Another tale of unparalled corruption: The swap of Argentinean bonds

November 27, 2005


If the
previous post describes a gift to the rich that I find somewhat obscene, there
are worse things going on which are incredibly obscene. In the bond offering I
described, the terms are known, everyone can put in an order and the National
Assembly approves the issue. This contrasts with using the same procedure but
assigning the bonds by having the Ministry of Finance choose by unknown
procedures just a few banks to participate. Then these banks are giving the
gift and we can not even know if the profit was 10% or 20% because no info is
revealed on these deals. But if they are anything like those of the current
bonds offering, we are talking tens of millions of dollars in profit handed out
by the Government to their friendly banks. This deals clearly involve
corruption. In fact, all of these more private deals have not been announced,
but have leaked slowly thru the financial system until someone in Government
has talked about it.

I
talked earlier about the case
of the structured notes whereby US$ 662
million in these notes was sold to five banks chosen by unknown procedures at
the official exchange rate. These banks turned around and sold the notes in US$
making a mint. The fact that it was done privately raises suspicions that
corruption was involved, so does the fact that the transaction was revealed by
the President of Bandes who held a press conference to make clear that his
institution had not sold them, but that they had been sold to the Ministry of
Finance who turned around and sold it to the banks.

Well,
there were rumors of a similar transaction but with Argentinean bonds. You see Venezuela
bought US$ 950 million of that countrys debt as a way of helping that country
since there was little interest in purchasing them on the part of foreign
investors. Fortunately for the Venezuelan Government emerging market bonds have
kept rallying even as interest rates rise in the US and Europe. Well, the
Minister of Finance, former mathematician and now proud debt trader Nelson
Merentes gloated that the Government had sold some US$ 400 million of these
bonds at a profit of US$ 40 million. But you see the bonds were sold to two
local banks that made a nice piece of change in the transaction as they paid
them with Bolivars at the official rate of exchange. Then, they turned around
and sold them in the international markets at a tidy profit in Bolivars.

The
question is once again, why those two banks? Why the lack of transparency? Why
not sell them in the international markets? Was there a profit in the end for
the Government? Obviously these transactions are doubly obscene as there seems
to be some sort of corruption involved in the handpicking of the institution
that these are sold to. But I will let Teodoro Petkoff in his Tal Cual
Editorial give you his opinion:

Swap by Teodoro Petkoff in Tal Cual

 A few days
ago we described the shenanigans with the so called structured notes of Bandes.
Now is the turn of the operation with part of the Argentinean bonds that the Government
acquired.

With
those, there was also an operation in the secondary market that happens to be
of a suspicious nature, much like those of the structured notes. In the first
two weeks of October some US$ 300 million in Argentinean bonds were sold to two
local banks. They had been acquired by the Venezuelan Government with at a discount
at 76.85% of their value and were sold, also at discount, somewhere between 80
and 85%. Did we win one? Keep reading.

At the
time, the official controlled Exchange rate was Bs. 2,150 to the US$. With the
discount, the implicit price of the bonds was some Bs.2300 per dollar. Where is
the trick? In the black market the price was hovering around Bs. 2600 and Bs
2700.

Singing softly those US dollars
left the country and maybe they went to the recently bankrupt Refco, where many
Venezuelans of the boli-bourgeois -the Bolivarian bourgeoisie- had placed their
precious green bills, for which there is no valid exchange control.

Now comes the questions. Who
pocketed the differential between the effective Exchange rate (Bs. 2300 per
US$) and the black market exchange rate (2600/2700). Supposing a difference of
Bs. 300 between both prices, the profit from the operation is around Bs. 900
million. (Petkoff made a slight mistake, it is actually 90,000 bolivars or US
$ 34 million at the parallel rate he assumed)

How were the buyers selected? It was not done publicly and
transparently, that is very clear. There was no auction. What is also clear is
that the Merentes method is much more opaque that the Nobrega method, because the
latter, at least, covered appearances, holding auctions for the placement of
public debt bonds that the country would then issue.

Do you have to be a professional dirty minded person to imagine that the
beneficiaries, chosen using fingermocracy for this operation, split the profits
with those that put them there?

If we recall the operation with the structured notes, we now
have that between the US$ 600 million of the former and the US$300 million the
latter, US$ 900 million were placed in the market. The difference between the
real or implicit price and the black market is around 3,000 million Bs. Not bad
(Once again Petkoff is orders of magnitude off, this is 270,000 million Bs. or
a clean US$ 100 million at the pararlel market rate. Unparallelled levels of
corruption for Venezuela)

How much was there
for each participant? How was the bounty split? Even admitting the lowest differential
between the real price of the dollar, implicit in the operation and the black market)
there would be some 2,700 (again x 100) million Bs. sweated by the chosen
banks for the operation and their accomplices in the Government.

The gears of corruption have their own life. Chavez said
that there would be no more debt operations and, nevertheless, the Finance Ministry
announced an upcoming placement of US$ 1.5 billion. The problem is that the
genie of cheating is out of the bottle and nobody has any interest in putting
him back in it. Today, much like in the oil boom of the 70s, the large foreign
investment banks pressure, so that Venezuela will maintain its
presence in the international markets, issuing debt continuously and on the
local side are those that know how to profit from this very easy ride.

One Response to “Another tale of unparalled corruption: The swap of Argentinean bonds”

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