Unfortunately, A Bleak Future For Venezuelans.

May 24, 2014

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Yesterday I saw a tweet that I knew was wrong stating that American Airlines had stopped selling tickets in both local currency and dollars, which sort of implied the airline was leaving Venezuela. I knew the tweet was wrong, as that same morning both my travel agent in Caracas and American Airlines in the US had called me to tell me that the airline had opened for sale tickets in US$ until the end of July. I checked in the website and indeed, for the day I was looking for a CCS-MIA flight in July, there was plenty of available flights and tickets, as promised, if you paid in US$. Thus, when I saw the tweet with information that I knew to be wrong I corrected it, mostly because I know the sense of anguish that many people with relatives abroad feel thinking that they may become isolated in Venezuela if the airlines leave.

What I got in return was tweets saying that I was  a minority with a credit card in US$, that I worked with the stock market, Cadivi rules and the like and beware about bond prices when American announces that is leaving Venezuela, which had nothing to do with my correction. Later the person apologized, but I think this demonstrates how charged and emotional this topic is.

But it also shows, how somehow people think that the Government is not paying airlines because it does not care, or, as some have suggested, this is all being done on purpose to isolate the country. People also blame the airlines for abusing the system. But the reality is much different, the airlines have been naive in thinking they would be paid eventually. And Venezuelans have yet to face the reality that, much like Greeks three years ago, the time is coming to pay for the errors of the Government of the past few years. The cheap travel, the Cadivi subsidies, all subsidies, have to be paid down the line with expensive travel costs and no subsidies. There is simply no money to pay the airlines.

Or the pharmaceutical companies, or the food companies, or the oil service companies…

Perhaps no headline describes this more clearly than that of the President of the Venezuelan Airline Association (ALAV) saying “The debt with the airlines is more than the operating international reserves of the country”

That simple statement summarizes the problem quite clearly, how can the Government pay its debts, when all of its operating (Not liquid, operating!) international reserves are not enough to pay the debt with the airlines?

But think about it, the Government also owes the pharmaceutical sector US$ 4 billion, and more billions here and there. And the days go by and it does not pay any of it (The debts actually increase). Why? Because there is no money to pay the debts. In fact, CADIVI approvals, which pay for current and future imports, were also sharply down in the first four months of the year.

The Government keeps trying to stretch it. But at some point, it will have to do something about it. It will have to stop subsides to Petrocaribe and Cuba, or not pay external debt, or devalue, or increase the price of gas, or some of the above or all of the above. But no matter which solution is decided on, it will be Venezuelans that will have to pay in the future for the errors of their Government. Someone has to pay the subsidies and the excesses and it will be all of Venezuelans, whether by paying much higher prices for everything, including flights abroad, or not having goods to purchase or reducing their purchasing power. It is a sad prospect, but it is reality.

Ask the Greeks, they lived through it three years ago, after years of living it up beyond their means.

And, of course, people worry about not being able to travel, but think of the horrors that people go through because they can not find pharmaceutical products to treat cancer, or diabetes or even simple antibiotics for infections. Or think about not having parts for diagnostic machines.

And if the Government is not paying either of them, it is because it does not have the money for either of them. Period. It is not even trying to choose one sector over the other, it is paying none of the debts. In fact, this week PDVSA announced with “bombos y platillos” (drum rolls and cymbals) lines of credit with three oil service companies. These are really no new lines of credit, they are simply converting the money PDVSA already owes these companies into formal lines of credit, so as not to affect the balance sheets of these companies that are owed money.

And the longer the Government tries to stretch it, the worse it will be in the end. The numbers just don’t add up. Unfortunately, the future is bleak for Venezuelans, unless oil dramatically jumps up. Oil has saved the day before, but this looks unlikely at this time.

Adjust accordingly.

63 Responses to “Unfortunately, A Bleak Future For Venezuelans.”

  1. Patricia Says:

    Sent from my BlackBerry Q5

  2. Paul Esqueda Says:

    Miguel.

    In1984 that I travelled to Madrid to attend a conference. I did not get the US dollars in cash from the equivalent of CADIVI then. So I took off with a few dollars of my own. I ran out of money, could not use my Venezuelan credit cards since they were blocked and I could not return earlier because my airplane ticket was paid with subsidized dollars (my airplane ticket had a note on it that I could not change anything). I was stranded in Madrid feeling helpless and a good friend lent me $200 to survive a couple of more days. This illustrates that Venezuelans are good at repeating history. This time around is much worse and the catastrophe, as you say, is yet to come. Paul

  3. Mike Says:

    Miguel,
    Will Venezuela and / or PDVSA default paying the coupons as well as principle on their bonds maturing in the nex 1 – 15 years? In spite of all the monetary crisis talk, they have not devalued significantly to the best of my knowledge.
    Thanks.


    • The Government can do many things, the longer it waits, the more not paying debt will become an option. In the end, it is a political decision. Cuba or bondholders? Guess who I think will pay first?

  4. Gold Says:

    Venezuela reminds me of Innocent Eréndira, chained to her bed, being forcefully taken by the umpteenth rapist. I very much hope the days of her Heartless Grandmother are numbered.

  5. alex Says:

    One thing that dazzles me is why airlines, if they are owed so much, continue flying to and fro Venezuela. Is AA, for example, subsidizing its Venny operation? Is it that guys like you Miguel, who live abroad and travel regularly there and pay in dollars, are the ones covering airlines’ costs?

    Somehow I feel that, for reasons unknown, services just don’t and will never really collapse in Doña Barbara’s country and the same thing with the debt and food shortages. Magically, the government pays coupons and maturities, milk and sugar appear on shelves every now and then. Riots occur but tear gas easily dissolves concentrations.

    The country is sitting on the border of a precipice but the weight -seems to me- will never shift towards the dangling side and thus it will remain right there until God knows when.


    • They have somehow bought the story that they will get paid. Look at what the CEO of Copa said a few months ago, that the Government had promised they would get paid. Two months later they reduced flights. They have taken the attitude they are there for the long term, they just never thought the long term would be so long.


      • Also, remember, unless the Government says they will not get paid, they book those Bolivars at the official rate, theytake the loss only when they are told they will not get paid or will get paid at a higher rate, which is what will happen. Those 4 billion at Bs. 50 become 500 million dollars.

        • alex Says:

          Then if you are right, this regime is great at manipulating or just plain lucky and sometimes I feel is more the latter. It’s just not normal that airlines keep supplying a customer that has not paid in a couple of years and for which accounts due keep piling up.

          In my opinion, what’s keeping them flying is that they are able to cover costs with tickets sold abroad and wealthy Venezuelans who can afford to pay in dollars. The rest, the big profits, we’ll they can wait.

          • moctavio Says:

            Remember, in February, the Government reached an “agreement” to pay them. They have not been paid. Over the last few years, the Government has been late payment six months to a year and then paid. But this is the way the Government has been handling everything, from pharmaceuticals to food, to cars, to auto parts, it i snow that crunch time has arrived. (Actually, it arrived with the 4.3 to 6.3 devaluation when many industries were forced to pay 6.3 for items sold at 4.3 per US$, the companies leraned to limit what they import and tie it to actual real payments, that is part of the shortages.)

    • Guineo Verde Says:

      Y’all don’t understand. Nicolas has a plan. He is destroying all of the competition so that Conviasa will step in and take over all of the routes. Nicolas will be laughing all the way to the bank!!

      • Ira Says:

        Except Conviasa hardly has the capacity to fly the globe’s many routes.

        Let alone the fact that unless the airlines are paid, Conviasa would be barred from flying into most airports.

        • Guineo Verde Says:

          Ira
          You do know I was being sarcastic? How can Nicky and the gang expect to run an airline when they can’t even supply the people with toilet paper?

  6. shrillary clinton Says:

    well gee…maybe you all could sell off some of that second rate russian military hardware that El Mucho Macho bought over the past decade … say to someone stupid enough to buy it…..Bolivia?…. I don’t even think Argentina would want it….. sucks huh when the bill comes due

  7. Kepler Says:

    Miguel,
    We have known these guys have been mismanaging for ages and were taking Venezuela to disaster but aren’t you a bit surprised about how things are developing so fast in the last week? I mean: the mess was bound to blow up this year but it is sort of amazing how screwed up they seem already in spite of rather stable high oil prices and some Chinese loan and all…


    • They have done little to fix the distortions and imbalances. For example, whats the point of having a high Sicad 2 rate and continue lending PDVSA Bs via the Central Bank? The debt has been piling up for years and now is near the breaking point, companies refuse to be owed more by the Government. When things unravel is extremely difficult to predict, they can do many things, but they dont seem yo make decisions.

      • Alexander Says:

        Well, there is just one reason, you believed some (BOA, and Barclays Capital, if this one is still alive) that the fiscal deficit was around 12% bull sheet!! NO Octavio!! They are wrong, fiscal deficit as I reported one and half year ago was mounting to 24-28% of GDP at the end of 2013. At the end of 2014 will be more than 30%. !
        If you put oil numbers from the PDVSA financial accounts (KPMG) into fiscal and monetary base at CB it is not difficult to get an idea that the fiscal deficit is exactly similar to the balance of payments deficit, Remember that each dollar have to be converted into bolivars to pay oil fiscal contribution, so if there is not in CB, nor in the government fiscal revenue.
        If you do not have an American type democracy, with balanced powers, you will never have a fiscal crisis, at least until its blow out, since it is the Congress or Parliament which allows government to place debt into capital markets or to its last resort lender: Central Bank. But, you do not have to believe it, just read the numbers at BCV and MinFinance.
        By the way, ask Giordani and Merentes why the money base figures and public credit numbers (these numbers must be consistent one to another, since fiscal deficit monetization numbers are those) from Min Finance and CB are due to be published for already two years ?.
        It could be worth to ask these banks where are the balances that show that government sovereigns’ funds have some “investments”.
        The sad is that the fiscal deficit it is so huge that government and Estate if will suck down nearly 55% of all Venezuelan – empresas y ciudadanos- “savings”. Poverty number are moving so quickly, Venezuela will be next year the 17th economy in this continent in terms of per capita. When all the pirouette ends and the GDP is recalculated at a ppp of 80 Bs by USD, we will see the real picture of what is socialism is able to do!!.
        Alexander

  8. Helen Driessenh Says:

    Mimi


  9. All good news. The economy needs to get even worse. More inflation too please. Mas escasez, now. That’s the only way the people will be pissed enough to overthrow this disguised neo-dictatorship.

    • Roger Says:

      I agree. Most Venezuelans think it will all go away as it has in the past. That’s why they were not ALL in the streets in the last protests. They still don’t get it and are the most apathetic people in the world. Their willing to get pissed on for a bag of Harina Pan! On the other hand when we look at other trouble spots in the the world, Venezuelans seem too nice to live in the modern world. Perhaps Yamomanisimo should be the next revolution?

  10. Charly Says:

    The fact is that leaving reimbursement by the Bolivarian Government aside, the Venezuelan routes are by far the most profitable on the planet. All planes fly full. I personally got stranded in Asia last September and Lufthansa could nor guarantee me a seat before next June. I eventually got on board some times later and on the Frankfurt-Caracas I checked, there was not an empty seat neither in business nor in economy. If the airlines are paid, they will make a killing. Even if they get 70% they likely come ahead. I am not defending the Bolivarians mind you I believe that all these parasites should go the way of Chavez, then the world will be a better place.


  11. You did not get it, I dont think they will get even 10%, at that rate, there are no profits and years of profit are wiped out too.

  12. Bruni Says:

    Do the airlines flying from Venezuela get Venezuelan gas prices? One of the biggest issues an airline has to deal with is gas prices. If they are almost free, that might explain why some companies are still flying to Venezuela.

  13. Dean A Nash Says:

    We’ve all seen this movie many times before, so none of us should be surprised: steal as much as you can, for as long as you can. When that runs out, use weapons to maintain control. And finally, when that ceases to work, flee.

    There is much remaining to steal. With oil as a resource, you can steal from the future: future production. This has already occurred but the future is a long time coming.

    Pigs get fat, hogs get slaughtered. These guys give hogs a bad name.

  14. Juan Largo Says:

    “The Government keeps trying to stretch it. But at some point, it will have to do something about it. It will have to stop subsides to Petrocaribe and Cuba, or not pay external debt, or devalue, or increase the price of gas, or some of the above or all of the above.”

    Wrangling flights to and from Ven will soon get critical, but the pharmaceutical problem is at the brink and is perilously near the tipping point. They had a delivery last week of enough supplies to hold the country over for targeted emergencies over the next few weeks, but according to my daughter, doing her MD residency in CCS, standard levels of care are no longer possible with the drugs and facilities on hand.

    What’s more, the infrastructure is shot for lack of funds, meaning distribution is now a problem because nobody is being paid – not for the drugs, for the containers at the ports or the ships that deliver them, nor yet for the trucks that haul them, and the wholesalers who distribute them. Some time soon, possibly in the next few weeks, there likely will be a showdown between monies and petrol going to Cuba, and paying for the pharm supplies to keep Venezuelans alive. That’s going to be a volatile drama and one almost certain to happen because as all the indicators admit – THERE IS NO MONEY to pay the outstanding bills.

    If Maduro keeps the Cubans on the dole at the expense of his own people, and the word gets out, as it must, we can expect for some major splintering either within the ruling party itself or more likely from the military, which are not so high on the Cubans to begin with.

    As the man said – something will HAVE to be done. If hospitals really and truly go off line, simply for lack of supplies, then gas and transport and bond issues and energy problems will seem like minor issues because people will literally start dying. I pray it doesn’t come to that but I have a bad feeling about this one.

    Juan L.

  15. metodex Says:

    You say it is unlikely that oil price will jump?
    You’re wrong,it will soar. Check out whats going on in ukraine and thailand.
    A conflict is coming,i don’t know the size but it’s gonna come

  16. Kepler Says:

    Metodex,

    You seem to know more than 99.99999999999999999999999% of people.
    Lucky you. I wouldn’t be so sure, though.
    Russia’s economy is not going that fine even now.

    OT Today I voted as an EU citizen. Actually, I voted for the region’, the country’s and the UE, three lists. I got in at 10:26 and there was a long queue and I was out at 10:45. There wasn’t a single military or cop.
    A couple of my relatives are voting in Venezuela today as well…and it’s quite a different story.

    • metodex Says:

      Kepler,

      Know more about what hehe?

      Well last time I voted i spent 5 hours just waiting because the machine just stopped working,then after it came back to life another 40 minutes.

  17. moctavio Says:

    Well, today airline tickets were announced to be sold at the Sicad 2 rate starting on July 1st.

    http://www.eluniversal.com/economia/140526/gobierno-fijara-precio-de-boletos-aereos-a-tasa-de-sicad-ii

    The adjustment will be painful…

    • ErneX Says:

      This guy is saying that besides the jump from 11.30 to 50~ that airlines somehow will lower their prices in dollars? don’t think so.

  18. moctavio Says:

    They may, as they were raising prices as a way of hedging their risk. But first the Government will have to show that it means to pay them something of the new sales in $.

    • ErneX Says:

      Exactly, and I’m not sure they will do that promptly after switching prices to SICAD II, I think it will take some time until they see proper payments being made…

      People are going crazy over this right now yet most don’t understand they were buying airplane tickets at a subsidised dollar!

  19. metodex Says:

    This just in, protests in Miraflores!

    A group of soldiers from the parachute division that participated in the February 4th (4F) coup were protesting close to Miraflores, they bombed with tear gas and then moved to Mirflores to receive some more gas! They were protesting their rights to be absorbed back into the Armed Forces. Details are few yet so some of this stuff could be off.

  20. Island Canuck Says:

    This whole thing about raising the price that the government will “pay” the airlines is just more delaying tactics.

    It doesn’t matter what price they “promise” to pay whether it’s 6.3, 10, 49.98 or 70.5. They haven’t been paying because they have no dollars. This doesn’t change anything. They still have no dollars.

    Just another end play to avoid the inevitable.

  21. RN Says:

    according to: http://www.zerohedge.com/news/2014-05-27/where-americas-immigrants-come

    198,632 US residents were born in Venezuela (official data)

  22. Ronaldo Says:

    Venezuela is now a synonym for bad finances
    “Tesla (TSLA) may have stellar crash ratings, but the company’s financial safety is only about as dependable as Venezuela. That’s the assessment of Standard & Poor’s, which just slapped a “B-” credit rating on the carmaker and put Elon Musk’s baby in the sane “junk” grade as struggling sovereign lenders and crisis-wracked companies.”

    http://www.businessweek.com/articles/2014-05-28/s-and-p-throws-teslas-surging-shares-on-the-junk-heap

  23. Juan Largo Says:

    I mentioned that the pharmaceutical (lack of) problem was going to get critical and very soon according to my daughter, doing her MD residency in CSS. It’s not a very sexy story but the fall out is truly grave. And it’s starting to happen. This from today’s El Universal:

    “Freddy Ceballos, president of the Pharmaceutical Federation of Venezuela, indicates that at this moment there is indeed a serious problem with anticonvulsants.

    “In general, there is lack of every drug. In the last six months the situation has worsened. Previously, we had an intermittent market (in terms of distribution), and now the amount of drugs which is distributed is very small,” explains Ceballos.

    He adds that not only anticonvulsants are missing, but also pharmaceutical products for the thyroid, glucose, and antibiotics.”

    The lack of antibiotics (coupled with the rise in denge, malaria and other normally manageable diseases) is a problem that cannot be underestimated.

    • Dr. Faustus Says:

      Many thanks for your updates. Your thoughts on what’s taking place in the Venezuelan medical community are very interesting.

      • Juan Largo Says:

        ErneX, that’sa disturbing article on amputations, stints, and the lack of most everything. But most terrible is the Minister of Healh who on May 14th said “… it is forbidden to disclose publicly the shortcomings or weaknesses” of public sector hospitals. That is, a hush campaign is being impliments as people are going without treatment. These are very serious charges and one wonders at what point they become crimes against humanity. It’s one thing to have problems – you simply seek help from whatever source can pitch in – from the Red Cross to whoever. But to try and bury the problem, knowing that nationals are sufering, is a criminal offense by my reckoning.

  24. xp Says:

    Air Canada did get it right,

    They knew when to hold ‘em
    Knew when to fold ‘em and then
    Knew when to fly away.


  25. […] Related: Unfortunately, A Bleak Future For Venezuelans. […]

  26. anagrammatt2 Says:

    When are Venezuelans poor and chavistas going to wake up from this false dream ?

  27. anagrammatt2 Says:

    Cuando van a despertar de este falso sueño los pobres de Venezuela y los chavistas ? Deuda demasiado grande !

  28. Ronaldo Says:

    He is free and back in Caracas. Story over.


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