The Only Humanitarian Solution

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Francisco Rodríguez (FRod to Venny econ nerds) has taken a lot of flak in recent day. The Torino Capital Chief Economist called for the National Assembly and the National Constituent Assembly to jointly approve any future debt issued by Venezuela — pitching it as a pragmatic solution to an overwhelmingly pressing problem.

More than $3.5 billion in debt comes due in the last quarter of the year, and the government is billions short. It could, technically, sell off a bunch of the gold supposedly sitting in a vault under Carmelitas corner, but it’s made no move to do so, amid speculation that it just can’t find a reputable counterpart. In any case chavismo’s gold holding claims inspire about as much confidence as an Hallaca in July.

Time was when the opposition could posture and say these decisions should be put off until it took power. But MUD’s implosion makes the chances of a transition government remote in the near future — meaning this is either a problem that gets solved with chavismo in power or it doesn’t get solved at all.

We’ve been writing about impending default so long here it’s easy to just dismiss it in a Peter-and-the-Wolf kind of way —and for sure some Venny Traders love to rag on us for it— but at this point, the government is down to throwing Hail Mary passes at Beijing you couldn’t say QIV is looking good.  

For years avoiding default has been the guiding principle of chavista public finance management. For a long time, that made a certain logical sense: default on debt and it becomes hard to participate in international trade at all. For a country as import-dependent as Venezuela, this looked like the very worst case scenario. The “suicidal willingness to pay” has always predicated on the idea that not paying was the real suicide.

MUD’s implosion makes the chances of a transition government remote in the near future.

But the obstacles to continuing to pay keep mounting. Venezuela’s chaotic, chronically-deficitary public finances and its manifest inability to invest the money it borrows wisely is, far and away, the biggest obstacle it faces to raising fresh credit. Lenders look around, see a half-dozen unfinished white elephants from the Tinaco-Anaco railway to the Tocoma Hydroelectric plant, and wonder what fresh boondoggle their dollars are going to get wasted on.

Credit comes from the latin root “credere” —to believe— and the simple reality is that nobody believes in the Maduro regime’s economic stewardship anymore.

But there are second order obstacles to obtaining new loans — U.S. sanctions are one, for sure, but lenders’ weariness of lending without proper legislative authorization is another. FRod’s proposal, as it is, amounts to saying “look, we can’t do anything about the government’s rampant irresponsibility, but we can do something about this legislative authorization problem. Default would be so bad for Venezuela, we might as well do what we can do to ease new borrowing.”

But, under this scenario, who would be the lenders?

U.S. economic sanctions make one thing clear: they can’t be U.S. entities. Given New York’s absolute dominance in international credit markets, that rules out the vast bulk of potential “quality” lenders. But even without U.S. sanctions, the political turmoil and the PR disaster that were the hunger bonds for Goldman Sachs mean that no top shelf international institution would participate.

It’s here that FRod’s proposal stops making sense even in its own terms. The kinds of lenders Venezuela could imaginably seek to raise funds from at this point are not known for their exquisite constitutional sensibilities. We’ll probably end up in a shady deal with some Chinese or Russian bottom-feeder that’ll demand bullet-proof guarantees, probably in a Pawn Store-like repo operation on horrible terms for the Republic.

Default would be so bad for Venezuela, we might as well do what we can do to ease new borrowing.

But we’ve seen deals of that kind happen anyway, with or without legislative approval — pawn shops are not, in general terms, much interested in legalistic niceties. My question for FRod is, who is this mythical entity that would extend Venezuela credit with legislative approval, but would reach for the smelling salts without it? There’s just no overlap in that Venn diagram.

Truth is that it’s two decades of shockingly inept economic management that has made financing under reasonable terms unavailable to Venezuela.

As its strategy’s basic unviability becomes clearer and clearer, the government has been taking the multimillion dollar equivalent of payday loans to avoid default, instead of instituting the reforms absolutely everyone has known are needed for years.

Without those reforms, Venezuela can only obtain credit by accepting terms that would seriously harm it in the long run. Approving credit under such circumstances would only make the National Assembly complicit in a monstrous salvaguarda crime, and for what? To kick the can down the road another three months?

The reality is that Venezuela will never have even minimal economic reform while chavismo stays in power. FRod, who tried to counsel the government in this regard and was rebuffed, should understand this better than anyone. But there aren’t any shortcuts left. We only wish there were.

When your junkie kid asks you for just $20 bucks, it’s painful to say no, because you can see that he’s hungry. But when you know full well those $20 are going straight in his arm, you have to say no. It’s unethical to say yes.

As much as we want things to get better, the only way out of this misery circle is a new government, which is nowhere in sight.

We’re stuck.

22 COMMENTS

  1. So Francisco Rodriguez wants the AN and the ANC to work together, which would amount to the AN recognizing the ANC as a legitimate body.

    I know FRod uses to read CC, so if you are reading this, I have three things I want to say to you:

    Fuck you

    Fuck you

    and

    Fuck you,

    you closet chavista…

    • Frod is as chavista as Ramos Allup, Henri Falcon. He’s interested in maintaning the status quo for his business to thrive, or in the case of Allup or Falcon, to keep political power.

      As long as Venezuela keeps paying its debt, Venezuelan bonds will continue to be traded in international markets, and Torino will continue collecting comissions as part of these trades.

      To me they are as bad as chavistas. Pretending to be objective when they clealry have their own agenda and they could give a f*ck about the country’s future.

  2. Your article goes to the heart of the matter. For all the faults that Chavismo has it is their atrocious management of the economy that is physically hurting most Venezuelans. It is the centralized economy that will starve the people (remember Stalin and Ukraine, Mao and the great leap forward?). In fact by using Marx’s historic materialism, it is this that will be the undoing of Chavismo.

    Venezuelans have demonstrated that Chavismo is a military dictatorship, it holds to power through raw violence (el gorilato, pues). Politics, reason, negotiation are, for Chavismo, unnecessary bourgeoisie luxuries.

    How far will the Fuerzas Armadas de Ocupacion Bolivarianas push the death march? Will the impeding default cause them intolerable hardship? I actually think they don’t give a shit about the people.

    So it had to come to this, the cancer that is Chavismo is being treated with economic chemotherapy.

    Pobre pueblo pobre.

  3. I’m on this. Enough from FRod and his glaring alignment with chavismo. Time for CC to start writing articles bringing people like him down to the ground and beaten.

    Propaganda is where chavismo stomps and wins their battles. Using it against them and their shady panas like FRod should be considered as a bare minimum necessity.

    If FRod is willing to sustain such an opinion, there’s no doubt he’s deeply connected with chavismo while milking the cash cow somehow. Crush the fucker, no doubt he’s hiding some old skulls in his closet.

  4. This is a little off topic, but not too off topic, because it concerns China and Venezuela:

    https://www.nytimes.com/2017/09/05/world/asia/china-human-rights-united-nations.html?_r=0

    I tend to agree: why should the AN volunteer to do something that has only symbolic value anyway, and involves all the wrong symbolism?

    And then there is the question of what will happen anyway.

    The Chinese must know from their own history that a world power can only suck so much out of a dependency, until it rebels. And as the USA retreats into protectionism, in Asia and at home in North America, surely the Chinese have got better places to spend their money now. Really, why would they hang on in Venezuela, throwing good money after bad, when they’ve got so many opportunities opening up in Mexico, Canada, Central America and across Asia?

  5. My question to all the opponents of Venezuelan bond traders here is, what the heck is the difference, in terms of principles, between buying and selling Venezuelan oil, and buying and selling Venezuelan debt?

    I am afraid that many of the people who are all F-you A-Rod type thing also got up this morning and paid Nicolas Maduro and the gasoline pump.

    I’m not saying F-Rod is right, but a little humility is in order I think. If you are going to really squeeze the socialists, you had better have the courage of your convictions and be prepared to hurt their capitalist partners.

    • You emphasize a good point, that while the bond holders venerate Adam Smith they turn a blind eye in propping up the criminal ‘socialist ‘ dictatorship in Venezuela. No way should the AN do anything in support of the sham ANC.

  6. “When your junkie kid asks you for just $20 bucks…”

    Not a good analogy. Because probably one can afford $20. This is more like one’s debauched brother-in-law asking one to put up one’s house as collateral for a high-interest $25,000 note – after he’s already borrowed $250,000 and spent it all, mostly on hookers, blow, and fancy cars that he ruined by abuse.

  7. ” called for the National Assembly and the National Constituent Assembly to jointly approve any future debt issued by Venezuela — pitching it as a pragmatic solution to an overwhelmingly pressing problem.”

    When did “Pragmatism” become synonym of “Coprophagy”?

    “We’ll probably end up in a shady deal with some Chinese or Russian bottom-feeder that’ll demand bullet-proof guarantees…”

    Heh, what an irony, that the russian and chinese would end slaughtering venezuelans by dozens to defend the stolen portions of venezuelan land and assets obtained thanks to chavismo, all while chavista would continue braying “¡gringo gojón!” before being erased from the map from a russian bombing that blasts another town into oblivion.

    “We’re stuck”

    Until the people is organized and resumes the fight against the regime.

    • Russia and China can sign on the worthless paper they want with the ANC but it won’t make a bit of difference once this goes to the IMF and World Bank …etc. The contracts written by Maduro are (literally) not worth the paper they are printed on.

      Best thing they can do is take the filthy deals today and let the AN void it later on. China and Russia likely know this, but, there is no “iron clad” behind any of it.

      • I usually disagree with you in the comments, but I’ll be damned if I don’t agree with this pearl:

        “Best thing they can do is take the filthy deals today and let the AN void it later on. China and Russia likely know this, but, there is no “iron clad” behind any of it.”

  8. “When your junkie kid asks you for just $20 bucks, it’s painful to say no, because you can see that he’s hungry. But when you know full well those $20 are going straight in his arm, you have to say no. It’s unethical to say yes.

    As much as we want things to get better, the only way out of this misery circle is a new government, which is nowhere in sight.”

    This is the very sad truth. Handing control back to the Chavistas is just simply going to kick the can down the road. The road is getting shorter and the can is getting bigger each time. At some point in the near future, the problem will become so huge, no amount of force will move the shipping container down a dead alley.

    A really big pain now or huge and unbearable pain later. But it is going to be painful no matter what and more people will lose their lives.

  9. Excellent article, councilor.

    Being “stuck” is volatile because once the thing gets fossilized, as it feels like now, the only possible movement is for the whole mo-fo to blow apart.

    Meanwhile the ANC is threatening treason against those speaking out against Chavismo, while the Chavistas themselves commit crimes against mankind, Haigue style.

    Perhaps one strategy would be to force the Chavistas to accept humanitarian aid (administered by a UN Peace Keeping force), or face the Crimes charges. That’s serious business.

    I do wonder how the hell they are going to pay down that 3.6 billion nut coming due in a a few months. The skimming opportunities have to be drying up. About time for some the rats to start jumping ship.

  10. FRod reminds me of the Alec Guiness character in ‘the Bridge over the River Kwai’, deep down he is not with them but if they do anything its gotta be done well ……., when Speer was german armaments minister during WWII he had a team of wiz kids who did not sympathyze with Hitler but rather wanted to exercise their profesional expertize to get things done the best way possible ……. , maybe if Chavismo ever evolves into something more rational F Rod could be a good economics Zar …..much better than what they have now, but for that he has to appear someone willing to help them in their troubles.

    Still , understand that there are negotiations going on between Chinese officials and Regimes Economic reps trying to get China to help out by agreeing to extend the payment terms on the China fund for 9 years and to help buy some of the 17 and 18 bonds at a low market price and then exchange them for other bonds falling due in later years which would give the regime a bit of oxygen .

    The Chinese dont have much appetite for giving more money to the regime , they have no illusions about its capacity to avoid digging itself deeper into the abyss , but maybe they want to avoid a default at this time which would put at risk getting the oil they been getting until now as payment of due debts , There is however another possible reason to put up some money to shore up the regime for a while …., China is like an adolescent power , sensitive about appearances , wants to self assert its ‘manliness’ before the big Guy , the US , so that to counter the impact of Trumps sanctions it might help the regime financially to show that it can defy the big guy …….of course that puts it on the road of having to support the regime for a long time at a very heavy cost to its finances . Sometimes I suspect that Trump imposed the sanction as a trap for China or Russia to burden themselves with a financial weight …….that will hobble them into the future .

    The other possibility is that China doesnt want to put up the money so it uses the excuse that it wont give it unless it gets the assurance that being approved by the AN it will legally protect itself from any future challenge to its creditor status (knowing full well that the regime wont ask the AN to approve the deal) .

    Actually my lawyer friends tell me there are some good arguments for considering that the proposed deal with China doesnt need AN approval as there are existing legal provision that allow Pdvsa and Bandes to borrow money provided its not done in terms that hurt the national interests …….(making the existing loans more onerous for example) ……..

  11. This is an unfair picture of FRod’s proposal, although granted that the article in El Universal leads to this interpretation. I recommend checking his twitter account for his clarification https://twitter.com/frrodriguezc
    Francisco Rodriguez‏ @frrodriguezc Sep 1

    1) Nuevas emisiones de deuda para alimentos y medicinas podrían ser aprobadas conjuntamente por la AN y la ANC
    2) Ese nuevo endeudamiento debe dirigirse exclusivamente a importaciones de alimentos y medicinas
    3) El endeudamiento para importación de alimentos y medicinas no está prohibido por sanciones norteamericanas

    Point 3 is very important and answers your question of who would lend Venezuela, you’re wrong in claiming that US institutions are banned from doing this, they can as long as it is for foods and medicines

    4) Organizaciones como ONU, Caritas, deberían estar involucradas en la verificación de que los recursos se dirijan a alimentos y medicinas
    5) Podría incluirse cláusula que obligue al Gob a aceptar verificación internacional o se produciría un evento de default en la obligación
    6) Restablecer acceso a los mercados internacionales es clave para evitar una profundización de la crisis económica después de las sanciones

    A few days later he twitted:
    1) Ofrezco disculpas a quienes se hayan sentido ofendidos por recomendación de que ANC apruebe importación de medicinas y alimentos.
    2) Mi sugerencia no es que oposición reconozca a la ANC; es más bien que el gobierno reconozca la necesidad de buscar aprobación de la AN.
    3) Solo parto de la realidad de que el gobierno también seguramente buscará aprobación de la ANC.
    4) Mi intención es buscar mecanismos para que gobierno y oposición lleguen a acuerdos que eviten profundización de la crisis humanitaria.

    • Somebody should say to FRod that you can’t get to any agreement with a criminal that wants to enslave you until he gets bored and kills you and your family.

  12. If the govt gets fresh extra money to buy the equivalent of clap boxes to distribute to the most needy population then an equivalent money is freed to allow it to use it to pay its external debt , so in practice , as money is fungible , the net effect is a loan which allows the govt to continue operating……..still such new borrowing would underscores the needs of the country and if it comes with the organization of supplies thru ngos or other international institutions the impact of such distribution would improve and be cleansed of its current propaganda purpose.

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