Tales From The Upside Down Country: Venezuela Doubles Interest Payments To Petrocaribe

July 24, 2013

venezuela

Bloomberg is reporting that Venezuela advised all countries which are members of Petrocaribe on May 16th, that it would double interest payments on the oil loans that are provided to the members of the group.

Yes, doubling it!

From 1% to 2%!

For those that don’t know it, Venezuela sends oil to Petrocaribe nations, to the tune of 212,000 barrels a day, for which the countries have to pay 40% in cash or stuff (which has included pants, for example) and the remainder gets paid at a 1% interest rate for the next 25 years. Effectively, Venezuela loses on this simply because of the fact that international inflation is higher than that.

But wait! Venezuela issues debt paying double digit interest rates too! So that, while we pay through the nose, Petrocaribe nations, which include some well-off Caribbean islands with GDP per capital much higher than Venezuela’s, receive a huge subsidy so that their citizens can go to the beach or simply become beach bums. For example, if Venezuela were to issue a 20 year bond today, it would have to pay around 12% in interest for international investors to be interested.

Now, 212,000 barrels of oil per day is US$ 7.738 billion per year at US$ 100 per barrel. Of this, 40% is supposedly paid (See it to believe it!), leaving new debt of US$ 4.6 billion a year to be paid in 25 years. Thus, the increase means that Venezuela will receive barely US$ 46 million per year from this increase from 1% to 2% on the oil sold in 2013. Not enough to pay two Maduro trips abroad, but even worse, Venezuela will likely issue about U$ 4 billion in bonds this year, or borrow US$ 5 billion more from the Chinese.

Get the picture of the upside down world we are in this country? We borrow at 12% and lend at 2% to other countries, many of which are better off than Venezuela.

The ironic (or amazing) thing, is that Guatemala is considering leaving Petrocaribe due to the increase in interest by Venezuela, as Venezuela has apparently indicated that it may increase rates as high as 4%.

Yeap, I would be offended too. This is no way to buy your friends. I mean, to treat your friends. Sorry!

18 Responses to “Tales From The Upside Down Country: Venezuela Doubles Interest Payments To Petrocaribe”

  1. Carlos Says:

    Let’s see… I would buy 10.000 barrels at 100 US$ each, ie 1 million dollars. Borrow at the bank 400.000 US$ and pay the upfront 40% to PDVSA. Then sell the 10.000 barrels for 1 millions US$ in the spot market,
    Return 400K borrowed to the bank and invest 600K in Venezuelan debt 2031 which will earn 12.5% for me…less 2% for interest to pay for the oil…60.000 clean US$ every year for 20 years…!!!
    This is better than a money printing machine.


    • And, worst case, like if Venezuela defaults, you pay back with the bonds.

      • NorskeDiv Says:

        That is so deliciously devious, with ideas like that you could have obviously become very wealthy as a Boligarch…

        • CARLOS Says:

          That’s exactly the kind of business that boligarchs use to do….well not probably oil trades like that but they made a lot of financial transactions with structured bond packages by buying the bonds at official rate and selling the structured note at swap rate (or blue rate)…. 60K /year profit for the oil trade look like pennies compared with the “notas estructuradas” trades..

    • Roy Says:

      Dame dos. Son baratos!

  2. Ponzi Says:

    Welcome To Venezuela, The Sovereign Ponzi Scheme

  3. Dr. Faustus Says:

    So lemme get this straight. The Venezuelans are incurring receivables from Petrocaribe of almost 5 billion dollars per year, at 2% interest, and then, in that same year, turning around and borrowing 5 billion from the Chinese at extortion-like interest rates? That’s nuts! But, why have the Chinese been reluctant to issue new loans until this week? What changed?


    • Actually, if you are Guatemala or one of those islands, your Central Bank could buy an equivalent amount of your debt with Venezuela in PDVSA bonds or Venezuela bonds. Hold it to the maturity and the oil was free and you made more than 100% yet again. I wonder if any of those countries publishes Central Banks investment portfolios.


  4. Nothing changed. The agreements with China are revolving agreements, you have to pay before you get new money. Venezuela wants a NEW agreement, but there is a new man in town, the new Chinese Prime Minister who personally reviews any deals and apparently does not want to sign off on it.

  5. xp Says:

    What!!!
    You’re doubling the interest in your excrement?

  6. Ira Says:

    What has PetroCaribe achieved for Venezuela? I understand it fed into Hugo’s megalomania in his quest to be the “big man on the block” compared to the U.S., but after 9 years, what does the country have to show for it?

    I mean, there may have been some meaningless UN and OAS votes that went Hugo’s way, but aside from that, what do they expect to achieve?

    Is it all about eventually making the Sucre a hard currency?

    • Noel Says:

      Well, they are wiping out everybody economically that is, destroying the private sector, forcing in effect many of the educated and driven people to leave, and they stay in power, they grab all they can and hope it will last long enough for them to enjoy it.

      Pretty sick.

      • NorskeDiv Says:

        Meanwhile less scrupulous people around the world make a killing helping Venezuelans get dollars out of the country.


  7. SIMPLEMENTE ES UN REGALO A CAMBIO DE UNA POSICION POLITICA INTERNACIONAL QUE NO VALE NADA, PUES NADIE LES CREE YA.
    IT IS SIMPLY A GIFT FOR A POSITION IN POLITICS INTHE INTERNATIONAL FORUMS. IT IS A SHAME FOR VENEZUELAN TO LIVE IN POVERTY WHILE GIVING AWAY OIL, TRAVELING OF PRESIDENT IS A HUGE TRIP FULL OF PEOPLE, FAMILIES, ETC IN MORE THAN ONE PLANE, VENEZUELA IS THE POOR SAUDI OF SOUTH AMERICA, BUT WITH A LOST HEAD AND RESENTIMENT AGAINST THOSE WHO WIN, LIKE THE USA, EUROPE, JAPAN, THEY ARE AGAINST ANYTHING THAT SIGNIFIES PROGRESS, TO MAKE US LIKE CUBANS THAT HAVE NOTHING TO DO BUT TOPLAY DOMINOS, SO WE DO WHATEVER THEY WANT TO DO AN SERVE THEM AS SERVANTS, BUT THEY WILL NOT GET THIS, THERE IS UN UNDERGROUND MOVEMENTS AMONG THE SAME CHAVISTAS THAT WILL MAKE THEM TUMBLE, REGARDS, GASPAR STALLIONI, FROM CARACAS, VENEZUELA.


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