Venezuela’s Christmas Saved for All as Bonds Pay for Toys

President Nicolas Maduro is guaranteeing a merry Christmas for his socialist revolution in Venezuela by using bond sales to fund imports of toys, alcohol, bicycles, trees, wrapping paper and food.

“All the dollars that our fatherland needs until December 31 are guaranteed,” Maduro said on state television on Oct. 10. “We are going to have a happy Christmas.”

The South American nation this month started weekly currency auctions using dollar-denominated bonds issued by state oil company Petroleos de Venezuela SA and held by the central bank after a two-month hiatus, giving companies a chance to buy almost $300 million. The auctions allow local companies to obtain hard currency from the central bank, which sells the bonds abroad for dollars, to buy the goods that Venezuela doesn’t produce domestically.

While the auctions will help Maduro fulfill his pledge this month of ensuring the nation’s happiness during the holidays by alleviating shortages that caused annual inflation to soar 49 percent in September, concern is deepening that PDVSA will need to sell new bonds for the first time since May last year to replenish supply. With the state oil company considering a sale of as much as $3 billion before year-end, Barclays Plc says the glut threatens to increase Venezuela’s borrowing costs, which are the highest in emerging markets.

“They’re going to have to sell debt to help reduce the strong foreign-exchange distortion, and that will have a negative impact on the pricing of Venezuelan assets,” Alejandro Grisanti, a New York-based analyst at Barclays, said in a telephone interview.

Highest Inflation

Grisanti lowered his recommendation on Venezuelan government debt to neutral from overweight.

Venezuela’s sovereign bonds yield 12.24 percent, the most among 62 emerging markets tracked by JPMorgan Chase & Co. and more than double the average. The bonds have returned 1.33 percent this month versus 3.96 percent for junk-rated developing-nation debt, index data compiled by JPMorgan show.

The auctions resumed after a lack of dollars in Venezuela, which imports almost everything as revenue from the state oil company has made other local industries less profitable, caused the cost of living to rise more than any country in the world, according to 114 nations tracked by Bloomberg.

80,000 Bicycles

The central bank’s scarcity index also climbed to 21.2 percent in September, implying that one in five goods was out of stock at any given time, threatening to disrupt Christmas festivities.

Yields on PDVSA’s benchmark bonds maturing in 2017 increased 0.29 percentage point to 12.04 percent today as of 2:06 p.m. in New York.

Officials at PDVSA and Venezuela’s Finance Ministry, who asked not to be identified because they aren’t allowed to speak publicly, declined to comment on the government’s debt-issuance policy.

Julio Pena, the president of the Venezuelan Bicycles Assemblers Association, said only 80,000 bicycles have been assembled this year in Venezuela, less than half the amount last year, because of the shortage of dollars for imports.

“I can testify as to how the government is concerned about avoiding shortages of typical Christmas products,” Pena said in a telephone interview after attending several meetings with economic officials.

The government also invited liquor importers and companies that produce wrapping paper to similar meetings, Pena said.

Sticker Shock

“There is a good intention from the government to resolve shortages of whiskey, wine and vodka, but we don’t know all imports will be on time for Christmas,” said Carlos Salazar, president of a local liquor business association in Caracas.

Some liquor stores in Caracas are selling a maximum of four bottles of whiskey per customer, he said.

Venezuela is one of the top 20 markets for Scotch whisky in the world after importing about $75 million in the first half, according to the Scotch Whisky Association in Edinburgh.

In the past year, the cost of a bottle of 12-year-old whisky has risen to 1,600 bolivars -- about $254 at the official rate or $30 at the black market rate -- from about 600 bolivars because of a lack of dollars, Salazar said.

Pricier Alcohol

Alcoholic beverage prices have risen 88 percent in the past year, according to the central bank.

The government revived the auctions on the so-called Sicad system after the regular supply of foreign exchange failed to ease shortages. Economy Vice President and Oil Minister Rafael Ramirez on Oct. 24 announced a Christmas import plan and said the government had already supplied $33.1 billion this year through September to importers through the Cadivi system that sells dollars at the official rate of 6.3 bolivars.

“We’re not the ones fighting against Christmas,” Ramirez said, adding that the country has no plans to officially devalue its currency.

Companies unable to obtain authorization to import at the official rate can place bids on the alternative Sicad system, which sells dollars at an undisclosed exchange rate, or turn to the illegal black market. The dollar buys about 54 bolivars on the black market, according to, a website that tracks the value at the Colombian border.

The government may be reluctant to issue more debt because of yields in excess of 12 percent that investors demand.

‘Saving Christmas’

The extra yield investors demand to hold the nation’s dollar-denominated bonds instead of Treasuries has jumped 1.58 percentage points from a three-month low on Sept. 18.

“It’s unlikely that Venezuela will sell new debt in the short term because of the high cost,” Juan Pablo Fuentes, an economist at Moody’s Analytics Inc., said in an e-mailed response to questions.

Ronald Balza, an economist at the Andres Bello Catholic University in Caracas, says Maduro’s pledge underscores why bondholders demand such a high premium to finance Venezuela’s spending.

“This is taking economic control to the extreme,” Balza said in a telephone interview. “A government can’t be in charge of saving Christmas.”

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