Venezuela Bolivar Loses A Third Of Its Value In The Past Week

With events in Venezuela now well into the endgame, following US sanctions that named "dictator" Maduro personally and a likely subsequent sanction that will cripple Venezuela"s oil industry promptly resulting in the nation"s insolvency as it loses its last remaining source of revenue, things are moving fast. So fast, in fact, that according to Reuters, Venezuela"s money supply surged 10% in just one week earlier this month, its largest single-week rise in a quarter of a century.

Meanwhile, in addition to now daily protests and strikes, Venezuela is undergoing a major economic crisis, with millions suffering food shortages, monthly wages worth only the tens of U.S. dollars, and soaring inflation - although no official data is available.  The central bank said late on Friday the total amount of local currency in circulation, or M2 as of July 21, was 27.3 trillion bolivars, up 9.66% from the previous week.

Obviously, the exponential rise in M2, the sum of cash, together with checking, savings, and other deposits, also means an exponential rise in the amount of currency circulating. As a result, Venezuela"s money supply is up 384% in the last year. In contrast, the United States" money supply is up 5.5% in the same period.

This means that Venezuelans are forced to carry huge bundles of cash to make basic purchases, if they can afford to do so given weekly price rises on many goods of course.

This means hyperinflation.

Today, the Dolar Today website reported that Venezuela"s black market exchange rate surged past 14,000 bolivars per dollar.

When President Nicolas Maduro came to power in April 2013, it was at 24 per dollar.

Putting the country"s bitter economic end in context, the bolivar has lost a third of its value in the past week.

That takes care of the economy, as for how how socialism ends in a social context, in a poll released today Gallup found the Venezuela is now the least safe country in the world.

Venezuela"s score on Gallup"s Law and Order Index -- its annual global gauge of how secure people feel -- continued to follow the country"s descent into chaos in 2016. The country"s index score of 42 out of 100 was the lowest in the world last year. This number is likely even worse now as the country"s economic and political crisis deepens, including the election on Sunday that critics, including the U.S. and a growing list of nations, are denouncing as a "sham."

Across 135 countries, Law and Order Index scores in 2016 ranged from a high of 97 in Singapore to the low of 42 in Venezuela. The index is based on people"s reported confidence in their local police, their feelings of personal safety, the incidence of theft in the past year and -- for the first time in 2016 -- the incidence of assault and mugging in the past year.

Venezuela"s scores on all of the individual questions that make up the current index were worse last year than at any point in the past decade. Just 12% of Venezuelans in 2016 said they felt safe walking alone at night where they live, and 14% expressed confidence in their police. These are not only the worst on record for Venezuela, but the worst for any country last year -- and for the past 10 years.

To put Venezuela"s 12% who feel safe walking alone at night into perspective, the next-lowest figure in 2016 was more than twice as high as Venezuela: 28% in El Salvador. Among the 12 countries in which residents are least likely to say they feel safe walking alone at night, five are in Latin America. Another six are in sub-Saharan Africa -- including two of that region"s more economically developed countries, South Africa (37%) and Botswana (38%).

At the same time, 38% of Venezuelans said they had had property or money stolen in the past year. This is up more than 10 percentage points from the previous year and a new record high for the country. Only five countries -- all in sub-Saharan Africa -- had higher percentages than Venezuela in 2016. 

"All Options On Table" - US Threatens Sanctions As Venezuela's Maduro Vows To Create New Constitution

The US is weighing whether to impose sanctions on Venezuela’s defense minister and several other top officials for human-rights violations, according to Bloomberg, citing officials familiar with the government’s deliberations. They added that the action was one of several under consideration by the Trump administration against President Nicolas Maduro’s government.

Despite these and other threats from the US, the country’s embattled leadership remains defiant, vowing to proceed with plans for a controversial new congress despite what it called a "brutal interventionist" threat by Washington to impose economic sanctions, according to Reuters.

The above-mentioned comments - pushing back against what some view as the United States meddling in the affairs of a foreign power - followed the president"s threat to take "strong and swift economic actions" if Maduro goes ahead with the new body. As some have pointed out, his threats relating to Venezuela are sounding increasingly militaristic, prompting taunts from Maduro, who last month dared Trump to "send in the Marines."

A vote on whether to create the new Congress is set for July 30 – a vote that is widely expected to succeed. The legislative super-body, known as a Constituent Assembly, would help Maduro rewrite the country’s constitution, ultimately helping him consolidate his authority.

As Bloomberg noted, the US Treasury could announce the sanctions, which would freeze the handful  officials out of the US financial system, as soon as Tuesday, the people said. Among those named would be Defense Minister Vladimir Padrino Lopez, 54, and Diosdado Cabello, 54, a longtime ally of late President Hugo Chavez and power broker within the ruling Socialist party, they said.

Venezuelan President Nicolas Maduro

The move against top officials - potentially the third round of sanctions against Venezuelans under the Trump administration - are one offshoot of a broader U.S. probe into allegations of Venezuelan corruption that began several years ago and has resulted in some criminal charges. Other Venezuela-related measures are also in the works, the people said, adding that U.S. officials have given briefings on the potential actions in recent weeks to lawmakers including Senator Marco Rubio of Florida. Giving his government"s response, Foreign Minister Samuel Moncada said the July 30 vote for the legislative super-body known as a Constituent Assembly would go ahead anyway, according to Bloomberg.

Moncada say it’s “a dark day for U.S.-Venezuela relations” in a televised address.

“These are unacceptable threats” Moncada says. Venezuela will “thoroughly” review relations with US, he added.

“Nothing and no one can stop the constituent assembly.”

Maduro only narrowly won election in 2013 to replace the late Hugo Chavez.

Foreign Minister Samuel Moncada

Even Venezuela’s neighbors have voiced their opposition to the legislative body.

"The Constituent Assembly should be abandoned to achieve a negotiated, safe and peaceful solution in Venezuela. The whole world is asking for that," Colombia"s President Juan Manuel Santos tweeted.

Emerging-market investors are also worried that the country will soon run out of cash as its foreign-currency reserves have dwindled to $10 billion, begging the question: Will Venezuela repay its debt? Even leadership change wouldn’t be enough to draw some seasoned Latam investors back into the country’s capital markets.  

"We don’t want to pick up pennies in front of a steamroller. Looking at the numbers, they’ve run out of money. These guys are scraping the barrel. They had to sell ‘hunger bonds’ and do a repo transaction with Fintech Advisory Inc. That’s not a sustainable debt model."

Although the fund has no exposure to Venezuela, Robert Koenigsberger says he expects the recovery value on the nation"s bonds to eventually exceed 65 cents on the dollar. He compares it to Peruvian bonds, which traded in the low single digits in 1990, yet eventually were worth 125 cents through a consensual restructuring in 1996.

"In 30 years, I can’t recall human conditions being so bad beneath a debt stock. When President Nicolas Maduro is gone, some people think there might be a ‘Macri of Venezuela’ that will quickly solve the problem. That’s a bit crazy because the issues are so much more dire."

Maduro’s beleagured political opponents have been largely marginalized by his administration, part of the president’s clampdown on dissent amid a worsening economic collapse that has led to widespread famine as well as a breakdown in social order. In the streets of Caracas, the Venezuelan capitol, citizens have begun taking the law into their own hands. As we’ve previously reported, the number of lynchings has risen sharply over the past year. Maduro has also ratcheted up the pressure on the country’s top prosecutor, who has emerged as a top antagonist to his regime Maduro. Maduro"s opponents say they drew 7.5 million people onto the streets at the weekend to vote in a symbolic referendum where 98 percent said they disagreed with the assembly plan.

Polls show the ruling Socialist Party would likely be thrashed in any normal vote due to many Venezuelans" anger against Maduro and over their economic hardships.

And while many question the "unriggedness" of any former and potential election in Venezuela; wouldn"t this be seen by some as "meddling" in the affairs of another country? We are sure there are Congressional probes being readied right now to question the sanctity of democracy itself as the United States steps in the middle of another LatAm crisis... because they have always worked out so well in the past.

Goldman Accused Of Funding Maduro's Dictatorship

In late April, the Venezuela opposition slammed attempts by the Maduro regime to liquidate some/all of the nation"s gold in order to buy his crumbling regime some additional time with much needed liquidity.

As we reported then, in a letter sent by National Assembly President and head of the Venezuela opposition to US banks, Julio Borges, the politician wrote that “the national government, through the central bank, is going to try to swap gold held as reserves for dollars to stay in power unconstitutionally. I have the obligation to warn you that by supporting such a gold swap you would be taking actions favoring a government that’s been recognized as dictatorial by the international community.”

Fast forward to this weekend, when the Wall Street Journal reported that Goldman Sachs had bought some $2.8 billion in bonds issued by state oil company PDVSA that mature in 2022, paying 31 cents on the dollar or around $865 million. The price represented a 31% discount to trading Venezuelan securities that mature the same year, and would result in a staggering annual yield of more than 40%.

The purchase came as Maduro’s detractors have been pleading with international financial institutions to avoid any transactions that might help a government accused of human-rights abuses. It also prompted Julio Borges to accuse bank Goldman Sachs of "aiding and abetting the country"s dictatorial regime."

"Goldman Sachs" financial lifeline to the regime will serve to strengthen the brutal repression unleashed against the hundreds of thousands of Venezuelans peacefully protesting for political change in the country," wrote Julio Borges in a letter to Goldman Sachs President Lloyd Blankfein.

"Given the unconstitutional nature of Nicolas Maduro"s administration, its unwillingness to hold democratic elections and its systematic violation of human rights, I am dismayed that Goldman Sachs decided to enter this transaction."

The letter also said that Congress will open an investigation into the transaction and that he will recommend "to any future democratic government of Venezuela not to recognize or pay these bonds." Furthermore, on Monday, Venezuela"s opposition parties upped the ante, threatening that a successor government could forgo paying the debt.

“It is apparent Goldman Sachs decided to make a quick buck off the suffering of the Venezuelan people,” Borges said in his public letter to the New York bank’s chief executive, Lloyd Blankfein. “I also intend to recommend to any future democratic government of Venezuela not to recognize or pay on these bonds.”

Of course, there was one particular nuance: Goldman did not buy the bonds from PDVSA directly, but from a third party, as a result no money was transferred directly from Goldman to Venezuela... although there is a "yeah, but" as explained below.

In a statement, Goldman said it bought the securities, which are held in funds and accounts it manages on behalf of clients, from a broker and did not interact with the Venezuelan government. “We recognize that the situation is complex and evolving and that Venezuela is in crisis,” the bank said.

“We agree that life there has to get better, and we made the investment in part because we believe it will.” In other words, while Goldman did not fund Maduro"s government in any way, its "excuse" was that it was was investing for Venezuela"s brighter future. Incidentally, Goldman Sachs Asset Management manages $750 billion of fixed-income investments for mutual funds, pension funds and other investors, about $40 billion of which is dedicated to emerging markets.

Some more details: the so-called PDVSA bonds that Goldman picked up last week had until recently been in the possession of Venezuela’s central bank since they were issued in a private placement in late 2014. It is unclear whom Venezuela sold the bonds to or how many investors held them before reaching Goldman. One thing is clear: Venezuela bonds have been a stellar performer in the JPM EM Bond index:

Furthermore, the WSJ does, however, note that Goldman bought the bonds from London-based brokerage Dinosaur Group, people familiar with the sale said. Dinosaur Chief Executive Glenn Grossman declined to comment. It is also worth noting that the Central Bank of Venezuela’s international reserves jumped $442 million to $10.8 billion on Thursday, the day the bond deal was completed, according to official figures. Furthermore,last week, Oil Minister Nelson Martinez said his government was looking at “all options” to raise money it owes to key allies like Russia and China.

So if Goldman did in fact plan to "fund" Maduro, it did so in a complex scheme using at least one third-party agent with the intention of covering up its tracks.

Or maybe it was just a BWIC that was just too good to pass by. In any case, while this interesting interlude in Venezuela"s otherwise relentless death spiral demonstrates that when it comes to the bond market, governments remains confused about funding mechanics, it does highlight something else more relevant: at least according to Goldman, Venezuela will not stop making payment on its debt any time soon, stiffing creditors - such as Goldman - with defaulted bonds.

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None of this mitigated Borges" anger, however, and he said the country’s opposition-controlled National Assembly would launch an investigation into the Goldman transaction. He also warned that any future opposition government “would not forget where Goldman Sachs stood when it had to choose between supporting the Maduro dictatorship and democracy for our country.”

Meanwhile, large institutional debt investors have been reluctant to pass on the hefty returns because Venezuelan debt forms a significant part of the major bond indexes against which money managers are compared. As a result, the securities are everywhere, including emerging-market debt funds run by Fidelity Investments, BlackRock Inc. T. Rowe Price Group Inc., HSBC Holdings PLC and Pacific Investment Management Co. Representatives for BlackRock, Fidelity, HSBC and Pimco declined to comment.

Speaking to the WSJ, Mike Conelius, portfolio manager for the T. Rowe Price Emerging Markets Bond Fund, which has about 6% of its portfolio in Venezuela, said he believes the country will have a regime change that will bring about an economic recovery—a change he would welcome.

“As unpalatable as holding Venezuela risk may seem, this is precisely the type of time that long-term investors typically want to accumulate exposure,” he said.

Ceasing bond payments would be detrimental to a country that runs almost completely on oil exports, opening crude tankers and foreign assets to seizure by investors looking to recoup their losses. But many fear Mr. Maduro’s populist policies could also lead the country down the path of default.

“Given Venezuela’s intense reliance on imports, disrupting the credit markets with a default is likely to cost the country far more than it saves,” Bulltick Research said in a recent note.

Also according to the WSJ, Ricardo Hausmann, who is a former Venezuelan planning minister and a critic of the Maduro government, last week urged J.P. Morgan Chase & Co. to remove Venezuelan bonds from its benchmark emerging-market debt index. That would permit investors who trade entire asset classes to avoid holding debt issued by a government accused of rights abuses, the Harvard University economist said in an essay published on the website Project Syndicate. J.P. Morgan declined to comment.

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For now the biggest quandary about Venezuela"s funding priorities remains unanswered: why does the insolvent nation still continue to put the needs of its foreign creditors over those of its own population, which has been engaged in daily, and deadly, protests against the government, and where the words "civil war" and "revolution" are uttered increasingly more often.

Despite "Ruthless Economic War", Venezuela, PDVSA Avoid Default With $2.6 Billion Payment

Bondholders confirmed that Venezuela"s state-owned oil company PDVSA made principal and interest payments of $2.2 billion today, avoiding default yet again despite what Vice President Tareck El Aissami called a "ruthless economic war" being waged against the Maduro government.

That"s the good news, the bad news is that PDVSA has $62 billion more in principal and interest due over the next few years...

As Reuters reports, President Nicolas Maduro"s government has met commitments to Wall Street investors for years by slashing imports of basic goods such as food and medicine, spurring chronic product shortages. Maduro says the country is victim of an "economic war" led by opposition businesses.

"Despite the ruthless economic war, in conspiracy with local media and foreign news agencies, spurred by imperialists and their internal cronies ... the revolutionary government has paid $2.557 billion," El Aissami said in a statement on Twitter.

The payments due on Wednesday included interest and principal on PDVSA"s maturing 2017 bond as well as interest on its 2027 and 2037 notes.

PDVSA"s bonds were up across the board, with the benchmark 2022 rising 1.750 points to yield 31.404 percent.

Venezuela"s bonds are the highest-yielding of any emerging market security due to concerns about default.

Maduro has dismissed default talk as a smear campaign against his administration.

He may want to "swap" some more of his nation"s assets with China soon though as Reserves just hit a new 15 year low...

And as we noted previoously, as OPEC begins to discuss extending the cut, in part to combat a flood of U.S. supply, Venezuela’s role in the world oil market amplifies. Convincing a financially weak quasi-dictatorship to slow down the production of its country’s primary economic asset is a tough sell. And yet, this is likely what members of the Organization of Petroleum Exporting Countries will have to do with Venezuela in order to meaningfully curb global oil supply.

Oil prices will be particularly sensitive to Venezuela’s role in the next few months, with one of two extreme outcomes likely to occur, both of which will miss OPEC’s target forecasts for Venezuela. In the first scenario, as Venezuela continues to prioritize debt servicing above all else, Venezuelan President Nicolas Maduro may find ways to marginally boost production, eroding the 8 percent of OPEC’s planned production cuts the country accounts for. The second scenario would see an escalation of Venezuela’s current crisis, preventing the country from importing the necessary light crude it needs to blend with its heavy oil. This would see Venezuela production falling below OPEC’s predictions, providing a needed and unexpected boost to global oil supply cut efforts. These scenarios would carry vastly different consequences, both of which need to be considered in any analysis of the evolving OPEC supply management saga.

Scenario 1: Drill, Baby, Drill!

With creditors tightening their grip on Venezuela’s gasping financial throat, Maduro is stuck in a chess game where pressing the proverbial “drill, baby, drill” button may be the only option, given his complete dismissal of the option of default. Venezuela’s state-owned PDVSA recently announced it will indeed make its slated $2.1 billion bond payment on April 12, easing recent default concerns.

In addition to the servicing of upcoming scheduled payments, Venezuela’s production is shackled by an oil-for-loan agreement with China that Venezuela already owes a significant backlog on, according to Reuters. Over a quarter of Venezuela’s daily oil production could already be committed to this agreement, if the requirements match those analyzed by a November Harvard research paper by Igor Hernandez and Francisco Monaldi. Once the grace period China allotted expires, they write, “the government’s debt agreements with China involve a significant and increasing amount of production.”

Debt service is not the only aggressor inflicting wounds upon the idea of cutting production. Social programs and other fiscal expenditures in Venezuela are heavily dependent on the revenues from crude oil, because oil generates 40-70 percent of government income in Venezuela, with the range depending on the price of oil. Continued low oil prices pose two risks to government spending: first, the obvious cut that comes from decreased oil prices; and secondly, the high breakeven costs in the Orinoco Oil Belt may eventually force Maduro to exercise the option of lowering royalties in the field to encourage new projects.

What this means for Venezuela’s oil production is simple: if the country is to continue to service its debt – something Maduro swears by – and maintain its current fiscal spending levels, the country is without any option aside from maintaining or expanding production. What’s more is the move towards one-man rule could boost Venezuela’s oil production, as the recently overruled legislature was standing in the way of Maduro’s plan to add joint-ventures in his plan to generate quick cash.

This poses a challenge for oil bulls and decreases the odds that OPEC can count on Venezuela to deliver a further production cut should the cartel move forward with an extended cut agreement. If it does not originate in Venezuela, the 8 percent cut expected from Venezuela must come from some other country, a fact that could create damaging tensions in OPEC negotiations.

Scenario 2: Not So Fast, Maduro!

The answer to Venezuela’s financial problems is not as simple as just drilling for more oil; in fact, operational and systematic challenges limit the amount of crude Venezuela can produce in almost the same way that debt servicing requirements and government demands limit the amount of production Venezuela can afford to cut.

These operational challenges and financial difficulties could generate a larger than expected cut from Venezuela. Over the past decade, missed payments and the downward political spiral drove many risk-averse foreign operators out of the country. Why invest in a country where receiving payment is akin to betting on a game of roulette? Better yet, a rigged game of roulette.

Due to this unfavorable investment environment “the number of active rigs [in Venezuela] has declined from 70 in December of 2015 to 51 in September of 2016.” Thus, the drilling situation itself is a function of the uncertainty that cements Venezuela’s position as a mysterious wild card in forecasts of world oil supplies. Venezuela’s oil production was already hurting from low prices and low investment, with total production declining 253,000 barrels per day between 2010 and the end of 2015; the persistence of an unfavorable investment environment in the country only exacerbates the issue, discouraging foreign operators from investing in Venezuela.

Venezuela’s reserves, which consist mostly of heavy crude, are particularly sensitive to the current low oil price environment. Not only do these reserves become uniquely unattractive to developers relative to other potential investments in a low oil price environment, but they also require substantial spending on imports of lighter crudes. These imports, which are required in order to make a marketable product, recently slipped  a trend that will further complicate supply issues.

Certain Uncertainty

In the near-term, Venezuela is set to surprise oil markets and potentially rock OPEC’s plans, regardless of whether its production slips or Maduro finds a way to encourage developers to crank up drilling to generate quick cash. The drama unfolding in Venezuela is sure to come to a head as its next debt payments come due, and oil markets will be watching its production closely.

History has shown time and time again that regimes that neglect the welfare of the people eventually collapse upon themselves. It may take months, years, or even decades, but eventually, they all come falling down. But until this collapse happens, the political turmoil will continue to complicate pending OPEC conversations and add an additional layer of uncertainty to the oil markets. There may be a degree of certainty in the long-term trajectory of the Maduro regime, but predicting the fate of Venezuela’s forecasted supply cuts in the short-term is a near impossible task.

Venezuela's Money Supply Soars By A Record 200%

Two weeks ago, Reuters reported that due to "unexplained" reasons, the Venezuela central bank had stopped publishing its M2, or money supply, data.  The M2 money supply was up by nearly 180% in mid-February from a year earlier, according to the central bank before it halted the release of the weekly data without explanation in February.

 "If they are not publishing, you know it must be skyrocketing," Aurelio Concheso, director of the Caracas-based business consultancy Aspen Consulting, stated the obvious. The central bank and ministry of communications did not respond to a request for comment, Reuters adds.

Fast forward to today when following the international outcry over last Wednesday"s failed coup-attempt by Maduro, in which the Supreme Court first withdrew the power of Venezuela"s opposition-controlled Congress, and then promptly reversed itself following loud international outcry and after it appeared that Maduro"s precarious grip on Venezuela society was about to be lost, when Venezuela"s M2 has once again mysteriously reappeared. According to the latest data, the money supply in the crisis-stricken country has surged over 200% in a year, up from 180% as of February, and the fastest rise since records began in 1940, putting it on track for the world"s highest inflation.

According to Reuters which first spotted the return of the data, soon after a month-long hiatus from publication, the central bank said late on Friday the total amount of local currency in circulation, M2, as of March 24 was 13.3 trillion bolivars, up 202.9% from a year earlier. By comparison, in the US, M2 rose by 6.4% in the same period.

But while M2 may have returned, official inflation data is still missing, which is probably for the best: Venezuela is in a major economic crisis, with millions struggling with food shortages and hyperinflation inflation in triple digits, if not higher.  Venezuela"s opposition-led National Assembly, which correctly accuses the leftist government of destroying the OPEC country"s economy, says inflation reached 741 percent in the year to February. It"s likely far higher.

The exponential rise in M2, the sum of cash, together with checking, savings and other deposits, means an exponential rise in the amount of currency circulating. Coupled with a decline in the output of goods and services, that has accelerated inflation.

Curiously, never before has Venezuela sunk so low, despite its economy being largely uniform over the years. As Reuters notes, the central bank website shows five separate spreadsheets with money supply data going back to 1940. Back then, as now, Venezuela"s primary export was oil.

One thing did change recently, however, roughly around the time the M2 curve started going exponential: that paragon of socialist virtue, Nicolas Maduro took over. The rest is history.

Maduro says right-wing businessmen are hoarding goods to sabotage his administration, and has accused the US of coordinating with other global leaders to remove him from power (that actually may not be too far off, if only the CIA wasn"t more focused on destabilizing the domestic US situation in recent months).

Meanwhile, as M2 goes exponential, we have a feeling that the following chart of the Bolivar on the Venezuela black market - which reflects its true lack of value - is about to take its next step function higher... or rather lower as what little value the local currency may have had disintegrates in the coming months.

We can only imagine the awe shared by Western central bankers who watch in dumbfounded amazement as this small country has achieved precisely the final outcome all "developed" currencies will one day soon experience.

Country With The World's Largest Oil Reserves Runs Out Of Gasoline

In a testament to the efficiency of socialism, leftist-run Venezuela has long prided itself on selling its citizens the world"s cheapest gasoline... that is when it has gasoline to sell. 

While fuel supplies in the country with the world"s largest proven oil reserves...

... have continued flowing despite monetary collapse and hyperinflation, a domestic oil industry in turmoil and a deepening economic collapse under President Nicolas Maduro that has left the South American country with scant supplies of many basic necessities, that changed last Wednesday when Venezuelans faced their first nationwide shortage of motor fuel since an explosion ripped through one of the world"s largest refineries five years ago. At the time, the government of then-President Hugo Chavez curbed exports to guarantee there was enough fuel at home.  This time, however, the problems were all man made and the shortage was mainly due to problems at refineries, as a mix of plant glitches and maintenance cut fuel production in half.

In the immediate aftermath of the shortage, Venezuela’s state oil company, Petroleos de Venezuela, rushed to replenish gasoline supplies in various neighborhoods of Caracas as drivers lined up at filling stations amid a worsening shortage of fuel. While Petroleos de Venezuela, or PDVSA, says the situation is normalizing and blamed the lines on transport delays, the opposition says the company has had to reduce costly fuel imports as it tries to preserve cash to pay its foreign debt. The opposition was likely right.

According to Bloomberg, tanker trucks were seen in several neighborhoods of the capital city resupplying filling stations after local newspaper El Nacional reported widespread shortages across the country.  As the company’s crumbling refineries fail to meet domestic demand, imports have become a major drain of cash as the country buys fuel abroad at market prices only to sell it for pennies per gallon at home, unless, of course, one buys abundant gasoline on the black market where its cost is orders of magnitude higher than what one would pay at the gas station.

“Yesterday, I went to three filling stations and I couldn’t fill my tank,” Freddy Bautista, a 26-year-old student, said in an interview while waiting outside of a gas station in the Las Mercedes area of eastern Caracas on Thursday. “I’ve been waiting 30 minutes here, and it seems like I’ll be able to fill up today.”

But the key reason PDVSA has been reducing the money-losing imports as it prepares for $2 billion in bond payments due next month, said Jose Brito, an opposition lawmaker on the National Assembly’s oil commission. “They’re not importing enough because they are saving up to pay the debt,” he said in a telephone interview. “It’s unbelievable that this is happening in an oil producing country.”

It gets better.

While PDVSA was "suddenly" unable to keep the domestic market stocked, it had no problems supplying gasoline to its main export partners such as Cuba and Nicaragua. As Reuters reported, Caracas has continued exporting fuel to political allies and even raised the volume of shipments last month despite warnings within the government-run company that doing so could trigger a domestic supply crunch. Shipments from refineries to the domestic market needed to be redirected to meet those export commitments, internal documents showed.

"Should this additional volume ... be exported, it would impact a cargo scheduled for the local market," read one email obtained by Reuters and sent from an official in the company"s domestic marketing department to its international trade unit. Venezuela last month exported 88,000 barrels per day (bpd) of fuels - equivalent to a fifth of its domestic consumption - to Cuba, Nicaragua and other countries, according to internal PDVSA documents seen by Reuters.

That was up 22,000 bpd on the volumes Venezuela had been shipping to those two countries under accords struck by Chavez to expand his diplomatic clout by lowering their fuel costs through cheap supplies of crude and fuel. The order to increase exports came from PDVSA"s top executives, according to the internal emails seen by Reuters.

Then came the departures.

As Reuters adds, the strain on the country"s fuel system has been worsened by the quiet departure of staff in PDVSA"s trade and supply unit who are key to ensuring fuel gets to where it is needed and making payments for imports, three sources close to the company said. Clearly unconvinced that Venezuela is the socialist paradise shown on brochures, the unit has seen around a dozen key staffers depart since Maduro shook up PDVSA"s top management in January. Among those who left was the head of budget and payments.

"Every week someone leaves for one reason or another," said a PDVSA source familiar with the unit"s operations. Some have been fired, while others have left since the shake-up inserted political and military officials into top positions and bolstered Maduro"s grip on the company that powers the nation"s economy.

The imposition of leaders with little or no experience in the industry has further disillusioned some of the company"s experienced professionals and accelerated an exodus that had already taken hold as economic and social conditions in Venezuela worsened.  A recent internal PDVSA report seen by Reuters mentioned "a low capacity to retain key personnel," amid salaries of a few dozen dollars a month at the black market rate.

The vacancies have led to all-out chaos inside the state-run energy company: the departure of staff responsible for paying suppliers, as well as a cash crunch in the company and the country, have led to an accumulation of unpaid bills for fuel imports into Venezuela. Had those bills been paid, the supply crunch would have been less acute, company sources said.

About 10 tankers are waiting near PDVSA ports in Venezuela and the Caribbean to discharge fuel for domestic consumption and for oil blending.

Only one vessel bringing fuel imports has been discharged since the beginning of the week, shipping data showed.

PDVSA ordered some of the cargoes as it prepared alternative supplies while refineries undergo maintenance.

As a result of this clusterfuck, Venezuela finds itself in a particular bind: while there are millions of gallons of gasoline parked offshore (not to mention some 300 billion barrels of oil underground) they will remain there indefinitely until PDVSA pays for their cargoes. Should PDVSA pay - up to $20 million per cargo - shortages could blow over relatively soon. However, as noted above, it won"t, as it is saving every dollar for an upcoming bond payment: PDVSA is preparing for some $2.5 billion in bond payments due next month.

Meanwhile, the shortages persist despite calls for calm from PDVSA.

Ysmel Serrano, commercial and supply vice president at PDVSA, said on Twitter last Wednesday that the company has sufficient supply from its refineries and is working to increase shipments to stabilize distribution after transportation delays led to lines at gasoline stations in four states. “We call for calm and to resist false rumors from sectors trying to create chaos in the country!” Serrano said.

The comments came just hours after the company said it had controlled a “minor” fire at the Amuay refinery in Falcon state, the largest refining complex in the country where a 2012 explosion killed dozens of people.

To be sure, shortages are nothing new in Venezuela. The hunt for gasoline is just the latest headache for consumers after years of severe economic contraction and triple-digit inflation have produced shortages of everything from bread to antibiotics.

Unfortunately, even once the bond payment is made there is no assurance the flow of gasoline to the domestic market will resume. Venezuela has been forced to increase imports of finished gasoline and components over the past years as its refinery utilization rates declined because of deteriorating infrastructure and under-investment. The country imported about 75,000 barrels a day of refined products from the U.S. in 2016, according to the U.S. Energy Information Administration.

As Bloomberg writes, in Caracas’ eastern Sucre municipality, around 20 cars were lined up outside of a PDVSA gas station trying to fill up. National police in the Las Mercedes part of the city, meanwhile, were trying to prevent lines from forming outside of filling stations there. Outside of Caracas, El Carabobeno, a newspaper based in the central city of Valencia, reported widespread lines there.

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On Wednesday, Maduro found a way to briefly deflect blame for the ongoing debacle: Venezuela’s public prosecutor ordered the arrest of Marco Antonio Malave, PDVSA’s manager of international trade, for supposed wrongdoing related to fuel purchases for the domestic market. Malave was detained at a Venezuelan military facility and his bank accounts have been blocked. This attempt to scapegoat failure on one person will resolve nothing.

This Is What Venezuela's New, Vertical, Banknotes, Now With Added Zeros Look Like

We"ve all been eagerly waiting to see them: Venezuela"s crisp,brand new yet soon to be hyperinflated with many more zeros banknotes, and finally, after various failed attempts to deliver the new bills to Caracas (which according to Maduro were at least partially aborted due to pesky CIA meddling) they have arrived. And they are vertical.

A new bank note of 500 Bolivars held outside a bank in Caracas. Jan. 16, 2017.

A new bank note of 5,000 Bolivars outside a bank in Caracas. Jan. 16, 2017.

Eager to get their hands on the new currency, AP writes that Venezuelans stood in long ATM lines Monday to take out new, larger-denominated bills "that President Nicolas Maduro hopes will help stabilize the crisis-wracked economy." Of course, they will do no such thing as the pieces of paper in circulation have absolutely no bearing on the underlying economy, or its hyperinflation, but it will take at least several more shipments of new banknotes before the Maduro figures this out.

As a reminder, in taking a page out of the Indian demonetization playbook, Maduro last month said he was scrapping circulation of the most used bill, the 100-bolivar note, and replacing it with new bills ranging from 500 to 20,000 bolivars. 

The local were appalled. Residents in Caracas expressed shock at seeing bills with so many zeros — a sign of how worthless the bolivar has become amid triple-digit inflation and a collapse in foreign exchange reserves that has led to severe food shortages.

Our advice: get used to it - the fun is only just starting. Ask Zimbabwe.

"I never thought I"d have such a big bill in my hands," Milena Molina, a 35-year-old sales clerk, said as she inspected crisp, new 500-bolivar notes she had just withdrawn. "But with the inflation we"re suffering, the notes we had weren"t worth anything and you always had to go around with huge packages of bills."

The Weimar Republic agrees.

Monday"s rollout of the first batch of imported notes came weeks later than the government had originally promised. Maduro last month ordered the 100-bolivar note to be withdrawn from use well before the replacement bills were ready, leading to widespread chaos as Venezuelans rushed to spend the bills before they were taken out of circulation. With cash running out, looting and protests were widespread - although they were widespread before the currency exchange too, so there wasn"t much of a difference - and Maduro had to backtrack. On Sunday, he extended for the third time, until Feb. 20, the deadline for the 100-bolivar note to remain legal tender.

While the new denominations should make cash transactions easier the relief may be short-lived: since the largest, 20,000-bolivar note is worth less than $6 on the widely used black market, Maduro already has to order a fresh batch with at least one more zero. With inflation forecast by the International Monetary Fund to hit four digits this year, few economists expect the currency to rebound any time soon.

Seeking to combat the black market, the government on Monday inaugurated four currency exchange houses near the border with Colombia where Venezuelans will be able to purchase Colombian pesos at a favorable exchange rate of 4 pesos per bolivar. The bolivar currently is worth just a quarter of that amount at exchange houses over the border in Colombia.

And while on the surface this risk-free arbitrage guaranteeing 400% returns would be a slam-dunk trade, there are two problems.

First, while Gov. Jose Vielma Mora of Tachira state said the Venezuelan central bank has at its disposal a large amount of pesos to meet what is expected to be strong demand for hard currency, purchases would be capped at between $200 and $300. A second, and bigger proble, is that it was hard to find anyone Monday who had managed to buy pesos.

Opponents of Maduro said that in trying to set an exchange rate for pesos, authorities are paving the way for corruption, saying only certain individuals and companies close to the government will be able to purchase them at the official rate. They are, of course, right.

Venezuela Hikes Minimum Wage By 50% "Due To Economic War And Mafia Attacks"

With (hyper)inflation expected to hit 1,660% this year and 2,880% next, Venezuela"s President Maduro hiked the minimum wage another 50% on Sunday, the fifth increase in the past year (for a total annualized increase of 536%), to help shield workers from "economic war".

As Reuters reports, the measure puts the minimum monthly salary at 40,683 bolivars - about $60 at the weakest exchange level under the state"s currency controls, or $12 at the black market rate.

"To start the year, I have decided to raise salaries and pensions," he said on his weekly TV and radio program.

"In times of economic war and mafia attacks ... we must protect employment and workers" income," added Maduro, who has now increased the minimum wage by a cumulative 322 percent since February 2016.

The 54-year-old successor to Hugo Chavez attributes Venezuela"s three-year recession, soaring prices and product shortages to a plunge in global oil prices since mid-2014 and an "economic war" by political foes and hostile businessmen.

But critics say his incompetence, and 17 years of failed socialist policies, are behind Venezuela"s economic mess.

They say the constant minimum wage hikes symbolize Maduro"s policy failures and fail to keep pace with real on-the-street price rises.

Fox News also notes that Venezuela"s biggest employer, Fedecamaras, said that the pay increase was announced "without consultation" by the government and could reduce employment and result in the closure of companies that cannot deal with the hike.

And while the black market Bolivar rallied briefly as the bank-note ban debacle was put in place, the currency"s street worth is collapsing once again...

But, as The Washington Post reports, while the government has been able to censor the country’s main newspapers, so you won’t read much about crime in the media, death is one of the few guaranteed things you can find in Venezuela.

There are no official tallies of deaths related to violence, but some NGOs put last year’s national death toll as high as 24,000, which would make a total of 252,000 deaths since the revolution came to power 17 years ago.

There are an estimated 200,000 members of the Venezuelan security forces, but it doesn’t seem like that is enough.

Violence permeates everyday life here. In the streets, gangs clash with one another, with the police and with the army. Sometimes, police even clash among themselves. All of these factions wield power and abuse it. Caught in the middle of all of this, ordinary citizens buy guns to protect themselves. Whether it’s the loss of a friend or a relative, everyone here has been touched by violence. Death is in the air.

Venezuela is a country that seems to be at war with itself. It’s not always clear who is who. It’s hard to know who to trust or who your enemy is, so you’re always looking over your shoulder, waiting for the next blow, unsure of where it will come from. Violence has so saturated life here that people have begun to see it as normal.

Read more here...

In Surprise Move Venezuela's President Reshuffles Cabinet, Dumps Oil Minister, Names New "Economy Czar"

In an unexpected move, Venezuela"s embattled President Nicolas Maduro on Wednesday reshuffled his cabinet by naming a new economy czar to oversee the OPEC country"s decaying socialist system and a new oil minister to face the economic difficulties caused by low oil prices, suggesting that the economic upheavals faced by much of the nation have reached the very top.

According to Reuters, economist Ramon Lobo, who has been serving as a legislator for the ruling Socialist Party, will assume the dual roles of finance minister and economy vice president - making him the country"s top economic authority.

"You shall assume, with a firm hand, the oversight of the economy," said Maduro during a televised broadcast, describing Lobo as an expert in budget matters.

Meanwhile, in a move that will likely have far greater consequences, especially within the OPEC community, Nelson Martinez, who has led the U.S.-based refiner Citgo, will take on the role of oil minister. Outgoing minister Eulogio Del Pino, who was the source of so many oil-algo spooking headlines, will remain on as president of state oil company PDVSA. The oil minister has traditionally served as the
representative to OPEC, where Venezuela has for nearly three years been
one of the strongest voices for production cuts.

At the same time, Maduro also named state governor Tarek El Aissami as new vice president, replacing outgoing Aristobulo Isturiz, who had served as an intermediary with the opposition-run legislature.

Maduro shakes hands with Venezuela"s new Vice-President Tarek El Aissami.

The vice presidential post is an appointed position, and Maduro has swapped it out in the past. But the position holds extra significance this year as the opposition has vowed to force Maduro from office. That could lead to his vice president serving the rest of his term, which ends in 2019. El Aissami was interior minister before being elected governor of the central state of Aragua. He has been accused of participating in the drug trade by members of the opposition. He has called those who speak ill of him traitors who seek to harm Venezuela.

Unfortunately, the cabinet shuffle will achieve nothing. Venezuela is suffering from triple-digit inflation, Soviet-style production shortages and increasing street protests as a combination of dysfunctional state controls and low oil prices. Maduro says he is the victim of an "economic war." Furthermore, such cabinet reshuffles have been relatively common in Venezuela where officials tend to come from the inner circle of the ruling Socialist Party, and as such do not tend to be the leaders of broad policy changes.

Economists say Venezuela"s economy will not return to growth until it lifts corruption-riddled exchange controls and dysfunctional price control system and rolls back hundreds of nationalizations that have left many industries unproductive.

Which is also unlikely.

But the real question on everyone"s minds is when does Venezuela finally default. So far, its crude exports have prevented such a terminal fate. Furthermore, the recently disclosed "mysterious" $5 billion bond deal in which China had dubious involvement, confirms that Venezuela may no longer even have full sovereignty, having effectively become a Chinese oil producing output which persists in exchange for vendor financing.

It is unclear how today"s power move will change the status quo between Venezuela and China, and whether or not it is Beijing that is ultimately pulling the strings in the country"s government.