Download - Venezuelan Macroeconomic Outlook (Updated, May 2010)

Venezuela Macroeconomic Outlook, May 2010 - © Miguel Ángel Santos

Venezuela Macroeconomic Outlook

Exchange rate regime, risk and uncertainties

Miguel Ángel Santos

www.miguelangelsantos.blogspot.com

Twitter: @miguelsantos12

[email protected]


Macroeconomic results by year-end 20091

Exchange rate arrangements, risks and uncertainties3

What is likely to happen?4

What has happened so far in the first quarter?2


In 2009 average oil price for the Venezuelan basket nose-dived 34%... Over Jan-April 2010 oil price bounced back to an average of $71.7 per barrel...

Precio Petróleo - Cesta Venezolana(Enero 1998 - Abril 2010)

0

20

40

60

80

100

120

140

En

e 1998

Ju

l 1998

En

e 1999

Ju

l 1999

En

e 2000

Ju

l 2000

En

e 2001

Ju

l 2001

En

e 2002

Ju

l 2002

En

e 2003

Ju

l 2003

En

e 2004

Ju

l 2004

En

e 2005

Ju

l 2005

En

e 2006

Ju

l 2006

En

e 2007

Ju

l 2007

En

e 2008

Ju

l 2008

En

e 2009

Ju

l 2009

En

e 2010

Valor Nominal Valor Real (Base: Dic-07)

1999: 16,2

2000: 26,0

2001: 20,2

2002: 22,2

2003: 25,7

2004: 33,6

2005: 46,0

2006: 56,4

2007: 64,7

2008: 86,5

2009: 57,0

2010: 71,7

Precio Promedio

Cesta Venezolana:

Fuente: Ministerio de Energía y Petróleo


Exportaciones Petroleras y No Petroleras(Millones de Dólares - 2000-2009)

-

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

90.000

100.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Petroleras No Petroleras

Venezuelan exports collapsed 40%:39% oil exports (volume effect) and 44% non-oil exports


Real oil exports per capita fell 43%, but from a historic stand-point are still at their highest level in the previous 25 years (excluding 2005-2008)

Exportaciones Petroleras(en dólares de 2009)

54,201

92,693

1,913

1,247

3,215

3,960

3,327

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Exp

orta

cion

es P

etro

lera

s (m

illon

es d

e dó

lare

s de

20

09)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Exportaciones P

etroleras per Cápita (dólares de 200

9)

Export. Petroleras (Base 2009) Export. Petroleras per Cápita

Embargo petrolerode países a EEU -

Guerra de Yom Kippur

Salida del Sha de Irán - Inicio de la

Revoluciónde Khomeini

Comienza GuerraIrán-Iraq

Invasión Iraq a Kuwait Guerra del Golfo


The economic outcome of 2009 was quite similar to the one registered in the first five years of Chavez, but with significantly higher oil revenues

PIB PIB PC INF VZLA INF USA Devaluación Oil Exports Oil Exp. per Cap.Presidente Período (%) (%) (%) (%) Oficial (%) US$ 2009 US$ 2009Betancourt 1959-1963 6.6% 2.7% 1.6% 1.2% 0.0% 15,696 1,996Leoni 1964-1968 5.4% 1.9% 1.4% 2.6% 7.6% 15,943 1,701Caldera I 1969-1973 5.0% 1.6% 3.0% 5.0% -0.7% 16,397 1,469Pérez I 1974-1978 6.0% 2.3% 8.2% 8.0% 0.0% 36,731 2,807Herrera 1979-1983 -1.2% -3.9% 13.2% 8.9% 0.0% 41,286 2,679Lusinchi 1984-1988 3.4% 0.8% 18.4% 3.5% 33.6% 21,727 1,248Pérez II * 1989-1993 3.0% 0.5% 45.8% 4.1% 59.7% 19,761 992Caldera 1994-1998 1.6% -0.6% 61.3% 2.4% 42.7% 21,521 962Chávez I 1999-2003 -3.3% -5.2% 21.2% 2.4% 25.9% 45% 28,339 1,146Chávez II 2004-2008 10.5% 8.7% 21.1% 3.6% 6.4% 16% 64,234 2,366

Chávez 2009 -3.3% -4.9% 26.9% 2.8% 76.0% 41% 54,201 1,913

Promedios Promedio


In 2009 the government faced the oil shortfall with a policy-mix comprising a significant loss of international reserves: US$10.262 million

Reserva Internacionales (BCV + FEM)

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000 en

e-98

ago-9

8

mar-

oct

-99

may-

dic

-00

jul-

01

feb-0

2

sep-0

2

abr-

03

nov-

03

jun

-04

ene-

05

ago-0

5

mar-

oct

-06

may-

dic

-07

jul-

08

feb-0

9

sep-0

9

Abri

l

(MM

US

D)

Fuente: BCV

In 2010 (Jan-Apr) an additional US$4.500 loss in RIN ocurred, due to the transfer of US$5.000 million to FONDEN


International reserves and FONDEN funds burnt in order to avoid a larger fall in imports and provide support to the parallel market

Balanza de Pagos 2009

18.124

(10.262)

57.595

4.783

(9.023)

10.592

38.442

(4.939)

(20.000)

Exportaciones

Inversión

Importaciones

Servicios/Otros

Var. ActivosPúblicos

Var. Activos

Privados

Errores

Variación deReservas

US

D M

illo

nes


By year-end 2009 it was already obvious that the parallel market was demanding a increasingly (unsustainable) large amount of foreign currency

Fuga de Capitales(Millones de Dólares, 2000-2009)

9.841

3.783

8.797

11.738

7.364

17.002

21.589

24.415

6.118

9.403

-

5.000

10.000

15.000

20.000

25.000

30.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuente: BCV, Cálculos Propios


The government also increased external debt by 27% (US$12.400 million) …

Deuda Externa

(2008-2009 - Miles de millones de dólares)

29.934.9

16.6

20.0

46.5

58.9

4.0

2008 31/10/2009

Gobierno Central Fondo Chino

PDVSA Total Deuda Externo


Deuda pública(USD Millones)

28.705 28.455 29.06726.104 25.942

27.702 28.853 28.13830.534

26.598

38.942

46.652

61.626

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuente: BCV

Total Promedio2008-2009 32,10% 32,10%

2007-2009 58,25% 25,80%

2001-2009 137,55% 11,42%

1998-2009 116,57% 7,28%

Consolidated public sector debt grew by US$14.974 million, reaching Debt-to-GDP levels of 50%-58% - The major leagues of debt!

Deuda Ext. / PIB 2008 2009 @ Oficial (2.6) 14% 20% @ Oficial (4.3) 14% 33%

@ Paralelo 35% 50% @ M2/RIN 31% 58%


Internal debt was heavily, growing 61% nominal and 25% in real terms, taking total debt-to-GDP ratios to 57%-64%

Deuda Interna Nominal y Ajustada por Inflación(Millones de VEF nominales, y de 1998)

2.5303.827

7.250

11.000

16.189

24.049

29.802

33.712

36.221 35.991

30.515

49.072

5.811

2.530 3.1855.329

7.198 8.086 9.450 9.825 9.7118.930

7.240

4.655

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 AcumSep09

Fuente: Ministerio de Finanzas

Deuda Total / PIB 2008 2009 @ Oficial (2.6) 19% 23% @ Oficial (4.3) 19% 40%

@ Paralelo 39% 57% @ M2/RIN 35% 64%


Over the course of 2009 CADIVI also reduced its allotments of foreign currency at the official rate by 42%

Entrega Diaria Promedio de Dólares por el BCV (Millones de Dólares)

Ene05 - Dic09

-

50,00

100,00

150,00

200,00

250,00E

ne-0

5

Ab

r-0

5

Ju

l-0

5

Oct-

05

En

e-0

6

Ab

r-0

6

Ju

l-0

6

Oct-

06

En

e-0

7

Ab

r-0

7

Ju

l-0

7

Oct-

07

En

e-0

8

Ab

r-0

8

Ju

l-0

8

Oct-

08

En

e-0

9

Ab

r-0

9

Ju

l-0

9

Oct-

09

Media Movil 6 Meses - BCV

Media Movil 6 Meses - CADIVI

Liquidación de Divisas BCV

Autorización de Divisas CADIVI

Fuente: CADIVI


Lower foreign currency allotments at the official rates resulted in a 22% decrease in imports (significantly lower than the fall in exports)

Importaciones(Dólares, 1998 - 2009)

13.213

16.86519.211

13.360

10.483

17.021

24.008

33.583

46.031

49.482

38.442

15.105

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Fuente: BCV

First half 2009: -5%Second half 2009:-22%


GDP dropped by 3.3%, three times more than world average and almost twice the Latin American average (negative) growth rate

Variación Anual PIB (%)(1989 - 2009)

9,73%

-2,35%

3,95%

-0,20%

6,37%

-6,09%

3,24%

8,15%

4,78%

-3,29%

-9,40%

6,47% 6,06%

0,28% 0,17%

2,79%

-8,88% -9,24%

18,29%

10,32%

9,87%

-15,00%

-10,00%

-5,00%

0,00%

5,00%

10,00%

15,00%

20,00%1

98

9

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Fuente: BCV


GDP per capita fell 5.07% - By year-end 2009 it was 9.05% above 1998 levels (a compounded annual growth rate of just 0.79%)

Producto Interno Bruto per Capita (Miles de bolívares 1997, 1998-2009)

1.533.471

1.385.946

1.609.146

1.973.6301.809.900

1.661.5421.689.168

1.712.555

1.740.817

1.892.8131.877.691

2.078.963

-

500.000

1.000.000

1.500.000

2.000.000

2.500.000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuente: BCV


GDP by sector: Mining (-11%), Retail (-8%), Transport (-9%), Manufacturing (-6%), Oil (-7%) and Banking and Insurance (-2%) got the worst of the crisis…

Crecimiento del PIB 2008/2009por actividades económicas

4,78%

5,13%

3,72%

9,50%

2,45%

-4,21%

1,43%

5,68%

4,64%

3,80%

18,17%

-4,63%

2,66%

5,34%

5,59%

4,25%

-3,29%

-7,22%

-2,04%

-11,19%

-6,37%

0,17%

-8,33%

-8,52%

9,82%

-2,37%

-2,04%

3,10%

2,41%

-0,30%

CONSOLIDADO

ACTIVIDAD PETROLERA

ACTIVIDAD NO PETROLERA

Minería

Manufactura

Electricidad y Agua

Construcción

Comercio

Transporte y Almacenamiento

Comunicaciones

Instituciones Financieras y Seguros

Bienes Inm. y Serv.

Serv. Com, Soc. y Pers

Produc. Servicios del Gobierno General

Resto 1/

2008 2009

Fuente: BCV


In manufacturing in particular, there are certain sub-sectors production falling at astonishing rates 19%-39%! (still without adjusting for public-private differences)

Indice de Producción Manufacturera(Volumen)

1.4%

4.1%

-3.8%

13.8%

12.1%

5.3%

14.1%

4.8%

-1.4%

-2.9%

4.1%

-10.5%

-5.7%

5.6%

-6.2%

-10.1%

8.3%

-11.9%

-2.7%

-6.0%

-19.7%

-19.0%

-24.9%

4.5%

-9.1%

-5.0%

-19.4%

-37.4%

-38.7%

-18.3%

-16.3%

0.7%

-3.3%

-11.2%

-50% -40% -30% -20% -10% 0% 10% 20%

General

Alimentos, bebidas y tabaco

Prod. Textiles

Prendas de vestir, adobo y teñido de pieles

Curtido y adobo de cueros, talabartería y calzado

Madera, Corcho, etc.

Papel y derivados

Edición, impresión y reproducción de grabaciones

Sustancias y productos químicos

Productos de caucho y plástico

Productos minerales no metálico

Metale Comunes

Productos de Metal

Maquinaria y equipo

Maquinaria y aparatos eléctricos

vehiculos automotores

Muebles, industria y manufactura 08/09

07/08

Fuente: BCV


When public vs. Private GDP evolution is considered, it appears a clear trend of institutional change in the ownership of production

Crecimiento PIB Público y Privado(IT2000 - IVT2009)

-0,3

1%

-6,9

9%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%1

Q 0

0

3Q

00

1Q

01

3Q

01

1Q

02

3Q

02

1Q

03

3Q

03

1Q

04

3Q

04

1Q

05

3Q

05

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

Publico Privado

Fuente: BCV


Indice de volumen de ventas (1997=100)

-16,31%

34,69%

10,51%

-11,09%

34,10%

29,39%

27,11%

-22,02%

7,97%

5,38%

0

50

100

150

200

250

300

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%General

Comercio al por mayor

Comercio al por menor

Crec. Indice General

Fuente: BCV

According to the Central Bank, sales volume at retail level fell 11% in 2009


As imports plummeted 22%, the rate of growth in consumption camedown (%2.2%) and aligned with the rate of growth in GDP (-3.3%)

Consumo Total(Miles de Bolívares 1997, 1998-2009)

-

10.000.000

20.000.000

30.000.000

40.000.000

50.000.000

60.000.000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuente: BCV

Público Privado Total 2008-2009 2,3% -3,2% -2,2% 2007-2008 6,7% 7,1% 7,0% 2006-2007 6,1% 18,7% 16,2%


Consumption per capita fell 4.0% - By year-end 2009 it was 49.1% above 1998 levels (a compounded annual growth rate of 3.66%!)

Consumo Total per capita(Miles de Bolívares 1997, 1998-2009)

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1.600.000

1.800.000

2.000.000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuente: BCV

Per Capita 2008-2009 -4,0% 2007-2008 13,1% 2006-2007 6,6%


Consumption is another variable were institutional differences have become significant: Public: +2.3%, Private: -3,2%

Consumo(Var % Anual)

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Consumo Privado Consumo Público Consumo TotalFuente: BCV

2,3%

-3,2%


The downward trend in consumption is better seen at a quarterly level: In 4Q 2009 private consumption fell by 6.7%

Consumo(Var % Anual)

-10,00%

-5,00%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%IV

-03

I-0

4

II-0

4

III-

04

IV-0

4

I-0

5

II-0

5

III-

05

IV-0

5

I-0

6

II-0

6

III-

06

IV-0

6

I-0

7

II-0

7

III-

07

IV-0

7

I-0

8

II-0

8

III-

08

IV-0

8

I-0

9

II-0

9

III-

09

IV-0

9

Consumo Privado Consumo Público Consumo TotalFuente: BCV

Público Privado Total Per Capita 2005-2006 12,9% 16,3% 15,5% 14,3%2006-2007 6,2% 17,6% 15,1% 15,1%2007-2008 6,5% 4,8% 5,1% 1,9%2008-2009 2,1% -6,7% -5,0% -6,7%


Real average salaries have been falling steadily since the first quarter 2008, either for public or private employees (public slope is steeper!)

Indice de Salarios Reales(1998=100)

0,7

0,8

0,9

1,0

1,1

1,2

1,3

1998-I

1998-I

II

1999-I

1999-I

II

2000-I

2000-I

II

2001-I

2001-I

II

2002-I

2002-I

II

2003-I

2003-I

II

2004-I

2004-I

II

2005-I

2005-I

II

2006-I

2006-I

II

2007-I

2007-I

II

2008-I

2008-I

II

2009-I

2009-I

II

Indic

e

General Privado Público

Fuente: BVC


2009 in brief: I don’t think we are in Kansas anymore

� In spite of the large amount of foreign currency burnt either in international reserves (US$10.262 MM), increased net external debt (14.974 MM), the parallel market depreciated 41% on average (against 2008)

� As it became impossible to sustain the level of imports (-22%), the decrease in consumption per capita (4.1%) aligned with production per capita (-5.1%), with average inflation on the range of 27-35%

� Institutional differences either at GDP or consumption level became quite important, with the private sector getting the worst out of the adjustment (particularly manufacturing)

� Capital outflows (US$24.415 MM) registered are the largest since Luis Herrera Campins government (19798-1983)

� The government induced a depreciation of the average exchange rate by forcing 42% of official dollars previously allocated out of CADIVI (anticipating somehow the effects of the devaluation occurred in January 2010)


Between Jan-Apr 2010 there were both large devaluation (+/- 65%) of the official rate and depreciation (32%) of the parallel market rate

Tasa de Cambio Oficial y Paralela(Ene 2000 - Abril 2010)

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

9,00

10,00

en

e-0

0

jul-

00

en

e-0

1

jul-

01

en

e-0

2

jul-

02

en

e-0

3

jul-

03

en

e-0

4

jul-

04

en

e-0

5

jul-

05

en

e-0

6

jul-

06

en

e-0

7

jul-

07

en

e-0

8

jul-

08

en

e-0

9

jul-

09

en

e-1

0

Oficial No Oficial M2/RINFuente: BCV

7,09

4,30

8,67


Still the BSF at the official rate remains highly overvalued, with the parallel market rate (7.1) close to equilibrium

Tasa de Cambio(Ene 2000 - Abr 2010)

4,30

7,09

7,63

6,88

8,41

0

1

2

3

4

5

6

7

8

9

ene-

00

may-0

0se

p-0

0en

e-0

1m

ay-0

1se

p-0

1

ene-

02

may-0

2se

p-0

2en

e-0

3

may-0

3se

p-0

3en

e-0

4m

ay-0

4se

p-0

4

ene-

05

may-0

5se

p-0

5en

e-0

6

may-0

6se

p-0

6en

e-0

7m

ay-0

7se

p-0

7

ene-

08

may-0

8se

p-0

8en

e-0

9

may-0

9se

p-0

9en

e-1

0

Oficial Mercado Paralelo PPP IPC (1990=100) M2/RIN PPP - IPM (1990=100)



Still the BSF at the official rate remains highly overvalued, with the parallel market rate (7.1) close to equilibrium

Tasa de Cambio Real Enero 1990 - Abril 2010(IPC - Ene 1990 = Jul 1994 = May 1996 =100%)

56,4%

93,0%

30%

50%

70%

90%

110%

130%

150%

en

e-9

0

dic

-90

nov-9

1

oct-

92

sep

-93

ago-9

4

jul-

95

jun

-96

may-9

7

ab

r-98

mar-

99

feb

-00

en

e-0

1

dic

-01

nov-0

2

oct-

03

sep

-04

ago-0

5

jul-

06

jun

-07

may-0

8

ab

r-09

mar-

10

RER Oficial RER 100% RER Paralelo

RER = 100%



Depreciation and acceleration of inflation occurred even though liquidity has grown at moderate levels, either in 2009 (22%) or in Jan-April 2010 (+2.0%)

Liquidez - M2(MMM VEF)

0

50

100

150

200

250

300

ene-

02

abr-

02

jul-

02

oct

-02

ene-

03

abr-

03

jul-

03

oct

-03

ene-

04

abr-

04

jul-

04

oct

-04

ene-

05

abr-

05

jul-

05

oct

-05

ene-

06

abr-

06

jul-

06

oct

-06

ene-

07

abr-

07

jul-

07

oct

-07

ene-

08

abr-

08

jul-

08

oct

-08

ene-

09

abr-

09

jul-

09

oct

-09

ene-

10

abr-

10

Monedas y Billetes Depositos Cuasidinero Liquidez

Tasas de Crecimiento M2:

2003: 58%2004: 48%2005: 52%2006: 70%2007: 29%2008: 25%2009: 22%2010: 2,0%

238,4

23,8

73,1

141,5

Fuente: BCV


Inflation resume at an accelerated pace in April: 5,1% variation at consumer price index and 11,0% in food and beverages!

Indices de Precios AnualizadoAréa Metropolitana de Caracas

(Ene- 02 - Abr - 10)

29,08%

31,69%

32,74%

10%

20%

30%

40%

50%

60%

70%

80%

en

e-0

2

may-

sep

-02

en

e-0

3

may-

sep

-03

en

e-0

4

may-

sep

-04

en

e-0

5

may-

sep

-05

en

e-0

6

may-

sep

-06

en

e-0

7

may-

sep

-07

en

e-0

8

may-

sep

-08

en

e-0

9

may-

sep

-09

en

e-1

0

IPC IPM Nucleo Alimentos

Fuente: BCV

41,06%


Price variations by sector display a large volatility (4% - 52%)

dic-07 dic-08 dic-09 ene-10 feb-10 mar-10 abr-10INDICE GENERAL 22,55% 31,86% 26,81% 26,81% 26,94% 28,06% 31,69%Alimentos y bebidas no alcohólicas 30,91% 46,67% 20,38% 19,80% 21,00% 25,72% 41,29%Bebidas alcohólicas y tabacos 78,13% 28,30% 47,56% 52,73% 57,89% 53,80% 51,26%Vestido y calzado 18,90% 18,73% 21,90% 22,39% 22,51% 22,15% 20,60%Alquiler de vivienda 5,64% 7,22% 16,17% 16,98% 16,74% 16,05% 16,74%Servicios de la vivienda excepto teléfono 1,90% 5,50% 3,85% 3,54% 4,37% 4,47% 4,26%Equipamiento del hogar 22,31% 34,62% 39,06% 38,11% 30,40% 39,01% 38,46%Salud 28,32% 36,95% 34,09% 31,80% 30,40% 27,52% 27,15%Transporte 17,77% 29,88% 30,62% 30,75% 31,39% 31,01% 30,64%Comunicaciones -5,70% 7,29% 9,65% 11,62% 10,84% 10,51% 6,99%Esparcimiento y cultura 16,82% 25,07% 26,90% 27,39% 29,15% 31,33% 32,35%Servicio de educación 7,25% 28,58% 29,22% 31,74% 31,22% 27,64% 25,88%Restaurantes y hoteles 42,76% 49,76% 33,54% 31,60% 32,24% 32,50% 33,80%Bienes y servicios diversos 25,02% 37,76% 50,84% 52,02% 52,61% 48,65% 42,60%

VARIACION ANUALIZADA


What had happened with CADIVI in 1Q 2010?

� Official figures have not been published yet� A press release was issued stating that over the first quarter 2010:

Vs. 1Q 2009� Total foreign exchange assigned at official rates fell 12%� Foreign exchange approved for imports grew 11%� Foreign exchange approved for travelling fell by 85%� Total amount approved to travel agencies to pay commitments in

foreign exchange grew 39%� Assignment of foreign exchange for remittances fell 39%

� There is a portfolio re-composition/rebalancing within CADIVI � Increased assignments for imports even at a scenario with a large GDP fall,

signals the intention of the government to avoid a large fall in consumption per capita


What else have happened in 1Q 2010? A summary

� Even though the official figures have not been published yet, there are talks of yet

another large fall in GDP volume (6%-8%)

� It is hard to measure the specific impact of the energy crises, but the fact is that it

has been (and will be) a strong (negative) influence on GDP in the years to come

� Consumption may have fall a little less (3%-5%) due to increased imports

� Inflation sky-rocketed in April, with some delay as related to the devaluation

implemented in January (controlled prices were allowed to “adjust” in April)

� Government spending (measured by liquidity) has kept the low pace characteristic

of first quarters: +2.0% (in nominal terms!)

� Large depreciation of the BSF in the parallel exchange rate market (32%) has

occurred in spite of no-liquidity growth (lower demand for BSF?)


Exchange rate arrangement: What is going on? The specifics

� On May 11 new modifications to the exchange rate regime were introduced

� According to the text of the law the buying and selling of foreign currency, either in cash or through financial instruments, is going to be an exclusive responsibility of the Central Bank

� Large penalties were incorporated such as:

� Buying/selling between US$10,000 and US$20,000 in the course of a year without the approval of the Central Bank will be penalized with a fine equivalent to twice the amount of the transactions – plus the amount of US$ bought/sold has to be rendered at the Central Bank

� Buying/selling more than US$20,000 in the course of a year without the approval of the Central Bank will be penalized same as previous one + 2-6 years in prison

With Venezuelan oil price averaging 72$ per barrel… What is going on?


3,40

0,6

2,82

86,5

89.128

20082006 2007 2009

Oil Exports (US$ million, BCV) 57.972 62.640 54.201

Average Oil Price Venezuela

(US$ per barrel, MENPET)

56,4 64,7 57,0

Implicit Volume Exports (MBD) 2,82 2,65 2,60

Domestic Consumption (MBD) 0,6 0,6 0,6

Total Oil Production (MBD) 3,42 3,25 3,20 ?

Some possible explanations: “It was all a big lie” (Bernie Madoff)

According to international sources (OPEP) the Venezuelan total production volume has been around 2.2 – 2.6 MBD


22.826

89.128

66.302

86,5

2,1

(0,6)

2,7

0,3

2,4

20082006 2007 2008

Total Production (OPEP - MBD) 2,7 2,4 2,3

Oil-derived Products not reported by OPEP volumes

0,3 0,3 0,3

Total Production: OPEP + Derived 3,0 2,7 2,6

Domestic Consumption (MBD) (0,6) (0,6) (0,6)

Available to Export (MBD) 2,4 2,1 2,0

Average Oil Price Venezuela

(US$ per barrel, MENPET)

56,4 64,7 57,0

Maximum Oil Exports (MM US$) 49.406 49.593 41.610

Oil Exports (US$ MM, BCV) 57.972 62.640 54.201

Over-estimation of oil exports (MM US$)

8.566 13.047 12.591

The reserve account: How over-estimated are the Venezuelan oil exports?


It is not a good time either to issue debt in foreign currency (the Venezuelan premium is at 9.87%, though this has not deter them in the past!)

Desempeño de la Prima por Riesgo de Latinoamerica

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

d-08

e-09

f-09

m-0

9

a-09

m-0

9

j-09

j-09

a-09

s-09

o-09

n-09

d-09

e-10

f-10

m-1

0

a-10

Puntos Básicos

Argentina Brasil Colombia Venezuela Chile Latam Mexico

Latin America

987 points


Insurance against a Venezuelan default (Credit default swaps, 5 years) is the most expensive in Latin America (9.83%)

983 points

CDS LATAM (5 Years)

0

500

1000

1500

2000

2500

3000

3500

4000

4500Jan

-09

Feb-0

9

Mar-

09

Apr-

09

May-0

9

Ju

n-0

9

Ju

l-09

Au

g-0

9

Sep-0

9

Oct-

09

Nov-0

9

Dec-0

9

Jan

-10

Feb-1

0

Mar-

10

Apr-

10

May-1

0

Pu

nto

s B

ásic

os

Venezuela Chile Brasil Colombia Argentina


It seems early to take a position on how it is going to work: In a typical Venezuelan fashion, it can be anything! Option A

The socialist-police way:

� The Central Bank becomes the CADIVI of the parallel market

� A third rate is created within the exchange control system, with restricted access

� A fourth exchange rate, in a parallel (black-illegal) market will arise, with a large risk-premium over the previous one, proportional to the penalties

� An “exchange police” will prosecute and arrest people trading in the black-market, in order to signal the “seriousness of the threat”, but in the medium term the market will stabilize and survive (information era)

Consequences/Risks:

� BSF in the black-market will suffer a large depreciation to compensate for risk

� Illegal-black market would be very tight due to US and global practices against money-laundering

� Prices may be set at black-market rate, fueling inflation

� One control will lead to another…

Uncertainty:

� How much access to foreign currency at the “permuta” BCV rate? Criteria?

� What would be that rate? Black-market?

� People not allowed into BCV-permuta: Lose value of BSF assets or run the risk of going into prison? (Corralito)


It seems early to take a position on how it is going to work: In a typical Venezuelan fashion, it can be anything! Option B

The practical way:

� The Central Bank administers a third rate (2.60 and 4.30 remain), that will be flexible, available to anyone who wishes to buy-sell foreign currency

� It implies rising the exchange-control on that rate, and the Central Bank will have to defend the rate (using international reserves) and assume any exchange rate movement (depreciation/appreciation) with no chance of blaming others

� Market will gain in “transparency”and may lose operational risk premium in the short-term

Consequences/Risks:

� BSF may appreciate in the short-term

� This is equivalent to rising the exchange-rate control, discouraging the demand of US$ through threats (there always exist the possibility of the government inquiring why are you buying “so much”foreign currency and where is it going?)

Uncertainty:

� For how long could this work?

� Any appreciation is unlikely to be sustained because the arrangement is not changing drivers of supply-and-demand

� How much reserves is the Central Bank willing to burn to defend this rate?


A few things that appear to be clear…

� Any arrangement considered will not change the drivers of demand (negative interest rates, threats and uncertainty as related to private property) and supply (the suppliers of foreign currency are either the oil sector of further debt)

� The proposed reform implies more control, and that is highly unlikely to produce an appreciation of the exchange rate…

� In any case, any sudden appreciation of the BSF due to increased “openness” (seems unlikely) will be short-lived, and the government will have in the short to medium-term to move back to changing supply-and-demand drivers (seems too late for Chávez to reinvent himself) or move to the socialist-police control of the market

� It is unlikely that they move the permuta-market to the Central Bank with the intention of increasing the supply of foreign currency, but you never know…

� The Central Bank does not seem to have much fuel to support demand of foreign currency and avoid losing face because of depreciation… And it does not seem too willing to accept depreciation of a BCV-administered exchange rate…

� Public expenditure in an electoral year will have an effect on liquidity… And then?


The analyst forecast implies an average basket for Venezuelan oil of US$73-77 per barrel for the rest of 2010…


Even in the case of a decrease in oil volumes, the price-effect (72-74 against 57) will prevail, producing (theoretically) US$70,000 MM in exports (+20%)

Producto Interno Bruto(Var % Anual)

0,3%

-3,8%

2,3%

-0,9%

-14,2%

-1,9%

13,7%

-1,5% -2,0%

-4,2%

2,5%

-7,2%-6,9%

4,2% 4,0%

-6,0%-7,4%

16,1%

12,2%10,9%

9,6%

5,1%

-2,0%

-0,1%

-20,00%

-15,00%

-10,00%

-5,00%

0,00%

5,00%

10,00%

15,00%

20,00%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

PIB Petrolero PIB No Petrolero PIB TotalFuente: BCV


Forecast: The Venezuelan Consensus

Compañía 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011AGV -3,80 0,50 - - - - 8,00 8,50 0,00 -1,10 42,40 28,20 15,50 15,00Banco Federal -1,00 0,50 - - - - 12,00 13,00 - - 38,00 42,00 17,00 20,00Banco Mercantil -2,40 0,80 -0,80 2,60 -12,00 -3,90 9,20 9,90 -0,50 -1,70 25,10 24,20 14,80 15,70Banesco Banco Universal 0,90 1,00 1,60 2,40 1,80 3,00 8,60 - - - 38,60 25,80 15,20 15,00BBVA Banco Provincial -2,50 0,60 0,10 1,60 -1,30 1,00 9,50 10,20 -4,10 -5,50 32,80 28,10 13,50 13,50Ecoanalítica -1,30 2,50 -2,60 2,80 0,00 4,20 9,00 8,90 - - 33,50 31,70 14,00 15,00Santander Investment 3,90 0,40 6,60 0,50 1,30 0,40 8,40 8,20 - - 25,10 21,60 - -BofA Merrill Lynch -1,00 2,40 -0,60 4,40 -0,30 0,60 9,40 9,50 -0,30 -2,20 32,90 23,00 - -Citigroup Global Markets Inc. -1,70 0,50 1,70 -1,10 -7,80 -1,50 5,70 5,80 0,40 0,10 36,00 32,00 16,20 20,00Credit Suisse -2,00 0,00 - - -6,80 -0,80 7,50 7,50 - - 31,20 38,70 - -Deutsche Bank 0,20 1,80 - - - - 8,00 8,00 -2,50 -2,30 33,00 29,00 - -Goldman Sachs 0,70 2,40 - - - - - - -3,80 -4,00 29,80 24,00 11,00 10,00HSBC -2,30 1,90 -3,80 1,80 -10,20 4,80 8,90 8,60 - - 37,10 30,00 - -JPMorgan -1,50 2,50 1,00 3,60 - - - - -1,50 -3,50 35,00 40,00 15,00 15,00Morgan Stanley 0,30 3,50 - - - - - - -3,20 -2,00 45,00 38,50 20,00 20,00Multus Consulting -3,70 - -4,30 - -13,00 - 8,20 - - - 40,30 - 14,00 -RBC Capital Markets 1,50 3,00 - - - - - - -4,20 -3,50 22,00 20,00 16,00 20,00RG BS&E -4,20 - - - - - - - - - 33,00 - - -Scotiabank Group -0,50 - - - - - - - - - 30,00 - - -UBS -3,00 -5,00 - - - - 8,00 - -4,60 -1,00 35,00 50,00 - -

Media -1,17 1,14 -0,11 2,07 -4,83 0,87 8,60 8,92 -2,21 -2,43 33,79 30,99 15,18 16,29

Inflación (%) Tasas de Interés (%)Var% PIBVar% Consumo

PrivadoVar% Formaciòn

Bruta de Capital Fijo%Desempleo

Balance del Gobierno Central (%PIB)


Forecast: The Venezuelan Consensus

Compañía 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011AGV 4,3 4,3 25,5 20,5 36,10 29,80 73,50 73,10 37,40 43,30 28,50 23,30Banco Federal 4,3 5,2 - - - - - - - - 36,90 37,50Banco Mercantil 4,3 4,3 26,2 31 36,40 39,80 70,50 73,70 34,10 33,90 35,80 35,10Banesco Banco Universal 4,30 - 20,40 - 32,90 - 75,20 - 42,30 - 36,20 -BBVA Banco Provincial 4,3 4,3 14,9 20,2 24,10 29,20 66,80 73,70 42,70 44,50 21,60 21,20Ecoanalítica 4,3 4,3 21,5 13,4 25,30 19,40 64,30 63,00 39,00 43,60 33,30 27,30Santander Investment 4,3 4,3 8,7 10,8 15,40 19,10 64,10 67,00 48,70 47,90 - -BofA Merrill Lynch 4,3 4,3 19,1 18,5 - - - - - - 26,90 28,30

Citigroup Global Markets Inc. 4,3 4,3 17,2 16,5 27,70 27,10 68,30 68,20 40,60 41,10 35,40 35,00

Credit Suisse 4,3 4,3 22,6 20,5 - - - - - - 30,00 25,00Deutsche Bank 4,3 5 6,2 7,3 - - - - - - 35,00 35,00Goldman Sachs 4,3 5 9,6 6,3 20,20 16,70 65,80 67,30 45,70 50,60 29,00 27,50HSBC 4,3 4,3 24,1 28,7 28,90 34,30 65,40 73,20 36,50 38,90 35,40 40,00JPMorgan 4,3 5,5 24,7 25,1 34,40 36,30 77,50 84,90 43,10 48,60 - -Morgan Stanley 4,3 4,3 33,5 29,1 40,70 40,20 - - - - 28,00 28,00Multus Consulting 4,3 - 22,9 - 29,90 - 64,00 - 34,10 - 32,00 -RBC Capital Markets 4,3 4,3 14,4 20,5 - - - - - - - -RG BS&E 4,3 - 10,5 - 15,90 - 56,20 - 40,40 - 37,50 -Scotiabank Group - - - - - - - - - - - -UBS - - 14,2 - - - - - - - - -

Media 4,30 4,53 18,68 19,17 28,30 29,19 67,63 71,57 40,38 43,60 32,10 30,27

Reservas Internacionales (USD MMM)

Importaciones (USD MMM)

Tipo de Cambio (VEF/USD)

Cuenta Corriente (USD MMM)

Balanza Comercial (USD MMM)

Exportaciones (USD MMM)


Forecast Concern: Why are we having so much trouble with oil at 72?

� Venezuela is experiencing a lot more trouble than what US$72 per barrel would imply

� With the information available (not considering the Bernie Madoff effect), GDP forecast would be negative 2%-3%, with consumption falling a bit less than that (without investment there is no room for long-term growth)


1996 1998 2000 2002 2003 2004 2005 2006 2007 2008

Voice and accountability 85 91 114 128 145 145 144 148 145 146

Political Stability; no violence 142 126 131 164 175 183 180 184 184 184

Government Effectiveness 156 125 147 174 174 174 161 170 177 176

Regulatory Quality 113 114 131 135 168 168 183 188 197 198

Rule of law 119 135 147 170 184 184 191 199 204 204

Control of corruption 113 154 130 165 178 178 173 199 187 189

Number of countries in the study 194 199 200 201 201 208 208 209 209 209

Ranking (1 is the best)

Country risk (mín = 0; máx =100) 2009 Economist Intelligence Unit 76 158

Competitivess 2009-2010 World Economic Forum 113 133

Hiring workers 2010 World Bank 181 183

Investment protection 2010 World Bank 178 209

Competitiveness 2009 IMD 57 57

Political stability 2009-2010 Economist Intelligence Unit 136 165

Economic freedom 2009 Heritage Foundation / Wall St. Journal 174 179

# of countries in

the studyPeriod Insttution Ranking

What have the government’s policies done to put the country on a sustainable path towards growth, quality-employment and stability?


Country 2001 2002 2003 2004 2005 2006 2007 2008

Argentina 2.005 2.776 878 3.449 3.954 3.099 4.969 7.502

Brazil 24.715 14.108 9.894 8.339 12.550 -9.380 27.518 24.601

Chile 2.590 2.207 2.701 5.610 4.801 4.556 9.568 9.896

Colombia 2.526 1.277 783 2.873 5.590 5.558 8.136 8.346

Costa Rica 451 625 548 733 904 1.371 1.634 2.015

El Salvador 289 496 123 366 398 268 1.408 719

Mexico 23.045 22.158 15.184 19.249 15.503 13.670 19.272 21.795

Panama 467 99 818 1.019 918 2.498 1.907 2.402

Peru 1.070 2.156 1.275 1.599 2.579 3.467 5.425 4.079

Dominican Republic 1.079 917 613 909 1.123 1.528 1.579 2.885

Trinidad and Tobago 685 684 583 973 599 513 830 1.638

Uruguay 291 180 401 315 811 1.495 1.139 2.049

Venezuela 3.479 -244 722 864 1.422 -2.666 978 -923

Latin America 66.122 50.504 37.806 49.725 54.741 30.874 88.960 92.849

Venezuela* 3.901 2.980 2.230 2.934 3.230 1.821 5.248 5.478

Source: UN Economic Commission for Latin America and the Caribbean (ECLAC)

The results: Net foreign investment has been significantly lower than the size of our economy would imply (even more: is negative!)


Forecast Concern: Why are we having so much trouble with oil at 72?

� Venezuela is experiencing a lot more trouble than what US$72 per barrel would imply

� With the information available (not considering the Bernie Madoff effect), GDP forecast would be negative 2%-3%, with consumption falling a bit less than that (without investment there is no room for long-term growth)

� Liquidity will expand 30%-35% (2% up to April), fueling an inflation rate of 35%-40%

� Salaries (10%+15%) will lag inflation, affecting purchasing power of Venezuelan workers (social conflict?)

� Most forecasts rely on the assumption that common-sense prevails (not for long!) and the BCV-permuta market remains open to anyone who whishes to buy or sale

� Forecast also rely on the supply of energy: Any large energy break-down may have effects that is hard to quantify / impossible to forecast

� As the government steeps-up spending, the restriction will move from demand to supply: The production response will depend on the status of labor conflicts (pending a possible reduction of labor hours per week) and foreign currency available to import

� There seems to be a lot more downside than upside in this forecast


GRACIAS!

www.miguelangelsantos.blogspot.com

Twitter: @miguelsantos12

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