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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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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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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.
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!"
Shit's hitting the fan down in Venezuela. The lord of the flies is flexing his muscles.
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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.
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.
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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.
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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.
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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.
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Venezuelan debt traders are beginning to consider the possibility the country may run out of money.
The cost of insuring the country’s foreign-currency bonds against non-payment soared yesterday by the most since the aftermath of Lehman Brothers Holdings Inc.’s collapse in 2008 to 14.25 percentage points, the most expensive in the world. Investors are also demanding the biggest premium in six months to insure the South American nation’s notes over those from war-torn Ukraine.
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“The bond market is finally beginning to wake up” to the possibility of Venezuela defaulting, David Rees, an economist at Capital Economics in London, said by phone. He predicts the country could default as soon as this year.
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According to data released by the Swiss customs department on Tuesday, Venezuela has net exported 12 tonnes of gold to Switzerland in February 2016. In January Venezuela net exported 36 tonnes of gold to Switzerland, in total 48 tonnes was moved in the first two months of this year.
On 16 March 2016 BullionStar researcher Ronan Manly reported “Venezuela exported 12.5 tonnes of gold to Switzerland on 8 March 2016, via Paris”, based on an article by newspaper El Cooperante. Establishing, Venezuela has net exported at least 60 tonnes of gold year to date.
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Just three weeks ago, the Venezuela socialist paradise gifted local workers with one extra day of rest each week when, as a result of the crippling economic crisis and collapsing power grid, president Maduro designated every Friday in the months of April and May as a non-working holiday in his desperate bid to save electricity as a prolonged drought pushes water levels to a critical threshold at hydro-generation plants. ...
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As a reminder, the reason for the electrical rationing was the water content of Venezuela's Guri Dam, which supplies more than two-thirds of the country’s electricity. As The Latin American Herald Tribune wrote a month ago, the dam “is less than four meters from reaching the level where power generation will be impossible. Water levels at the hydroelectric dam are 3.56 meters from the start of a ‘collapse’ of the national electric system. Guri water levels are at their lowest levels since 2003, when the a nationwide strike against Hugo Chavez reduced the need for power, masking the problem."
Yesterday the water levels at Guri dam reached a record low of 241.67 meters, according to state power utility Corpoelec. If levels drop below 240 meters, the dam’s operator may be forced to shut down units at the plant that produces about 75 percent of the electricity that Caracas, the country’s capital and largest city, consumes.
Alas, since this plan was doomed to fail as the Venezuela economy would produce even less output as a result of the extended weekend, things went from comical to farcical overnight when the Venezuelan gift kept on giving, and the nation expanded the three-day weekend to five days, declaring a two-day work week for government workers, adding it was seeking international help to save its power grid amid a drought that threatens the capital’s main source of electricity.
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In a tale that highlights the chaos of unbridled inflation, Venezuela is scrambling to print new bills fast enough to keep up with the torrid pace of price increases. Most of the cash, like nearly everything else in the oil-exporting country, is imported. And with hard currency reserves sinking to critically low levels, the central bank is doling out payments so slowly to foreign providers that they are foregoing further business.
Venezuela, in other words, is now so broke that it may not have enough money to pay for its money.
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The president of Argentina's central bank says they are going to move to eliminate cash
Venezuelan President Nicolas Maduro imposed a 60-day state of emergency Friday night, warning the citizens of “international and national threats against our fatherland” as the country is gripped by economic and political crises.
During a national broadcast announcing the declaration, the embattled heir of Hugo Chavez warned that “Washington is activating measures at the request of Venezuela’s fascist right, who are emboldened by the coup in Brazil,” referring to the ouster of Brazilian president Dilma Rousseff last week by opposition parties in the legislature.
U.S. intelligence officials told the Washington Post on Friday that Venezuela’s government could be overthrown by a popular uprising by year’s end, citing the deepening economic malaise and political deadlock. And the country’s woes are likely to only get worse:
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Let them print US$
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Venezuela faces a disaster. Over the past month, food riots have broken out across the country as mostly empty supermarkets are looted. Its capital, Caracas, is now the most violent city in the world. The economy is in a tailspin, set to contract 10 percent this year. Oil production, the country’s lifeblood, has plummeted as the neglected state-owned energy sector crumbles. The government lacks the money to print its money. Inflation may top 700 percent this year. Severe medical shortages, of even the most basic equipment and medicines, may be causing thousands of deaths. In April, the government mandated a two-day workweek for state employees to save electricity. Embattled President Nicolás Maduro rules largely by decree, and dozens of political prisoners are held behind bars.
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A new decree by Venezuela's government could make its citizens work on farms to tackle the country's severe food shortages.
That "effectively amounts to forced labor," according to Amnesty International, which derided the decree as "unlawful."
In a vaguely-worded decree, Venezuelan officials indicated that public and private sector employees could be forced to work in the country's fields for at least 60-day periods, which may be extended "if circumstances merit."
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A BBC journalist, who attempted to film the crisis, was stopped and forced by soldiers to delete footage of a protest outside a supermarket as desperate Venezuelans waited for food.
Baying crowds shouted “We want to buy stuff!” as they grouped outside the store in the country’s capital, Caracas.
BBC journalist Vladimir Hernandez reports that many people approached him to say they had queued for 12 hours without being able to buy what they wanted.
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