The Venezuelan bond market – not for the faint of heart

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Wanna buy some bonds?
Wanna buy some bonds?

Venezuela is now the riskiest country in the world. I break down the reasons why in my latest for FP. The value added:

Deep down, however, the government understands it is in a bind. It is simply unwilling to remedy the situation. Just last week, President Nicolás Maduro announced that the government would increase the sale of dollars, partly by issuing new debt. At the interest rates the market is charging, this constitutes an expensive transfer of wealth from future generations of Venezuelans to the well-connected elites of today.

It has also resorted to hunting down no-shows for flights out of Venezuela, looking for those wanting to take advantage of currency controls. And instead of promoting the few pragmatists in his administration, he has sidelined them, instead giving more power to the military and the radical Marxists. The government has also blasted private companies (“parasites” in chavista lingo) for demanding cheap dollars while not exporting enough. President Maduro has publicly lamented that the private sector is still a large portion of the country’s GDP, a sign that his dream of “socialism” has not yet been fulfilled.

I really wanted to go where Quico went last week: to say that the government wants to bankrupt the economy. But I chose to stay on the safe side for now.

18 COMMENTS

  1. Hi Juan!,

    I really liked the FP article. There is, IMHO, one thing that should be corrected: Chavez was NOT the one that nationalized the oil industry, he was just the one that reversed the mixed public-private ventures to exploit marginal oil fields.

  2. Juan has done a very good piece and yet the reduced space format he must use forces him to totally misrepresent the facts of Chavez alleged ‘nationalization’ of the oil industry . All chavez did was force the operating contracts to be transformed into joint ventures in which pdvsa had a 60% participation . ( whereas in the contracts Pdvsa had 100% control of operations and retained total ownership over production ) and to force 4 faja joint ventures ( responsible for only a fraction of Venezuelas total production) to increase Pdvsa’s participation from 40% to 60% (even if the control of their business by Pdvsa was already assured through other contractual mechanism . )
    My own suggestion would have been to say that Chavez “deepened state control over certain partially privatized portions of the oil industry”. Doesnt read as easily but is certainly more faithful to the truth of what Chavez really did.

  3. If Chavez nationalized, then did Maduro denationalize? I dont understand how changing percentages is a nationalization. All Chavez did was change the law, so that PDVSA would have to own 60% of all projects, but companies that accepted the change and the compensation still were able to keep their stake. The principle of control of assets and finances is what Chavez imposed.

    • Changing the operating contracts to joint ventures with 60% Pdvsa participation gave Pdvsa no greater control than it had before , In these contracts Pdvsa had 100% control over the production , the finances and the assets. Changing the faja joint ventures so that the Pdvsa participation rose from 40 to 60% didnt give Pdvsa more control over the business , planning or finances of the company , it only increased the amount of money which Pdvsa had to put to finance its operations and total control over the day to day running of the purely phisical operations with consequences which have been disastrous given Pdvsas incapacity and incompetence . So much so that Minister Ramirez is now announcing that it is allowing a new model for the operation of the faja joint ventures that gives them greater ‘autonomy’ . faja joint ventures in any event only accounted for some 18% of Venezuelas oil production (600.000 bls our of 3.450.000 bls per day) . It was all a farce which every one believed and for which we will now how to pay a heavy price.

        • You keep on writing your hard hitting pieces Juan! , we all enjoy them and they do a lot of good , even with the ocassional slips with technical oil stuff or old oil industry historical details !!

      • In my defense, I will say that “nationalization” is a vague term anyway, subject to what people interpret as such. When a caudillo comes in and changes conditions, changes ownership, raises taxes on a whim, and insults foreigners who dare challenge him, well… to most people, that’s what nationalization is.

  4. So, JC, are you preducting that the government is going to be insolvent soon? Nor according to Ramírez if you bothered to lisen to his discourse last week.
    Venezuela’s external debt-GDP ratio is very low compared to other countries – especially the Europeans and the US and Japan, so why should the country go bust? Oh, I understand because the government refuses to embrace neoliberalismm and go crawling to the IMF.

    As O wrote in a recent article – I have been waiting for more tan 14 years for the doomsters like yourself to be right and you have always been wrong – no meter how good ot bad the economy is.

    • Venezuela’s debt service costs to GDP ratio are far above almost any other country in the world. If the Venezuelan government had forethought and confidence it wouldn’t be borrowing at these rates. Instead it is borrowing at rates higher than my credit card, either the Venezuelan government is desperate or stupid. Take your pick.

      • “Venezuela’s debt service costs to GDP ratio are far above almost any other country in the world. ” could you provide any support for this claim?

      • 2018: Damn these rapacious bondholders who are holding out and preventing Venezuela from re-negotiationg its debt. Not only that, but many of them are vulture funds and not even the original bond holders! If this US had any heart for the poor Venezuelan people, it will forget old wounds and help re-elected president Maduro restructure Venezuela’s debt and help the long suffering Venezuelan people.

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