CARACAS, Venezuela.- In order to prevent the Venezuelan economy from coming to a massive collapse that strengthens the political turmoil and permanently weakened its presidency, Nicolás Maduro takes steps to try to stabilize the currency while its government Look for options to cushion the impact on petro-dollar income.
In a blatant action the administration of Donald Trump, who, along with a long list of countries, considers the elections that Maduro uses as a legal floor for a new mandate, Washington banned US companies buying oil for Venezuela and selling products such as gasoline and diluents.
In Venezuela, virtually all the dollars they enter come from oil exports And the 500,000 barrels per day that it sells to the United States contribute 80% of the flow of currencies that feeds the box of Pdvsa, the oil company of the State. The rest of the barrels, mainly sent to China and India, are used to pay off debt.
Sources of the Vice Presidency of Economy explain that Among the options evaluated by the administration of Maduro to reduce the impact is the sale of oil to intermediaries who would then resell the barrels in the United States or other countries, as well as the increase in crude oil that exports to China and India or a negotiation that allows income from oil that currently does not provide resources because it is used to cancel debt.
At the same time, it seeks new suppliers to acquire the diluents that allow to market the heavy crudes of the Orinoco Faja and the fuels it buys abroad due to failures in the refineries of the country.
This emergency plan will result in fewer revenues because the sale of oil to other countries such as China means higher transportation and sales costs at low prices, as only the United States has specially equipped refineries to process the heavy crude oil from Venezuela.
Also, the sale of oil through intermediaries implies significant discounts and there are doubts in the market about whether this route would not violate Washington's sanctions, in case you intend to use it to ship crude oil to US refineries.
Nicolás Maduro has expressed his decision to resist what qualifies as "an attempted coup d'état on the part of the United States," which has recognized, as well as a long list of countries, Juan Guaidó, the leader of the Parliament who was sworn in as president temporary
"Venezuela is going to make respect, I have realized in these days that we are much more independent of what we think, we do not depend on the Gringos neither the Europeans nor of anybody; Venezuela has its own course and nobody can stop it, "said Maduro on Monday this week.
Asdrúbal Oliveros, director of Ecoanalítica, considers that for Maduro it will be vital to ensure imports that guarantee food boxes with basic products such as flour, rice, pasta and milk powder that sells at subsidized prices to the lower income population and the purchase of Fuel to avoid faults in gasoline pumps and interruptions in the electrical service.
"According to our projections, the Government has to immediately spend about three billion dollars that would reach to meet these priorities for three months, but not in normal conditions, we will see less distribution of food boxes because they will surely try to To measure the amounts, there will be problems with the supply of gasoline and the electrical faults will probably increase, "says Asdrúbal Oliveros.
Luis Vicente León, director of Datanalysis, points out that "From my point of view the chances of collapse are high, but I can not say that it will irremediably happen. Typical actions are being taken in countries that have been sanctioned by the United States. Food imports in large part have already been reoriented to Mexico, which disagrees with the United States, and Russia that is an allied government country. "
Turkey, another ally partner of the Maduro administration, also plays a key role as a food supplier and has become a source of foreign exchange earnings through the purchase of gold to Venezuela that, according to estimates of financial entities, in 2018 stood at $ 900 million.
On January 19, the vice president of economy, Tareck El Aissami, traveled to Turkey and met with the president of that country, Recep Tayyip Erdogan, to design a plan to increase the gold exports of Venezuela this year.
"I visited so many gold refineries, I saw this place for the first time with the advanced technology, it is a very well equipped place," said Tareck El Aissami.
Stop the dollar
In an environment signed by the imminent fall in foreign exchange earnings, political instability and hyperinflation where prices increase on average 4% each day, the Central Bank implements emergency measures to avoid the escalation of the dollar and a devaluation of the bolivar .
The plan translates into severely cutting back credit to prevent companies and individuals from financing to acquire dollars and in the announcement that they will sell euros through private banks in order to reduce the market pressure.
To cut the credit, the Central Bank substantially increased the portion of the money that financial institutions can not lend and have to freeze as reserves.
Leonardo Buniak, an expert in banking risk, explains that "the Central Bank does not have enough euros to increase the supply of currencies in an important way and the inflation is not going to stop because the fundamental cause of it is that the Government creates money in large quantities to cover your expenses. At the same time, the contraction of credit will deepen the recession that began in 2015 and it does not end yet. "
However, he says that "in the very short term, the measures can make the dollar price stabilize, but it is not sustainable."
Between September 4, 2018 and January 18, 2019 the price of the dollar increased by 2,516% in the black market and before announcing measures to "stabilize the exchange rate", the Central Bank proceeded to devaluate the currency by equating the rate official with the quote in this market.
While there are doubts as to whether Nicolás Maduro will manage to overcome the political crisis, there is no argument that the Venezuelan economy will continue sinking this year. Francisco Rodríguez, chief economist at Torino Capital, indicates in its most recent report that after the United States sanctions, Pdvsa will suffer a sharp drop in its income and hence oil production will be halved, just 508,000 barrels per day.
The reduction in foreign exchange earnings will force severely cut raw material imports And inputs affecting production throughout the economy, therefore, it projects that this year the GDP will contract 26.4% with what the Venezuelan economy would accumulate a decline of 59% in the last six years.
Credit Suisse affirms in its most recent analysis that "these sanctions (from the United States) could significantly disturb the oil industry and an already devastated economy. The currency restriction will push the exchange rate and inflation, and will bring more recession. "
But the greatest impoverishment does not necessarily translate into a change of government. Torino Capital considers that the most likely scenario is that Nicolás Maduro will remain in power for the next two years without convoking new elections because he would be able to maintain the support of the Armed Forces and counteract the international isolation.
"The country suffers a profound economic contraction, but widespread deterioration and discontent are insufficient to expel Maduro from power," says the Torino Capital report that allocates 40% probability to this scenario and 30% to the possibility that the Government convenes new elections for international pressure.
The firm assigns 20% probability to a collapse of the regime where a massive protest or an external military intervention leads to the loss of power and finally 10% to that Nicolás Maduro is replaced by another leader emerging from the ranks of the Government.
Luis Vicente León points out that "there are examples where the United States' strategy of provoking a collapse of the economy has led to internal negotiations or rebellions, but there are other cases in which there has been no change in government, there are Cuba, Iran, Syria and Zimbabwe ".
"It may happen that Nicolás Maduro's government becomes a kind of big brother Stay in a very impoverished country where you are the only one who has something to share thanks to what you can get from the negotiations with China, Russia, Turkey and Mexico that even if you can not fully compensate for the sanctions of the United States, can help you do damage control, "says Luis Vicente León.
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