Walking Blindfolded Towards The Edge of a Cliff

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blind-fold-walking-off-cliff-1024x960This story in El Nuevo Herald is…well, just staggering:

En una muestra del grave estado de las finanzas públicas venezolanas, el régimen de Nicolás Maduro ha emprendido lo que hasta hace poco era impensable: un acercamiento con el Fondo Monetario Internacional (FMI), que incluye conversaciones exploratorias sobre lo que el país sudamericano debe hacer para obtener nuevas líneas de financiamiento, dijo una fuente familiarizada con la situación.

The long and the short of it is that with China apparently balking at extending the Maduro government new loans, some people in the government have started putting out feelers to…the IMF!

It’s a fun and important story, and it’s hard not to speculate that the source here has an obvious agenda – it’s hard to think what could weaken the “pragmatists” hand more than this kind of exposure in a right wing gringostani paper.

But, again, it just confuses me: it’s impossible to imagine Chavismo even considering a rapprochement with the bogeyman IMF  unless the government is getting perilously close to a kind of hecatombic fiscal collapse. I mean, even without the cargoship-sized loads of luggage the institution’s very name carries in chavista circles, the fact is that the IMF is designed as a lender of last resort. You just don’t go there until you’re totally out of both money and options.

But then, guys like Miguel run through the data and conclude that, most likely, there’s enough money in the kitty for a good few years to come.

Which one is it? Are we inches away from the cliff-edge? Or a few miles?

We just don’t know, because we’re making this particular walk with a blindfold on. With Fonden and Fondo Chino refusing to publish their balance sheets, and a general, deep opacity now the standard M.O. when it comes to reporting the public sector’s finances, we’re reduced to looking for “signals” here and there. Which makes it hard not to fixate on things like that Nuevo Herald article.

The ugly truth is: we don’t know how far that cliff edge is – all we know is that we’re walking toward it.

[Hat tip: La acaparadora de diamantes en el cielo…]

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41 COMMENTS

  1. Ok, sunday morning and all that, but I feel I need to chip in.

    I need to point out the difference between a “liquidity crisis” and a “solvency crisis”. In the case of Venezuela, it is entirely a liquidity crisis – methinks that Venezuelan assets are by far larger than our outstanding debts.

    If this is a liquidity crisis, the IMF is the best alternative – this is its raison d’etre!

    Of course, all liquidity crisis may lead to solvency crisis, especially when your assets are not liquid (monetary gold, anyone?). And a different issue here is how they are going to sell an IMF bailout to the chavista crowd (cue Master Spin Doctor Izarra!)

    • Right. But there are a few wrinkles…

      1-The IMF is the place you turn to when you have a liquidity crisis and absolutely nobody else is willing to lend to you.
      2-Normally, countries that clearly have plenty of assets to meet their obligations but happen to face a short-term liquidity problem don’t have a hard time raising normal financing either bilaterally or in the Bond Markets. Forget about the gold reserves, I mean, do the words “largest oil reserves in the world” mean nothing these days?
      3-What’s really weird about this situation is that a country with the resources Venezuela has would find itself facing a liquidity crisis at all.

      And yeah, I can’t wait to see the sales job the Communicational Hegemon does on this. They’re going to have to crank the Orwellianism up to 11. I can just about picture the ads spliced together from different bits of Chávez’s speeches showing that the Comandante Eterno always wanted to partner with our solidary brothers on 19th Street but the oligarquía amarilla stymied him at every turn…

      • 2. Could number two be related to lack of confidence in Vzla/PDVSA? And they’re ability to keep up production and to honour their commitments? What I mean, if you tell me you have barrels and barrels of chocolate ice-cream in your basement, but all I’ve heard in the news is: “Quico doesn’t maintain his stairs, five steps are broken” “Alleged saboteurs took the keys to the basement while Quico was in the shower” “A raccoon bit on the wires and left the house without power, the ice cream is in danger of melting! (but actually, Quico forgot to pay his electricity)”. Well, I’m just gonna go get my ice cream from the store or someone else, even if you’re giving it away for peanuts! (sundae pun not intented).

      • Forget about the gold reserves, I mean, do the words “largest oil reserves in the world” mean nothing these days?

        It doesn’t mean much when the oil in question tips 8°API on the scale, has the consistency of heavy molasses, involves tens of billions of dollars upon tens of billions of dollars of investments to extract even a few hundred of thousands of barrels a day and upgrade them to something vaguely sellable on the world markets and takes years for a project to come on-stream. And that’s assuming the development is supported by a healthy economy and top notch infrastructures and work force of the like you can find in Alberta, Canada but is nowhere to be seen in Venezuela.

        That’s the core problem of Venezuela, this illusion that the country is incredibly rich and will be able to live off its oil without thinking too much about it. But it doesn’t work this way. Oil is a business for the highly disciplined long distance runners, not an automatic cash cow that just spews money from any hole one cares to dig in the ground, especially the oil which is found in Venezuela.

        Oil you cannot get out of the ground and sell is worth precisely ZERO.

      • It’s neither, it’s 1.487 billion of the 10.75% coupon exchanged in February 2004. There may be like 15 mm more of the earlier bond that was exchanged for.

        Hard to believe they would approach the IMF seriously. The measures the IMF would ask for would solve much of the problems, such as more realistic gasoline and electricity prices. Why not try them first without going to the IMF? Makes little sense to me unless that BCV numbers are all fake.

          • I think I am prone to agree with Mr. Octavio on this. Its bad, but not bad enough to justify the need for the IMF yet. There are any number of tricks the government can still unwind before seeking out the LoLR. You know, the usual suspects such as continuing suspension of short term liabilites, devaluation, repatriation of funds from the shadow funds, renegotiation of terms with debtors, etc….some of which they have been doing already.

            For what it is worth, these rumors, or permutations thereof have been around for the last couple of weeks. They always seem to pop up when there is a bond due for repayment on the em scene where the economy maybe be crippled or subject to irregularities.

            Is it possible? Yes. Is it likely? I don’t believe so.

  2. I agree that Venezuela is facing cash flow issues. However, there are so many other equally serious issues as well. For example, can this government be trusted to honor contractual obligations?

    • Gordo: the answer is no , so much so that Pdvsa must ask its partners in new ventures or its contractors to put up all of the funds needed to carry out the investments needed to keep the oil flowing and generally will not get any ‘takers’ unless it provides them with some kind of security ( e.g. based on the securitization of the income coming from future oil production ) to ensure that their financing will be repaid..

      Contractors and Partners no longer trust Pdvsa ( The Chicken laying the golden eggs) to simply pay what it owes but must securitize the repayment with future oil proceeds . The exception is the care the govt has in faithfulling servicing its international debt .

      The figure is on record of the billions of USD of mounting debt which the govt and its companies owe its suppliers and contractors.. Money is getting tighter for the govt whose clientelar commitments and generous subsidization policies carry a very heavy load and are for the most part increasing ..

  3. The article is very unsourced as to the main point of interest. Who is it, exactly, who says Venezuela is talking to the IMF? If this story is true, I would expect a wave of info in the business and commercial papers, because a lot of money could be made orn lost.

    The IMF website says nothing about any negotiation with any country as a matter of apparent policy; the last thing they say about Venezuela is that the Mandatory Financial Stability Assessment is 91 months overdue…

    • IMF Press Conference, March 2013: MR. MURRAY: ” On relations with Venezuela, I have nothing specific to offer, but I want to remind you that Venezuela has an Executive Director on our Executive Board so we have very active engagement with Venezuela through the mechanism of our Board. QUESTIONER: Are you happy with the relation you have with Venezuela? MR. MURRAY: I’m not going to characterize whether we’re happy or sad. I’m saying that we have active relations with Venezuela. We hope to have good relations with all of our member countries.” http://www.imf.org/external/np/tr/2013/tr031413.htm

    • Thank you very much Jeffry.
      This rumor has been around for few days already. The source is Gustavo Coronel, whoe went to a conference in UK (Cambridge) and posted something on his blog like, “hey guys, I spoke to some friends of mine on this forum regarding financial criminality (or so…) and guess what, Venezuela is negotiating with IMF”.
      If I’m not wrong, since I saw El Universal quoting the Herald article, the source for the latter was Coronel.
      The government has not said a word about it, and that as much suspicious as you can get, but they can say they don’t answer to every word disociados write.

        • Ehhhh, as you wish Francisco, but I wouldn’t put my hands on fire for the Herald, would you?
          There are a couple of suspicious phrases for me in the Herald article. The first has to do with something like “normalización de las relaciones con el FMI”; the other is the source´s willingness to lucubrate on chavism infight and how detail is the description about that situation. It just doesn´t look like an IMF technician…

  4. Francisco BTW,

    Even more juicy is the rumor that several Venezuelan bonds and other credit instruments are up in the nearly, apparently very nearly future.
    If that´s so, that would really make even Moscow run to the IMF.
    But once again, just a rumor I cannot confirm and the source is even worse than Coronel: Rafael Poleo…

  5. A FYI comment:

    I’ts not unprecedented for Chavismo to talk to the IMF and World Bank.. When Alí Rodríguez Araque became Minister of Finance in 2008, he invited both the IMF and World Bank to Caracas for a consultation (a rather reasonable undertaking, then or now!). As I recall, the US embassy was asked by officialismo to facilitate this, and they did so.

    I looked for a reference (this reports on a TalCual story from 2008)
    <> See:
    http://augeblog.blogspot.de/2008/07/fmi-y-bm-en-caracas-por-invitacin-del.html

    Also, at least until rather recently, Ali R. was the Venezuelan representative at the IMF. see this Wiki entry, near the end
    <> http://es.wikipedia.org/wiki/Al%C3%AD_Rodr%C3%ADguez_Araque

    I think he had similar jobs at the World Bank earlier.

    • The augeblog post claims the IMF came in July 2008 to analyse the economy and make recommendations.

      But the IMF site says that the obligatory Chapter IV IMF financial review of Venezuela’s economy is 91 months overdue, due to lack of agreement on parameters of review.

      That’s just short of nine years.

      • I have friends working at WB who’ve told me there is minimal – basically no – contact between the Bank and the officials who supposedly represent Venezuela vis-a-vis the Bank. I’m guessing that’s the lay of the land with IMF as well…

  6. Another issue, besides the cash flow issue and trust that Venezuela will honor contractual obligations are the circumstances that Venezuela is borrowing money to make debt payments!

  7. What advice could the regime possibly be seeking from the IMF that it hasn’t already been given, by sources deemed far more credible by the regime (i.e. China) ? I mean, it can’t seriously be the case that they don’t know what to do.

    Imagine you are robbing a bank with guaranteed impunity; do you suddenly sit down and consider, gee, is what I am doing the best way to make a living, and what alternative course of action should I be taking?…maybe I will go find a cop and ask those questions before I continue….

    No. Obviously not. If you are robbing a bank, you keep robbing until the bank is empty, and then you flee the jurisdiction. I think that is really the policy underpinning of 21st Century Bolivarian Socialism. So far it has been working great.

      • Great analogy Canucklehead. Of course, the next bank they intend to rob is the IMF.

        The IMF will want guarantees against corruption, assurances that the money will be spent as directed, and assets to back up the debt.

        I bet the IMF says “NO” because the IMF does not like dumping its funds into a sinkhole.

  8. Some precious nuggets:

    http://www.aporrea.org/actualidad/a173572.html

    “El Comandante Chávez (con mucha razón por experiencias amargas con esta Institución como lo que ocurrió en Argentina) durante su gestión de gobierno promulgó el alejamiento del FMI y anatemizó al Organismo..Traerlo de vuelta será difícil para las nuevas autoridades..Pero podremos escaparnos a sus recetas? La inflación y la escasez nos llevan directo a sus fauces. A menos que nos decidamos por una política económica más moderna y con menos trabas los tendremos por estos lados más temprano que tarde.”

    Could it be SIBCI at work there?

    http://www.aporrea.org/actualidad/a173559.html

    “Por último, pero no menos importante es estar claros que cualquier solución que encontremos debe pasar por negar cualquier solicitud de apoyo a instituciones como el Fondo Monetario Internacional. Una acción como está sería la peor traición al legado de Chávez y el pueblo jamás lo perdonaría.”

    The last one comes of course, from pseudo intellectual Nicmer Evans.

  9. Could we for one second assume that this is actually happening. that the Chinos estan hostinados and that the IMF is the only available source of finance (not too hard to assume actually). What then are the conditions the IMF will make in order to provide financing?

    I can think of a few:
    – A substantial increase in gasoline prices.
    – The dismantling of price controls
    – An end to currency exchange control mechanisms (and Diosdado’s empire?)
    – A changing of the guard at los ministerios (bye bye Monje Loco).
    – Seriously curtailed government spending – no more mision vivir viviendo.

    The consequences of all that will be tremendous, especially in real income terms.

    None of that is politically viable for these guys. What do they need then to sell it? A huge crisis blamed on iguanas and opositores that then allows them to declare a total collapse (name sound familiar?) and accept conditions as a way to save el comandante supremo’s legacy.

    And even then it sounds impossibly far fetched. They are not pidiendo cacao, they are rogando por cacao.

  10. Is it safe to say that:
    1. The Chavez government has enough on its plate already, and that more seizures of properties would only be anti-productive at this point?

    2. That for the foreseeable future the Chavez government doesn’t have a path to get to a point that it could resume property seizures?

    3. That given these circumstances, that earlybird investment might start up soon on the assumption that Chavez government is not likely survive long enough to recover, and therefore the investment climate is moving toward positive.

    4. That the scenario of a Cuban totalitarian economy is less likely to occur given the dynamics that economic deterioration is too rapid, and there are no leaders with real solutions.

  11. On reading the aporrea article , there are other ways of interpreting its intent :
    1) the regime understands that to ensure its economic survivavility some unpopular measures are in order and wants to use the FMI as the “bogeyman” , whose horrid embrace the govt must avoid by taking a watered down version of those horrid measures the FMI would impose , “for the good of the people”.
    2.- the regime understands the need for these unpopular measures but dare not adopt them on its own , so it enters into an arrangement with the FMI that makes them mandatory , so that the blame for them lies with the FMI , not on the govt , (which instead has fought hard to get those measures ‘watered down’ , also ‘for the good of the people’.)
    The starting point of course is that the govts financial situation is becoming fast unsustainable ( due to the secret action of imperialist conspirators ) and it must take measures that wont gain it much applause but which are nonetheless necessary to defend the conquests for the people accomplished by dear defunct supreme commander Chavez. Circumstances are forcing the govt to privately take steps that bring more rationality into public governance while keeping up a fachade of revolutionary bravado .

  12. Hello:
    I am reading comments from Mayke Santos (is that a real name?) about me being the source of the story of El Nuevo Herald. Francisco is on the right track when he replies suggesting that I am not the source. In fact, I am not the source.
    El Nuevo Herald called me and asked me some days ago about my source. I told them what I knew but did not identify the person I spoke with in Cambridge. I did say that, if true, this move would indicate that Maduro and his gang are at the end of the road, which is the same thing I said in my blog.
    I see that, after talking to me, The Herald did their own search and found a source of information about this story. This is all I know.
    I am always accessible and willing to give my side of the story. My email address is : [email protected] . I also accept comments in my blog: http://www.lasarmasdecoronel.blogspot.com although still few go there and care even less to comment. I am starting to get an inferiority complex!

    • Gustavo: would you exclude that they might just be quoting your quote of the source and passing it as “a source”? It is not the first time media outlets are
      re-using sources and at the end people end up hearing “different sources” which are the same (being the Devil’s advocate).

    • Estimado Gustavo,
      With regard to your blog: I’ve gone there many times to sign up to get updates (i.e., to subscribe to the blog). But, I don’t see a way to do it. Is it possible to get an e-mail notice of your new posts?

    • Hola Gustavo,
      Let me clear out my comment. The Herald found out about these “negotiations” through you. Whether they used another source to “confirm” the rumor, probably one insider from IMF, is accessory. You are in fact the primary source of the rumor, since nobody before you published anything. So you can say you are not the source, but in fact you are the founder source, or, as Francisco puts it, where the story originated.
      BTW, yes, Mayke Santos is a real name.
      I’d go to Aporrea and check the dates to see if they were published before your article in ND, but I have no stomach to do it today.
      I hope this helps

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