Caracas Chronicles

Fellow blogger Setty (do yourselves a favor and check out his blog if you still haven’t) has an interesting theory about the government’s recent announcement that Citgo is going to issue $1.5 billion in bonds.

As you may know, Venezuela is facing a flurry of international arbitration cases as a consequence of the forced nationalization of a myriad of companies. Venezuela is also the sole proprietor of Citgo, one of the largest refiners in the U.S. Oh, and in case you didn’t know by now, Venezuela is low on cash.

International arbitration is legally binding in the US. If Venezuela loses some of these arbitration cases and Chávez refuses to pay up, it is within the realm of the possible that a US court could seek to collect by ordering Citgo assets seized.

Setty’s theory is that the government is beginning to load Citgo with debt, so as to render the company worthless. That way, if the courts decide to swipe Citgo, they’d be seizing mostly debt. 

I don’t really know how plausible this is, given how the government has mentioned dropping Citgo a bunch of times and has failed to do anything about it. Chavistas seem to have reluctantly accepted that the access Citgo provides to what is still Venezuela’s most lucrative market is crucial to Venezuela’s cash-flow. There’s been a lot of hyperbole about Venezuela "diversifying" its markets, but that’s still a long ways away.

Furthermore, Citgo is apparently in debt, and bleeding money, and the government certainly does not have the cash to keep things running. It could be that this is just an internal Citgo business decision. Regardless, credit rating agencies are not impressed.

But it’s possible that the Venezuelan government has concluded that, sooner or later, for one reason or another, they will lose Citgo, and that they better begin laying the groundwork. 

If that’s the case, then Hugo Chávez’s decision to gut Citgo would be tantamount to those homeowners that decide to rip the toilets from their mountings, break all the windows, and trash their homes when they get word of their imminent foreclosure.

Which, come to think of it, fits his character pretty well.