Research & Strategy

Our Research & Strategy department focuses on innovative, market oriented views and analysis for institutional clients in the fixed income market.

We emphasize our local presence in the region to provide value added in markets like Venezuela and Argentina, where information is not ready accessible. Our main goal is to give investors decision-making tools based on fundamental and quantitative research.

Venezuela Weekly Report

BCV’s Financing to PDVSA Going Through the Roof

May 19, 2017BancTrust & Co. Research Team
  • We estimate the financing from BCV to PDVSA at VEF7.4tn or 67% of the amount that the BCV registers as “Other assets in foreign currency”
  • PDVSA and PetroVietnam are negotiating the restarting of operations of the PetroMacareo JV
  • The Congress CPI showed a 92.8% YTD increase as of April. The increase in monetary liquidity and the financing to the central government and PDVSA are the major drivers, in our opinion

The Central Bank of Venezuela (BCV in Spanish) published its balance sheet for March where the hard currency availability shows an important growth considering the same structure we previously used for calculating January’s, standing at USD1.1bn at 31 March, which makes sense given the increase in oil prices that increased the value of oil imports importantly. Nevertheless, the performance of one particular item caught our attention and we decided to dig deeper in order to discover why it has been growing rapidly.

Argentina Weekly Report

Inflation and Fiscal Deficit: On Top of the Agenda

May 19, 2017BancTrust & Co. Research & Strategy Team
  • Inflation, fiscal deficit and wages are the main concerns for the “captains of the industry” when looking ahead on the Argentinian economy
  • The government sees the Mining Accord in place by year-end; the agreement that reconciles provincial and federal legislation that will draw larger investments to this sector
  • INDEC figures reveal that inflation rose to 2.6% m-o-m in April, above official estimates, while y-o-y comparisons place inflation at 27.5%

This week, Argentina hosted its Third LatinFinance Financial Summit, an event that gathers government executives as well as businessmen and economists. The event held panels for several topics, from global context and real economy to infrastructure and local financial markets. From the government, Dujovne, Caputo and Frigerio were responsible for addressing main concerns on the economic and political ground. Even though concerns regarding the recovery of the Argentinian economy were on top, the participants showed confidence of the agenda set by the government and shared most of the same issues regarding what to do next.

Dominican Republic Bi-Weekly Report

Reaching the Goals

May 19, 2017BancTrust & Co. Research Team

• According to the Central Bank, Dominican Republic grew 5.2% y-o-y in 1Q17, while the MEAI for March showed a 6.2% y-o-y expansion. We believe the results reinforce DR’s trend to growth above its potential
• Once again tourism results exceeds expectations with a 15% y-o-y growth in tourist arrivals in April and a 9.9% y-o-y increase in related income for 1Q17
• The increase in foreign currency inflows made the Central Bank to reach its highest level of international reserve in history, equivalent to 4 months of imports

The Central Bank of the Dominican Republic (BCRD in Spanish) released the preliminary results for the economic performance in 1Q17 and, as usual, DR continues making bids for another promising year. In detail, the BCRD showed that Dominican GDP expanded 5.2% y-o-y in 1Q17, which is consistent with the macroeconomic projections and their tendency to grow above its potential. In addition, the monetary authority also released the Monthly Economic Activity Index (MEAI) which registered a y-o-y variation of 6.2% in March. In our view, the latest results on this index show DR’s capacity to keep growing above its potential and the trend so far this year leads us to believe that there is room for further improvement. All-in, we maintain our forecast of GDP growth for 2017 near the 7% y-o-y, which goes in line with the BCRD expectations (6.4%-7.4%) but well above the most recent forecast of ECLAC (5.3%).

Andean, Central America, & Caribbean Weekly Report

Nicaragua: Fiscal Sustainability Back on the Table

May 19, 2017BancTrust & Co. Research & Strategy Team
  • The International Monetary Fund warned about the increasing deficit of the Nicaraguan Social Security Institute and recommended a set of measures to regain sustainability
  • We expect the decision-making and implementation of these policies to lag in time as they might hurt the left-wing government’s popularity
  • The economy continues to show a healthy growth in February while inflation sends mixed signals about its path this year
Following a revision under Article IV, the International Monetary Fund (IMF) urged the Nicaraguan government to guarantee the sustainability of the Social Security Institute (INSS in Spanish) by 2019, due to an increase in its deficit which will reach 0.43% of GDP by year-end. The institution recommended a set of policies to restrain the growing deficit of USD50mn that includes rationalizing operating and health expenditures and increasing the retirement age, which is currently 60 years old.

From where we stand, we see difficult the implementation of these measures as they might hurt the left-wing government’s popularity as well as its political base. We are leaned to believe the government would choose to increase the financing of the deficit in the short-term while updating and cleaning the registry of the INSS. Furthermore, the government has yet to tackle fiscal issues related to exoneration, exemptions and VAT evasion, which according to the IMF could translate into an extra USD275mn yearly to the government’s finances.

Besides the abovementioned measures, the IMF also recommended to increase the period of minimum contribution, to increase the employer and employee contributions, to review the mechanism for adjustment of pensions, to reduce granted benefits, and to assume some government spending as special pensions. According to the IMF, delays in policy implementation would increase costs and public debt in the long-term.

As no surprise, INSS President Roberto López stated that, despite these recommendations, the Nicaraguan government will not raise the retirement age nor the contributions by employees.  Without mentioning the measures the administration would take, Lopez did admit that President Daniel Ortega ordered to identify solutions to enhance income flows of the INSS. In this regard, the presidential advisor on economic affairs said the reforms to be implemented will be agreed between the government, businessmen and workers unions – which we see with good eyes as it would provide political strength to the reform and ease any possible turmoil.

 

Ecuador Bi-Weekly Report

Assessing the First Contraction in a Decade

May 8, 2017BancTrust & Co. Research Team
  • The Central Bank reported a GDP contraction of 1.5% in 2016, but the 4Q16 saw increases of 1.7% q-o-q and 1.5% y-o-y. For 2017, the government expects a GDP growth of 1.42%
  • Finance Minister Patricio Rivera headed a mission of the economic cabinet meeting with investors in the US and London
  • Exports in the first two months of 2017 increased 34.1% y-o-y, with the oil-related exports more than doubling 2016’s total

The Central Bank of Ecuador (BCE in Spanish) confirmed recently that the country suffered in 2016 its first GDP shrinkage in 10 years, after a -1.5% result provoked by – according to the BCE – the low oil prices, the USD appreciation, the April earthquake and the payments to Chevron and Oxy. The government expects a change in the trend in 2017 in order to grow 1.42%, but we continue to believe that the difficult macroeconomic conditions – with a still insufficient fiscal income, weak oil prices and increasing public indebtedness – will not change substantially and, therefore, we maintain our estimation of a -1% GDP contraction by year-end.

Corporate Weeky Report

Corporate Report: Pampa Energia

October 7, 2016BancTrust & Co. Research Team
  • Last July, Pampa Energia finished the acquisition process for Petrobras Argentina S.A, turning it into the largest private energy company in Argentina
  • Currently away from top positions, Pampa is likely to improve in its market share position for both oil and gas by next year, once the merge with Petrobras is totally complete
  • An upcoming issuance, which is set to repay a bridge loan which permitted the acquisition of Petrobras, is expected to be of USD600mn, which would be the largest issuance of the company

Company Background

Pampa Energia S.A. is one of the principal energy companies in Argentina and through its subsidiaries manages to participate in all stages of the electricity activity, from exploration and production to distribution. Its activities are separated over three different segments: generation, transmission and distribution. Moreover, the company has participation in production and distribution of general gas. Just to set an example, through Edenor in the distribution segment, Pampa has an important participation in the Argentine market with an estimate 21% of participation in the whole supply of electricity.

  • Thursday, May 25 2017
    Venezuela:

    - During a televised press conference, the top Public Prosecutor Luisa Ortega Diaz addressed several events regarding the wave of protests in Venezuela. In detail, the prosecutor denounced the possession of arms by the population despite the current ban by the Ministry of Interior, the performance of state security forces and military trials of civilians. One of the statements with greatest impact referred to the cause of death of a young opposition demonstrator product of a metal projectile fired by an official of the Bolivarian

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  • Wednesday, May 24 2017
    Venezuela

    - Finance Minister Ramon Lobo and the Executive Board of the Central Bank of Venezuela (BCV in Spanish) announced the start of operations of the new FX system DICOM. The system will work through two weekly auctions (the first one will take place tomorrow) and a bands’ system where the FX rate will fluctuate – the starting rate has not been announced yet. The official rate will be the lowest offered by those who are adjudicated, but a “contingent” auction will take place in case that such rate exceeds the upper band establis

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  • Tuesday, May 23 2017
    Venezuela:

    - For today, the new FX scheme, DICOM, is set to begin operations, and yesterday the Minister of Foreign Trade and International Investment, Jesus Faria, assured that the main goal is to reduce the impact of the parallel dollar and to increase the assignment of currency for business. It is expected that today further details of the mechanism will be disclosed from the facilities of the Central Bank of Venezuela (BCV for its words in Spanish), so stay tuned for more.

    Argentina:

    - The US Treasury Secretary, Steven Mnuchin, told the Senate yesterday that regulators would review Rosneft’s stake of Citgo Petroleum Corp., this as concerns have emerged over possible control from the Russian company in case that PDVSA fails to make payments on the bonds guaranteed by Citgo’s collateral. Senators raised their concerns – regarding Rosneft’s “control of a major US energy supplier” – on what they consider a national security matter to Mnuchin, who heads the Committee on Foreign Investment in the Unite

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Our Research and Analysis Reports are not directed at or intended for use by any person resident or located in any jurisdiction where (1) the distribution of such information or functionality is contrary to the laws of such jurisdiction or (2) such distribution is prohibited without obtaining the necessary licenses or authorizations by the relevant branch, subsidiary or affiliate office of BancTrust & Co. and such licenses or authorizations have not been obtained.