lunes, 17 de agosto de 2015

lunes, agosto 17, 2015

August 9, 2015 1:52 pm

Venezuela: ‘Terrorised by oil price drop’

Andres Schipani

FT series: Of the top oil producing nations it has been hit hardest

Human cost: A father and daughter rest while someone holds their place in a food queue in San Cristobal, Venezuela, amid shortages of basic goods©Getty
Human cost: A father and daughter rest while someone holds their place in a food queue in San Cristobal, Venezuela, amid shortages of basic goods
 
 
When a frustrated mother threw a mango at Nicolás Maduro in April, hitting him on the head, she could never have guessed the outcome: the Venezuelan president promised his homeless attacker a new apartment.

Others are not so lucky. Lolimar Gelis and her family lost their home in 2010 when a mudslide destroyed their shanty town, forcing them to take shelter at a military garrison in the west of the capital, Caracas. Despite appeals to the country’s leaders, the family is still waiting to be rehoused via a scheme launched by Mr Maduro’s predecessor, Hugo Chávez.

The Gran Misión Vivienda Venezuela was originally designed to help the families affected by the disaster. But its scale — to erect 3m homes by 2019 — transformed it into a grand project. One that supporters say will meet the country’s soaring housing needs and critics deride as an expensive act of electoral politics that the country — which holds the world’s largest oil reserves — can no longer afford.

“They promised us a house, and after years we have got nothing,” says Lolimar’s daughter, Diveana. “Now they are threatening to kick us out of the shelter. In the current economic crisis, I fear we are not going to get a house.”

She is almost certainly right. Amid lower oil prices, Venezuela is struggling to maintain the social spending that characterised the Chávez era. Crude accounts for 96 per cent of export revenues: a halving in the oil price over the past 14 months means revenues have slumped by about $36bn compared with the average of the previous two years, when the government raked in almost $79bn.
 
Running on fumes
 
The fall in oil prices has inflicted massive pain on exporting countries, widening budget deficits and weakening currencies around the world. Energy companies have been forced to lay-off thousands of workers and scrapped multibillion-dollar projects. But Venezuela is facing the greatest economic threat of any of the world’s major producers. With shortages of basic goods — from milk to nappies — becoming more acute each day as imports shrink, it is not only populist housing projects that are likely to be shelved, warn observers.
 
“Venezuela is running on fumes,” says Russ Dallen, who heads investment bank, Latinvest. “The current oil income is insufficient to allow the country to pay its debts, fund its imports and service its foreign bonds.”

Venezuela oil

The debt — issued by the government and a handful of state-run companies including the oil group PDVSA — adds up to a total of $128bn to be paid back over the next 24 years. But $6.3bn of that falls due before the end of the year, according to Bank of America.

So far Caracas has been able to keep paying its foreign bond creditors by selling assets, securitising oil debts and raiding its foreign reserves, burning through more than $7bn since late February. They now stand at $16.9bn, one of their lowest levels in the past decade, according to central bank data amid fears that the coffers could run empty in the first quarter of 2016, triggering a possible balance of payments crisis and knock-on implications for heavily exposed bondholders, such as Ashmore, Pimco, and BlackRock.
 
The economic chaos is reinforcing rising political tension. The ruling Socialist party faces parliamentary elections in December that polls suggest will be won by the opposition. In June, pollster Datanálisis found that 84 per cent of Venezuelans think the country is going in the wrong direction. More than half said they will vote for the opposition and only 30 per cent for the Socialist party. Facing a possible loss, the government has formally barred prominent opposition candidates from running — earning criticism from Washington.

Defeat would destabilise Mr Maduro — whose term is scheduled to run until 2019 — and may lead to his removal via a so-called recall referendum next year, potentially making him one of the first national political casualties of the sliding oil price.

Venezuela was the most vocal opponent of the Opec decision to maintain the oil cartel’s production levels even as prices began to fall. It is easy to see why: the economy is forecast to shrink by 7 per cent this year. This is not solely due to a fall in the oil price. The mismanagement of the industry — the failure to invest — and a series of unsuccessful nationalisations are key to understanding Venezuela’s plight.

Venezuela oil

Production has stagnated at about 2.8m barrels per day from a peak of 3.3m b/d before Chávez was elected in 1998. Although the oil price was just $10 a barrel at the time it stood above $100 for much of his time in power. This crude wealth paid for populist policies but also led to complacency and a failure to diversify, say critics. “If oil were to one day become worthless, Venezuela would go back to the stone age,” says Francisco Rodríguez, a BofA economist.

The sentiment is echoed by Maryclen Stelling, a left-leaning sociologist with the Rómulo Gallegos Center for Latin American Studies in Caracas: “We are a petro-state and we only know how to live on that. The productive capacity has been destroyed. We are terrorised by the drop in oil prices.”

Mr Maduro has failed to put in place coherent economic policies. Rather than devalue the currency to boost Venezuela’s dollar-denominated oil receipts, the government has instead been printing bolívares to cover a widening budget gap estimated at some 20 per cent of gross domestic product. The reason is partly political: a devaluation would be likely to further fuel inflation, hitting Maduro supporters hardest. While the government provides no data, private forecasts suggest inflation is already running at more than 100 per cent, the highest in the world.

Others argue that he is compromised by a need to satisfy an inner circle dominated by the military, which enjoys the instant riches provided by access to subsidised foreign exchange, whereby they can buy dollars at the official rate of 6.3 bolívares to the dollar and sell them back to the black market at almost 700 to the dollar. At least for now that guarantees the president’s hold on power.

“The design of the political economy here only benefits the corrupt,” claims a former minister under Chávez. “This is a mafia cartel.”
 
Against the backdrop of a hard currency crunch, the government has been forced to slash imports, racking up billions of dollars in arrears and producing shortages of basic goods in the import-dependent nation. Scarcity, looting of shops and fingerprint scanners at supermarkets, are factors in Mr Maduro’s loss of popularity. The International Crisis Group last month warned of looming social breakdown due to the “sharp fall in real incomes, major shortages of essential foods, medicines and other basic godos”.

Waging war

The government denies high level corruption and instead blames the malaise on an “economic war” being waged by capitalist businessmen — some of whom have been jailed — engaged in hoarding, price gouging and speculation. The rhetoric has sparked ridicule: “President Maduro must be one of the few leaders to invent an economic war and go on to lose it,” says Mr Dallen.

In the face of such a crisis observers expect the administration to exercise a tighter political grip as its room to fulfil populist promises shrinks. Mr Maduro claims his government has invested more than $73bn in building 700,000 houses over the past four years. By 2019 it says 40 per cent of Venezuelans — 12m people — will be living in houses built by Misión Vivienda.
 
“We’ll achieve that,” the president told supporters in April, “with oil at $100 a barrel or $40 a barrel, I swear it.”
 
But few people now believe the former bus driver can make good on his pledge. Mercedes de Freitas, who heads the local chapter of Transparency International — which ranks Venezuela near the bottom of its corruption index — believes the government cannot maintain spending in areas ranging from housing to health and education.

“Social programmes and missions are political and electoral instruments,” says Ms de Freitas. “This is an electoral year in which President Maduro has promised to build 400,000 houses.” However, with oil prices plunging, she says, “it will be very difficult, not to say impossible, to deliver that.”

Even when oil prices were high, Misión Vivienda was falling short: just 674,000 of the promised 1.2m properties have been built since its launch in 2011, according to available data.

Social spending is already being delayed. BofA says central government expenditure fell 24 per cent year-on-year in the first five months of 2015.

“If commodity prices remain low, in 2016 Venezuela either makes the tough decision that it needs to go through a violent fiscal adjustment or a maxi- devaluation, or both,” says Alberto Bernal, head of research and strategy at Bulltick Capital Markets in Miami. “[Otherwise] Venezuela will be forced to collapse in all of its international payments, which means a default.”

Mr Bernal cautions that Caracas will do everything possible to avoid that fate, a view echoed by other analysts.

The causes of Venezuela’s crisis are myriad. Chávez’s disastrous nationalisation of industries, including cement and steel, that have left the country increasingly dependent on imported goods, is blamed by many. The lack of domestic supplies — steel and aluminium production have fallen to their lowest levels in three decades — has created a self-imposed limit on Mr Maduro’s housing scheme. Ecoanalítica, a consultancy, says the construction sector shrank 10 per cent in the third quarter of 2014 and predicts it will contract a further 16 per cent this year.

Venezuela oil


“Given that the majority of the materials needed for building houses have to be imported, the drop in oil prices will directly affect the construction sector,” says Asdrúbal Oliveros at Ecoanalítica. “If the government wants to build more, it will need to import more.”

But at the same time lower government revenues are forcing down imports — squeezed by 22 per cent last year according to Mr Oliveros — and as a result dousing domestic consumption. He estimates that imports will drop by almost a third in 2015.

Hyperinflation fears

With the global oil price falling again last week, some argue that Mr Maduro has no alternative but to accept devaluation and an increase in the price of the world’s cheapest petrol. Party insiders say the president believes an adjustment is too politically dangerous in an election year.

But Mr Rodríguez argues: “The adjustment that was once unpopular among his power base is now gaining support on fears that hyperinflation could drive them out of power.”

It may already be too late. Even before the oil price rout, Venezuela’s poorest were feeling the pinch. After years of decline, poverty rose almost 7 per cent between 2012 and 2013, according to the UN, wiping away some of the improvements made under Chávez.

“[With] hundreds of billions of dollars invested on social programmes over many years, the conclusion was that poverty had spiked, I think we need to sit down and evaluate what to do, especially as our main source of income, oil, is shrinking,” says Ms de Freitas.

Four months on, it remains unclear whether the mango thrower — Marleni Olivo — has yet received the apartment she was promised by Mr Maduro. What is clear is that the Gelis family is now in imminent danger of eviction from the tiny, humid, concrete apartment they call home at the military garrison 
 
“I don’t know if they can [deliver on their promise of a new home],” says Lolimar. “There is an economic war here in Venezuela, or an oil war between producing nations. I am poor and soon could be left in the streets. I just want the house they promised us.”

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