Money down the toilet

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A picture of Maduro's economic policy
A picture of Maduro’s economic policy

Bloomberg’s Charlie Devereux, Corina Pons, and Sebastian Boyd are reporting that Venezuelan Finance Minister Nelson Merentes will soon hit the road to see what appetite there is for new Venezuelan bonds. Apparently, the Maduro government needs fresh cash because it doesn’t have enough on hand to import toilet paper.

The title of the post is to be taken literally. We are basically trading bonds for dollars so we can … oh, never mind, you get the point. The money quote:

Private-sector imports fell 11 percent in the first quarter from a year earlier due to the country’s economic slowdown and the curtailed access to hard currency, the central bank said on May 31.

The central bank’s scarcity index, which measures the amount of goods that are out of stock, rose to 21.3 percent last month, its highest level since January 2008.

Imports may have fallen 30 percent in March, according to estimates from Bank of America economist Francisco Rodriguez, who extrapolated from published data on exports to Venezuela from six of the country’s trade partners.

“It’s a planned economy of the Soviet type we saw last century and the results are similar,” Alberto Ramos, the chief Latin American economist at Goldman Sachs in New York, said in a phone interview. “They get billions of dollars from oil but they have to import everything else, which means there’s increasing demand for a finite and scarce supply of dollars.”

“If you have a double-digit yield, it’s because people don’t want to provide you with credit,” Morden said in a phone interview from New York. “I don’t know what they could bring to the table to change our minds. If they’re going to convert people they need to change the speech.”

1 COMMENT

  1. Really a shame. You know, the opposition should try to explain as simple as possible how the government is selling the future of Juana Pacheco’s children by selling these bonds.

    The difference with the USSR is that Venezuela’s average education levels have become even worse than before but, on the other side, Venezuelans still can buy the equivalent to glass beads
    from abroad – at least for some time.

  2. That 1989 Déjà Vu just gets stronger and stronger…

    Take it away, Moises Naim…

    –La gente no entendía ni aceptaba que no había alternativa. Tú podías dar discursos, podías darte golpes de pecho, podías desgarrarte por la situación de los pobres, pero al final la realidad era que no había dinero. Punto. Además, no se tenía un aparato para seguir controlando los precios, no había cómo seguir dando dólares de Recadi a una tasa artificial, ya no se podía proteger más a las industrias ineficientes del país o subsidiar a empresas del Estado que cada año perdían cantidades obscenas de dinero, ni mantener un sector público gigante e inoperante que empobrecía a todos. Había que desmontar el aparato de controles que estaba asfixiando la economía y empobreciendo y corrompiendo a los venezolanos… Y todas estas cosas estaban conectadas. Primero, se necesitaba dinero y si los organismos multilaterales como el Fondo Monetario o el Banco Mundial no te prestaban, nadie lo hacía. Y los multilaterales decían que no iban a dar ni un céntimo si no eliminaba el cambio múltiple –es decir, Recadi– que era una fuente de distorsión económica y de enorme corrupción. Liberar el cambio obligaba a liberalizar los precios, y esto forzaba a que se abriera el comercio internacional y a reducir las barreras a las importaciones. Porque si se dejaba que la tasa de cambio fluctuara libremente era imposible mantener los precios controlados y administrados por el Ministerio de Fomento. ¿Cómo decide alguien desde un escritorio en el gobierno cuál es el precio del jabón, del pan, de una medicina o de miles de productos si la estructura de costos de cada uno de esos productos cambia a diario, a medida que oscila el precio de la moneda, la tasa de interés o los insumos necesarios para la producción? ¿Cómo sabe un funcionario medio, mal pagado y poco formado de un ministerio, cuál debe ser el precio «correcto» de la pasta de dientes que consumen millones de venezolanos cada día? No lo sabe, no se puede. Si no puedes controlar precios –y además era un mito que estaban controlados– entonces es necesario liberalizar importaciones. De no hacerlo, de no liberalizar las importaciones, estallaría la inflación, pues los vendedores no tendrían incentivo para ponerles límites a sus precios, ya que la competencia del exterior estaría siendo frenada por los controles del gobierno. Por eso había que quitarlos; para que quien vendiera cauchos, por ejemplo, no cobrara más por esos cauchos que lo que costaría traerlos importados. Había que introducir competencia internacional para ponerles límites a los precios de los industriales y comerciantes locales. En conclusión: todo estaba entrelazado. El país no tenía opciones, y hacer una cosa obligaba a hacer la siguiente y, luego, la próxima… Pero esta explicación que acabo de dar jamás fue aceptada por quienes criticaban la política económica. Todos proponían «el gradualismo». Venían a mi oficina o me interpelaban en el Congreso y pedían gradualismo. Eso, en la práctica quería decir subsidios y protecciones para los intereses que representaban y shock para el resto del país. Los sindicatos, los industriales, las empresas multinacionales, las pequeñas y medianas empresas, los indígenas, los maestros, los médicos, los banqueros, las universidades, los militares, los empresarios… todos se organizaron para presionar al gobierno y tratar de extraer subsidios del fisco y protecciones que los cobijaran de los costos del inevitable ajuste que había que hacer. La verdad es que ningún gobierno democrático escoge darle un shock económico a su población, a sus votantes, si puede evitarlo. Ese debate de shock versus gradualismo, en realidad, era un debate absolutamente hipócrita, tendencioso y teatral. No había la opción de hacerlo de manera diferente. Al país se le habían acabado las opciones.

    • But yes… the deja vu is feeling so strong. Again. Crucial differences. Oil prices are still high and industry there although non competitive with imports, existed. Whereas today the national industry is basically out of business and dedicated to importing.

    • Its no secret in the financial community that the workingcap for the government has been consistently declining despite oil prices being high. As oil prices slide this summer, things will accelerate. Also, the complete disinvestment over the last dozen years in PDVSA has certainly exacerbated the problem.

      I’ve mentioned previously after the first devaluation that as badly overvalued as the bolivar still is, they had to do one (which we saw a month or so ago) if not two more. I believe that if oil prices bottom around $90, it’ll be Nov-Dec. If they drop below $90, likely much sooner, with 4-8 weeks if it hits near $80. Barring an angel (of the Sinopec variety perhaps), its likely going to be ugly. Call it a hunch.

      The bonds are an attempt to raise continued working capital as they try to extricate themselves. I’ve also mentioned previously that there’s a problem with the quality of the bond holders. This remains true and has not improved. Add to that the change in Brazil’s taxation of their bonds and a rumored issuance on their part, and the market is decidedly soft for a Venebond offering. Any bonds will be substantially discounted even by Venezuelan standards. The real problem for investors who look past the yield is this: the ship of state is completely rudderless with full sail, no captain or even an experienced bosun to as the ship heads into the teeth of hurricane winds. Maduro is his own worst enemy.

      I am always perplexed by their dithering. When it was one man, it made sense, but now with stability on the line and another potential Caracazo on the horizon, you have to wonder. I realize it would be regionally costly on a diplomatic front, but why wouldn’t you sacrifice the ridiculously costly deals to protect yourself at home? I understand machista pride, but this is beyond stupidity at this point. I suppose to renege on those deals would be to admit the revolution’s failure and that they’d rather go down with the ship than do that.

      I know everyone is still focused on electoral fraud and searching for evidence, but I stand by my previous position that losing the election was/is the best possible scenario for Capriles, even if it will present him with a far more formidable foe down the road. Were I in a position to advise those who advise Capriles, I’d being coming up with alternative policies that are clear, concise and easily understandable and appealing to even the simplest campesino in Parapara given what the future likely holds for all Venezuelans.

      • Incidentally, and not that anyone is paying much attention to this old topic, but I’ve seen a pretty sizeable run into short positions on bonds from LatAm and SE Asia these last couple of days by institutions and ETFs. That certainly cannot bode well for a new issuance were the regime to try and float one.

  3. A recent article by Vicente Leon anticipates that the coming december municipal elections may become a plesbicite on the Regimes popularity /egitimacy given that Maduros (questioned) electoral victory was so tight . It is therefore crucial that the Regime show good results in the December elections . This at a time in which the regimes finances are so short and there are shortages , inflationary increases in prices, rising insecurity and a breakdown in certain public services . The government has responded to this challenge by strictly rationing cadivi dollar for imports , probably tightening also the conditions under which they supply crude oil to their lat american allies (without letting anyone know) , using the army’s street presence to quell crime , attempting to improve power service to large cities etc. They however have to find a way to get more money to improve their december electoral standing , The chinese recently announced a US$ 4 billion loan but this is a mere drop in the bucket , they need more money and in todays climate of doubt on the regimes finances and stability an uphill effort , with low returns and very high costs . Getting more money to spend is not just about toilet paper it may be about the regimes continued sustainablity !!

    • Good point. It could lead you to wonder if bond issues are not for continued populism and vote buying rather than toilet paper. Just ask Fidel “are the elections more important than wiping your ass?” My guess would be an answer of “yes.”

      • Glennn: Forgive the indelicaly , but surely it has ocurred to you that bond issuing and ass wiping may be used to serve the same ultimate purpose !!

    • How they are going to get folks to go out and vote while calling into question the validity of the CNE’s “perfect vote” system is going to be the question of the decade

      • The fact that the CNE was barely able to muster a 1.2% mayority with a huge outcry over the results is evidence that the regimes capacity to manipulate the resuts is limited , the manner and sites in which the fraud was commited are now being pinpointed and can in future be the subject of greater opposition scrutiny , if the opposition is able ( as is likely ) to increase its votes in december in larger numbers the CNE will not be able to manipulate the results in enough numbers to avoid an Opposition victory. The government will use massive fake social media messages to foster a spirit of defeatism in the opposition ranks. We must all be aware of this trick . Pdvsa is known to have dozens of people in a room inventing sites and messages hammering this defeatist message to improve their chances in december !!

  4. “It’s a planned economy of the Soviet type we saw last century and the results are similar,” Alberto Ramos, the chief Latin American economist at Goldman Sachs in New York, said in a phone interview. “They get billions of dollars from oil but they have to import everything else, which means there’s increasing demand for a finite and scarce supply of dollars.”

    Thanks for spelling out the inevitable.
    Currenzy Controlz , like internet viruzez
    are hard to stamp out.
    Vz bondz are still the way to go.

  5. Things are really doing well here, you are just doom and gloom oligarchs preaching that the country is doing badly…

    Oh! This just in, Barclays says:

    Venezuela: Moving into recession

    Economic activity in Venezuela stopped suddenly in Q1, indicating that, as expected, the country is moving toward a recession this year. GDP registered just a marginal expansion of 0.7% y/y – in line with our expectations (0.8%) and below market consensus (1.1%) – which is the lowest quarterly growth in more than two years. Seasonally adjusted, this means that the economy shrank 2.5% q/q, which in annualized terms represents a 9.7% contraction. This basically shows the deterioration of the purchasing power of consumers as a consequence of the devaluation of the currency and the resulting increase in inflation, supply disruptions due to restrictions in the FX flow, and the deceleration of public expenditures.

    Shucks, I guess the revolution is not working…time for the PSF’s to just shut up

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