Venezuela potentially headed for another currency devaluation

pmbug

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"The big warning sign for Venezuela is its plummeting foreign exchange reserves," says Michael Riddell, a bond fund manager at M&G Investments in London.

The OPEC nation's $95 billion of annual oil revenues mean default on its more than $45 billion of foreign debt remains improbable. Nonetheless, analysts say the country could face financing issues, as only a small percentage of its foreign reserves are liquid.

Headline foreign reserves have fallen to $21 billion from $30 billion at the start of the year; furthermore, because of large gold holdings, only some $2 billion of that is fully liquid.

Still, after including off-budget funds, such as a development fund that is partially Chinese financed and the foreign currency account of PDVSA, the state oil company, total available reserves are approximately $48 billion, analysts estimate.

"Venezuela is not broke,"” says Efrain Velazquez, president of the National Economic Council, a government watchdog. Instead, the country "has had inappropriate international reserves management."

That mismanagement is now flaring up, however, ahead of municipal elections on December 8 -- a poll widely seen as a referendum on the popularity of Nicolas Maduro, the president. Central to the economic problems he faces is the exchange rate, officially fixed at 6.3 bolivars to the US dollar but trading on the black market at close to 50 bolivars.

That widening gap has led to a flourishing arbitrage by insiders who have access to dollars at the official rate and can then sell them at the street rate, pocketing the difference. Currency restrictions have also exacerbated shortages of essential goods, fuelling inflation running at almost 50 per cent a year. Toyota announced that it will this month shut its Venezuelan plant for two weeks because of delays in getting dollars needed to buy materials.

Investors outside the country have been watching worriedly. The yield on Venezuela's benchmark 2027 dollar bond has risen to more than 12 per cent from under 9 per cent at the start of the year. The annual cost of insuring $10 million of Venezuelan debt against default for five years, as measured by credit default swaps, has also risen to $983,000 versus $600,000 in January.

Nonetheless, Francisco Rodríguez, Venezuela economist at Bank of America Merrill Lynch, shrugs off the market concerns, saying total foreign reserves of $48 billion can cover some 10 months of imports and four years of debt service.

"The excessive focus on the country's short-term liquidity situation runs the risk of missing the forest for the trees," he wrote in a recent note to investors. While $2 billion cash reserves might seem little, "this is not an abnormal number by Venezuelan standards -- it is near the average for the past four years -- making it hard to understand recent concerns with liquidity levels."

One reason for that concern is lack of action by Mr Maduro's administration to face up to problems. Behind the scenes, his ruling Socialist party faces internecine fights between radical ideologues and pragmatists, a tug of war that has led to a stalemate which has only worsened the economic situation.

A devaluation, for example, would boost the local currency value of Venezuela's dollar oil receipts -- the country's time-honoured solution to closing a fiscal deficit -- and remove the need for currency restrictions.
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http://gata.org/node/13142
 

benjamen

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http://news.yahoo.com/maduro-urges-calm-venezuelans-jam-stores-again-025844506--finance.html

"Tension has hung over much of Venezuela since Maduro last week took control of several electronics retailers he accuses of hiking prices to sow discontent and destabilize his rule. This week the government is expanding its crackdown to businesses selling clothes, shoes and automobiles, all of which have seen prices shoot up in tandem with a sharp drop in Venezuela's bolivar currency on the illegal black market."

"Maduro is also taking his offensive to the Internet, blocking access to seven websites that track the value of the country's bolivar currency on the black market."

:flushed:
 

ancona

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This is the end for Venezuela. Expect a revolution before too long. Once all those poor people who voted for Maduro are starving and wiping their asses with leaves they will realize that they've finally run out of other peoples money. Their oil industry is in complete collapse and there is no telling how much of the production is being skimmed off by insider cronies. Before Chavez, the country was one of the better off nations of SA, now, they're reverting to banana republic.
 

pmbug

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Saw this this morning:
CARACAS, Venezuela — Venezuela's President Nicolás Maduro intensified his perceived fight Monday against "bourgeois parasites" he accuses of an economic war against the socialist country by threatening to force more stores to sell their merchandise at cut-rate prices.

National guardsmen, some of whom had assault rifles, were positioned around outlets of an electronics chain that Maduro has ordered to lower prices or face prosecution. Thousands of people lined up at the Daka stores hoping for a bargain after the government forced the companies to charge "fair" prices.

"I want a Sony plasma television for the house," said Amanda Lisboa, 34, a business administrator who waited seven hours outside a Caracas Daka store, similar to Best Buy. "It's going to be so cheap!"
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http://www.usatoday.com/story/news/world/2013/11/11/venezuela-seizes-stores/3497003/

Bolded part reminded me of the USA and healthcare. From what I understand, the ACA calls for a board (of bureaucrats, none of whom are doctors) in 2014 that will have complete and total power over deciding which treatments will be provided at what costs.

We're not so different from Venezuela.
 

DCFusor

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Thing is, their currency is already devalued in fact, it's just not a fact recognized by the government there - black market exchange rates are showing the "true" market-set value to be a lot less than they claim as is.

So are we looking for their government to acknowledge the actuality, or are we talking further effective devaluation on the black markets only?

Further, it's hard to see how *anyone* would do business with that country with their shenanigans.
If your stuff can just be taken and sold cheap, by force - where does the money come from to restock shelves again? Maybe that one outfit really was gouging - I'm not in a position to know, but with the huge difference between official and actual exchange rates, could it be that they were only gouging under the official rates, but not according to what they actually have to pay for the stock?
I can't tell from here. Were they just "buying votes" with this action, using other people's money as usual in all countries?
 

Penn

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but did anyone catch- in the article... the money supply went up 70% so that is the inflation rate. How much has the US money supply gone up - SS feels it went up 1.5%.

I think the west is bullying this country and they are fighting back.
 

Aubuy

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Saw this this morning:

http://www.usatoday.com/story/news/world/2013/11/11/venezuela-seizes-stores/3497003/

Bolded part reminded me of the USA and healthcare. From what I understand, the ACA calls for a board (of bureaucrats, none of whom are doctors) in 2014 that will have complete and total power over deciding which treatments will be provided at what costs.

We're not so different from Venezuela.
I think we're much better at fooling ourselves into thinking we are. :paperbag:
 

DCFusor

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Well, government wise, we're all pwned by the banks or those who own them, no matter where we are, or which puppet we live under. But at least I have toilet paper and am unlikely to run out anytime soon.

And I don't have a government that insists on exchange rate A when the markets are all using B.
And their government won't do the exchange at their stated rate, that problem is for you to solve, or pay rate B on the market yourself.

So, there's still a little bit of difference.
 

Jay

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CARACAS, Venezuela — Venezuela's President Nicolás Maduro intensified his perceived fight Monday against "bourgeois parasites" he accuses of an economic war against the socialist country by threatening to force more stores to sell their merchandise at cut-rate prices.

National guardsmen, some of whom had assault rifles, were positioned around outlets of an electronics chain that Maduro has ordered to lower prices or face prosecution. Thousands of people lined up at the Daka stores hoping for a bargain after the government forced the companies to charge "fair" prices.

"I want a Sony plasma television for the house," said Amanda Lisboa, 34, a business administrator who waited seven hours outside a Caracas Daka store, similar to Best Buy. "It's going to be so cheap!"
more of the same:
snip:
Ladies and gentlemen, Venezuela has become a socialist police state, compete with government sanctioned looting and riot cops. Watch the video below as Venezuelans line up to pillage a DAKA electronics store (similar to Best Buy) in Caracas.

http://patriotcaller.com/this-is-what-hyperinflation-looks-like-video/
 
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benjamen

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http://ca.news.yahoo.com/venezuela-...rice-gouging-crackdown-010034869--sector.html

"Venezuela's socialist government has arrested more than 100 "bourgeois" businessmen in a crackdown on alleged price-gouging at hundreds of shops and companies since the weekend, President Nicolas Maduro said on Thursday."

"They are barbaric, these capitalist parasites!"

"Since the weekend, soldiers and inspectors have gone into 1,400 shops, taken over operations at an electronics firm and a battery-making company, and rounded up a handful of looters."

"Only a few of the hundreds of shops targeted with surprise inspections had been found to be offering "fair prices," officials say. Some businesses are voluntarily lowering prices - or staying closed - in case the inspectors come."

:flushed:
 

pmbug

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Shit's hitting the fan down in Venezuela. The lord of the flies is flexing his muscles.
 

Aubuy

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Shit's hitting the fan down in Venezuela. The lord of the flies is flexing his muscles.
It's a tough job being a bus driver. You get no respect from the limo drivers. Time for payback. :popcorn:
 

benjamen

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Venezuela politicians are causing all kinds of headaches for international businesses, then pitching a fit when those businesses cut back production in Venezuela...
http://finance.yahoo.com/news/toyota-venezuela-slams-brakes-vehicle-175159532.html

"Toyota Motor Corp plans to halt vehicle assembly in Venezuela this week despite a rebuke over the weekend from socialist President Nicolas Maduro and a demand for talks with the Japanese automaker's top executives."

"Like other private businesses in Venezuela, carmakers are complaining that the socialist government's currency controls are preventing them from importing essential products."

"The only thing these little managers want is dollars, dollars and more dollars," Maduro added in a speech.
Businesses want to make a profit, Shocking!?!
:rotflmbo:
 

ancona

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This idiot Maduro is worse than Chavez. Things will not change until there is no food, no fuel and no more dollars with which to buy essentials. The Bolivar is for all real purposes, dead. No one wants them and no one will accept them in trade.

The collapse will be huge and the change will be brutal. I suspect we'll see some sort of domestic uprising, followed by a major military push to completely crush all protests. It will get ugly, brutal and bloody. Socialists have no desire to speak to the center, only to rule with complete authority.
 

DoChenRollingBearing

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...

Some 20 years ago I did some small business with Venezuela, similar to what we are doing in Peru. I sent auto parts to their forwarder in Miami, and then got paid.

I went there twice to meet the manufacturer's rep who was my contact. Once I got paid, I then paid him his commission. Most of the time things went without serious hitches, a couple times I had problems, at least one was caused by me...

In my visits to Caracas, a warm city surrounded by wooded mountains (that the shanty-towns were just starting to grow into), I found I did not like the place. Most of the people I dealt with were incredible snobs! But, the country did function and was fairly free. As long as the paperwork was right, I certainly never had any problems.

Recently, one of my friends introduced me to a Venezuelan national who does NOT like their .gov. But, he does like money. He told us that there would be big $$$ made in supplying spare parts to fleets (gvmt owned), he "knew" the right guys. Take a guess...:

That's right! Nothing ever came of it.

So, what I hear sounds incontrovertible, it sounds absolutely true. Venezuela was screwed-up before, but this clown appears to have even driven out Mighty Toyota...

Venezuela has a long, long and a hard, hard road ahead. Even with their oil wealth, which may, in the end, be stolen (with Maduro's blessing and/or bribe receipts) by China.
 

pmbug

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The collapse will be huge and the change will be brutal. I suspect we'll see some sort of domestic uprising, followed by a major military push to completely crush all protests. It will get ugly, brutal and bloody. Socialists have no desire to speak to the center, only to rule with complete authority.
Two. Days. Later.

Venezuela coup? Gunfire, clashes as 3 dead in violent Caracas protest

At least three people have died in violent protests in the Venezuelan capital, officials have confirmed. President Nicolas Maduro has condemned the unrest as an attempt at a coup d’état orchestrated by extremist members of the political opposition.

Thousands of protesters flooded the streets of the Venezuelan capital on Wednesday in the worst unrest since Nicolas Maduro assumed the presidency last year. Demonstrators from several different political factions clashed in Caracas, leaving at least three people dead and over 20 injured.
...
More: http://rt.com/news/venezuela-riots-kill-students-827/

 

pmbug

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I really haven't been watching for any news on this since my last post. Just saw this however:
Economy class tickets to New York city cost as much as $3,000, if you can get them. And you probably can't. Instead, people take five-day rides to Lima, Peru as a means of escape. And that takes money as well.

The result is best described as Trapped in Venezuela:
With the cash-strapped government holding back on releasing $3.8 billion in airline-ticket revenue because of strict currency controls, carriers have slashed service to Venezuela by half since January, adding another layer of frustration to daily life here.

The lack of flights is complicating family vacations, business trips and the evacuation plans of Venezuelans who want to leave the country, which is whipsawed by 60% inflation, crime, food shortages and diminishing job prospects. Steve H. Hanke, a Johns Hopkins University economics professor, says Venezuela tops his so-called "misery index," which takes into account inflation, unemployment, economic stagnation and other factors in 89 countries.
...
The Caracas polling company Datanalisis found that one in 10 citizens—most of them middle- and upper-class Venezuelans between 18 and 35—are seeking to leave the country, more than double the number who sought to abandon it in 2002, which was marked by an unsuccessful coup attempt against then President Hugo Chavez and a paralyzing oil strike.
...
On top of that, stringent currency controls mean that Venezuelans have access to only $400 a year, making it nearly impossible to pay the high prices airlines demand for tickets on the Web.
...
...
http://globaleconomicanalysis.blogspot.com/2014/08/trapped-in-venezuela-looking-to-get-out.html
 
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