branch and institution of government arrayed squarely against it, the embattled legislature stands alone, save for its overwhelming popular mandate. Behind closed doors, the standoff has exacerbated pre-existing divisions within the opposition, putting those who would force a crisis, even at the risk of being permanently sidelined should the government fail to blink, against others more disposed towards tactical retreat.
On Tuesday morning, the assembly’s scheduled session failed to take place, ostensibly due to the lack of a quorum. Later that evening, following much internal debate and backchannel communications with the executive branch, Ramos Allup announced that — by their own request — the Amazonas Three would resign from the legislature in the coming days. In backing down, the opposition has diffused a crisis that might have escalated into civil strife. But it has also set a dangerous precedent: that it’s open to being bullied. Time will tell if caution was indeed the better part of valor. (According to an opposition source who declined to be identified, the government has agreed to hold new elections to replace the three Amazonas delegates. The timing of the elections is unknown.)
Constitutional order, like oxygen, is often taken for granted until it is in short supply. Now that Venezuela’s supreme court and its legislature publicly deny each other’s legitimacy while the president touts an unelected parliament he likes better, everyone in the country seems to have become a constitutional analyst. In conversations around Caracas last week, I heard taxi drivers, retirees, and legislators alike intricately parsing the finer points of Venezuela’s constitution, one of the longest and most complicated in the world. The result is yet another layer of uncertainty to a people already burdened by soaring homicide rates, shortages of basic goods, unbridled inflation, and other revolutionary delights.
A few months ago, when an opposition victory in the December elections seemed imminent, I sat down for a chat with Luis Miquilena — the ancient Marxist who personally presided over the creation of the constitution in 1999 — to try to understand what might happen. Having long since broken with the revolution, Miquilena was downplaying the role the constitution’s design might play in what was to come. He seemed surprised I had bothered to ask.
“It doesn’t really matter what the constitution says, they’ll do whatever they want,” he told me. “My constitution has already been the most violated in Venezuela’s history. There’s no salvaging it.” In the end, he assured me, it will come down to the people rising, at which point Venezuela’s famously opaque armed forces would be forced to pick a side. “Sooner or later,” as Miquilena put it, “that’s what always happens.”
Friday, January 8, 2016
The Left LOVES Democracy...Until They Lose
The big showdown in Caracas, over the seating of the new National Assembly, won by democracy campaigners but challenged by long-ruling Chavista leftists, is quite a letdown after the stunned, can't-believe-this-is-happening joy of the Dec. 6 legislative victory.
After all, the opposition had tried for more than a decade to unseat these Chavistas, only to be thwarted again and again by legal maneuvers, ballot box stuffing, and kid you not, beatings on the floor of the assembly.
Most insulting of all were the phony imprimaturs of free and fair elections, given by international observers, most notoriously Jimmy Carter.
And then suddenly opposition won. In the Dec. 6 vote, the margin of victory was so big, the election was simply impossible to steal.
Yet it didn't stop the Chavistas, who, after losing at the ballot box, turned to the courts to keep their legislative power. (As Russia's Vladimir Putin has more or less put it, when democracy fails, try "legal dictatorship.")
Venezuela's leftists challenged several seats won by the opposition, mostly from jungle districts in the far south (well known areas of government distrust and dissent, by the way) and claimed they really won them.
A Chavista judge threw out most of their cases, but let them challenge four seats legally. Why? At stake was the opposition's super-majority, which would enable the new legislature to free political prisoners, investigate drug traffickers in Venezuela's cabinet, and throw out the incompetent, detested President Nicolas Maduro.
Inauguration day came around and the opposition refused to let itself be cowed by left-wing legal maneuvers. Ignoring the challenges, they seated all their national assembly members and upheld the will of the people. They refused to be trussed again this time.
They seem to have won, "for now," as the late Hugo Chavez used to say. But it's quite likely the challenges will continue.
This raises the question of why the left has such a hard time accepting defeat. One could argue that the dictatorship of Cuba's Fidel Castro and the Soviet communists he modeled his dictatorship on is at the root of it.
Power forever! Let the descamisados at the balcony fist-wave and cheer!
But there is also the 2000 example of Al Gore, unable to get the result he wanted in that election in Florida — howling fraud, demanding recounts in selected counties until he got the result he wanted, and making a nuisance of himself. That's a defining moment too.
Thursday, January 7, 2016
New Venezuelan Parlament Not Taking Any Sh*t from Maduro
The new opposition-dominated congress on Wednesday swore in three lawmakers barred by the Supreme Court from taking their seats, setting up a confrontation with the ruling socialists in this oil-exporting nation mired in deep economic troubles.
The three had not been seated Tuesday when the opposition took control of the National Assembly for the first time in 17 years but congressional leaders swore them in Wednesday as the body's first act of official business.
Socialist lawmakers stormed out, saying the defiance to the high court would automatically void of constitutional legitimacy any laws passed by the new legislature.
"Confrontation is coming. Confrontation is inevitable," warned Diosdado Cabello, the legislature's previous president and the country's second-most powerful socialist leader.
The high court said its order preventing the lawmakers from the remote state of Amazonas from taking their seats was to give justices time to look into allegations of electoral fraud.
The move enraged the opposition, which called it an attempt by judges loyal to President Nicholas Maduro to undermine the opposition's landslide victory in legislative elections last month. Maduro's foes won by a single seat a two-thirds majority in congress that would give it the power to censure Cabinet officials and even rewrite the constitution.
The Supreme Court has never ruled against the ruling socialist party, and opposition leaders charge that it has become an extension of the executive branch.
Maduro on Wednesday called the swearing-in of the three lawmakers a "grave" mistake and accused the opposition of trying to sow instability and provoke a "huge crisis."
His remarks came in a two-hour televised address in which he juggled his Cabinet to prepare for what he called a "counter-offensive" against an emboldened opposition that has vowed to remove Maduro by constitutional means within six months.
As part of the shuffle, he named as his new vice president Aristobulo Isturiz, a former education minister under the late President Hugo Chavez who is currently governor of the oil state of Anzoategui. He replaces Jorge Arreaza, who married Chavez's eldest daughter and will now assume control of the government's social programs.
Two army generals kept their jobs as the powerful defense and interior ministers despite speculation they would be sacked. But a third military man was replaced as economic czar by a little-known leftist academic.
The military has traditionally been the arbiter of political disputes in Venezuela and under Chavez and Maduro its power was greatly enhanced. But discontent, especially among the military's lower's ranks is believed to be spreading, and some saw in Maduro's decision to order officials back to the barracks following the electoral defeat an attempt to curb their influence.
Most of the other top Cabinet posts were unchanged or recycled to socialist stalwarts.
Maduro did not announce any new economic initiatives that he has said are coming, just repeating a pledge that he will soon declare a national economic emergency. Venezuelans are burdened by triple-digit inflation and chronic shortages, with the oil-dependent economy in the world's deepest recession.
Besides swearing-in the suspended lawmakers, opposition leaders in congress on Wednesday also angered Maduro's supporters by ordering that portraits of Chavez be removed from the National Assembly building.
A video of the new head of congress, Henry Ramos, giving the order that all Chavez portraits be taken away played in heavy rotation on state media Wednesday.
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