Archive for the ‘business’ Category

Cuba: What is the regime going to do?

Thursday, December 18th, 2014

Well, we all heard Obama’s speech yesterday. Some of us also listened to Raul Castro’s speech, which took place at the same time as Obama’s.

It was a study in contrasts.

As The Diplomad puts it (emphasis added),

It [Obama’s speech] was a clever speech designed for people who don’t know the full history of Cuba since 1959 or the nature of US-Cuban relations. The speech gave away the leftist bias of its drafters with the nonsense equating “colonialism” and “Communism.” What colonialism was Castro Communism fighting? Cuba had been independent for sixty years when they took over, and one of their first acts was to turn the country into a colony of the Soviets. Communism and colonialism went hand-in-hand, no opposition, no clash. Obama’s speech sought “balance” by blaming both Cuba and the US for the state of relations. Nonsense. The Castros were and are murdering thugs who have never hesitated to kill anybody in their way whether at home or abroad. Castroite firing squads were operating at full speed even during the honeymoon period with the USA, when the NY Times was writing fawning pieces about Fidel Castro.

My first thought on hearing Obama talk about the need to get past colonialism and Communism was that he was channeling his father’s anti-British obsessions. Cuba as Kenya. Much like Obama’s immigration speech, it is not at all clear what we are getting. Alan Gross, who should never have been detained has been released as has a long-imprisioned intel asset. In exchange we freed the Cuban agents who helped set up the murder of American citizens. There is a further loosening of currency and travel restrictions. The speech, of course, will upend years of established American positions and lead, for example, to the entry of Cuba into the OAS without meeting any of the requirements laboriously worked out, e.g., a functioning democracy with full respect for human rights.

Raul Castro’s speech was very short and to the point. None of the flowery phrases that his older brother would have used. Very business-like. No discussions of colonialism and Communism, and no promises to do anything in particular except to keep talking to the US.

My friend Jazz Shaw mentions my objections to easing up on Cuba, countering with,

I could take the above paragraph and substitute the word China for Cuba and it would remain precisely as true. The major differences between the two are that China is vastly more powerful, more dangerous and more influential. Their human rights record is, if anything, worse than Cuba’s. They can threaten the entire globe with a single move, where the Castros are generally limited to smaller evils and mischief in South America. And yet somehow we have established relations with China. This doesn’t excuse either country for their evil, but only serves to point out some of the harsh realities of foreign policy in the modern era.

But comparisons with China policy fall short on a vital aspect:
I have friends who have operated profitable businesses in China in the past 20 years. Their corporations paid their Chinese employees directly. However, anyone employing Cuban citizens does not pay the employee; they pay the Cuban government a stipulated (by the government) amount per person. The communist regime then pays the employee an amount no higher than the maximum salary (yes, Cuba has maximum salary laws), which is approximately 10% of the amount the communist regime received from the business.

That is the case with any of the hundreds of multinationals that have done business with Cuba in the country, and with the thousands of “doctors” Cuba sends to places like Venezuela and Brazil.

Cuba has defaulted on its obligations to multinationals time and time again.

Additionally, foreign businessmen who have tried to collect monies due by Cuba have been thrown in jail, most recently Alejandro Abood, Cy Tokmakjian, Krikor Bayassalian, Nessin Abadi, Sarkis Yacoubian, and Stephen Purvis.

N-O-T-H-I-N-G, not a thing the USA does is going to change that.

However, as things stand right now, the odds have vastly improved for Cuba to “transition” into a profitable Communist regime, like China’s. Or perhaps, even more likely, the Viet Nam outcome,

The Vietnam outcome is what the Castros are counting on: a flood of U.S. tourists and business investment that will allow the regime to maintain its totalitarian system indefinitely.

As I said yesterday, Obama is trying to cement his legacy. Human rights (and true democracy) be damned.

As an added bonus, OBAMA’S MOVE TO STRENGTHEN CUBA WILL ALSO HELP RUSSIA, IRAN, NORTH KOREA AND VENEZUELA by

providing them with a more economically robust trading partner, a better source of illicit arms, and, most important, naval bases and intelligence outposts just miles from our shores.

What could possibly go wrong?

[Post redacted to include missing paragraphs]

LINKED to by
Memeorandum.

UPDATE

Venezuela: Default by September 2015?

Thursday, December 11th, 2014

Casey Breznick posts,

A CNBC report on the prospect of a Venezuelan default cited a Capital Economics report stating that a default could be expected by next September or October when $5 billion in debt payments come due. Only an upswing of oil prices to somewhere around $121/barrel would allow Venezuela to balance its budget, according to some estimates. But with OPEC recently slashing its 2015 production levels to a 12-year low in response to decreasing estimated global oil demand and increasing supply via U.S. shale production, a significant oil price increase in the short-term seems highly unlikely. Bloomberg reports that the implied probability of default—derived from complex financial formulas—in the next five years stands at 93%, the highest in the world.

The Devil’s Excrement looks at Maduro’s New Script,

You may laugh all you want at what he says, but I don’t. He is making a very specific narrative out of all this and I am not sure where it is heading. It may be that he just wants to blame  the US for the intensification of the crisis in the next few months or simply, that he is preparing the ground in case there is no money to pay international investors. There is a one billion Euro payment in March, which looks doable, but there are much larger maturities in October 2015. But investors have so far believed that Venezuela had a “willingness” to pay, and the action in the markets today indicated some people were losing faith.

It did not help that Bloomberg reported today on a meeting with investors at a New York law firm, which actually took place like ten days ago. This meeting actually ended in a somewhat positive note, as many suggested that Venezuela and PDVSA could not get away with a restructuring below current prices for most bonds, as the oil cash flow would not justify it.

Francisco Toro:

It’s not the gobs of debt monetization, the billions of make-believe-bolivars the Central Bank loans PDVSA leading to an uncontrolled monetary expansion and the collapse of demand for real money balances.

It’s not the opacity in public accounts, the drop in reserves, the commercial default, the implosion in the goods markets, or the fact that you need your kid’s birth certificate to buy her diapers.

It’s not the fiscal deficit at 17% of GDP, or oil at $58 per barrel, or the tapped-out Fonden “sovereign wealth fund,” or the fact that the Finance Minister gives every possible public sign that he’s an idiot.

It’s not that the one regime official who announced a semi-reasonable reform that might have stanched the flow got shifted sideways to a non-economic job.

It’s not the Central Bank’s scandalous subservience to the Executive branch, or the fact that it won’t even dare publish basic inflation statistics.

It’s not that PDVSA has missed every production increase target it’s set for itself since 2003, it’s not that its refineries are badly maintained and barely functional, much less profitable.

It’s not that labour laws make it insane for a worker to waste his time working, and unreasonable as well as that is time he needs to spend queueing for basic consumption goods.

It’s not that the investment climate has been so shitty for so long, and the profit repatriation picture so bleak, no one sane even considers putting money into Venezuela.

Nope. It’s none of that. According to Maduro, it’s all a conspiracy, led by some flunkie sitting at a cubicle at Moody’s, someone who for some weird reason has decided to mess with his revolution. That’s why it’s expensive for Venezuela to borrow.

PDVSA 2022 bond in the last three months. It was losing 14% of its value today, with a yield to maturity of 31.4%:



Venezuela: Oil break-even price?

Tuesday, December 2nd, 2014

Tom Bemis looks at Breakevens for most major oil-producing countries (emphasis added)

A widely used measure of the impact of oil prices on major producers’ governments is the fiscal breakeven price. That’s “the average price at which the budget of an oil-exporting country is balanced in a given year,” according to Standard & Poor’s. Estimates of fiscal breakeven prices can vary considerably based on a variety of factors including actual budget expenditures, and differences in oil production forecasts.

In most cases, the oil price necessary to balance the budgets of major oil producing countries is above $100 a barrel in 2015, according to data from Citi Research’s Edward Morse.

Venezuela, already facing serious fiscal woes and rampant inflation, needs oil at $151 a barrel next year to balance its budget, according to the data.

Iran, which has yet to agree to curb development of nuclear weapons and heavily subsidizes gasoline for its citizens, needs oil at $131 a barrel.

And Russia, whose seizure of Crimea and continuing aggression towards Ukraine has raised tensions throughout Europe and inspired western financial sanctions, needs oil at $107 for a chance of getting its finances in order.

Silvana Ordoñez:

Venezuela’s future? ‘Barbarity and people looting’One analyst at Nomura recently estimated that Venezuela may need oil prices to hit $200 a barrel to balance its budget. (The precise figure is difficult to determine, because Venezuela doesn’t disclose as much economic data as other countries do.)

Will The Minister Come Back Empty Handed From China?

It seems as if President Maduro really believed that OPEC would cut production after he sent Ramirez to visit a few countries, including Russia, who happens not to be a member of OPEC. But as most analysts expected, OPEC did not cut production and scheduled the next meeting for next June, bringing a lot of people back to reality, including Maduro. It was only after Ramirez reportedly left the meeting “red faced”, that it sunk in that maybe Plan A was not going to work. Thus, Maduro switched to Plans B and C. Plan B is to “hope” that oil prices bounce back and plan C was to send Minister of Finance Marco Torres to Beijing to see if he can get some money there. Plan D was to name a commission to cut salaries and luxurious expenses. Yeah, sure!

I have been arguing with a bunch of friends about the probability that Torres will come back with a significant loan, which I peg to be around 0.00001, but they seem to think it is somewhat higher. You see, they actually believe that Venezuela has something to offer the Chinese, like oil or oil fields. But the reality is that Venezuela has little to offer at this time and the Chinese know it, so that Minister Torres is very likely to come back empty handed.

Related:
María Corina, and a unified theory of rationed repression



Venezuela: New deal with China

Tuesday, November 25th, 2014

High hopes, we’ve got high hopes . . .

The Chinese pull the chestnuts (temporarily) off the fire:
China Loosens Debt Terms for Venezuela
With Default Threatening the Economy as Oil Prices Tumble, Caracas Gets a Lifeline From Its Biggest Creditor

Not only for Venezuela, but also for Argentina (emphasis added),

Last week the president [Maduro] used a $4 billion Chinese credit, traditionally earmarked by the Chinese government for infrastructure projects and held in off-budget funds, to increase reserves to $23.2 billion. China also recently lent $1.3 billion to help Argentina buoy falling reserves, giving President Cristina Kirchner , a close ally of Mr. Maduro, a cushion to help alleviate that country’s cash crunch.

Beijing’s largess may appear irrational given economic policies in Venezuela and Argentina that do not appear sustainable, said Barbara Kotschwar, a scholar who tracks Chinese investment in Latin America at the Peterson Institute for International Economics in Washington.

“On the other hand,” Ms. Kotschwar said, “they are so invested in Venezuela’s oil industry that they may have calculated that a political crisis would have a negative impact on their return on investment or on Venezuela’s repayment of loans.”

That’s putting it mildly; according to Maduro himself,

Venezuela’s oil revenues, which account for 96% of the country’s dollar income, are down by 35% in the past month

China has risked millions of dollars in Latin America to secure their supply lines, and as analyst Russ Dallen, managing partner at brokerage Caracas Capital Markets, put it, “for the short term, they’re secure.” However, considering that

China last month scrapped the requirement that Venezuela ship at least 330,000 barrels of oil a day as payment for its existing loans

the meaning of “secure” may be more fluid than we believe – and not only for the short term.



Panama: Legal truble for Carlos Slim

Tuesday, November 25th, 2014

Carlos Slim, best known in the USA for his Obamaphones, and who was bidding for Univision earlier this year, is looking to diversify.

A Panamanian judge, however, is cramping his style:
Panamanian Judge Orders Embargo on Carlos Slim Assets
A Panamanian judge has ordered an embargo on the local assets of Mexican billionaire Carlos Slim’s infrastructure company in a legal dispute over a concession to build and operate a hydroelectric plant.

The decision to embargo 10 properties, including the Bajo de Mina hydro plant, follows a complaint by Panamanian businessman Julio César Lisac, who charges that the Panamanian government unjustly canceled his right to the concession in 2006 and later gave it to Mr. Slim’s company, Panamanian newspaper La Estrella de Panama reported on Sunday

Slim’s Ideal also operates toll roads, water projects and public transport terminals in Mexico.

A commenter at the WSJ mentions that “had the exact same thing happen to him after he bought Comp-USA almost fourteen years ago now.” Here’s a link to that story.

Chile: Blowing up the ATMs

Friday, November 21st, 2014

375 of them:

Crooks Blow Up ATMs in Crimes Leaving Chileans Stuck in Line

The method is simple. Use a hose to inject propane into the machine while being careful to seal all cracks and vents with duct tape, then light the fuel with a spark. The top of the machine explodes, leaving the cash tray almost intact.

And then there’s also robbing the armored trucks delivering the money.

Argentina: Jorge Lanata will petition US Court re: Cristina’s US businesses

Tuesday, November 11th, 2014

The headline is less tactful,
Argentinean Journalist to file petition in U.S. Courts to obtain information about Cristina Kirchner’s money laundering operations

Last night, Argentinean renowned investigative journalist Jorge Lanata announced he is planning to submit an application for an order for discovery pursuant to 28 U.S.C. § 1782 in a Nevada District Court, aiming to obtain information related to President Cristina Kirchner’s companies in the United States.

Section 1782 of Title 28 of the United States Code is a federal statute that allows a party to a legal proceeding outside the United States to ask an American court to obtain evidence for use in the non-US proceeding. The full name of Section 1782 is “Assistance to foreign and international tribunals and to litigants before such tribunals”.

For the last two years, Jorge Lanata has been conducting an investigation known as the “Kirchner Money Route”, through which he demonstrated that Kirchner cronies were laundering millions of dollars coming from corrupt activities through a vast networks of shell companies and shady financial institutions in Argentina, Uruguay, Panamá, Switzerland, Seychelles Islands and the U.S., among others.

This investigation was then used by NML Capital Ltd., a hedge fund who holds a judgment against Argentina for more than $1.7 Billions (see NML Capital Ltd. vs. Republic of Argentina), as the main source of evidence to produce information about 123 companies in the State of Nevada that may point to the location of Cristina Kirchner’s assets in the United States and abroad. NML Capital Ltd. was able to depose a key witness to the “K-Money Route”. However, that deposition is being sealed by the request of the parties.

In Spanish, Lanata’s Sunday show.

More on NML bond holdouts:
A New Twist in the Argentine Debt Saga

But Dart’s legal complaint draws attention to something that had been overlooked as the talks progressed: The so-called Gang of Five—the five holdouts at the center of Singer’s legal case: Singer’s NML Capital, Aurelius Capital, Blue Angel Capital, Oliphant, and a small group of retail investors—hold only about a quarter of all the New York bonds held by holdouts. In addition to Dart, there are approximately $2.4 billion worth of bonds out there that are governed by New York law and in the hands of other holdout investors. The minute Argentina settles with Singer’s group and the bondholder payments are allowed to flow through, all the other holdouts will likely rush forward to Judge Thomas Griesa’s court, demanding the same legal rulings and the same terms, which could block the payments again. The default could be cured temporarily, but then Argentina would be right back where it started.

NML Capital Ltd. can’t force an Argentine lawyer to remain in the U.S. for questioning, a Washington judge ruled

NML sought an emergency court order last week barring attorney Cesar Guido Forcieri, a former World Bank director, from returning. There’s no reason NML can’t question Forcieri when he gets to Argentina, U.S. District Judge Royce Lamberth said in a one-page order issued Nov. 6 and made public today.
. . .
Forcieri is a close associate of Argentine Vice President Amado Boudou, NML said in court papers. Boudou was indicted in June by an Argentine federal court on corruption charges related to his alleged involvement in acquiring a bankrupt printing company, Ciccone Calcografica SA, that later won contracts to print the nation’s currency.

Boudou was initially indicted with five others. In September, an Argentine judge indicted Forcieri for his alleged role in helping to steer business to Ciccone. If Argentine courts find Boudou guilty, the country may confiscate any profit, funds or property employed in the takeover scheme, according to NML’s lawyers.

Until last month, Forcieri served in Washington as a World Bank director for Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay. He worked with Argentina’s Ministry of Economy and Public Finances as a G-20 finance deputy from 2010 until March, according to a profile on LinkedIn.

NML served Forcieri with a subpoena on Sept. 10 seeking documents regarding his involvement in the alleged Ciccone scheme. The Argentine lawyer failed to appear for a deposition on Oct. 20, NML said.

This ain’t over yet, not by a long shot, no matter what the SCOTUS ruled.

Venezuela to appeal ICSID Exxon decision

Tuesday, October 28th, 2014

Living up to its reputation as possibly the world’s worst-managed economy, the Venezuela government is appealing the US$1.6billion settlement against Exxon by the World Bank’s International Centre for Settlement of Investment Disputes, or ICSID.

Just to put things in perspective,

Exxon had originally wanted $20 billion out of the deal; arbitrators awarded it just $1.6 billion, $600 million of which had already been paid.

The country must honor ICSID rulings to avoid default of sovereign bonds; by having the ICSID provisionally stay the enforcement of the award, Venezuela buys time.

Francisco Toro speculates,

One of two things is going on here. Either the super-fancy and well-worth-top-dollar New York Law Firm representing Venezuela at ICSID, Curtis Mallet-Prevost, has persuaded Ramírez they can get an even better settlement on appeal or the government is now so strapped for cash they’re willing to try any delaying tactic to avoid having to pay up right away.

I don’t know which one it is.

I don’t either, and considering how Nicolas Maduro opened his campaign by saying he talked to Chavez, who is now a bird , maybe he (and his cohorts) went by Chavez’s 2012 promise that Venezuela will not recognize World Bank ruling in the Exxon case.

All you can be sure of is that law firm Curtis Mallet-Prevost will make money out of this, and, as I said last month, that Venezuela has no intention to pay Exxon.



Brazil: Ibovespa volatility

Tuesday, October 28th, 2014

First Brazil’s stocks tanked,
Ibovespa Tumbles Toward Bear Market as Rousseff’s Win Sinks Real

Brazil’s benchmark equity index led global declines as President Dilma Rousseff’s re-election damped speculation for a change in policies that wiped out $553 billion of stock market value and left the economy in recession.

The Ibovespa (IBOV) dropped 2.8 percent to 50,503.66 at the close of trading, the most among the 20 biggest indexes globally. After tumbling as much as 6.2 percent earlier, approaching the threshold for a bear market, the gauge pared losses as education companies and pulp exporters rallied. The real posted the world’s biggest loss as it sank 1.9 percent to a nine-year low.

After years of weak growth, high inflation and intervention, Dilma’s re-election tanked the currency, too,

The real’s plunge to 2.5224 per dollar put it at the weakest level on a closing basis since April 2005. One-month implied volatility on options for the real, reflecting projected shifts in the currency, was the world’s highest. The currency sank 12 percent in the past three months.

Then why did things rise up again?

“To some extent, markets were already pricing in her victory last week, and that may explain why the reaction to the election results wasn’t as negative as I expected,” Alvaro Marangoni, a partner at Quadrante Investimentos Ltda., said by phone from Sao Paulo. “We’re all waiting to see if policies are adjusted so the economy can recover.”

That’s an optimist, indeed.

The states that opposed Dilma out in the grasslands, soybean farms, cattle ranches and productive and innovative industrial centers down south, went for her free-market opponent. The states with 25% of the population dependent on welfare went for Dilma,

The takers have become politically stronger than the makers

As Monica Showalter of IBD said,

Now Brazil can look forward to not just low growth, but also high protectionist trade walls, more taxes, more corruption, more intrusive government and an increasingly arrogant state.

I was optimistic on Brazil years ago, but no more.

Argentina: Creeping to the edge

Thursday, October 23rd, 2014

Chris Noon interviews Prof. Steve Hanke on Argentina creeping closer to the edge. You must read the interview in full,

Argentina’s bleak fiscal situation could deteriorate further over the next year, with a prominent economist telling Interfax on Monday the Latin American country’s foreign reserves could shrink to “near $10 billion” by October 2015. It would leave Buenos Aires struggling to meet payments for dollar-denominated LNG imports, which are essential to the country’s energy matrix.

“To get there [$10 billion], we would see monthly declines in reserves that were roughly similar to those of Q1 2014. It could come about through macroeconomic factors, such as the combination of a strong US dollar, weak commodity prices, and decreasing oil prices. The Saudis are squeezing their competition – especially Canadian tar sands producers – as they push for more market share. This may push down Brent crude further to $60-70 per barrel,” said Hanke.
“It’s difficult to say what will be the ‘straw to break the camel’s back’, but if you keep piling up economic problems, you create a ‘tipping-point’ situation. There’s just too much weight on everything and it gives way,” said the economist.

Trying to put a band-aid on a gashing wound, the government is trying to bring dollars into the country by forcing farmers to export soybeans held in storage even when the price of soybeans has plummeted by around 30% since April, and

Buenos Aires has resorted to making deals with friendly foreign lenders to replenish its coffers. A multibillion-dollar currency swap between Argentina and China will be launched in November, the Latin American country’s central bank chief was quoted as saying in a local paper on Sunday.

That will probably help remedy Argentina’s deeply-ingrained structural problems as well as Venezuela’s oil deals with China have in solving that country’s problems, which is to say, not at all.