Wall Street Has No Idea How Much Money Venezuela Has

Updated on
The dwindling supply of U.S. currency has left supermarket shelves across the country practically bare, with shortages of everything from basic medicine to toothpaste to meat.

The dwindling supply of U.S. currency has left supermarket shelves across the country practically bare, with shortages of everything from basic medicine to toothpaste to meat.

Photographer: Meridith Kohut/Bloomberg

Bond investors suspect the Venezuelan government is pretty low on cash. Just how low, though, is a tricky question.

After all, this is a country that has stopped releasing even the most basic economic data -- things like inflation and government spending -- on a timely basis.

Given how high the stakes are, with many investors bracing for an imminent default, Wall Street analysts are scrambling to fill the void. Firms including Bank of America Corp. and Barclays Plc have created their own statistical series to try to help investors understand how dire the country’s cash squeeze is. It’s a challenging exercise, they say.

“We’ve had to build these series based on everything you can imagine,” Francisco Rodriguez, a Venezuelan native who covers the country for Bank of America, said by telephone from New York. “I feel like a private detective. You have to try to find the data. At least the police have power to gather evidence -- I don’t have any.”

While the lack of data -- or lack of reliable data -- has plagued investors for years in countries from Argentina to Greece, the vacuum in Venezuela has become especially problematic as the 50 percent tumble in oil prices since June throttles the source of almost all of the country’s dollar revenue.

Guessing Game

With about $10 billion in bond payments due through February, derivatives traders are betting the probability the nation will run out of money to pay debt in the next year is almost 50 percent -- the highest in the world after Ukraine and Greece.

Venezuela’s Information Ministry didn’t respond to an e-mailed request for comment on the reliability of data.

While officials at the International Monetary Fund say they have no major issues with Venezuela’s data, bond analysts say it’s become markedly worse since December 2013. That’s when the government of President Nicolas Maduro, who had succeeded the late Hugo Chavez six months earlier, began delaying the release of inflation statistics, according to Deutsche Bank AG economist Armando Armenta.

Venezuela last reported cost-of-living data almost five months ago, when it said consumer prices had surged 68.5 percent from the previous year. That’s by far the highest rate in the world.

Creative Proxies

Barclays economist Alejandro Grisanti says he now looks at Venezuela’s tax revenue to come up with an inflation estimate. Based on a reported jump in tax collection of more than 120 percent in the first quarter -- at a time when the economy actually shrank -- he projects inflation has surpassed 100 percent.

While Chavez was in power, “there were delays and perhaps the detail and quality of the data was reduced,” Grisanti said by telephone from New York. “Now it seems that President Maduro has changed this into a state policy of not publishing data.”

Deutsche Bank’s Armenta said he began using a proxy to track Venezuela’s imports by pulling export data from the nation’s biggest trade partners in the second half of 2014. That’s a crucial piece of information for bond investors as the tumble in oil exacerbates a shortage of dollars -- the hard currency the country needs to pay debt and buy imports.

The dwindling supply of U.S. currency has left supermarket shelves across the country practically bare, with shortages of everything from basic medicine to toothpaste to meat.

Tanker Tracking

Armenta’s data shows that Venezuela reduced imports to $3 billion in January from about $4.5 billion a year earlier, possibly to help pay down a 1 billion euro ($1.1 billion) bond that was due in March, he said.

Still, Barclays’s Grisanti says that some holes in the data are hard to overcome. While private data on oil tanker movements have helped him track Venezuela’s discounted oil sales to Caribbean allies, he said it’s a tricky exercise. The state oil company stopped releasing official data on the shipments in 2013.

“There are many cards Venezuela can play, but they’re almost impossible to analyze,” Deutsche Bank’s Armenta said in an interview in New York.

Bank of America’s Rodriguez says investors’ reliance on reports that Venezuelans were facing shortages of basic necessities like toilet paper helped motivate him to independently track everything from the country’s international investment position to its overseas aid policies to get a better sense of the nation’s finances.

‘Red Book’

He cautions that these personal stories of hardship don’t tell the full story.

“Anecdotes give you the sense of something, but it’s very dangerous to try and use them to make an assessment of how an economy is,” he said.

His team first began compiling and publishing an alternative set of statistics for Venezuela as far back as 2011 as they sought to track the flow of money in off-budget accounts created by Chavez. The data set grew over time, culminating in an 11-part report called “The Red Book” that was published April 6 and that Rodriguez plans to release quarterly.

IMF Satisfied

To Robert Rennhack, deputy director at the IMF’s Western Hemisphere Department, Venezuela’s economic data “isn’t an issue.” The IMF censured Argentina in 2013 for misreporting statistics such as inflation.

“They provide the data on a sufficiently reasonable basis,” he told reporters in Washington on April 17.

That’s of little comfort to bondholders when Venezuela’s foreign reserves fall short of covering the almost $30 billion of debt payments it has coming due through 2017. Only 15 percent of the country’s reserves were actually held in cash as of the end of March, according to Bank of America.

“The availability of macro and financial information on a timely basis is essential for figuring out where to put your money,” Fernando Losada, an economist at AllianceBernstein, said in an e-mail.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE