11-03-2017, 10:11 PM
*** 4-Nov-17 World View -- Socialist Venezuela may or may not have declared bankruptcy on Thursday
This morning's key headlines from GenerationalDynamics.com
****
**** Socialist Venezuela may or may not have declared bankruptcy on Thursday
****
![[Image: g171103b.jpg]](http://Media.GenerationalDynamics.com/ww2010/g171103b.jpg)
During his televised speech on Thursday, Maduro grabs an empanada (a rich pastry) from his desk drawer when he thinks the cameras are off, while most of his people are starving (Caracas Chronicle)
In a nationally televised speech on Thursday, Venezuela's Socialist
president Nicolás Maduro Moros announced that Venezuela would be
"refinancing and restructuring" and "reformatting" its debt:
<QUOTE>"I decree a refinancing and restructuring of external
debt and all Venezuelan payments. We’re going to a complete
reformatting. To find an equilibrium, and to cover the necessities
of the country, the investments of the country. ...
We have to pay the amount of US$1.121 billion from the Pdvsa 2017
bonus and we have the money to fulfill this obligation," the head
of state announced, adding that the government also has resources
to continue providing necessities to Venezuelans.
We have the money for this payment, and we also have the money for
raw materials, medicines and food. ...
I am naming a special presidential commission led by Vice
President Tareck El Aissami to begin refinancing and restructuring
all of Venezuela’s external debt and (begin) the fight against the
financial persecution of our country."<END QUOTE>
As various articles have pointed out, this announcement by Maduro
didn't make sense, and was contradictory. Refinancing and
restructuring are two different things. Refinancing implies an
orderly market transaction, while restructuring implies a default and
bankruptcy. Nobody knows what "reformatting" is.
Some analysts are suggesting that Maduro is in so far over his head
that he doesn't know what he's talking about.
The "special presidential commission" will be led by Vice President
Tareck El Aissami, who is under sanctions by the US Treasury
Department for protecting drug lords and overseeing a network
exporting thousands of kilograms of cocaine. El Aissami announced
that his government will hold a bondholders meeting on November 13 to
reaffirm Venezuela's commitment to paying off its debts.
Maduro says that Venezuela would make a $1.1 billion payment that's
due now. That payment was made, and if it hadn't been, then Venezuela
would be in default, but it still makes no sense to make a payment
just before refinancing or restructuring.
Finally, Maduro says that even with this payment, the country has the
money for raw materials, medicines and food. Actually it doesn't.
Maduro has been starving the people and the hospitals for years, and
that isn't going to change.
Venezuela got into this situation by faithfully following Socialist
principles. When oil prices were high, Maduro's predecessor Hugo
Chávez used the overflowing treasury and even borrowed more money to
buy votes with enormously expensive social programs. When oil prices
crashed in 2014, Maduro paid off debts by incurring huge new debts.
Telesur Tv and Reuters and Bloomberg and Washington Post and DealBreaker
****
**** Socialist Venezuela may have reached the end of its economic road
****
All told, there’s $143 billion in foreign debt owed by the government
and state entities. Maduro would like to borrow more money, to incur
even larger debts to make payments on current debts, but is unable to
do so since August 28, when US president Donald Trump imposed
sanctions that prevent further borrowing.
The International Monetary Fund said last month it expects inflation
in Venezuela to reach 2,350% in 2018, up from about 500% in 2017.
This has made Venezuela's currency, the bolivar, almost completely
worthless.
Because Venezuela's bonds have been high risk for some time, they've
been paying very high yields (interest rates) - almost 10 times as
higher than those of neighboring Colombia. Investors have purchased
these bonds hoping for big returns. Big institutional investors in
the United States include T Rowe Price, Ashmore Investment Management,
BlackRock Investment Management, and Goldman Sachs.
Because of US sanctions, Maduro can't borrow any more money from
Western companies "Today, if Venezuela wants to go out to the world to
refinance one of these bonds we have to pay, it can’t. It’s prohibited
by the global financial dictatorship of the North American empire."
Maduro could borrow more from China and Russia, which are not covered
by US sanctions. However, Venezuela already owes $37.2 billion to
both countries, and both countries are said to be demanding economic
reforms.
Venezuela is sitting on the largest oil reserves in the world, but oil
production under the Socialist government has fallen almost 3% this
year. The disastrous Socialist economy is in disarray, and its
refineries run at less than 50% of the available capacity, because the
oil companies are being run by Maduro's Socialist cronies, not by
people who actually know how to run an oil company. In the past,
Venezuela has borrowed money from Russia and China via an oil-for-loan
agreement, but oil production has been falling because of the
incompetence of Maduro's Socialist cronies.
In the 1980s, the Soviet Union took on the task of supplying money to
Socialist Cuba. Now Russia has to decide whether to take on the task
of supplying money to Socialist Venezuela, which has three times the
population, at a time when Russia's own economy is in despair.
So Maduro has three choices.
First, he can convince Russia to bail him out again, and continue
bailing him out forever into the future.
Second, he can simply stop paying, and go into default. In this case,
his creditors will go after the country's foreign assets, including
Citgo and tankers that dock at foreign ports.
And third, he can try to convince Western investors, along with the
IMF, to bail him out. They would only agree to this if Maduro agreed
to massive economic reforms, and probably Maduro himself would have to
step down.
Recent history tells us that Russia will bail him out at least one
more time, but even Russia may be losing patience. With Tareck El
Aissami's meeting with bondholders scheduled for November 13, we may
have an answer soon.
Reuters and Bloomberg and Economist
Related articles:
KEYS: Generational Dynamics, Venezuela, Nicolás Maduro Moros, Hugo Chávez,
Petróleos de Venezuela S.A., PDVSA, Tareck El Aissami,
Russia, China, International Monetary Fund, IMF, Colombia,
T Rowe Price, Ashmore Investment Management,
BlackRock Investment Management, Goldman Sachs, Citgo
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- Socialist Venezuela may or may not have declared bankruptcy on Thursday
- Socialist Venezuela may have reached the end of its economic road
****
**** Socialist Venezuela may or may not have declared bankruptcy on Thursday
****
During his televised speech on Thursday, Maduro grabs an empanada (a rich pastry) from his desk drawer when he thinks the cameras are off, while most of his people are starving (Caracas Chronicle)
In a nationally televised speech on Thursday, Venezuela's Socialist
president Nicolás Maduro Moros announced that Venezuela would be
"refinancing and restructuring" and "reformatting" its debt:
<QUOTE>"I decree a refinancing and restructuring of external
debt and all Venezuelan payments. We’re going to a complete
reformatting. To find an equilibrium, and to cover the necessities
of the country, the investments of the country. ...
We have to pay the amount of US$1.121 billion from the Pdvsa 2017
bonus and we have the money to fulfill this obligation," the head
of state announced, adding that the government also has resources
to continue providing necessities to Venezuelans.
We have the money for this payment, and we also have the money for
raw materials, medicines and food. ...
I am naming a special presidential commission led by Vice
President Tareck El Aissami to begin refinancing and restructuring
all of Venezuela’s external debt and (begin) the fight against the
financial persecution of our country."<END QUOTE>
As various articles have pointed out, this announcement by Maduro
didn't make sense, and was contradictory. Refinancing and
restructuring are two different things. Refinancing implies an
orderly market transaction, while restructuring implies a default and
bankruptcy. Nobody knows what "reformatting" is.
Some analysts are suggesting that Maduro is in so far over his head
that he doesn't know what he's talking about.
The "special presidential commission" will be led by Vice President
Tareck El Aissami, who is under sanctions by the US Treasury
Department for protecting drug lords and overseeing a network
exporting thousands of kilograms of cocaine. El Aissami announced
that his government will hold a bondholders meeting on November 13 to
reaffirm Venezuela's commitment to paying off its debts.
Maduro says that Venezuela would make a $1.1 billion payment that's
due now. That payment was made, and if it hadn't been, then Venezuela
would be in default, but it still makes no sense to make a payment
just before refinancing or restructuring.
Finally, Maduro says that even with this payment, the country has the
money for raw materials, medicines and food. Actually it doesn't.
Maduro has been starving the people and the hospitals for years, and
that isn't going to change.
Venezuela got into this situation by faithfully following Socialist
principles. When oil prices were high, Maduro's predecessor Hugo
Chávez used the overflowing treasury and even borrowed more money to
buy votes with enormously expensive social programs. When oil prices
crashed in 2014, Maduro paid off debts by incurring huge new debts.
Telesur Tv and Reuters and Bloomberg and Washington Post and DealBreaker
****
**** Socialist Venezuela may have reached the end of its economic road
****
All told, there’s $143 billion in foreign debt owed by the government
and state entities. Maduro would like to borrow more money, to incur
even larger debts to make payments on current debts, but is unable to
do so since August 28, when US president Donald Trump imposed
sanctions that prevent further borrowing.
The International Monetary Fund said last month it expects inflation
in Venezuela to reach 2,350% in 2018, up from about 500% in 2017.
This has made Venezuela's currency, the bolivar, almost completely
worthless.
Because Venezuela's bonds have been high risk for some time, they've
been paying very high yields (interest rates) - almost 10 times as
higher than those of neighboring Colombia. Investors have purchased
these bonds hoping for big returns. Big institutional investors in
the United States include T Rowe Price, Ashmore Investment Management,
BlackRock Investment Management, and Goldman Sachs.
Because of US sanctions, Maduro can't borrow any more money from
Western companies "Today, if Venezuela wants to go out to the world to
refinance one of these bonds we have to pay, it can’t. It’s prohibited
by the global financial dictatorship of the North American empire."
Maduro could borrow more from China and Russia, which are not covered
by US sanctions. However, Venezuela already owes $37.2 billion to
both countries, and both countries are said to be demanding economic
reforms.
Venezuela is sitting on the largest oil reserves in the world, but oil
production under the Socialist government has fallen almost 3% this
year. The disastrous Socialist economy is in disarray, and its
refineries run at less than 50% of the available capacity, because the
oil companies are being run by Maduro's Socialist cronies, not by
people who actually know how to run an oil company. In the past,
Venezuela has borrowed money from Russia and China via an oil-for-loan
agreement, but oil production has been falling because of the
incompetence of Maduro's Socialist cronies.
In the 1980s, the Soviet Union took on the task of supplying money to
Socialist Cuba. Now Russia has to decide whether to take on the task
of supplying money to Socialist Venezuela, which has three times the
population, at a time when Russia's own economy is in despair.
So Maduro has three choices.
First, he can convince Russia to bail him out again, and continue
bailing him out forever into the future.
Second, he can simply stop paying, and go into default. In this case,
his creditors will go after the country's foreign assets, including
Citgo and tankers that dock at foreign ports.
And third, he can try to convince Western investors, along with the
IMF, to bail him out. They would only agree to this if Maduro agreed
to massive economic reforms, and probably Maduro himself would have to
step down.
Recent history tells us that Russia will bail him out at least one
more time, but even Russia may be losing patience. With Tareck El
Aissami's meeting with bondholders scheduled for November 13, we may
have an answer soon.
Reuters and Bloomberg and Economist
Related articles:
- Russia considers taking on a huge financial burden - Venezuela (05-Oct-2017)
- With Trump's sanctions in place, Venezuela expected to go bankrupt soon (21-Sep-2017)
- Venezuela's economic crisis is hitting Cuba hard (06-Aug-2016)
- Venezuela's mestizo president Hugo Chávez dies of cancer (06-Mar-2013)
- Hugo Chávez dismantled Venezuela's businesses on purpose to create Socialist Paradise (29-May-2016)
KEYS: Generational Dynamics, Venezuela, Nicolás Maduro Moros, Hugo Chávez,
Petróleos de Venezuela S.A., PDVSA, Tareck El Aissami,
Russia, China, International Monetary Fund, IMF, Colombia,
T Rowe Price, Ashmore Investment Management,
BlackRock Investment Management, Goldman Sachs, Citgo
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
