Venezuelan Macroeconomic Outlook (Updated, May 2010)

Venezuela Macroeconomic Outlook

Exchange rate regime, risk and uncertainties

Miguel Ángel Santos
www.miguelangelsantos.blogspot.com
Twitter: @miguelsantos12
miguel.santos@iesa.edu.ve
Venezuela Macroeconomic Outlook, May 2010 - © Miguel Ángel Santos

1 Macroeconomic results by year-end 2009

2 What has happened so far in the first quarter?

3 Exchange rate arrangements, risks and uncertainties

4 What is likely to happen?


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
140
Precio Promedio (Enero 1998 - Abril 2010)
Cesta Venezolana:
120 1999: 16,2
2000: 26,0
100 2001: 20,2
2002: 22,2
2003: 25,7
80 2004: 33,6
2005: 46,0
2006: 56,4
60 2007: 64,7
2008: 86,5
40 2009: 57,0
2010: 71,7

20

Valor Nominal Valor Real (Base: Dic-07)
0
Ene 1998

Jul 1998

Ene 1999

Jul 1999

Ene 2000

Jul 2000

Ene 2001

Jul 2001

Ene 2002

Jul 2002

Ene 2003

Jul 2003

Ene 2004

Jul 2004

Ene 2005

Jul 2005

Ene 2006

Jul 2006

Ene 2007

Jul 2007

Ene 2008

Jul 2008

Ene 2009

Jul 2009

Ene 2010
Fuente: Ministerio de Energía y Petróleo


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

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

100.000
Petroleras No Petroleras
90.000

80.000

70.000

60.000

50.000

40.000

30.000

20.000

10.000

-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


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)
Embargo petrolero
de países a EEU -
Guerra de Yom Kippur
100,000 5,000
92,693
Salida del Sha de
Exportaciones Petroleras (millones de dólares de 2009)

90,000 4,500

Exportaciones Petroleras per Cápita (dólares de 2009)
Irán - Inicio de la
Revolución
3,960 de Khomeini
80,000 4,000

Comienza Guerra 3,327
70,000 3,215 Irán-Iraq
3,500

60,000 3,000
54,201
50,000 2,500
Invasión Iraq a Kuwait
Guerra del Golfo
40,000 2,000
1,913
30,000 1,500
1,247
20,000 1,000

10,000 500

0 0
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
Export. Petroleras (Base 2009) Export. Petroleras per Cápita


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

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


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)

45.000

40.000

35.000
(MM USD)

30.000

25.000

20.000
In 2010 (Jan-Apr) an additional
US$4.500 loss in RIN ocurred,
due to the transfer of US$5.000
15.000 million to FONDEN
10.000
mar-

may-

mar-

may-
ago-98

oct-99

dic-00
jul-01

abr-03

nov-03
jun-04

ago-05

oct-06

dic-07

jul-08

Abril
feb-02

feb-09
ene-98

sep-02

ene-05

sep-09
Fuente: BCV


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
57.595
38.442
(4.939)
USD Millones

10.592
18.124
(9.023)

Var. Activos 4.783
Exportaciones Importaciones Errores
Públicos
Inversión Servicios/
Otros Var. Activos Variación de
(20.000) Privados Reservas
(10.262)


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)

30.000

24.415
25.000
21.589

20.000
17.002

15.000
11.738
9.403 9.841
10.000 8.797
7.364
6.118

5.000 3.783

-
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)

4.0
58.9
20.0
16.6 46.5

34.9
29.9

2008 31/10/2009

Gobierno Central Fondo Chino
PDVSA Total Deuda Externo


Consolidated public sector debt grew by US$14.974 million, reaching
Debt-to-GDP levels of 50%-58% - The major leagues of debt!
Deuda pública
(USD Millones)
70.000
Deuda Ext. / PIB 2008 2009 61.626
Total Promedio
60.000
@ Oficial (2.6)
2008-2009 32,10% 14%32,10% 20%
@ Oficial (4.3)
2007-2009 58,25% 14%
25,80% 33%
@ Paralelo
2001-2009 137,55% 35%11,42% 50%
50.000 @ M2/RIN116,57% 31%
1998-2009 7,28% 58% 46.652

38.942
40.000

30.534
28.705 28.455 29.067 28.853 28.138
30.000 27.702 26.598
26.104 25.942

20.000

10.000

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Fuente: BCV


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)

Deuda Total / PIB 2008 2009
@ Oficial (2.6) 19% 23% 49.072
@ Oficial (4.3) 19% 40%
@ Paralelo 39% 57%
@ M2/RIN 35% 64%
36.221 35.991
33.712

29.802 30.515

24.049

16.189

11.000
7.250
3.827 8.930
2.530 9.450 9.825 9.711 7.240
7.198 8.086 5.811
5.329 4.655
2.530 3.185

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Acum
Sep09
Fuente: Ministerio de Finanzas


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)
250,00 Ene05 - Dic09
Media Movil 6 Meses - BCV
Media Movil 6 Meses - CADIVI

200,00 Liquidación de Divisas BCV
Autorización de Divisas CADIVI

150,00

100,00

50,00

-
Ene-05

Ene-06

Ene-07

Ene-08

Ene-09
Abr-05
Jul-05
Oct-05

Abr-06
Jul-06
Oct-06

Abr-07
Jul-07

Oct-07

Abr-08
Jul-08
Oct-08

Abr-09
Jul-09
Oct-09
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)
49.482
50.000
46.031
45.000
First half 2009: -5%
40.000 38.442
Second half 2009:-22%
35.000 33.583

30.000
24.008
25.000
19.211
20.000 16.865 17.021
15.105
15.000 13.213 13.360
10.483
10.000

5.000

0
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
Fuente: BCV


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)
20,00% 18,29%

15,00% 10,32%

9,73% 9,87%
10,00% 8,15%
6,47% 6,06% 6,37%
4,78%
5,00% 3,95% 3,24% 2,79%
0,28% 0,17%
0,00%
-0,20%
-2,35%
-5,00% -3,29%
-6,09%
-10,00% -9,40% -8,88% -9,24%

-15,00%
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
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)
2.500.000
2.078.963
1.892.813
1.877.691
1.809.900 1.740.817 1.973.630
2.000.000
1.661.542 1.712.555
1.689.168
1.609.146
1.533.471
1.500.000 1.385.946

1.000.000

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 2008/2009
por actividades económicas

4,78%
CONSOLIDADO -3,29% 2008 2009
2,45%
ACTIVIDAD PETROLERA -7,22%
5,13%
ACTIVIDAD NO PETROLERA -2,04%
-4,21%
Minería -11,19%

Manufactura -6,37%
1,43%
5,68%
Electricidad y Agua 4,25%
3,72%
Construcción 0,17%

Comercio -8,33%
4,64%

Transporte y Almacenamiento 3,80%
-8,52%
18,17%
Comunicaciones 9,82%
-4,63%
Instituciones Financieras y Seguros -2,37%

Bienes Inm. y Serv. 2,66%
-2,04%
9,50%
Serv. Com, Soc. y Pers
3,10%
Produc. Servicios del Gobierno General 5,34%
2,41%
5,59%
Resto 1/ -0,30% 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 M anufacturera
(Volumen)

Muebles, industria y manufactura -11.2%
8.3% 08/09
vehiculos automotores -3.3%
-10.1% 07/08
Maquinaria y aparatos eléctricos 0.7%
-6.2%
Maquinaria y equipo -16.3%
5.6%
Productos de Metal -18.3%
-5.7%
Metale Comunes -38.7%
-10.5%
Productos minerales no metálico -37.4%
4.1%
Productos de caucho y plástico -19.4%
-2.9%
Sustancias y productos químicos -5.0%
-1.4%
Edición, impresión y reproducción de grabaciones -9.1%
4.8%
Papel y derivados 4.5%
14.1%
Madera, Corcho, etc. -24.9%
5.3%
Curtido y adobo de cueros, talabartería y calzado -19.0%
12.1%
Prendas de vestir, adobo y teñido de pieles -19.7%
13.8%
Prod. Textiles -6.0%
-3.8%
Alimentos, bebidas y tabaco -2.7%
4.1%
General -11.9%
1.4%

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

40%
Publico Privado
30%

20%

-0,31%
10%

0%

-10%

-6,99%
-20%

-30%

-40%
1Q 00

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
Fuente: BCV


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

Indice de volumen de ventas
(1997=100)
300 40%
General
34,69%
Comercio al por mayor
34,10% 30%
Comercio al por me nor
250 29,39%
Crec. Indice General 27,11%
20%

200 7,97%
10,51% 10%

150 5,38% 0%

-10%
100
-16,31% -11,09%
-20%

50 -22,02%

-30%

0 -40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuente: BCV


As imports plummeted 22%, the rate of growth in consumption came
down (%2.2%) and aligned with the rate of growth in GDP (-3.3%)
Consumo Total
(Miles de Bolívares 1997, 1998-2009)

60.000.000 Público Privado Total
2008-2009 2,3% -3,2% -2,2%
2007-2008 6,7% 7,1% 7,0%
50.000.000 2006-2007 6,1% 18,7% 16,2%

40.000.000

30.000.000

20.000.000

10.000.000

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

Fuente: BCV


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)

2.000.000

1.800.000 Per Capita
2008-2009 -4,0%
1.600.000 2007-2008 13,1%
2006-2007 6,6%
1.400.000

1.200.000

1.000.000

800.000

600.000

400.000

200.000

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Fuente: BCV


Consumption is another variable were institutional differences
have become significant: Public: +2.3%, Private: -3,2%
Consumo
(Var % Anual)
25,0%

20,0%

15,0%

10,0%

5,0% 2,3%

0,0%

-5,0% -3,2%

-10,0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Consumo Privado Consumo Público Consumo Total
Fuente: BCV


The downward trend in consumption is better seen at a quarterly
level: In 4Q 2009 private consumption fell by 6.7%
Consumo
(Var % Anual)
25,00%

20,00%

15,00%

10,00%

5,00%

0,00%
Público Privado Total Per Capita
-5,00% 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%
-10,00%
IV-03
I-04

IV-04
I-05

IV-05
I-06

IV-06
I-07

IV-07
I-08

IV-08
I-09

IV-09
II-04

II-05

II-06

II-07

II-08

II-09
III-04

III-05

III-06

III-07

III-08

III-09
Consumo Privado Consumo Público Consumo Total
Fuente: BCV


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)
1,3

Ge ne ral Privado Público

1,2

1,1
Indice

1,0

0,9

0,8

0,7
1998-I

1999-I

2000-I

2001-I

2002-I

2003-I

2004-I

2005-I

2006-I

2007-I

2008-I

2009-I
1998-III

1999-III

2000-III

2001-III

2002-III

2003-III

2004-III

2005-III

2006-III

2007-III

2008-III

2009-III
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)

10,00
9,00 8,67

8,00
7,00
7,09
6,00
5,00 4,30

4,00
3,00
2,00
1,00
0,00
ene-00
jul-00
ene-01
jul-01
ene-02
jul-02
ene-03
jul-03
ene-04
jul-04
ene-05
jul-05
ene-06
jul-06
ene-07
jul-07
ene-08
jul-08
ene-09
jul-09
ene-10
Fuente: BCV Oficial No Oficial M2/RIN


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)
9
8,41
8
7,63
7
7,09
6 6,88
5 4,30
4

3

2
1

0
m ay-00

m ay-01

m ay-02

m ay-03

m ay-04

m ay-05

m ay-06

m ay-07

m ay-08

m ay-09
ene-00

sep-00
ene-01

sep-01
ene-02

sep-02
ene-03

sep-03
ene-04

sep-04
ene-05

sep-05
ene-06

sep-06
ene-07

sep-07
ene-08

sep-08
ene-09

sep-09
ene-10
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%)

150%

130%

110%
RER = 100%
90%

70% 93,0%
56,4%
50%

30%
ene-90
dic-90

oct-92
sep-93
ago-94
jul-95
jun-96
may-97
abr-98
mar-99
feb-00
ene-01
dic-01

oct-03
sep-04
ago-05
jul-06
jun-07
may-08
abr-09
mar-10
nov-91

RER Oficial RER 100%
nov-02 RER Paralelo


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)

300
Tasas de Crecimiento M2:
2003: 58% 238,4
250 2004: 48%
2005: 52%
2006: 70%
200 2007: 29%
2008: 25%
2009: 22% 141,5
150
2010: 2,0%

73,1
100

23,8
50

0
abr-02
jul-02
oct-02

abr-03
jul-03
oct-03

abr-04
jul-04
oct-04

abr-05
jul-05
oct-05

abr-06
jul-06
oct-06

abr-07
jul-07
oct-07

abr-08
jul-08
oct-08

abr-09
jul-09
oct-09

abr-10
ene-02

ene-03

ene-04

ene-05

ene-06

ene-07

ene-08

ene-09

ene-10
Monedas y Billetes Depositos Cuasidinero Liquidez
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 Anualizado
Aréa Metropolitana de Caracas
80% (Ene- 02 - Abr - 10)

70% IPC IPM Nucleo Alimentos

60%

50%

41,06%
40%
32,74%
30% 31,69%
29,08%
20%

10%
may-

may-

may-

may-

may-

may-

may-

may-
sep-02

sep-03

sep-04

sep-05

sep-06

sep-07

sep-08

sep-09
ene-02

ene-03

ene-04

ene-05

ene-06

ene-07

ene-08

ene-09

ene-10
Fuente: BCV


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

VARIACION ANUALIZADA
dic-07 dic-08 dic-09 ene-10 feb-10 mar-10 abr-10
INDICE 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%


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?


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

2006 2007 2008 2009
Oil Exports (US$ million, BCV) 57.972 62.640 89.128 54.201

Average Oil Price Venezuela 56,4 64,7 86,5 57,0
(US$ per barrel, MENPET)
Implicit Volume Exports (MBD) 2,82 2,65 2,82 2,60
Domestic Consumption (MBD) 0,6 0,6 0,6 0,6

Total Oil Production (MBD) 3,42 3,25 3,40 3,20 ?
According to international sources (OPEP) the Venezuelan
total production volume has been around 2.2 – 2.6 MBD


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

2006 2007 2008 2008
Total Production (OPEP - MBD) 2,7 2,4 2,4 2,3
Oil-derived Products not reported 0,3 0,3 0,3 0,3
by OPEP volumes
Total Production: OPEP + Derived 3,0 2,7 2,7 2,6
Domestic Consumption (MBD) (0,6) (0,6) (0,6) (0,6)
Available to Export (MBD) 2,4 2,1 2,1 2,0
Average Oil Price Venezuela 56,4 64,7 86,5 57,0
(US$ per barrel, MENPET)
Maximum Oil Exports (MM US$) 49.406 49.593 66.302 41.610
Oil Exports (US$ MM, BCV) 57.972 62.640 89.128 54.201
Over-estimation of oil exports 8.566 13.047 22.826 12.591
(MM US$)


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

Puntos Básicos
2,000

1,800

1,600

1,400

1,200 987 points
1,000

800

600

400
Latin America

200

0
e-09

f-09

a-09

j-09

j-09

a-09

s-09

e-10

f-10

a-10
d-08

m-09

m-09

o-09

n-09

d-09

m-10
Argentina Brasil Colombia Venezuela Chile Latam Mexico


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

4500
Venezuela Chile Brasil Colombia Argentina
4000

3500

3000
Puntos Básicos

2500

2000

1500 983 points
1000

500

0
Jan-09

Apr-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Apr-10
Feb-09

Mar-09

May-09

Jun-09

Feb-10

Mar-10

May-10

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: Consequences/Risks:
The Central Bank becomes the CADIVI BSF in the black-market will suffer a
of the parallel market large depreciation to compensate for risk
A third rate is created within the Illegal-black market would be very tight
exchange control system, with restricted due to US and global practices against
access money-laundering
A fourth exchange rate, in a parallel Prices may be set at black-market rate,
(black-illegal) market will arise, with a fueling inflation
large risk-premium over the previous One control will lead to another…
one, proportional to the penalties
An “exchange police” will prosecute and Uncertainty:
arrest people trading in the black-market, How much access to foreign currency at
in order to signal the “seriousness of the the “permuta” BCV rate? Criteria?
threat”, but in the medium term the
market will stabilize and survive What would be that rate? Black-market?
(information era) 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: Consequences/Risks:
The Central Bank administers a third BSF may appreciate in the short-term
rate (2.60 and 4.30 remain), that will This is equivalent to rising the exchange-
be flexible, available to anyone who rate control, discouraging the demand of
wishes to buy-sell foreign currency US$ through threats (there always exist
the possibility of the government
It implies rising the exchange-control inquiring why are you buying “so much”
on that rate, and the Central Bank foreign currency and where is it going?)
will have to defend the rate (using
international reserves) and assume
any exchange rate movement
Uncertainty:
(depreciation/appreciation) with no
chance of blaming others For how long could this work?
Any appreciation is unlikely to be
Market will gain in “transparency” sustained because the arrangement is not
and may lose operational risk changing drivers of supply-and-demand
premium in the short-term 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)
20,00%
16,1%
13,7%
15,00% 12,2%
10,9%
9,6%
10,00%
5,1%
4,2% 4,0%
5,00% 2,3% 2,5%
0,3%-0,1%
0,00%
-0,9% -1,5%
-1,9% -2,0% -2,0%
-5,00% -3,8% -4,2%
-6,0%
-6,9% -7,4% -7,2%
-10,00%

-15,00% -14,2%

-20,00%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
PIB Petrolero PIB No Petrolero PIB Total
Fuente: BCV


Venezuelan Macroeconomic Outlook (Updated, May 2010)

Venezuelan Macroeconomic Outlook (Updated, May 2010)

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