Borrowing at Credit Card Rates


Let’s be clear: for a country to issue a sovereign bond with an 11.95% coupon is really just a polite way of saying it’s broke. Moderately responsible individuals in the first world can literally get credit card debt cheaper than that.

Over the last year or two, we’ve all gotten pretty much inured to news of debt issues with eye-popping, salvaguarda-standards-busting interest rates. It may be that in the rest of the known financial universe these yields are more often associated with system-shaking, emergency-summit-holding, waltzing-right-up-to-the-edge-of-default hijinks, but for us it’s the new normal.

Stop and think about what this means, though. It’s now normal that the newly certified Holder-of-the-World’s-Largest-Oil-Reserves pays more on its sovereign debt than some regular Joe with a credit card.

You really gotta pinch yourself…

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  1. What a coincidence. Just yesterday, Ramirez announced that Venezuela has the greatest oil reserves on the planet. In other words, we can endebt ourselves as much as we want. Fool!

  2. I am trying to explain this to some people in Venezuela as simply as possible.
    I think they understood a bit of it, sort of. They also understood it is probably not going to affect them directly in the next couple of years.
    It’s not like they would be able to buy less clothes in that period of time or something like that.
    That’s enough for them. The rest is far future.
    They don’t care. It’s an act of God.
    It’s Venezuela.
    It pisses me off;

    • No, it’s that they are going to suffer hardship and instability like nothing they have experienced before at some point in the future. And then suffer civil unrest. And then who knows what.

      Probably going to blame “capitalism”, or the next government. It almost makes you wish the opposition lost the elections of 2012. So ignorant minds might correlate the petrostate and populism with their suffering and possibly, possibly establish a causation link.

      But suffer they will. There’s no escaping that. There was no escaping that in 2006, much less now.

    • That’s a good question, John.

      It’s going to finance capital flight. Anybody with money in Venezuela wants dollars, because they have zero confidence in the future of the country. Local companies, multinationals, local citizens, everyone. Problem is, Cadivi won’t give them dollars at 4.30 to take their savings overseas. So they pressure the government until the government caves in and sells them these dollars (via bonds) at a rate of close to 5 something, effectively a subsidy from the black market rate of 8 something.

  3. John: It’s not easy to fund the Bolivarian revolution and at the same time support the Cuban revolution, maintain the Bolivian one and help the Nicaraguan one. Add to that promoting other revolutions and buying influence elsewhere and by the end of the day you are talking about US$ 12-15 billion a year.

  4. LHC dixit: ” y donde estan los reales?”

    Does anybody even care?….Venezuela, the best place to be a polititian in the world. huge income, no DOLIENTES, no accountability.

    No wonder we have tens of wannabies pushing for el coroto.

  5. Let’s be clear: for a country to issue a sovereign bond with an 11.95% coupon is really just a polite way of saying it’s broke.

    FT, it could also mean that only by paying such high premiums are investors willing to sink any money in Chavezlandia, don’t you think? You know, risk factoring, default looming in the horizon and pegged to the caudillo’s latest chemotherapy-related mood swing, and all that…

    • I was talking to a bond guy at one of the big NY investment banks recently and he said that the funny thing is that they’re not concerned about WILLINGNESS to pay, they’re concerned about ABILITY to pay. It’s too obvious to them that the government can’t make 15 y último unless it keeps its access to foreign credit going, so politically that is going to be a very high priority.

      The problem is that PDVSA misses its investment targets every single year, and so it misses its production targets too, and it just can’t generate enough cash to sustain the government’s parallel spending-and-importing binges much longer. You don’t get paid for oil you don’t pump out of the ground, and the new PDVSA hasn’t shown any capacity to pump enough to service debts at the rate they’re taking them on.

      So no, it’s not political risk they’re fretting about. It’s just the basic arithmetic of money coming in and money going out. That’s what’s behind the insane yields.

      • Hey, I am not saying that political risk is the only factor, but it is certainly a contributing one I think. Chavez is basically banking on oil underground, but as you say PDVSA does not have the capacity to pump enough of the stuff to keep the galactic revolution in black. What are the chances of that situation changing in the mid to long term? Nil. So bankers and assorted speculators are to an extent banking on oil prices to remain, at least, as they are, so that el caudillo can keep up with payments. But then, production is falling, so prices will have to increase, if Chavez is to have the same room to maneuver. At the same time, the size of debt balloons, and with it, its sky high interest, so yes, Chavez HAS to offer those rates mate. It’s a high risk scenario, if you ask me.

        Correr la arruga it was called back in the day, remember?


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