Caracas Chronicles

The Venezuelan Central Bank (BCV) pierced a hole through the Maduro Administration’s infamous economic data blackout and published its financial statements for the first half of 2015, after an elegant delay of over three months from the legally mandated publishing date.

Here are the links for the BCV’s Balance Sheet, Results Statement and the essential “Accompanying Notes”.

The bottom line? The BCV is running on fumes.

This document is of particular significance to foreign creditors and Venny bondholders, because it is the first official document showing how many assets are still left in the State’s coffers after a year of sustained reserve depletion. Crucially, it should tell us something about the country’s asset composition between the liquid (i.e., something you can transform quickly into cash), the liquidable, and the liquified.

As with most things the Venezuelan government says and does, these spreadsheets hold way more than meets the eye. There’s a tiny little print for every single figure that matters! Given that we’re talking about a country with three different official FX rates and less transparency in external accounts than the Black Theater of Prague, this comes as no surprise.

Here are some of the main takeaways on the reported figures:

• Reported income from operations fell sharply (-67%), with the greater damage dealt on the foreign currency ops (-72%). As a mirror image, expenses were down in the exact proportion (-67%), with the bigger fall as well on the FX-denominated front (-80%). All of this suggests that not even funny exchange-rate accounting (the biggest items on foreign currency incomes and expenses are “realized exchange-rate and price fluctuations”) could cover the sharp reduction in the bank’s financial activity that is most evident on its final result: a -99,90% plunge in net income versus the last semester, earning VEF 1,15 million in 1H15. Of course, there’s a number that’s always gonna keep rising: operating expenses rose 18% to VEF 4,13 Billion over the period. In other words, the BCV is not selling enough currency, as anyone who has been to a Venezuelan supermarket can attest to.
• To start the Balance Sheet, the BCV seems to have an apparently solid +43% jump in FX liquidity. Funny, though, that it’s denominated in Bolos. Note 4 clarifies that the liquid resources of the bank are calculated with a mix of the 3 official FX rates (convenient!), and the end result was really a -32% draw in liquid funds to finish the period with USD 2,11 Bn. Interestingly, we can use the info in this Note to calculate an implicit average rate of 17,80 VEF/USD, which means a USD price 110% higher than the 8,48 average valuation reported in the second half of 2014. In other words, the BCV has assumed a devaluation that has gone unannounced to the public.
• Venezuela’s position in IMF Special Drawing Rights fell 61% over the period (A total of 1,98 Bn was withdrawn, resulting in a position of USD 1,28 Bn to close 1H15), confirming local press reports showing several SDR redemptions throughout the year. Basically, the government is withdrawing as much as it can from the IMF … in order to pay Wall Street. #RobbingFromPeterToPayPaul
• ‘Various Foreign Currency Assets’ is a curious little item that doesn’t pass a smell test. The section shows a 2,47 Bn rise in the first half of 2015 (+17%) which is exclusively related to the inclusion of ‘Monetary Gold’, an item that stood at 0 in 2H14 and which was added “In conformity with the approved guidelines by the Superintendency for Banking Sector Institutions (SUDEBAN)”, quoting an undisclosed memo from the banking regulator dated March 9th 2015. Before you can say “what the heck is “monetary gold”?”, do note that this looks like the BCV is double counting our reserves in gold.
• The biggest slice of BCV’s FX-denominated assets, gold holdings, also shows noteworthy changes. Stocks of the precious metal were marked 20% lower, to USD 11,71 Bn in June 30th 2015, but that’s using a reference value of USD 1.204,48/oz, a 9-month average of the gold spot price. Given that gold spot prices are currently hovering near six-year lows, a more appropriate mark-to-market (I’m seeing 1075 $/oz as I write this, which is over 10% lower than the figure used by BCV) reveals a total reduction of USD 4,16 Bn in the last semester (-28%), and that’s not even considering the potential impact of dumping 10% of the world’s gold output in a weak commodity market.
• A major component on the Local Currency Assets is a company that exists in papér only with a valuation of 12 Billion USD: Empresa Nacional Aurífera, S.A., a government company in which the BCV holds a majority stake after a phony trade with previous owner PDVSA. The share of company it holds is worth VEF 135 Bn in the Bank’s books despite having very little to prove its existence besides a RIF (tax ID) number. But hey, “el papel lo aguanta todo.”

All in all, despite a presentation deliberately designed to mislead readers, the numbers speak for themselves: the Central Bank is running out of hard assets. And the rhythm of asset depletion seems to be accelerating over time.

Given the out-of-control debt dynamics in place, it feels like Something’s Gotta Give in 2016.