Sunday 25 September 2016

Chavez successor feels the oil pressure as Venezuela struggles with fall in global prices

Sebastian Boyd

Published 25/01/2016 | 02:30

Locals queue to buy goods at a supermarket in Caracas. Photo: Reuters
Locals queue to buy goods at a supermarket in Caracas. Photo: Reuters

With plummeting oil prices and soaring inflation ravaging Venezuela's economy, President Nicolas Maduro is requesting emergency powers to make policy changes. It may be too late, Barclays Plc says.

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With plummeting oil prices and soaring inflation ravaging Venezuela's economy, President Nicolas Maduro is requesting emergency powers to make policy changes. It may be too late, Barclays Plc says.

The South American country will find it hard to come with the cash it needs to honour $4.5bn of foreign bond payments this year after the price of its crude sank 75pc since 2014 to a 13-year low, Barclays economist Alejandro Arreaza said in a note titled 'Point of No Return' last week. 

Venezuela's benchmark notes have plunged to a record low since the government reported economic statistics last week that laid bare the severity of its recession and inflation spiral. Maduro, who signed an emergency decree that grants him powers to dictate economic measures, told the opposition-controlled Congress that it was time to raise petrol prices and that he'd look at adjusting the country's fixed currency rates.

"The economic emergency decree and any measures that the government could take at this point may be too late," Arreaza wrote. "After two years of inaction and the recent decline in oil prices, a credit event in 2016 is becoming increasingly difficult to avoid."

He estimates that at current oil prices, Venezuela would have to use more than 90pc of its crude-export revenue to make debt payments. Officials with Venezuela's Information Ministry didn't reply to emails seeking comment about the plan to diversify its revenue base or its ability to pay its international obligations later this year.

The South American economy shrank 7.1pc in the third quarter from a year earlier while its inflation rate soared to 141.5pc, the central bank said last Friday.

The bank, which blamed Venezuela's economic woes on falling oil prices, accused websites that track the street value of the dollar of "destroying prices" and installing a "savage" form of capitalism in the country. The bolivar has lost more than three-quarters of its value in the black market in the past year. "The figures are catastrophic," Maduro told Congress. "The spirit of the emergency decree is to bring about a movement to protect the people." Venezuela's $4bn of bonds due in 2027 fell to 33.32 cents on the dollar last Wednesday, the lowest since they were first sold in 1997. Credit-default swaps traders are pricing in a 79pc chance the country misses a payment in the next 12 months.

Maduro, the late Hugo Chavez's handpicked successor, has been reluctant to raise petrol prices when shortages of everything from food to medicine have made him increasingly unpopular.

Petrol costs 0.097 bolivars a litre, making it the cheapest in the world. At the official Simadi exchange rate, 10 gallons cost less than 2 cent.

"Whatever he does now is not enough," said Siobhan Morden, head of Latin American fixed-income strategy at Nomura. (Bloomberg)

Irish Independent

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