MI View: Venezuela's shift towards a more pragmatic economic policy i s

likely to be prolonged and fraught with setbacks. We have adjusted our

inflation forecasts for 2014 and 2015 to the upside , given central bank
signals and our belief that price pressures, such as money supply growth and
depreciatory pressure on the bol?var, will persist to an even greater extent
than we initially expected .
Despite a raft of efforts by the Venezuelan government, p, recent
developments suggest that structural economic imbalances are as acute as
ever, which will have significant implications for the widely-anticipated shift
towards more pragmatic economic policies over the coming months. Inflation,
one of the most important economic indicators from a political perspective, is
unlikely to improve meaningfully before the end of this year. Early this year,
investor sentiment was bolstered by comments by Vice President of the
Economy Rafael Ram?rez, who promised that the country would unify its
three-tiered exchange rate, and increase the prices of subsidised goods
(particularly fuel) which are a major drain on government resources. However,
both initiatives are facing major obstacles which are unlikely to be resolved in
the coming quarters.

Economic Forecasts from the World's Leading

Economists

Long-delayed data show inflation soaring

to above 60%
September 9, 2014
Consumer prices in August jumped 3.93% over the previous month, which was below the
4.14% rise tallied in July and virtually in line with the 3.90% increase that LatinFocus
Consensus Forecast panelists had expected. Augusts increase mainly reflected higher
prices for utilities as well as for food and non-alcoholic drinks. Annual inflation rose from
Julys 62.0% to 63.4% in August, which marks the highest inflation rate since 1997. While

the Central Bank published inflation data for the first time since June, it failed to deliver
data for core inflation or for the scarcity index.
Since November of last year, the Central Bank of Venezuelaonce believed to be one of
the most reliable institutions in the countryhas routinely delayed releases on economic
data, including statistics for inflation, the scarcity index, estimates for GDP, balance of
payments and external debt. In addition, some relevant fiscal data (such as consolidated
public sector figures) have been omitted since 2011. According to the Central Banks
regulations, inflation data should be published within the first 10 days of each month.
This situation has led many analysts to suspect that the government has increased its
pressure on the Central Bank, which would threaten the Banks independence and
objectivity. Analysts suspicions have been partially substantiated by the unusual nature of
the Central Banks press releases, which contain a strong ideological and pro-government
tone rather than that of a technical analysis.
Per its 2014 budget, the Venezuelan government expects inflation to end the year at
between 26.0% and 28.0%. LatinFocus Consensus Forecast panelists, however, expect
inflation to reach 66.3% by the end of this year, which is up 0.5 percentage points from last
months forecast. In 2015, the panel sees inflation at 56.4%.

Non-official exchange rate depreciates sharply amid U.S. dollar shortage

September 8, 2014

A severe shortage of U.S. dollars has caused the bolivar to depreciate sharply in the parallel
market. On 8 September, the non-official exchange rate traded at 88.2 VEF per USD, which
was 16.7% weaker than on the same day of the previous month. On an annual basis, the
bolivar was 126.1% weaker in the black market. LatinFocus Consensus Forecast panelists
project a non-official exchange rate of 84.9 VEF per USD by the end of this year. In 2015,
the panel sees the non-official exchange rate depreciating to 128.3 VEF per USD.
Meanwhile, the three official exchange rates remained broadly stable during the same
period. On 8 September, the bolivar traded at a weighted average of 50.0 VEF per USD
under the Sicad II mechanism and at 11.70 VEF per USD in the Sicad I system. The official
exchange rate was unaltered at 6.30 VEF per USD. LatinFocus Consensus Forecast
panelists expect the Sicad II exchange rate to remain relatively stable for the rest of this
year and to trade at 50.1 VEF per USD in 2014. Next year, the panel sees the bolivar in the
Sicad II system weakening to 58.5 VEF per USD. Conversely, LatinFocus Consensus
Forecast panelists still expect a sharp devaluation of the official exchange rate in the
months to come. Panelists see the official exchange rate ending this year at 10.00 VEF per
USD, which is virtually unchanged from last months estimate. Next year, the panel sees
the bolivar weakening even further than the expected 2014 depreciation and trading at
14.16 VEF per USD.
Following the introduction of the Sicad II system in March, the bolivar that is traded in the
black market began to gain some ground. However, rising demand for U.S. dollars due to
worsening economic conditions and an alleged reduction of dollar allocation in the
secondary markets led to a surge of the parallel dollar.
In order to address the countrys mounting economic problems, President Nicolas Maduro
announced an economic shake-up on 3 September. President Maduro reshuffled his
cabinet and removed Rafael Ramirez as Economy Vice President, Minister of Petroleum
and Mining, and President of state oil company Petroleos de Venezuela (PDVSA). Instead,
he was named Foreign Minister and Vice President of Political Sovereignty. The decision to
remove Ramirez put an end to his decade-long grip on the countrys economy. Minister of
Economy and Finance Marcos Torres was appointed as Economic Vice President, Asdrubal
Chavez was named Minister of Petroleum and Mining, while Eulogio del Pino was put in
charge of PDVSA.
Analysts were largely disappointed by Maduros announcement as it failed to deliver the
countrys much-needed economic reforms. In addition, the de facto Ramirez demotion
represented a setback in reforming Venezuelas exchange rate system as, in recent months,
he had vowed to weaken the bolivar by unifying the three official exchange rates. As
Miguel Carpio, finance manager at Delsur BU points out:

Given the Venezuelan economys complex situation, more was expected than the simple
announcement of the 3 September cabinet reshuffling. However, this was the only
announcement that was made. Regarding the foreign exchange rate system, the undertone
of President Maduros speech seems to point to maintaining the current scheme and does
not envisage substantial changes that would correct distortions in the FX market. Perhaps
the clearest sign of this is Rafael Ramirezs exit from both the PDVSA and his role as
Economy Vice-President.

Venezuelan oil price falls to an over-two

year low in August
September 1, 2014
In August, the average price of Venezuelas mix of crude oil fell 4.6% over the previous
month to USD 91.7 per barrel, which represented the lowest price since June 2013. The
monthly drop, which represented the steepest fall since April 2013 and followed the 3.0%
decrease recorded in July, mainly reflected a strong US dollar, ample availability of oil in
the global market and lower consumption in Asia and Europe.
According to the latest report from the Organization of Petroleum Exporting Countries

(OPEC), Venezuelan oil production reached 2.34 million barrels per day (mbpd) in July,
which was virtually unchanged from the 2.33 mbpd tallied in June.
LatinFocus Consensus Forecast panelists expect oil prices to average USD 96.6 per barrel
this year, which is up USD 0.3 per barrel over last months projection. In 2015, the panel
sees oil prices rising to USD 96.9 per barrel.

Venezuela Economic Outlook

September 16, 2014

President Nicolas Maduro announced his long-waited economic shake-up on 3
September, which comprised a remarkable cabinet reshuffle, but failed to
deliver the countrys much-needed economic reforms. The powerful Rafael
Ramirez was removed as Economy Vice President, Minister of Petroleum and
Mining, and President of Venezuelas state oil company. Instead, he was
appointed Foreign Minister. Ramirez vowed to merge the three official exchange
rates and his de facto demotion triggered concerns that this could represent a
setback in overhauling Venezuelas exchange rate system. In addition, the
parallel bolivar weakened sharply in recent weeks, mainly due to a severe
shortage of U.S. dollars and an alleged reduction of dollar supply in the
secondary markets.

Venezuela Economic Data

2009 2010 2011 2012 2013
Population (million)

28.2 28.6

29.1

29.5

30.0

2009 2010 2011 2012 2013

GDP per capita (USD)

11,67
10,85 12,88
8,337
12,401
3
9
5

GDP (USD bn)

329.0 238.7 315.7 380.3 371.8

Economic Growth (GDP, annual variation in

%)

-3.2

-1.5

4.2

5.6

1.3

Domestic Demand (annual variation in %)

-7.7

-0.5

7.6

12.3

-1.9

Consumption (annual variation in %)

-2.9

-1.9

4.0

7.0

4.7

Investment (annual variation in %)

-8.3

-6.3

4.4

23.3

-9.0

Manufacturing (annual variation in %)

-6.4

-3.4

3.8

1.8

-0.3

Retail Sales (annual variation in %)

-9.7 -11.9

4.7

11.5

Unemployment Rate

7.9

8.5

8.2

7.8

7.5

Fiscal Balance (% of GDP)

-5.0

-3.6

-4.0

-4.9

Public Debt (% of GDP)

18.2 30.1

25.1

27.6

31.0

Money (annual variation in %)

14.3 19.1

50.6

61.0

69.7

Inflation Rate (CPI, annual variation in %,

eop)

25.1 27.2

27.6

20.1

56.2

Inflation Rate (CPI, annual variation in %)

27.1 28.2

26.1

21.1

40.6

Inflation (PPI, annual variation in %)

24.8 26.8

20.8

16.6

52.4

Benchmark Interest Rate (%)

15.12 14.64 14.50 14.50 14.74

Stock Market (annual variation in %)

57.0 18.6

79.1 302.8 480.5

Exchange Rate (vs USD)

2.15 4.30

4.30

4.30

6.30

Exchange Rate (vs USD, aop)

2.15 4.26

4.30

4.30

6.09

Current Account (% of GDP)

0.7

3.7

7.7

2.9

Current Account Balance (USD bn)

2.3

8.8

24.4

11.0

Trade Balance (USD billion)

16.4 27.2

46.0

38.0

Exports (USD billion)

57.6 65.8

92.8

97.3

Imports (USD billion)

40.7 38.5

46.8

59.3

2009 2010 2011 2012 2013

Exports (annual variation in %)

-39.4 14.1

41.2

4.9

Imports (annual variation in %)

-21.0

-5.2

21.5

26.8

International Reserves (USD)

35.0 29.5

29.9

29.9

External Debt (% of GDP)

24.9 40.7

35.1

31.3

21.5
-