Saturday, February 1, 2014

Latest developments in Venezuela - a crisis in the making

As a followup to our recent discussion on Venezuela, here are the latest developments:

1. The government has since created two exchange rates in order to stem rampant dollar outflows - essentially devaluing the currency - see story. Only essential goods are permitted to be imported using the original rate. The weaker exchange rate (more expensive dollars - nearly 2x the original rate) is used for everyone else. Black market dollars trade at some 10x the original rate.

2. Oil exports have fallen to the lowest level since 1985. A great deal of the oil the country does export is shipped to China to cover the billions of dollars worth of loans - see story.

3. Government bonds have sold off sharply in January, with long-term rates now above 15%.
15y gov bond yield (source:

4. According to the central bank, core inflation is running at close to 60%, although given the shortages it's difficult to measure.

4. Shortages of basic goods persist - see story (quite sad).

5. Dollar debt to the private sector is now over 60% of FX reserves  - see story (in Spanish).

6. Foreign reserves are dwindling.
The Economist: - Venezuela is running out of dollars to pay its bills. Although payments to its financial creditors of around $5 billion this year do not appear to be at risk, the country’s arrears on non-financial debt are put at over ten times that sum. These include more than $3 billion owed to foreign airlines for tickets sold in bolívares, and around $9 billion in private-sector imports that have not been paid for because of the dollar shortage. “Under the current economic model, and with this economic policy,” says Asdrúbal Oliveros of Ecoanalítica, “this [debt] looks unpayable.”
7. The country's sovereign CDS volume has picked up as traders smell profits, and the spread hit a new high. This is what a crisis in the making looks like.
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