Brazil gets the better deal, as Chávez mortgages Venezuela’s future

May 27, 2009

Well, if you thought you had seen and heard it all, now comes the National Assembly and changes the law very quickly to allow Chávez to mortgage the country. It is insufficient for him to receive loans from the Chinese in exchange for oil, which is a different  form of mortgaging the country, but now Venezuela will get a loan from Brazil’s development bank Bndes in the amount of US$ 4.3 billion, guaranteed by Venezuela by fields from the Orinoco Oil Belt. 

Even more clever for the Brazilians, the money will be used to finance projects (and pay debts!)  being built by Brazilian companies in Venezuela and the first beneficiary will be Odebrecht, the Brazilian firm building subways systems around the country and which is owed a lot of money by the Chávez Government. 

So, you can see who is the greater fool here. Certainly not the Brazilians, who take advantage of Chavez’ tightening cash flow to lend him money to pay for their own projects and in the worst case scenario, Petrobras will have (actually own!) a nice chunck of the Orinoco Belt. But, Brazil also gets an added bonus that the Argentineans buddies were denied: Chávez said that he will continue to nationalzie private companies right and left, but Brazilian ones will be exempt from nationalizations

This is thus like a mafia deal, where you not only get the money, but also get protection in exchange for it. Not a bad working day for Lula in meeting with our President.

The deal clearly is bad for Venezuela, as it will allow Chávez to continue his spending spree and the continued destruction of the Venezuelan economy. Because it is clear that there is no plan surrounding the nationalizations either, it is just a matter of Chávez wanting more and more control over the economy. Chávez said yesterday that he still had money to nationalize more companies (now that he got 4.3 billion elsewhere), but gave no hint as to where his voracious appetite will take him this time. 

Chávez actually thinks that he is making money by nationalizing companies and gave the example of CANTV, where he claims he made the purchase price in the three years since the nationalizations. Sure, because he did not buy CANTV, he stole it by forcing Verizon to take his offer, even if there was a higher one on the table.

But if he thinks that Banco de Venezuela will continue making US$ 100 million per quarter as he suggested earlier, he better get off that cloud. He should think more like Banco de Venezuela will be Banco Industrial in three years. 

Because clearly Chávez fails to understand that economic growth and jobs can only be generated if you invest your money in new enterprises and he somehow thinks that by buying these enterprises he is generating profits for his Government. In fact, medium and long term he is destroying them, as the current state of Cemex and PDVSA already attest. 

In the end Chávez is acting like organized crime does, making offers people can not refuse, buying protection and in the end guaranteeing the survival of the capo at the expense of the country.

But he thinks he is being smart, while the Brazilians are laughing all the way to the bank.

29 Responses to “Brazil gets the better deal, as Chávez mortgages Venezuela’s future”

  1. GeronL Says:

    Wow.

    Where in history has nationalizations and government control ever made people more prosperous?

  2. Roberto( no el otro, sino este) Says:

    Funny how some simultaneous translation equipment was left on, and most of the private meeting Lula and Mr. Peligro had was heard by the journalists covering the meeting. They even heard the laughter when Chavez said he wouldn’t nationalize the Brazilian companies.

    Brazil might be laughing now, but if they’re smart they’ll keep one hand behind their backs holding a bat. I would.

  3. concerned Says:

    When Chavez said that Venezuela was now for all Venezuelans, he forgot to include that it is also for China, Russia, Iran, Argentina, Brazil, Japan, Bolivia, Nicaragua, Panama, El Salvador and last but certainly not least…Cuba.

    What a clown. What a joke. As long as Chavez can find someone foolish enough to invest under these conditions, the circus will continue. The Brazil deal certainly looks good for them now, but good luck with developing anything in the Orinoco belt. As soon as they do, it will be up for grabs for the good of the revolution.

    Chavez hasn’t come through on even one deal, much less honor any contracts or agreements. Petrobras should think twice about any partnership with PDVSA. They are sitting on top of the world with their new, soon to be producing oil and gas reserves, which they plan to process and sell at much higher finished product prices. Brazil doesn’t need Venezuela, so for me, Lula could have put that money to much better use investing within Petrobras…Time will tell.

  4. Pilar Says:

    What is really sad is the behaviour of the people in Vzla, they must realize that Chavez is capable to sell his own daughter for staying in power. He does not care anything about people or the country. What it should be done is to aware the brazilians that any contract made with this dictatorship does not have any value when democracy is back again. They may loose all the lended money as well any oil field.

  5. GWEH Says:

    Pilar, what Lula and gang know and understand is that Chavez will remain in power for the foreseeable future. Chavez is at the peak of his power and there is nothing or no one that will remove him from office except a miracle (which can come in many forms including heart attack). Thus the Brazilians lend him money in return for much coveted access to the oil belt. Petrobras is a very capable company and their time in Venezuela will come.

    A little tidbit: Putin called Chavez the other day to scold him for selling Russian night-vission goggle to the Iranians. Two things here: Chavez is helping Iran and Chavez needs money. BTW, four Iranian Republican Guards were aboard the Mi-17-5V military helicopter that recently crashed due to air pocket (loss of lift) and pilot error (he did not know how to recover).

  6. Roger Says:

    For years Brazil has been trying to get in the Venezuelan market with an eye on its close resources. In the not so distant future when Mercoursur emerges as a EU like state and Venezuela is just one of the little states, Brazil will be the major economic power now that Chavez and others have stole and squandered the wealth and thus the economic power.

  7. liz Says:

    GWEH, I ‘ve lbeen ooking for that info since yesterday to no avail! It was informed in Iran but nor here. They said it occurred this week. And I understand they were high ranking officers. Do you have a link for this?
    Just curious…

  8. paul Says:

    It is a fantastic deal for chavez- after all, his word is dirt! But what choice does Lula have?
    Chavez won’t pay debts so they have to give him a loan to pay them, a shot to nothing for Lula. At home he will face pressure for giving Chavez a loan.
    If Venezuela thinks investment will come in after Chavez (possibly) leaves, they should think again. The majority voted him in and it’s not the first time you stole assets from multinationals. The world will bypass you, oil production will continue to fall- you will end up like Burma-run by Generals content with lining their own pockets whilst the majority sink into poverty. Your middle class is poorer than many on benefit in Euro states. Ok you still have your maid since she is even poorer than you, I suppose it’s all relative. Sad looking from the outside, as I do now, and listen to my relatives bemoan their fate in Venezuela.

  9. max1284 Says:

    explain to me how investing money in the caracas metro is anything other than an excellent idea. or don’t, because you’d be wrong.
    dismantled, @ http://www.maxajl.com/?p=1262

  10. moctavio Says:

    I have no objection to that, the point is that this loan has lots of strings attached, including allowing oil fields to guarantee the loan and right off the bat 40% of it goes to pay debts that the Government has with Brazilian companies. The rest goes to projects in Venezuela with Brazilian companies. If we dont pay the loan, then oil fields belong to Brazil, this was changed in the law so the loan could get through. This from the guys who always talk about sovereignty. What was so bad about the low interest rate loans with the IDB that had no strings attached?

  11. max1284 Says:

    Miguel–
    The terms of the loan haven’t been finalized, from what I can tell, although it also includes support for a popular-banking network (it’s again telling that you didn’t mention that about 1/6th of it is going to the Caracas metro). In any event, tell me the likelihood of Venezuela actually ceding its oil fields to Brazil. I’m putting the odds of that happening somewhere between 100:1 and 1000:1.
    As for the work being done by Brazilian companies: assessing whether or not these investments will be good for the Venezuelan economy will involve looking at whether construction of the factories will use Venezuelan workers, raw materials, skilled workers, etc. All we know is that the capital is going from BNDES to Venezuela, guaranteed by the oil fields, which won’t ever be transferred to Brazilian ownership. On this non-existent basis you’re able to construct an attack on Venezuelan development strategy. Isn’t that something?

  12. max1284 Says:

    Miguel–
    I don’t have the time to engage in a discussion of the points you’ve brought up, almost every single one of which is a diversion rather than an engagement with my point.
    The one place where you engaged me you (deliberately?) misread what I wrote:
    “And Venezuela owes Odebrecht US$ 2 billion that will be paid according to my information. You put it at 1 to 100, funny Venezuela’s debt trades at a 20% probability of default. I guess you know more.”

    I said that the chance of Venezuela ceding its oil fields to Brazil was between 100:1 and 1000:1. I said nothing about the chances of default.

  13. max1284 Says:

    Miguel,
    If you don’t understand how improving what should be the major piece of urban infrastructure in Venezuela’s major city is PART of a development strategy, I’m not sure what to do with you. There’s plenty of economic literature supporting my point, and again, anyone who’s ridden the Caracas metro lately knows that it needs massive improvement.

    I doubt Venezuela will default (China will just funnel more money to it for promised future oil supplies), and I doubt Venezuela will give Brazil Citgo either.

  14. Roberto Says:

    Max:

    Standard PSF strategy, you are so transparent! “I don’t like where this discussion is going, time to change the subject.”

    WTF does the Metro have to do with signing away the oil that belongs to ALL Venezuelans?

    Or in criollo, so that you learn something new: “Que tiene que ver el culo con las pestañas?”

  15. max1284 Says:

    Roberto:
    Standard purblind Venezuelan upper-class arrogance, you are translucent–conversations go where they go, and you don’t get to “direct” them to a specific point. That’s what a “conversation” is. [If you need help with that, go to dictionary.com].
    Repeat: the oil WILL NOT get signed away, no matter what the contract says. Miguel already conceded the point. Neither will Citgo. Meanwhile? The contract got made for a reason, to allow further work on the Caracas metro, to allow joint projects like the Abreu e Lima refinery, Pequiven will get assistance to ramp up production of agricultural products, etc etc etc.

    • Jayan Says:

      Ive been meaning to read this and just never reeevicd a chance. Its an issue that Im quite interested in, I just started reading and Im glad I did. Youre a good blogger, 1 of the greatest that Ive seen. This weblog surely has some data on topic that I just wasnt aware of. Thanks for bringing this stuff to light.

  16. moctavio Says:

    I have not conceded that point, losing CITGo would be as bad as giving oil areas. Citgo will be a goner in the next five years and if oil does not go above 100 in the next five years Chavez will default. Once agian this was a TERRIBLE deal for Venezuela and Venezuelans, if we had a serious National Assembly the law would not have been changed, if we had a serious Supreme Court it would have said it’s illegal.

  17. revbob22 Says:

    Max:
    The only one who has conceded here is Chavez.
    It’s not really about the metro. This insistence on disadvantageous terms, and collateralizing a chunk of country are terms that are unacceptable.

    Maybe we should borrow from Trinidad, use that money to buy fish from them and put up the Salt Flats of Araya as collateral. That would be so awesome!

    The way he steps all over the Constitution to achieve his goals once again confirms his dictatorial bent.

    So either Chavez is a bad negotiator, or he’s in more trouble than you think. I believe it’s the first, por ahora.

    And why he would negotiate bad terms cannot but bring visions of some chunk of this ending up neither in the Metro, nor in any productive venture at all.

  18. max1284 Says:

    Yes, actually, I’m an upper-class white person from Philadelphia. I went to Princeton. I went down on a Global Exchange trip to Venezuela last year, and since then I’ve been reading Venezuela Analysis EVERY DAY! Learned all about the Perfect Socialism Chavez is implementing down there. He’s the best.

    Back to the real world, things look a little different. 500 billion in wasted oil income. I’ll file that away under “Solipsistic fantasies, Venezuelan opposition,” and perhaps cross-list it under “Refusal to recognize improvements in qualify of life of Venezuelan poor, Willful Blindness.”

  19. Roberto Says:

    Ruddy, unforunately it’s more than 500 Billion in revenue.
    More like 900 Billion, but who’s counting anyway? We have lots more oil!

    I mean, we got a sweet satellite, everyone is housed comfortably, the roads are frankly just like in Germany. We’ve also managed to export more than oil, we’ve got a great new product called XXI century socialism. We even influence elections in other countries.

    Why he hasn’t won a Nobel yet is amazing.

    On the other hand, the misiones do fulfill part of a social contract that has been missing from our country. The only problem I have with them, is that while they have “handed out fish” to the needy, the part of teaching them “how to fish” has been grossly mismanaged.

    Money well spent, if you ask me.

  20. max1284 Says:

    Miguel,
    I saw the corruption and the human-rights abuses all by myself. They’re almost as self-evident as the satirical nature of the comment I posted above. What’s the quotation? Good satire is when you cut off the target’s head without them even noticing…

  21. Roberto Says:

    Max:

    Would you be so kind as to let us know, the time frame for your visit to Venezuela?

    In other words, when (roughly) were you there and perhaps you could give a little detail as to the abuses and corruption you experienced, or saw, first hand.

    Just curious.


  22. Max

    You wrote:

    “I went down on a Global Exchange trip to Venezuela last year, and since then I’ve been reading Venezuela Analysis EVERY DAY!”

    You are certainly entitled to your opinion but I fell compelled to inform you that Venezuela Analysis is a propaganda outlet paid for by the Venezuelan government. This is duly documented.

    As for Global Exchange it is for political tourism where only the P.C. parts of the pseudo-revolution are shown.

    I invite you at your convenience to visit me in San Felipe where I will be glad to show you what Global Exchange did not show you in Caracas or wherever it is they took you.

    But somehow I am not expecting your visit, or the one of anyone of your ilk, anytime soon.

  23. max1284 Says:

    Miguel, Daniel:
    Satire, satire, satire, satire, satire. Do you get it? That means the caricature of a PSF I described above–“I read Venezuela Analysis EVERY DAY, I came down on a Global Exchange Tour, I’m upper class, I went to Princeton”–
    ISN’T TRUE.

  24. max1284 Says:

    I should quickly add that the fact that the satire was taken as serious— “He’s the best.”?? “Perfect Socialism,” capitalized?? Come on! — suggests that people are operating with pretty insipid preconceptions of non-Venezuelans interested in Venezuela.

    Doubly so when I pointed out that it was satire and respondents continued to ignore that. I’m sure there’s a pithy criollo phrase for quite literally not seeing what’s in front of your eyes.

  25. max1284 Says:

    No. Lousy at satire is when it’s not funny. Good satire is when its target–YOU and a few others who resort to the ad hominem PSF instead of engaging–don’t even know you’re being satirized.

    “Satire is a sort of glass, wherein beholders do generally discover everybody’s face but their own.”
    Jonathan Swift


  26. Miguel

    ad hominem

    there is a character in oil wars that use that locution so often that i warned him that he should slow it down before he turns into a verb, as in “i will adhominemize you”

    the funny thing here is that he thinks he is funny.

  27. Eliza Barclay Says:

    Hi Miguel,
    I’m a journalist in DC who is trying to figure out whether Venezuela’s aid to Nicaragua, Bolivia or Cuba has dropped in the last year with the global recession.

    Also, is this loan from Brazil the first major that Venezuela has taken out since oil prices shot up?

    Thanks,
    Eliza Barclay


  28. [...] few months ago I got all worked up about the terms of a loan negotiated between the Chavez Government and Lula’s Government. [...]


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