Event

Further depleting foreign exchange reserves are posing an ever more significant liquidity and devaluation risk. Liquid reserves now cover less than one month of goods and services imports, and increasing delays in the official USD supply via CADIVI and SICAD, the administrations that grant authorization for releasing foreign exchange, are causing goods shortages. Annualized inflation hit 54.3% in October and the black market USD rate is now estimated at nearly tenfold the official 6.3 VEF/USD. To tackle the deepening economic woes, the government announced further intervention via import, price and foreign exchange controls on 6 November, the details of which remain to be disclosed. Moreover, President Maduro is resorting to ever more unconventional ways, calling for inspections of private warehouses’ price policies to be conducted by the consumer protection agency INDEPABIS and the superintendence of costs and prices SUNDECOP. Such inspections have resulted in the arrest of at least 100 businessmen for suspected “speculation” and in retailers of electronic appliances, furniture, toys or auto parts being forced to sell goods at “fair prices” (often less than half of the original and unlikely to allow for cost recovery), in turn generating queues and prompting lootings in at least seven states. While Maduro has condemned the lootings, he has expressed understanding for the people’s response to the “economic war waged by the private sector”.
Moreover, upon being granted decree powers on 19 November – enabling him to govern for 12 months without consulting Congress – Maduro pledged to deepen the interventionist policies, proposing a percentage cap on company profits in all sectors of the economy.

Impact on country risk

Strict implementation of price controls in a high inflation environment is bound to have a devastating impact on the financial situation of private sector companies. And while the unprecedented hostility to the private sector may in part be a strategy in order to mobilize support for the 8 December municipal elections (widely regarded as a referendum on the president), Maduro’s rhetoric and track record in mind, the situation is not expected to soon take a significant turn for the better. Furthermore, the interventionist government measures are likely to exacerbate the economic crisis, which in turn will lead to further polarization of society, foster political instability and increase the risk of civil unrest. Both commercial and political risks have thus augmented considerably in Venezuela, leading Credendo Group to go off-cover for the country.

Analyst: Sebastian Vanderlinden, s.vanderlinden@credendogroup.com