An Example Of The Absurd Subsidies And Distortions Present In Venezuela

November 23, 2014

desayuno

As you all know, I go to Venezuela regularly. In fact, I just came back from there. Yesterday, right before going to the airport I had breakfast and, of course, I had to go to my friendly neighborhood arepera to enjoy the true flavor of nice local cheese and arepas, something I do at least once every single time I go. In my travels, it is incredible how I notice inflation from trip to trip. Even the chocolates I buy at the duty free store at the airport were up this time, a full 50%. They are no longer as cheap as they used to seem.

But going back to the breakfast, the picture above shows the menu I had: Two cheese arepas, a jugo de patilla and a cafe con leche grande. I was surprised at the cost, Bs. 402 for such a simple breakfast. Here is the breakdown:

Each arepa was Bs. 120

The juice was Bs. 80

The coffee was Bs. 39

Now, to get the right perspective one could calculate this at various rates. At the official rate of Bs. 6.3, it would be a scandalous US$ 63.8. At the Sicad I rate it would be a still expensive US$ 33.5, at the Sicad 2 rate it would be a still not cheap US$ 8, while at the parallel rate, it would be an very cheap US$ 3.24. Using a different perspective, the Bs. 402 represent 8.2% of the new monthly minimum salary, a clear outrage, as this is just one meal, breakfast, and there are 89 other meals every month. Which clearly show the absurdities of the Venezuelan economy.

But as I sat there reading El Nacional, the only daily left that can be purchased and has some true to what it says, I was amazed to read that Samsung had begun selling appliances, TV’s and the like, purchased at the Sicad I rate on Thursday and that people made long lines and even slept at the stores to get them.

Think about it, while people pay Bs. 402 for a simple breakfast, which is outrageous at the Sicad 1 rate, others benefit from the subsidy (and the luck!) of being able to buy appliances at that same rate. Note that this is simple populism, very few people actually benefit from the subsidy, but the image that the Government is doing something good for the people makes good headlines and many can only hope or dream that they can get their hands on one of these subsidized items. In fact, the Government makes headlines about this many times: when it calls for the auction, when it assigns the foreign currency and when the stuff finally arrives and gets sold.

Let’s try to put it into perspective, the clothes washer that El Nacional says was for sale at the JVG store, cost the equivalent of 31 breakfasts like the one above. That is, for a family of four, it is the equivalent of seven breakfasts. Cheap, no?

Which simply shows how screwed up the system is. Arbitrage is the rule of the day in Venezuela, you have to wonder how much of the stuff that arrived in Venezuela or is waiting in 243 containers at the port, will be sold and resold (or reexported to Colombia or Brazil) by those that are lucky enough to get their hands on one of these appliances.

Because in the end when you go to the store in Venezuela, you have little clue as to at what price something was imported. At Bs. 12,600, that clothes washer would be worth US$. 1,050 at the Sicad 1 rate (not cheap!), US$ 252 at the Sicad 2 rate (cheap) or US$ 101 ( a steal) at the parallel exchange rate. Thus, if anyone purchased this at the lower rate and tried to sell it for twice or three times at much in Bolivars, it would seem like a good deal and it would be the intermediary that was making most of the profit.

But the absurdity and the distortion is that the Government gives out money for this, which in the end is a “luxury”, in a country where there is poverty (and increasing) and people are having a hard times making ends meet.

Picture added from comments, sent by Ira, the Arepa Lady from Barinas at Walmart:

HarinaPanGirl

 


Oligarco Works The Fascist Phone Line

November 20, 2014

call1

Last we heard from our friend Oligarco Burguesito, he was doing well, deep in arbitrage of all sorts, even if profits were down from the heydays of bond and travel money arbitrage in Venezuela. However, things have not gone well with Oligarco since then, travel quotas were sharply reduced, bond sales eliminated, so that his life has been reduced to arbitrage of all the basic products that are controlled by the Government. But even this has been limited, because many of the street vendors he sold the stuff to have moved to doing other things, mostly contraband. Thus, Oligarco moved to Valencia, where he does a bit of everything. Lately with inflation at 70%, even this is not enough and he has lost lots of money playing the horses and even betting on baseball games, thus he jumped at the chance to work as a supervisor at the call center for denouncing the traitors to the PSUV party, the so called fascist phone line. Is his first salaried job since before Chávez was elected.

This was Oligarco’s experience the first day:

First Call: Caller #1: Hello, is this the line to denounce traitors?

OB: yes

Caller #1: I wanted to denounce the traitors to the revolution and socialism that have authorized the import of natural Christmas trees at the Sicad  exchange rate. This is clearly another battle of the economic war. Someone has infiltrated the party and the Central Bank, authorizing dollars for this at a time that we don’t even have money for medicines due to the CIA conspiracy to bring oil prices down. This is clearly a boycott of our economy, to further weaken us with the promotion of something foreign to our country and a tradition that is not part of our heritage. This is a capitalistic tradition, promoted by the US, Obama and the Republicans and the other Marco, the one from Florida, as a way of undermining our own identity. I want this to be investigated and the person responsible for authorizing dollars at the Sicad rate should be jailed in Ramo Verde and sentenced to life in prison.

OB: Well, Sir, but this was actually a decision by the Board of the Venezuelan Central Bank, presided by Nelson Merentes, a loyal friend follower and supporter of Hugo Chávez and supported by the whole Board appointed by President Maduro, who allocated foreign currency specifically for this purpose.

Caller #1: Oh! Really! Never mind. (Hangs up)

Second Call: Caller #2: Alo! Can you her me! Can you hear me! Is this Nicolas?

OB: No, this is the PSUV line to denounce traitors.

Caller #2: I want to talk to Nicolas. I have something important to denounce

OB: Well, the President set up this line, but he has no time to answer it himself. You can tell me and I will make sure that he gets the information you will provide with total confidentiality.

Caller #2: I don’t know, this could be very dangerous to me. Because I want to denounce someone very close to this line, how do I know you will not tell the President or he will find out who I am and they will come get me.

OB: don’t worry, I assure you this is confidential and we have no caller ID, so I will never know who you are.

Caller #2: Umm, I don’t know. Well, umm, ok. I want to denounce that an extraterrestrial has infiltrated the traitor hotline

OB: What do you mean an extraterrestrial?

Caller #2: Well, many years ago I saw a movie about extraterrestrial beings that had invaded the earth and the same guy was the one that was on TV announcing and promoting the line. Clearly, this space invaders want to boycott the revolution and like Chavez said, capitalism destroyed life in Mars, now they are trying to destroy Venezuela and this guy has infiltrated us.

OB: I still dont get what you are talking about. Who do you mean?

Caller#2: I don’t know the name, but I saw him on TV and I am sure that it is the same guy i saw on the movie, but older. Do you have a cell phone? I could send you the picture of the guy in the movie and the one I saw on TV, so you can see what I mean.

OB: Ok, my cel is 0412-OLIGARCO, you can message me there.

Caller #2: Ok, here it goes, first the picture of the extra-terrestial, then the picture I took on my TV when they announced the hot line

cone

See, it’s the same guy, just older, see the similarity?

OB: Excuse me Sir, but this is Francisco Ameliach, he is not only an important and loyal member of PSUV, but he is also Governor of Carabobo and President Maduro has trusted him with this project.

Caller #2: Oh. He is not a conehead? Are you sure? I was sure he was. “&%$* I am glad you don’t know who I am, but now you know my cell phone, I must seem really stupid. (Hangs up)

Third Call: Caller #3: Hello, this is Yamijuli Maria Garcia from the Comuna for toy manufacturing Isidora Dolores Ibárruri Gómez in Altagracia de Orituco. Is this where I denounce capitalist infiltration into PSUV?

OB: Yes Yamijuli, what have you detected?

Caller #3: Well, I wanted to denounce the fact that someone has regulated the price of Barbie dolls at US$ 2.5 per doll. Even at the capitalist pigs exchange rate, it is impossible for us to compete with this here in my comuna, where we make true Venezuelan dolls We make dolls that are white, brown, black, any color, just like people in Venezuela, but we can not compete with this price, our dolls cost Bs. 400, which is much more than the new regulated price for Barbies. But this is not all, the Barbie dolls are all blond, so that whomever approved this, wants to promote gringo looking women and make the average Venezuelan women look different. Not only that, but it also promotes women dying their hair which is clearly not a very revolutionary activity. Mi Comandante spoke against this, but now someone is trying to undermine the Bolivarian revolution and sell capitalistic blond Barbie dolls, destroying revolutionary values and undermining the work we are doing at the Isidora Dolores Ibárruri Gómez comuna. This should be investigated immediately!

OB: Well Yamijuli, it was President Maduro himself that ordered the price of Barbie dolls regulate, so I don’t think there is really much to investigate.

Caller #3: I disagree, we should investigate Maduro then, because he is not being faithful to the Supreme Commander and Father of the revolution. Do you know if Marea Roja has a hotline to denounce deviations from revolutionary principles? Can you give me that number?

At this point Oligarco hung up, got his jacket and left the job that he thought would be so great…He lasted 5 minutes.


All The Wrong Things About Minister Jaua’s “Nanny” Affair

November 9, 2014

Elías-Jaua-AFP

The Elias Jaua ¨Nanny case¨ has so many edges, that I have been trying to establish a hierarchy of the many things wrong with this case. For those who have been living in the Artic Circle, here are the basic facts of the case: Jaua, a former Venezuelan Foreign Minister, now Minister for Communes, went to Brazil, on an official/unofficial trip, reportedly on a private trip, as he needed to have his wife treated at the Syrian-Lebanese Oncology Hospital in that city. Reportedly, he then had his mother in law flown in, with the family Nanny, in a PDVSA jet and on a special flight. As they went through customs on Sao Paulo, a gun was found in the Nanny’s briefcase and she was detained. Later, the Government of Brazil protested, via its Foreign Minister, for Jaua’s “unofficial” trip, which included the signing of agreements with various Government (City of Curitiba) and non-Government groups (Movimiento Los Sin Tierra). The Nanny has been released, but awaits trial. Jaua argues his trip was perfectly valid and he told the Nanny to remove the gun from his briefcase, which contained documents which had little to do with his trip to Brazil. The National Assembly refuses to investigate the affair. Nobody in Government really wants to investigate Jaua.

How many things are wrong with this picture?

Too many in my opinion. Just too many:

-The one a lot of people have focused on, has been the fact that Jaua used a PDVSA jet for his personal use, or at most an unofficial use. This is clearly corruption, but this has become normal during the years of Chavismo. PDVSA has a fleet of planes that has been ready to fly anyone from Antonini, to General Carvajal, to Cuban officials anywhere they want, upon demand. Yes, it is illegal, it is corruption, but in the end, nothing new there, La Carlota airport has been closed to private traffic for 11 years, but you see the planes (PDVSA and Government) take off and land daily from it.

-How about that gun in Jaua’s briefcase?  To me, this is more interesting, a Government that claims to be disarming the population, because it is concerned with violence, but then a Minister carries a gun in his briefcase and it is hard to believe the Nanny, “forgot” or could not find the revolver in the briefcase. Hard to believe. What does this say about the mental and emotional state of these Ministers that not only go around surrounded by armies of bodyguards, but are also carrying? What for? What are they afraid of? Does Jaua know how to use the gun? Does he have a permit? Does he think nothing of bringing it to another country?

-The unannounced visit. This is also quite interesting. The trip became an “official¨visit, only after the Nanny was caught with the gun and jailed. Except that the Brazilian Government knew nothing of the trip and complained after that fact via diplomatic channels and publicly. Jaua apparently met with groups and signed agreements, but reportedly this was an excuse brought up afterwards to justify the “Nanny’s” trip. Jaua has said little of what ails his wife, but he has also said little of what the agreements have to do with his Ministry or his responsibilities in Venezuela. He probably never expected the friendly Roussef Government to complain about his trip.

-The Nanny. Some Venezuelans justify Jaua having a Nanny. Why should not he have one if it is so common in the country? Well, to begin with, it is not as common as it used to be, because it is no longer as cheap and only wealthy people can afford to do it. But more importantly, Minister Jaua is not a wealthy bourgeois oligarch ( Or is he?), but a supposed leader of a radical “revolutionary” process. He is a self-confessed “Tira Piedra” (Stone Thrower) who has become more radical with time. But wait. the “Nanny” is not a recent addition to the family. She has been with the family for about ten years, when Minister Jaua was barely beginning his revolutionary career (He was actually doing a Masters Degree at the time). But more importantly, the “Nanny” goes everywhere. She is not stay at home Nanny, but a frequent flyer Nanny, needed wherever the family may be.It makes life easier for everyone.

Because in the end, the new revolutionaries are as bad as the old ones. Jaua may have become more radical with time, according to his own words, but more of an oligarch and bourgeois as time went by. In fact, his kids go to a well known private school in Caracas, where they mingle with the upper classes and since it is a “foreign school” they also befriend the children of diplomats and expats. Thus, Mr. Jaua’s radicalism and revolutionary spirit seems to end at the door to his home. Like so many others in the Chavista Government he hires his wife. That gives them a double salary hosuehold and I guess in their mind justifies the need for a Nanny. Nepotism is not a word used by Chavismo.

And while Mr. Jaua keeps accusing Miranda Governor Henrique Capriles of neglecting his duties, he goes around the world promoting the Bolivarian revolution and not doing his job. This is nothing new, Argentina once refused to accept him as Ambassador, because he seemed to be interested only in promoting the Bolivarian revolution.It seems this is his life, holding positions, but always just dong politics and promoting the revolution. As Minister of Agiculture, Jaua did nothing more than expropriate, but little to promote the use of the lands he took over.

And the briefcase had little of interest to Brazil or the Venezuelan Government. Most documents were about how to win next years election, revolutionary processes, the Government’s political agenda in Venezuela and how to stay in power. I guess Jaua really worries about losing his status as an oligarch. But never mind, his kids are now fluent in another language and he can always send the Nanny to accompany them if necessary.

But the deeper question is how these guys mutate from revolutionaries to oligarchs so fast. At which point did Jaua start betraying those radical ideas that took him to such important positions? Shouldn’t the kids of a revolutionary go to public school with el “pueblo”. How did he get away with sending his kids to this foreign school, while the same institutions were under fire from the revolutionary Government? How do his kids (now adolescents) perceive the world and their father in this potpourri of conflicting ideas? How many nannies does the Jaua family have?

There is something profoundly wrong about this sordid affair. These are the “radicals”, the tira piedras, the encapuchados of the revolution. Their revolution has the consistency of tapioca and their world is a an incredible farce in which they have become the new oligarchs.

And they know it.


Idiocy And Airlines In Venezuela

November 4, 2014

inac

What is it about airlines that brings out the most idiotic logic out of Venezuelans? I have found the subject the most difficult to talk about even with people that understand markets and are fairly logical and intelligent. In the eyes of many, it was the airlines that became the bad guys in the escalation of ticket prices, later in abandoning Venezuela, as if Government policy (idiotic before and after Chavismo) had nothing to do with it. How many times did I hear the argument that a flight to Aruba costs half as much as a flight to Caracas? Duh!!! The Aruban (or Colombian) Government barely regulates how many flights can land in their airports, they don’t ask for reciprocity or try to regulate fares. You want to come to Aruba or Colombia, you have a good reputation? Come on down!

By the time airlines began leaving Venezuela, reducing flights and dollarizing airfares, at least some (not all!) people understood that airlines were not making a mint in Venezuela like they thought, since they could not repatriate their Bolivars. It was Monopoly money.

But somehow, the idiocy over airline policy continues. This week, the institute in charge of air travel, the INAC, started by stopping airlines like Aserca, which flies within Venezuela and nearby destinations, from selling new tickets until they would improve their online performance. (It also stopped Government woned airline Conviasa) Now, the first question I would ask the guy from INAC is: Where were you and your 2,000 “agents” for the last sixteen years?  Creating their Facebook page? I mean, I have swore like three times in the last decade that a particular wedding in Margarita island was the last one I would attend, because flights to that island were regularly delayed at least two hours. And I reported my travails last summer when I was forced to go to Venezuela via Aruba for the simple reason that there was no other way to get there. So, where has INAC been all these years?

But more importantly, how does banning the sale of tickets “protect the users” or improve the on time arrival of planes? Obviously, the fewer passengers that fly, the easier the airlines can fill and empty airplanes and improve their on time record, but is that the point? And how are you protecting passengers when you ban the sale of tickets? When you do that, you limit the already severely hampered accessibility of flights, inconvenience people and really accomplish very little.

But as I was wondering over these issues, today INAC suspended the sale of tickets for five international airlines, who they are is irrelevant. What is relevant, and even more puzzling, is that the ban on the sales of tickets is only for Maiquetia airport…

Say what?

You are banning the sale of tickets to those that show up at the airport to buy a last minute ticket? Given how few empty seats they are, these are probably the neediest and the people most desperate to get somewhere. How are you protecting or helping them?

And last I heard, most airlines have websites, which allow you to reserve and buy tickets even with your telephone. So, what exactly is INAC accomplishing with this idiotic policy and ban on the sale of tickets?

I have no clue. (And please, get rid of those red vests on INAC personnel)

But if it is hard to understand these Government officials and where they have been for sixteen years, it is even harder to understand a certain Roberto Leon Parilli, President of ANAUCO, which is a private organization that is supposed to defend consumers. What Mr. Parilli did, was to ask the Government to intervene because airlines are selling airline tickets in foreign currency, which is illegal in Venezuela.He wants the Government to stop this practice.

Well, airlines are not selling tickets in dollars in Venezuela. Airlines are selling tickets to those that have a credit card in foreign currency and use it to buy a ticket online or via a travel agency (which place the order abroad). And if this path were blocked, the consumers that you are supposed to protect Mr. Parilli, would not be able to fly out of Venezuela. Because, Mr. Parilli, the Venezuelan Government has no money to pay its debt with the airlines, unless it devalues all exchange rates to around Bs. 70 per US$.

Got it? I doubt it!

In fact, the black market, which you are correct in denouncing Mr Parilli, would flourish if the Government somehow (I don’t see how it can do it, other than banning airlines from coming to the country) managed to stop the sale of tickets in foreign currency. Venezuelans would simply be trapped. Thank you Roberto!

In fact, if you want tickets to be cheap and readily available (in any currency) what your would need to do is to ask the Government to invite all major international airlines to add an unlimited number of flights without any restriction, including in which currency people can pay, eliminating reciprocity, quotas and the harassment of foreign airlines at Maiquetia airport.

The rest is simply being idiotic and clueless about what the consumer wants and how the market for airline tickets operates in the world.


Maduro Adds Fuel To The Inflation Fire

November 3, 2014

inflation

For eighteen months, Nicolas Maduro has refused to make any adjustments on an economy suffering from all sorts of distortions, for fear of losing popularity as well as the lack of clear advise from anyone close that grasps economic theory. To Maduro and his Ministers, economic policy has been limited to decisions on controls, foreign exchange policy and salary increases, as inflation and  shortages increase dramatically and the limited funds available are shifted to cover the immediate needs of the Government.

And after firing in September the only Minister that had some sense that adjustments should be made, we spent four weeks thinking that no adjustments were forthcoming. Then, statements by various Government officials suggested that something may yet happening. Nothing dramatic, a small devaluation, a small gasoline price increase, less deficit spending, monetary measures and the like. Instead, Maduro goes on TV tonight and bombastically announces that he has approved a 15% minimum salary increase starting December 1st, such that the minimum salary will become Bs. 4,889 a month (US$ 776 at Bs. 6.3, US$ 444 at the Sicad I rate, US$ 97.8 at the Sicad II rate or US$ 47.66 at the parallel rate). Maduro also boasted that Venezuelans have the highest minimum salary in Latin America, as he used the impossible to get rate of Bs. 6.3 per US$, when the reality is that it is the lowest minimum salary in the region at the other extreme and likely at the Sicad II rate too. Maduro was very proud that with this increase, the total increase in the minimum salary for the year is now at roughly 68%. It will never occur to him that inflation being at 70% and the increase at 68% have any relation whatsoever.

Just to make sure the fire keeps burning, Maduro also increased the “food tickets” given to all employees every month by “only” 50%.

No other measures were announced…

So, at a time that the economy is really screwed up, Maduro simply decides to add fuel to the fire, with no accompanying measures to mitigate inflation, reduce scarcity or reduce the deficit. In fact, at a time of falling oil prices, this forces the Government to print even more Bolivars, as it was clear that it had no Bolívars to finish off the year.

I guess Maduro read that Wall St. analysts were beginning to predict triple digit inflation and decided to make sure their predictions become true.

But more importantly, what Maduro is doing is guaranteeing triple digit inflation, with 50% shortages, a sure recipe for social unrest.

And a huge devaluation…and unrest.

And I am not exaggerating, it is difficult not to envision some form of social unrest with 100% inflation, Chávez dead and  a rudderless leadership. While many think the Government is in control, I disagree. With Rodriguez Torres’ departure, the hoodlums have taken over. Dario Vivas, Freddy Bernal and the Colectivos are up, everyone else is down. The “military” takes over PDVSA and you know nothing good is going to come out of that. Meanwhile, Marea Roja is being shunned, forced into becoming a party and becoming “opposition”. As if the opposition was not diverse, an extreme  left Chavista party may be soon part of it.

But what worries me is that despite all of the controls, all the media manipulation and all of the intimidation, people will simply explode when things become untenable. Because in the end, the only solution is an adjustment, an extremely strong adjustment. An almost impossible adjustment that would bring down any Government. But few people are saying how bad the adjustment has to be. In fact, I was disappointed at Voluntad Popular calling today for a 45% salary increase across the board.

What is this, a contest to see who is more irresponsible?

Anyone wants 100% increase?

What I fear is that we are going into a period of chaos, where the Government will have trouble maintaining order, unless it wants to resort to brutal repression. A period of instability and uncertainty never before seen in the country´s recent history.

And Maduro might not only have thrown some fuel into that fire, but he may just have ignited it…

Sorry for the optimism… :-(


Venezuela: Is Default Truly A Four Letter Word?

October 22, 2014

default

Whenever people mention the possibility of default for Venezuela, they talk about the dire consequences of such a possibility. Among other concerns, people always mention that trade finance shuts down, access to new borrowing in the international credit markets simply ceases to exist, assets abroad can be attached, there are long lasting effects on economic growth and default usually is followed by a period of political instability, including coups, if the population believes that defaulting will be a negative for them.

But how much of this is true and how much of it would apply to Venezuela if it defaulted? I have been looking at this question for a while and I will give you my conclusion right off the bat and later tell you why: Default does not appear to have in most cases the dire effects predicted, it does not appear to be the four letter word that most think it is. Not only are the effects of defaults varied, but in the case of Venezuela, after so many years of exchange controls the impact on trade may be much more limited. Unfortunately, the positive effects on exports that defaults have should largely be absent in the Venezuelan case.

Let’s look at each of these:

Assets Abroad

Let’s start with the most important factor that Venezuela would face if it defaulted: assets abroad. With PDVSA owning Citgo, refineries and tankers , it would be too risky for PDVSA (or even Venezuela) to default and not have investors go after Citgo’s assets in the US. Judges would be very sympathetic to the attachment of these assets which likely represent near half the recovery value of PDVSA bonds. This is perhaps the biggest obstacle to Venezuelan authorities even considering even the possibility of a default. It is also the reason why investors have been concerned over the possible sale of Citgo or parts of Citgo, as it likely eliminates the most significant factor why Venezuela would not consider a default. Thus, it is my view that PDVSA will not even think of a default until, when and if, these assets are sold, a process which could take at least a year to be completed. And it is likely that Venezuela would not consider it either, as Venezuela, being the sole owner of PDVSA, would also risk the attachment of PDVSA’s assets, or at least, extended legal action abroad over them. It would not be difficult to show that there is little difference these days between PDVSA and Venezuela.

No access to international markets

The second most important reason why Venezuela or PDVSA would not want to default, is because it would lose access to international markets. It could go the way of Argentina, and issue “local” law bonds, but this has proven to be very expensive. Venezuela already has to pay high interest rates, imagine what it would be like if it defaulted. So far, Venezuela has avoided paying huge coupons, using the perverse mechanism of issuing bonds in exchange for Bolivars at the official rate of exchange with a low coupon, which would trade at a low price in US$. Perverse, because in the end future generations have to pay the capital, while the bonds are issued to support an absurd foreign exchange system. Venezuela issues dollar denominated bonds to be sold at an artificial rate of exchange, but the country or PDVSA get no dollars  for the issuance, but rather create a liability down the line in foreign currency.

But while everyone thinks of Argentina in 2001, when gauging the impact on access to international markets, people seem to forget that most countries have become serial “defaulters” and returned to markets. Russia defaulted in August 1998, but between Aug. 1999 and Feb 2000 it had restructured all its debt and has been back borrowing in international markets since then. The Ukraine defaulted in 1998, then again in 2000, with most bondholders accepting terms. The Dominican Republic defaulted in 2005, but restructured bonds with the same terms, but a five year extension, which bondholders welcomed.

The problem is that not all defaults are created equal. Some countries have liquidity problems, others know they can’t keep paying long term and finally, some countries simply decide they “can’t” pay. The last one, is political decision and it is a matter of whether they can or not survive with it. Some argue, that there is such a thing as an excusable default, whereby both the creditors and debtors need to renegotiate because it is the optimum solution for both. In Argentina’s case, that country managed to restructure its debts almost forcefully, appearing to gain a victory, but years later, it is still fighting that result.

But in the case of Venezuela, the biggest reason for not defaulting may be that its biggest creditor is China. And that country, or its banks, have expressed in no uncertain terms, that Venezuela should not default, can not default. China is willing to be flexible, but it repudiates default. In some sense, the decree on Oct. 10 th. changing the terms of the agreements with China, whereby Venezuela sends oil to China to pay for loans, represents the acceptance by that country that Venezuela is having problems paying the loans with oils. It wants to help, but it prefers to change the terms that even give the impression that Venezuela has defaulted with China in the sense of Hausmann and Santos. Politically, this may be the strongest reason for Venezuela not to default, but faced with a liquidity crisis, what would the Maduro Government do? Or any other one, for that matter?

Default creates immense barriers for trade

This is one of the dire consequences that is most noted when talking about the possibility of default, be it Venezuela or any other country. Except that things in Venezuela are unlike any other country in the world. In the “old” days, to import, you needed letters of credit issued or backed by local banks. But when you have spent ten years under a fairly strict currency control regime system, when banks are limited to 15% of their equity in foreign currency, the same banks stop issuing letters of credit that could one day ruin them. Thus, with Cadivi, the letter of credit system was replaced by cash at the bank, to pay Cadivi (today Cencoex) approvals, while your suppliers assigned you a credit line: They are willing to ship to you an x amount of money in goods, but if the Central Bank does not pay any “Autorización de Liquidación de Divisas” (ALD) corresponding to that amount, shipment will be suspended temporarily, until some ALD is paid to reduce the amount owed. Lest you think that this is not a cumbersome process, here is a diagram of the whole thing from a well known local bank (remember step VI can take place and VII may never happen, but the goods have been sold):

cadiviThis process could be slowed down in an event of default, but it is already so long and complicated, that it will be business as usual. In fact, some of the more sympathetic countries in the region will jump with joy, if they can intermediate or supply products that used to come from Europe or the US to Venezuela if the money can not flow through regular channels when the BCV pays imports. Recall additionally that the Government has become one of the main importers in the county too.

Venezuelan oil shipments should be considered separately. Absent the assets abroad, which will take time to get rid of, the only risk will become the shipping of oil in Venezuelan tankers, a fleet worth some US$ 1 billion. PDVSA could always export FOB to countries where there was a legal risk of being attached or impounded. The oil would then belong to the other party and thus immune to being impounded.

Logistics would, of course, become very difficult and many suggest the Government or PDVSA do not have the people to do this. But I have heard that argument before and the revolution is still going on 16 years afterwards. At each step, whether it was exchange controls, firing 20,000 PDVSA workers, not paying imports, or dividends or taking charge of businesses, people predicted the end of the Chavista revolutionary world. And here we are. There may be interruptions in oil exports, but a way will be  found and maybe, another revolutionary enterprise or magnate would have been born. Chavistas are experts at that.

Economic Growth and trade after default

This is the area where economists seem to disagree the most. While it is true that the years following a default are bad for trade and GDP growth, it is also true that in many cases, the years prior to the default were just as bad. Argentina had unemployment grow sharply before default and exports never wavered. GDP did contract, but never by the 8% predicted by economists and there was a boom from 2003 on, whereby GDP grew by almost 9% for at least four years.

But Venezuela is no Argentina. There would be little advantage to exporting given that Venezuela only exports oil. But at the same time, GDP is not precisely booming in Venezuela right now. The only true advantage to a default would be that the Government would be able to spend more, without control and for electoral purposes, the same movie that got the country to where it is today. Thus, Venezuela’s exports and the economy are unlikely to benefit much from a default, the opposite from what would occur in most countries.

Conclusions

In the end, if a restructuring or default were handled properly, it would not have the dire consequences most people think it would have. The country would function, exports would flow, imports would also continue flowing. But there would be little economic gain, given that Venezuela has little to export other than human resources and those are being exported en mass as we speak. But maybe it is too much to assume to believe that this Government can handle a default gracefully or intelligently. In the end, a default favors Chavismo in terms of politics, but as long as Citgo is owned by PDVSA and the Chinese have any influence, it sounds unlikely that the Government will dare to take such a difficult step. Watch out for both!


ExxonMobil Decision A Win For Venezuela

October 12, 2014

Finally the arbitration panel of the World Bank, the ICSID ruled on the compensation for ExxonMobil over the nationalization by the Venezuelan Government of its Cerro Negro and La Ceiba projects, in a 138 page decision published this week. That there would be compensation there was no doubt by now, the only question was how large it would be and whether the panel would say anything about the relationship between its award and that of the International Chamber of Commerce in New york, where ExxonMobil was awarded US$907 million in 2012, which was covered in detail in this blog.

As expected, both sides claimed victory. The same way that both side fought with extremes during the case, Venezuela saying it had to give little to ExxonMobil in compensation and ExxonMobil asking for absurd amounts that people somehow took seriously in Venezuela. This has led many to believe that Venezuelan won huge, because in the end it will “only” have to pay a total of US$ 1,943 in compensation for ExxonMobil’s 41% stake in the Cerro Negro project. Exxon claimed victory and Venezuela said it was satisfied with the decision and that it would pay after November this “manageable” amount.

But the truth is that the number are not that far away from what analysts believed would happen and they are very far from what either side wanted. In fact, while most estimates were around US$ 10 billion for both ExxonMobil and ConocoPhillips (which is 2.5 times bigger than Cerro Negro), there were estimates as low as US$ 5.6 Billion.

But let’s look at the facts of the case prior to this week:

i) ExxonMobil was asking for US$ 14.5 billion in compensation (page 52 of decision), arguing that if it had not been expropriated, the 120,000 barrels per day (bpd) produced could have been expanded to 344,000 bpd by 2014. While this was feasible, the original project had a target of 120,000 bpd, there was never any authorization to expand it and it was clear none would not be given by the Bolivarian Government. This is typical over reach when you sue, you include everything asking for the moon, hoping the final award will be what you want. Dismissing this absurd request cut ExxonMobil’s claim by a factor of 2.4 to US$ 6 billion.

ii) On the opposite side, Venezuela was only offering US$ 353 million (page 57), based on a price cap set forth in the association agreement, from which the country would subtract US$ 238 million from the repurchasing of the Cerro Negro bonds by PDVSA.  The tribunal dismissed the price cap argument based on the laws that created the association, as well as subtracting the payment of the bonds. .

But let us also look at statements made by Venezuela on the case, which were purely grandstanding: “Venezuela considers the ExxonMobil case closed” said in 2012 Rafael Ramirez, the same one that claimed this week the decision was “just”. Or “the book value is less than US$ 750 million” said Ramirez on a different occasion and that is what would be fair to pay. But the best contrast may be what Hugo Chávez said in 2012 “From now on I tell you: Venezuela will not recognize any decision by that Ciadi (Spanish acronym for ICSID)”, which he said after Venezuela “won” the ICC case.

So, given this. Did anyone score a victory this week?

Let’s look at this week’s numbers and facts:

The ruling: The arbitration panel ruled in favor of ExxonMobil, deciding that it had no jurisdiction over tax increases to the participants of the project, but it did have jurisdiction over the remaining claims, including the imposition of an extraction tax, production limitations imposed by the Venezuelan Government and the actual expropriation of the projects.

No jurisdiction over tax increases means that there would be no compensation for that part. Subtract that from the US$ 6 billion requested.

The Compensation: The final award given to ExxonMobil and its affiliates is: a) US$ 9.0 million for the forced production cuts in 2006 and 2007, b) US$ 1.411 billion for the investment in the Cerro Negro Project c) US$ 179.3 million for the expropriation of the La Ceiba project. This amounts to a total of US$ 1.599 billion dollars plus 3.25% interest since the date of expropriation (June 27th. 2007) to the date on which payment is made. From this amount, the arbitration panel ordered the subtraction of the US$ 907 million awarded by the International Court of Arbitration (ICC) in December 2011, which has been paid in full.

If PDVSA pays this in November, as it has announced, I calculated the interest to be US$ 345.2 million, where I separated the interest due in the original US$ 907 million of the ICC decision, paid in early 2012 and the interest on the remainder US$ 1.1 billion since June 27th. 2007. This gives a total of US$ 1.943 billion for the award, minus the US$ 907, which would give a total bill due of US$ 1.036 billion, assuming PDVSA pays in November.

The award for La Ceiba is easier to judge. ExxonMobil asked for US$ 179.3 million. It was awarded exactly US$ 179.3 million for its half of the project. (The other half was owned by a Canadian company which accepted US$ 75 million in negotiated compensation). A small victory for ExxonMobil.

Obviously the award is on the low end of things, which is the reason that I consider this to be a slight win for Venezuela. But the actual reason the award is on the low end of things is quite ironic: Venezuela argued that country risk (it’s own!) was high and the discount rate used in the calculation of the payment should be near 20%. In the end, the panel used 18% versus ExxonMobil’s proposed 8.5% which made a roughly US$ 1.5 billion difference in the compensation.

This is what Venezuela argued:

“The Respondent (Venezuela) contends that the CAPM methodology is of little relevance in determining the value of an international oil project because it does not take into consideration the country risk. According to the Respondent, Prof. Myers has relied on a single, inappropriate method, whereas Respondent’s experts have used four separate methods, ICAPM and country risk survey (“market acquisition approach”), and backward- and forward-looking data (“make-whole approach”). These four methods resulted in discount rates “within a relatively narrow range”, which the Respondent’s experts averaged, yielding a discount rate of 19.8%”

Thus, the same Government that is always complaining that the markets demand such a country premium when it sells it bonds, turns around and cheers for the high country risk they have created by their mismanagement of the economy. .

Oh! The pretty revolution!

So, technically, ExxonMobil got less because the revolution has made the country so risky. Strange, but not only true, but also correct from a technical point of view. But I don’t believe analysts were using such a high rate in their calculations.

If ConocoPhillips was 2.5 times larger, then you can expect this decision to establish some precedents and that case will be 2.5 times larger, plus a bit more because that panel already ruled Venezuela negotiated in “bad faith” with ConocoPhillips. I don’t know how much that will cost, but say it takes it from 2.5 times to 3 times and ConocoPhillips will be awarded with interest around US$ 6 billion. This gives a total of US$ 8 billion for both cases, below the “average” expected by markets of US$ 10 billion between the two projects.

Yes, it is low, but ISCID awards have always been on the low side, this is after all, the second highest award ever after the Occidental Petroleum-Ecuador case. In fact, two weeks ago, the ICSID awarded Canadian company Gold Reserves US$ 730 million in its arbitration case against Venezuela in an award that surprised many by its large size. The company started asking for US$ 5 billion, was cut down to US$ 2 billion and was awarded US$ 730 million after investing some US$ 300 million in the Las Brisas gold project. Venezuela has not said what it thinks of this award, whether it will pay it or not.

Yeap, a slight win for Venezuela. But I get the feeling the real winners are the lawyers on both sides.


Puzzling Over The Events Of The Last Few Days in Venezuela

October 8, 2014

Anyone that tells you that they know what is going on within Chavismo and the recent events in which a PSUV Deputy was killed at home, followed by the Head of a “colectivo” being killed two days later by none other than the investigative police, is simply lying. To begin with, the death of the Deputy is as strange as it gets, with the Deputy sending his bodyguards home minutes before those that killed him showed up. There was no violence, it was efficient and barely noticeable in a neighborhood where the smallest anomaly is duly noted.

Then, there was the incredible noise by Maduro and his cohorts, blaming everyone from Uribe, to the US, to the opposition and threatening to reveal it all. Even Samper got into it.  Both Maduro and the Prosecutor claimed that the investigations were really advanced, the heat was on the opposition, when Maduro even blasted the new Head Of The MUD Chuo Torrealba. Then, all of a sudden Jose Odreman, leader of one of the Chavista “colectivos” is killed, no more than one hour and fifteen minutes after saying on TV that “Math never fails”, that they are after them and he makes the Minister of Interior and Justice “responsible” for anything happening to him and accuses the investigative police of killing someone that worked with him. In the now infamous video, Odreman threatens to take to the streets with other “colectivos” and one hour and ten minutes later he was dead:

Afterwards, the Head of the CIPC, accuses Odreman’s “colectivo” of “carrying out a number of murders in the greater Caracas area and…there were shots between the police and a number of former cops who were part of Odreman’s gang”

So, this is a chicken and egg problem: What comes first? the Deputy´s death or the war against the colectivos? Were the colectivos involved or was the Deputy, with his connection to the colectivos, part of the same story.

I really have no clue in this puzzle. All I know is that the Government allowed these paramilitary groups, the “colectivos” to exist. Chávez did seem to have control over them, but now they seem to have become a force of their own. They fight and criticize the police (they are mostly former police too) while going around the city armed to their teeth and act as if they are above the law. Meanwhile, the police finds these people a pain in the you know what, they are autonomous and untouchable. A veritable monster. Venezuela’s version of Colombia’s paramilitary groups.

The problem is that the actions of the colectivos is interfering with the President and his spin on things. He now orders an investigation of Odreman’s death, but the truth is that all of the ruckus raised with the Deputy’s death has died down. How can you blame the opposition when the whole thing stinks to high heaven of being an inside job within PSUV. And Maduro orders the investigation without saying a bad word about his Minister of the Interior (Las Matematicas no mienten, Odreman dixit) or the Head of the CIPC. Odreman thought his statements on video would protect his life. He was wrong, someone thought he had to go, no matter what even Maduro may think or do.

Complicated, no? A true and veritable puzzle.

Is the Government trying to placate the colectivos? Is this the military trying to get rid of Chávez’ creation because they have become a force within Chavismo that they don’t want? What happened to the big announcements that Maduro was going to make about the Deputy’s death? Did Odreman’s death stop them?

Meanwhile the opposition is as quiet as can be. When you don’t know what is going on, it is better to just shut up. The problem is that more and more Venezuelans die each day that goes by, pro-Chávez and against Chávez, in this macabre dance that Hugo left his successor to direct. And the colectivos are not controlled by anyone, as the last few days demonstrate. Which to me seems like a situation that the military would not like. Maybe absent Chávez, they decided to do something about it.

But who knows. With so many guisos and rackets in Venezuela, maybe this is just about money. Somehow in socialist Venezuela, money is always at the crux of things. The last few years have taught us that. Think money and you will have your answer.

But, who knows? All I know is that it is hard for me to get over Odreman’s statement. In a Government that does not believe in knowledge and numbers, he said it a few times: “las Matematicas no mienten” (Math never fails).

What was he trying to tell us?

That’s the puzzle…

 


In Search Of Good News In Venezuela

September 28, 2014

BU9X_GOOD_NEWS_107650040

I know, I know, I have been away for too long. I agree. Somehow this happens now every time I am in Venezuela. It is not writer’s block, it is more like information overload. Everything is a story, but in the end nothing appears to be one. The lack of information and the lack of transparency, in the presence of a thousand daily headlines, makes it impossible to understand most things. Let alone write about them.

I spent the week trying to find good news. Not that I am a masochist, but I figure if I can find something positive to write about in Venezulea, that alone will make it a good story. Everything seems to be so negative. But good stories are hard to find, every time I think I have one, I find a wrinkle in it, some orthogonal feature that makes the good news somewhat iffy.

Take Chikungunya. Before I went looking for experts on it, I learned to spell the word, I didn’t want to be like Maduro and call it something else. I talked to a couple of people that suggested that something was up in Maracay, but.. It is the but that gets me intrigued. The but is that there is so little information that it is not clear whether it is the Ch. word or it is dengue that is to blame for what is going on. That is certainly good news, until I am told that the number of dengue cases is ballooning to levels not seen in the country’s history. To top it all off, people who either get dengue or the Ch. illness need Acetaminophen, which is in lvery ow supply in Venezuela. It seems like Chikungunya is not the good news story I am looking for, even if I learned how to spell it.

I then turn to the release of political prisoner Simonovis, who has been been given house arrest instead of jail for health reasons. This is certainly great news, at last the Government seems to have shown some compassion for someone in the vast array of injustices that go from political prisoners, to crime, to persecutions and to human rights abuses. But then you start to see the wrinkles in the case. The measure is only temporary and he is taken to the hospital shackled and treated like a common criminal. But worst of all, you see the dark side of Chavismo in the outcries of the radical Chavistas who find this humanitarian measure incomprehensible, filled with hate, unable to have even a the slightest empathy for human beings. Unable to even consider, not only Simonovis’ role in the affairs of 2002, but to realize how Chavismo got away with murder and murders in the 1992 coup attempts. They were all forgiven. They got away with it. From Chávez to Arias Cardenas, to all of them. Many of them rule the country today.

What happened to Venezuela and Venezuelans, that hate and politics became more important than humanity and compassion? How can sending a very sick man home become a subject of protests and revolutionary symbolism? As if this was not enough, a friend explains to me why Simonovis was finally given house arrest: Don’t believe anything you read, Maduro was just worried that he may die in jail. It was a political move, nothing more. Another good story dies at this point.

I then turn to shortages.  I go to the market and see milk, margarine and even toilet paper.  Surely this is good, no? Except that now you can’t find diapers or cleaning products. It is the rotation of priorities. The Government devoted all of its efforts to make sure there was toilet paper, but forgot about diapers, it imported milk, but forgot about margarine, and there had never been shortages of cleaning products, so the Government did not even understand they could be in short supply.

The worst part is that by now, the shortage mentality has taken over the population. There is milk in the shelves, but you don’t know how long it will last and take home as much milk as they will sell to you. The fact that there are limits, people reason, must mean that there isn’t enough for everyone. Everyone hoards whatever they give priority to. The end result is that it will be quite difficult to bring inventories up, it is sitting in people’s homes..

Take water, for example. It is raining cats an dogs in Caracas. The dams are 70% full. Reportedly, the Government is punishing middle class neighborhoods limiting their water supply. But the shortage mentality has taken over residents too. Water is rationed even when there is plenty of it. In my building, they cut it off at the usual time mid-morning, despite the fact that the tank is half full and water is coming in. This means that everyone will be ready at 12:30 to wash all the clothes, fill all the pails, pots and pans and shower again just in case. The end result is more water consumption, all clothes are clean all the time and most people (like me!) take extra showers, just in case.

Hard to break this vicious cycle. Shortages are definitely not a good story either.

And then there is Convenio Cambiario #30, some analysts hail it as a sign of further “adjustment”. A positive. But all I see is a decree allowing Pdvsa to have total freedom as to whether it gives Bs. at three different exchange rates, to opacity-ladden-Fonden, so that Maduro may have more funds at his convenience, simultaneusly creating a new perverse mechanism for printing money: Pdvsa exchanges with the Central Bank at Bs. 50 (Sicad 2 rate) but the BCV can turn around and sell those same dollars at Bs. 6.3 per US$. All stages of this may be done with total discretion and no disclosure. Sorry, not a positive, another negative.

And the I notice something. The new President of PDVSA has been talking only about oil since he took over the position. First, he said that he will reactivate one thousand wells to increase oil production. He talked about modernization, met with managers and talked about increasing production by 60 to 70 thousand barrels of oil a day. He then intervened the marketing division of PDVSA, where Maduro said there were “mafias” involved in the commercialization of products. Finally, yesterday Del Pino called for making investments in the Orinoco Heavy Crude belt a reality. After years of his predecessor announcing projects and projects but little happening, Del Pino wants it to become reality saying “it is time to go beyond the presentations to financing and building the projects”. Wow!

The best part, Del Pino seldom mentions the party or politics, even if he can’t help mentioning the almighty Hugo. He apparently wants to be President of PDVSA and see if he can increase production of oil in Venezuela. What a concept! He is praising the company’s workers, trying to improve moral. For now, I will give Del Pino the benefit of the doubt. He is saying the right things and concentrating on what he should. And that, in the current Venezuela is a HUGE positive. And that, my friends, is the GOOD NEWS!

And now that I have given you the good news, here is the bad news. One Bolívar fuerte is now worth less than a penny. That is not even bad news, it is simply depressing:

bolfA true tribute to the success of the revolution!

 

 

 

 

 

 

 

 

 


S&P Downgrade Of Venezuela’s Debt To Add To The Noise

September 16, 2014

As if there was not enough noise around Venezuela’s and PDVSA’s debt, credit agency S&P downgraded Venezuela to CCC+ this afternoon, citing concerns about the economy, inflation and increasing risk. This announcement will certainly add to the confusion of the last week or so, where the default opinion piece of Hausmann and Santos, has generated so much discussion and interpretations of what was said, creating such a stir that President Maduro ordered the Prosecutor to ¨take action¨ against Hausmann for seeking to destabilize the country.

One has to wonder what Maduro will say about S&P now.

But in reality, the announcement by S&P is not surprising, because the rating agency already had placed Venezuela on “negative watch“, suggesting that it was considering downgrading Venezuela’s sovereign debt. (So far, the downgrade only applies to the Republic’s debt, but a similar downgrade of PDVSA is likely to follow base on the criteria usually followed by credit rating agencies that no risk can be higher than the sovereign one)

According to the definition by S&P, this downgrade to CCC+ means that Venezuela is “vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.” S&P is not suggesting that there will be a default anytime soon, but that things are getting complicated. But we are sure that the announcement will be misinterpreted.

And I say this, because during the last week, there have been many misinterpretations of statements made by a number of people (including me) and in both Twitter and blogs, terms have been confused.

As an example, I made statements in Twitter that I did not recommend investing in Venezuela and PDVSA bonds at this time, which was taken by some as an indication that I thought Venezuela would default. As I made clear in the previous post, I do not believe that Venezuela will default in October, or that Venezuela is likely to default in 2015 or even in 2016. What I am saying is that on a risk adjusted basis, the return on Venezuelan and PDVSA bonds are just not high enough for the  lack of transparency on the country’s numbers, the political uncertainty and the volatility that these bonds exhibit.

Take, for example, the PDVSA 2022 bond, one of the people’s favorites because of its high 12.75% coupon. Today that bond was yielding about 16.1% per year if you held it until 2022 and had a “current yield” of 14.66%. The latter means that if you buy the bond today at around 86% and in one year it is still at 86%, you will make 14.6% on your money. This is what that this bond has done since the beginning of the year:

pdvsa22

As you can see, it started the year at about 92%, dropped in six weeks to 75%, bounced back to 104% only to drop to 80% once again with all the default talk and recovered some to close today at 86%. That is a 19% drop, a 38.7% rise and a 23% drop in the space of less than nine months.

To me, this is too risky, too much volatility, given that I am paid less than the last two drops for holding the bonds. Imagine you are a fund or you have a client that buys at 100% and you have to tell him or her, that the bond is down 23% since the purchase. If it stays down there (nothing guarantees it will bounce back) the fund or your client will lose money over the first year and a half of the investment.

Now, if the price comes down below 80% again, I might be intrigued for aggressive investors (including myself). In fact, I did that when it started bouncing back in February, but sold when the yield became too low again for the risk I perceive. (Again, this is my personal perception of what the risk/return should be)

Add to this, what the Government has done (or not) in terms of giving negative signals to make the bonds even less attractive:

-It invited foreign investors to two meetings in New York with then VP for Economic affairs, both meetings were cancelled.

-It said it wanted to sell CITGO

-It has said nothing about whether or not it (or PDVSA) had significant amounts of funds in Banco Espiritu Santo or its affiliates.

-It has said a few times that all foreign currency in parallel funds will be added to international reserves, but Maduro only mentioned US$ 750 million. Analysts believe that there should be much more than that in the parallel funds

-It has done little in terms of the exchange rate and/or gas prices and moved sideways the only Minister proposing changes.

-There was a report that Venezuela was storing heavy crudes in Caribbean islands, while PDVSA “reviewed its pricing structure”. This was never clarified.

None of this gives you any confidence in the strategy of the Government or the bonds.

But whether you invest or not, has nothing to do with believing in default or not. That is a separate question and I don’t think that there will be default this October, even if I understand that this is a political decision in the end.

But I also think that the discussion has become somewhat circular. When I read Hausmann and Santos, I read: “If the authorities adopted common-sense policies and sought support from the International Monetary Fund and other multilateral lenders, as most troubled countries tend to do, they would rightly be told to default on the country’s debts”

This is an extremely hypothetical question, as the current authorities are not considering this even remotely. In my mind, what Hausmann and Santos said was a number of truths to warn investors not to be so complacent about the country’s debt. ( I also think that an IMF agreement and some adjustments would provide ample funds to avoid default)

In the same manner, when Francisco Rodriguez answers back that the real problem is that Venezuela is selling ten dollar bills for one dollar and it should really just change that, this is another highly hypothetical question as the last year and a half under Maduro has shown that there is no intent to sell the $10 bills for ten dollars, but at most for $2 or $3 dollars, which really solves nothing.

And now to make things even more confusing, people will certainly over interpret and confuse what S&P said today. Which, by the way, will not help the prices of the bonds tomorrow or for the next few days. Neither will it help if they announce they sold Citgo or parts of it, nor if they announce little in terms of correcting the distortions in the Venezuelan economy.

The amazing thing is that some simple steps, like talking to the market (not cancelling meetings), moving assets to international reserves and addressing issues like Espiritu Santo, would have done wonders to calm investors down. Even if you lead a “revolution”, if you want financing, issuing debt becomes cheaper the more transparent and communicative you are with investors. In the end, not doing so, becomes very costly for the country and Pdvsa to issue new debt. Ramirez seemed to have understood that, but currently, it appears as if we are back to Giordani’s days of not talking to those that provide your financing.

And in the end, all Venezuelans will have to pay for it.


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