Venezuela in Data Denial After Inflation Tops 50%: Andes Credit

Venezuela’s economic distress is so acute that the central bank stopped releasing regular statistics for the first time ever, threatening to increase borrowing costs further as the nation faces $10 billion of financing needs.

“This is not the right way to manage macroeconomic data,” Benjamin Wang, a money manager at PineBridge Investments LLC, which oversees $5 billion of emerging-market debt and holds Venezuelan bonds, said by telephone from New York. “There’s no transparent data to measure the risk.”

Yields on Venezuela’s sovereign bonds surged in the past year to 13.97 percent, the highest among 50 emerging markets tracked by JPMorgan Chase & Co., as consumer prices soared the most in the world and President Nicolas Maduro vowed to radicalize the Socialist Revolution started by his predecessor, Hugo Chavez, to combat enemies of the nation’s economy.

The central bank’s decision to hold back a preliminary report on economic growth, public spending and foreign-currency distribution scheduled for Dec. 31 was the first of its kind since it began publishing the data in the 1990s. The bank, which also stopped reporting annual inflation in November, issued a report on monthly price changes that blamed an “economic war” for rising costs as a shortage of dollars leads to empty shelves in supermarkets across the country.

Bond Sales

Venezuela will sell about $10 billion in debt this year to shore up foreign-currency reserves and repay maturing debt, Alejandro Arreaza, an economist at Barclays Plc, said in an e-mail.

A spokesman for the Finance Ministry declined to comment on potential bond sales.

Any offerings will come as the U.S. Federal Reserve starts scaling back its own debt purchases this month, which may cause a prolonged drop in emerging-market assets, according to Goldman Sachs Group Inc. and Morgan Stanley.

The lack of data from Venezuela will also weigh on Fitch Ratings’s review of the country’s rating in the first quarter, according to Erich Arispe, the rating company’s sovereign analyst.

“Data concerns add another layer of uncertainty to the already weak credibility of Venezuelan policies,” Arispe said by telephone from New York Jan. 6.

Argentina’s Shadow

Moody’s Investors Service and Standard & Poor’s last month cut Venezuela’s rating to the lowest level since 2003, citing unsustainable government policies. All three ratings companies maintain negative outlook on their ratings.

The cost to protect Venezuelan bonds against non-payment for five years using credit-default swaps rose 175 basis points in the past three months to 1,155 basis points as of 1 p.m. in New York, according to data compiled by Bloomberg.

Venezuela’s treatment of statistics is showing similarities with Argentina, the only country with a higher default risk in the swaps market, Arispe said. Argentina in February became the first nation to be censured by the International Monetary Fund for misreporting inflation.

In the monthly inflation report released 20 days after the Dec. 10 legal deadline, the central bank said that the government’s political opposition destabilized the economy after “the death of our leader Comandante Hugo Chavez.” The central bank said it’s working on economic indicators that better reflect the “new economic and social reality in the country.”

Market Skepticism

“The market has been skeptical of the reliability of Venezuelan data, and the latest statement only reinforces these concerns,” Arreaza said by telephone from New York Jan. 2. “Strong political influence in the latest report could lead to statistics that might not reflect reality.”

A spokeswoman for the central bank declined to comment on the delays to economic reports and data credibility.

Maduro said in a press conference Dec. 30 that consumer prices rose 56.2 percent in 2013, more than twice as much as the 21.3 increase the previous year.

The yield on the benchmark dollar-denominated bond due in 2027 rose 3.82 percentage points in the past year to 13.08 percent yesterday, according to data compiled by Bloomberg.

Economic growth slowed to 1.6 percent in 2013 from 5.6 percent the previous year, according to Maduro. International reserves have fallen by half since 2008 to $21.6 billion.

Tipping Point

“At some point the government might decide the price of default is lower than the price of economic contraction,” said Aaron Freedman, the Moody’s analyst who cut Venezuela’s rating last month to Caa1, its fifth lowest grade. “Investors are still willing to lend Venezuela money, but only at a very steep price.”

Regulators backed by the military have forced more than 1,000 businesses to lower prices on everything from electronics to toys since November. In a televised address Nov. 23, Maduro said the measures will lead to deflation, and he asked government statisticians to “go beyond the technicalities and technology” when calculating price changes.

“Every time the government loses credibility, the cost of financing goes up, and that’s going to be reflected in the future bond issues,” Hernan Yellati, strategist at BancTrust & Co. brokerage, said in a telephone interview from Miami. “Credibility is a very sensitive thing. Once they lose it, it’s very difficult to regain.”

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