Non mi ricordo se ho già postato questo commento di JPM sul tema (23/06)
Venezuela: The stakes are raised, moment of truth?
The Maduro government raises the stakes with its bid to rewrite Chavez’s constitution A July 30 election to form the Constituent Assembly faces an opposition boycott and key Chavista dissidence Monetary finance of PDVSA exploding the parallel FX rate; import contraction painfully closing the BoP Venezuela’s ongoing political crisis took an unexpected turn when President Maduro in early May announced a “popular and communal” Constituent Assembly to rewrite the constitution. The move appears to have been aimed at defusing pressure from opposition street protests and international diplomatic scrutiny on the one hand, while on the other paving the way through a quasi-constitutional/quasielectoral process for Maduro to indefinitely remain in power—notwithstanding minority status in public opinion. Recall that there have been no elections in Venezuela since the opposition MUD coalition won a strong majority in the legislature (the National Assembly, or AN) in December 2015. In 2016, government-friendly courts and institutions eventually thwarted an opposition drive to hold a recall referendum on Maduro’s mandate, while state gubernatorial elections due to take place by last December have been indefinitely postponed. While the government had successfully used the Supreme Court (TSJ) to effectively neuter the AN last year, the TSJ appeared to overreach on March 29, when it moved to explicitly assume the powers of the AN. That move elicited strong international criticism and was rejected by Venezuela’s Attorney General, Luisa Ortega Diaz, who labeled it a break in the constitutional order. The TSJ hastily and partially reversed its ruling, but the “coup”, nonetheless, sparked strong street protests that have lasted more than two months now. Buying time now, stay in power later For Maduro, the Constituent Assembly is both a mechanism to buy time now and maybe to stay in power over the long term. Indeed, if successful it features the “elegant” endgame solution to the existential problem of the end of Maduro’s presidential term in January 2019, which presumably would unavoidably necessitate elections. However, there remain significant risks to Maduro that this power play could backfire. The Assembly initiative has done little to calm street protests, and the opposition has not taken the bait to participate in and legitimate, a process that seems stacked to favor pro-Maduro forces. Moreover, and perhaps a bigger risk to the government, is that the Assembly has deepened the fissures in Chavismo. Attorney General Ortega Diaz has again taken the lead, formally challenging the proposal to tear up the 1999 constitution— seen as President Chavez’s “lasting legacy”. Her position has been publicly supported by a smattering of “institutionalist” Chavistas, mainly ex-officials, but the Maduro-led TSJ seems poised to remove her from her post. This may relieve a shortterm nuisance for the government, but it would also add another line to its non-democratic résumé. As it stands, the Constituent Assembly will be constituted in a July 30 election that will elect 543 delegates. Two-thirds would be elected in direct elections, but with strong overrepresentation of sparsely populated, more Chavista, municipalities. The remainder would represent corporatist sectors defined and weighted to apparently favor pro-government groups. Beyond the criticism that the body would significantly stray from the constitutional enshrinement of “universal vote,” the 2017 constitution flies in the face of the procedural precedent of Chavez 1999 Constituent Assembly—namely a referendum to sanction the process at the outset, and another referendum to approve the new constitution at the end. Maduro was finally forced to recognize on June 1 that a consultative referendum would in fact take place before the new Constitution could be approved, but opponents reacted with skepticism. In our view, the Assembly seems likely to be constituted amid very low participation and highly questionable legitimacy. Subsequently it will likely take its time to write the new constitution, trying to buy time for Maduro’s popularity to sufficiently recover before his 2018 term expires in order to try to railroad through the new magna carta. Again, the main risk to this already uncertain scenario seems to be a rejection from within Chavismo, especially if it gains traction from the armed forces. In the meantime, the United States has fired a warning shot, saying that it is studying more and harsher sanctions. Reuters has reported US officials are at least studying options to sanction Venezuela’s energy sector, potentially impacting 755kbd of Venezuelan exports to the US and 84kbd imports from the US. In our view, drastic sanctions are not imminent and are only likely if and when the Maduro administration finally abandons all democratic pretext, avoiding the possibility of regime change via free and fair elections in 2018. Stagflation on steroids For any government to begin to stabilize the economy, the cumbersome FX regime will need to be rationalized. The regime is based on strict controls and a multiple rate regime, with the lowest rate for preferential imports at USD/VEF 10 (Dipro), while a second official crawling peg (Dicom) has been devalued from 750 to over 2600. Venezuela has once again seen a strong acceleration of monetary financing of PDVSA, which has large and chronic financing needs in local currency due to its obligations to sell much of its USD at the fixed, highly overvalued Dipro rate. The massive jump in Central Bank claims on PDVSA against a dwindling stock of international reserves sent the parallel rate soaring above USD/VEF 8000, threatening a hyperinflationary spiral. Import contraction grinding the BoP closed On external accounts, import contraction continues to be the adjustment variable, as the better tone for oil prices has faded (Table 1). PDVSA plowed through a US$2bn amortization in April, but then stumbled over some coupons in May (slipping into the grace period). The next hurdle is US$2bn of bond amortizations in October-November, accompanied again by large coupon payments. We continue to assume the Chinese will not disburse new money for BoP purposes, rather continue a grace period on previous loans. However, the timing of disbursements back to Venezuela from the collection account of the sales can be lumpy and support cashflow at key moments. Rosneft could lend against oil or acquire more stakes in JVs. Central Bank reserves have been stable just above US$10bn, of which two-thirds is gold, but their stability raises questions about their liquidity. USD Bonds on the Central Bank’s balance sheet have come into the market at a steep discounts. All told, Venezuela will still face stiff challenges to close external accounts, but an iron clad willingness to pay makes it hard to call a credit event.
