Friday, June 15, 2012

The Barclays report for what is in store for Venezuela

I received in my mail box the "ENERGING MARKETS RESEARCH" from Barclays and even though the typo in the title is already unsettling, it is worth reading. Highlights after the jump.

The first thing to note is that there is really nothing new. Then again the report is signed by two Venezuelans so that would explain why it is complete enough (Alejandro Arreaza and Alejandro Grisanti). What they try to do is to figure what will happen after October 7, even including the scenario where there is no election on October 7 due to X.

Economic perspectives:
...if Chavez or a chavista wins the election, there are questions that will need to be addressed. We question whether 1) they realize the need for reforms is probably unavoidable; 2) how they would maintain an exchange rate control that produces
incentives to import rather than produce domestically; and 3) who could be the
minister that can implement this set of reform.

We believe that an HCR-led government would implement reforms gradually, focusing
on fixing relative prices and eliminating exchange and price control. We would expect
this path of reform to be fully supported by the international markets and with very
strong capital inflows. In this case, an adjustment will not be necessary and the new
government will have the opportunity to focus on maintaining the purchasing power of
the poorest sector of the population.
There, common sense. And there is also this, almost money quote quality:
In light of the unprecedented oil windfall, the presidential period 2007 to present could be characterized as a very poor in terms of economic performance. Venezuela’s economic policy is not sustainable and creates uncertainty about the future if the current regime wins the election in October 2012. It is not clear what changes it would introduce, apart from a very strong devaluation
Then there is a whole bunch of data with this conclusion (that sort of data has been managed in diverse guise by Miguel and I hate redundancy)
This figure reflects that social indicators are not improving at the rate that they should, given this unprecedented oil windfall.
More numbers about the fiscal situation of Venezuela, on how borrowing in the midle of the crisis aggravates everything. The conclusion:
This fiscal path is not sustainable, and a strong correction needs to be made. We believe that this adjustment would be very painful if Chavez party remains in power, given its lack of support from the Venezuelan private sector and international capital markets. The only possible adjustment for the administration is a significant devaluation of the currency, which would have a contractionary effect over the economy

In other words, over and over, we are in trouble.

As for the election, the observation is pretty close to what I wrote last Sunday on Capriles launch, as to the improved chances or a more peaceful transition:
Chavez will be subject to very strong limitations, and we believe that he will repeat what he has done in the past three months: a few appearances trying to show him as healthy despite his medical condition. The president’s principal assets for the campaign will be money, but he will be unable to “touch” the voters. By contrast, Capriles is promising to travel across the country four times before October 7. If we add this face-to-face campaign with the opposition message that is addressing the real problems of Venezuela, the probability of a peaceful and a democratic transition in Venezuela could be higher that what the market is pricing.

"the market is pricing"... you gotta love that consulting language...

Finally, the best part of their report is the above graph of what may happen in the next 4 months. They give us a branched tree of all possibilities though their explanations for each scenario are lacking. Still, it is a fun graph that I may decide to use soon as a betting poll of sorts :)  Note that the "non-institutional" exit is now a routine scenario of blogs as well as think tanks.  You do notice, of course, that coverage of this election by bloggers is going to be quite daunting for the need to cover so many possibilities.....


  1. Anonymous7:02 PM

    Grisanti typically does a good job covering vene. But, I do find it lacking that Barclays doesn't disclose that their head of Latam research and primary venezuela economist is a close relative of the opposition candidate. I would think a reliable news source would disclose such a conflict of interest.

    1. I did not know that but I suspect that Barclays is "linked". Thus my avoidance to put too much of the details. If you are right then we have the theme of Capriles which is not surprising since the report says that what needs to be done is what Capriles advisers propose; though their position keeps evolving slowly.

    2. Anonymous2:31 AM

      yes, Grisanti is an unofficial Capriles economic advisor

  2. Dr. Faustus7:49 PM

    It would be interesting to know how much that Barclays report touches on Venezuela's growing economic attachment to Asia, particular China. Within the last 4 months PDVSA has announced a huge pipeline deal with Kawasaki (S. Korea), a 1 billion dollar + refinery upgrade with Japan (Mitsui), a 4 billion dollar + refinery expansion at Purto La Cruz, and a brand spanking new refinery ( 9 billion +) in Guongdong province with the Chinese. Venezuela's future economy is being hog-tied to Asia. Anyone noticing?

    1. If all that Chavez promised and signed had been done, half of the refineries of the world today would have been built by Venezuela......

  3. And now, for something completely pedantic ..

    I'm surprised that Barclays would allow so many typos and poor grammar construction, without editing and vetting by someone with better language capabilities.

    1. excuse me, "so many typos and such poor grammar construction.."

    2. It is a special language, called "consultantese".

  4. I have not read the article, but I was fascinated by the branching scenarios graph. In particular, I had to marvel at scenario (n): Chavez is absent, no successor is announced, yet the Chavistas win... Come again?


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