Road Trip or The Fantastic Voyage?

January 6, 2015

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You have to wonder how it all started. Was it in the middle of a boring meeting talking about economic scenarios or Maduro’s sinking popularity (7% down in one month!) that Nicolas himself shouted “Road Trip” and they all left the room and called Raul and borrowed “the” plane and took off for Russia, or was it Nicolas in a thoughtful (sigh!) moment that came up and said: “I know, we can sell half the country to the Chinese for US$ 20 billion” and the “Fantastic Voyage” began.

And you also have to wonder how they felt landing in Moscow on the biggest “puente” day of the year, right before their Christmas day and thinking “Uuups” nobody is around and is so freaking cold, but the Vice-Minister for Foreign Affairs saved the day, they found a cardboard picture of Hugo and a General to take pictures with his iPhone and the trip was on to an auspicious start

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At this point Nicolas must have been wondering why he got rid of Rafael, Ramirez at least knew his way around the world. Why go to Russia first when their problems may be as tough as Venezuela’s? They offered to sell us some planes, some tanks,but even Nicolas learned how to say Nyet, the same word they heard all the time from their Russians counterpart. Then Nicolas thought that Jan. 6th. was St. Nicolas day and wanted to celebrate his birthday and the puzzled Russians asked him if his name was Jesus. Puzzled faces…

Time to take the Road Trip to China.

The following is Marcos´s narrative (From his Twitter TL):

Oh! Beijing in January! So freaking cold. It is not the temperature, its the winds.  Thanks God Nicolas had the huge scarf made and said he could skip the Wall because he had already been there. The first meeting went well, except for the ending

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When Nicolas mentioned US$ 20 billion, the Chinese smiled. An unscrutable smile at that.  US$ 20 billion, they said, we would not pay that for all of Mongolia, said one of the Chinese. Nicolas argued back saying Sidor alone was worth US$ 10 billion, to what Ling Pin answered: “Chavez paid US$ 1.97 billion for it when it was functioning and eporting”. As we went out Maduro asked me what that was about and I said: “I did not know that”

We then had a meeting:

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No Chinese allowed here, you could only get in if you were a Minister and Merentes, of course, because he came all the way from Naiguata when he was called. We decided here to have lots of meetings. Make it look good in Venezuela.

So, we met with all of China (lots of people). Including the Chinese Oil company, Bank of China, Citic and Sany (below). The last two pictures may look the same, but the Chinese guys are different, we had like ten of these in two hours.It was a long day of work.

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In the end, Maduro asked me to make a statement and I did :

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I said: “The Chinese trusts us and they want to invest in Venezuela soon”

So, they are coming on Jan. 17th. to see where they want to invest in Venezuela. All wee need, for now, is US$ 20 billion. Maybe 20 more later. Should not be that hard, they seem to have a lot of money, even if they are Communists.

Off we go now, we visit Iran (boring!), Algeria and Saudi Arabia, Nicolas wants to convince them to cut production. I guess he has never talked to them.

It is indeed a Fantastic Voyage, even if Nicolas feels like he is in a Road Trip.

End of report.


What To Wish For In 2015

January 1, 2015

New Year 2015 formed from sparking digits over black background

Every single one of the twelve years of this blog, I have wished my readers a Happy New Year. It was always a personal wish, hoping that every reader would have the best year they can hope for, for themselves and their families. Since we are all personally involved with Venezuela, this wish is very interconnected to the country and its future. Whether they are there or not, whatever happens in Venezuela in 2015 will have an undue influence on how good a year it is for each and all of us. Thus, when last night I sat down to wish you the best for the New Year, I just could not find a simple message. This is my more complete post about what I wish for all of you and for myself and my family. And why I think the word “happy” will be hard to apply to all of us in 2015.

Unfortunately, I fear that 2015 will not be a good year for anyone connected to Venezuela. In fact, I expect 2015 to be THE annus horriblis for Venezuela. My only concern at this time, is that the slow pace of change in policies by the Maduro Government may extend the pain well into 2016 or even 2107, turning it into many anni horriblis, inflicting immeasurable pain on the Venezuelan people.

Because the delay in new decisions will only exacerbate the effects of bad policies which will now be magnified by the sharp drop in oil prices, that will only intensify the effects of the upcoming crisis. And we all know and think about the first order effects of the upcoming crisis, like inflation, shortages, increased poverty and the like, but the second order effects are even scarier. Years of neglect have deteriorated the country’s infrastructure and the problems with electric power and water supply will take years to be solved. Quality of life will deteriorate, as people will suffer blackouts and brownouts for years and water rationing will become the norm. Crime will only increase and protests and unrest will become the norm.

Unfortunately, in thinking about whether there was a possibility of having a “good” 2015 in Venezuela, the answer is that the panorama is quite fuzzy. As decisions are delayed, things will get worse, but they will not necessarily make a resolution to the problems be closer to reality. On the contrary, I believe the path that Chavismo will follow is to replace Maduro with someone else once his popularity reaches single digits, which will certainly occur in 2015. The fights within Chavismo will only intensify and Nicolas will be the loser, as most groups will realize a new face is the only possible way out for the Bolivarian revolution to survive. This, of course, is not a solution in the end, but a necessary step before real change can take place.

A new face in the Presidency will give Chavismo some fresh air, but the ideological trap will snare whichever group takes over: If they change the course, they will be repudiated, it they stay the course, the crisis will simply get worse and an already fragile Government will keep stumbling along, without any real possibility of improvement (unless oil prices hit US$ 200 per barrel, the only possible way out of the current crisis)

But real change will not take place until Chavismo’s groups are atomized and its popularity, not that of its leaders, falls to levels similar to those of the opposition.

And that, unfortunately, could take quite a while to take place.

My best guess is that it will take at east two or three years for the country to reach that stage. There are no easy solutions in my mind. For change to take place there has to be a process, not an event. And with Chavismo’s resources and controls today, the process will be long and drawn out.

And that is why it is hard to wish you a Happy New Year. My crystal ball suggests it will be anything but happy for Venezuelans, or those that care about the country, in 2015 and 2016.

Thus, the best I can wish you is that I am wrong. However, I may be wrong about the details, Venezuela may have a Black Swan, but the path will certainly look similar to what I am depicting. And it will not be pretty, let alone happy.


No Surprises In The Country With The Silly Putty Constitution

December 29, 2014

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I continue to be amazed at the reaction by most to the naming of the so called “Moral” Powers, the CNE and the Venezuelan Supreme Court. People are surprised at “how far” Chavismo went to twist the Constitution to suit their goals, bending, folding and mutilating the Venezuelan Constitution as desired. Some call it a coup, others express their amazement, with few (Daniel being one exception) calling it what it is: Business as usual.

The Constitution has been silly putty for a long, long time…

Because you may want to argue whether the “coup” to the Constitution began in 2004, 2006 or 2008, but it certainly did not take place last week. Last week was another multiple maneuver by the Assembly and the Venezuelan Supreme Court to manipulate the Constitution and adapt it to its desires, constitutionality, with small caps, be damned.

But I was neither surprised, nor do I think much changed last week. I mean, what do you think happened when Chavez was allowed to hold another referendum in January 2009 so that he could be reelected indefinitely, despite the Constitution being very clear that once a subject is defeated in a Constitutional period, it can not be brought up again. Or the Venezuelan Supreme Court allowing Chavez to legislate via the Enabling Bill on the very same topics (Many of them too!) defeated in the 2007 Constitutional Referendum?

Really, do people not remember that we never even found out what the final vote was in the 2007 referendum? Chavismo accepted defeat, but the last votes and final count were never revealed by the CNE, presided at the time by the same person “wisely” selected President of that board by the Supreme Court.

Or is it that nobody remembers that the 2013 vote in which Maduro was elected President was extremely close, which rushed Chavismo into swearing in Maduro within 24 hours of the election and only under international pressure was  a recount called for and immediately the Supreme Court ruled that a recount was adding the numbers again, not counting the votes again. And that was the end of that.

Or does nobody remember that Maduro was allowed to continue being President/Candidate in 2013 when Chavez was incapacitated and then died? Or that Diosdado, who should have been President, whether you like him or not, was bypassed by a similar “administrative” interpretation of the silly putty Constitution by the Supreme Court?

The Venezuelan Constitution has been treated like silly putty now for years by the same people that created it. There are no surprises to me, they will mold decisions to achieve whatever their goals are. The “coup” or “coups” took place long ago. Expect more of the same: If Chavismo some day needs Maduro out, they will interpret the Constitution conveniently to name as his successor whomever they want. Whether it happens in the first four years of his period or not

But please, don’t be surprised. Chavismo neither has, nor has never had any scruples when it comes down to maintaining its stronghold on power. If you need a convicted murderer on the Highest Court, so be it. After all, they have many in their Government that have participated in similar crimes, they were just never tried or convicted.

The opposition may want to continue playing democracy. So will I. I will vote next year even if I know its rigged. But I will not be surprised by the outcome.

Neither should you.


Merry Christmas To All

December 24, 2014

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Thank you all for your loyal reading, comments, I hope I have been at least informative and entertaining and I did not rant too much this year. I do hope you have a wonderful Christmas Eve, which is what is mostly celebrated in Venezuela or a wonderful Christmas day tomorrow  with your family and loved ones. Love, Peace and the best to all of you.

Your Devil


US-Cuba: A Historic Decision

December 21, 2014

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I took my time writing about the historic agreement between the US and Cuba to reestablish diplomatic relations, exchange prisoners and end the embargo of the island, for the simple reason that it is a complex issue with many different edges. No matter how it eventually plays out, it is a historic event that will change the relations between the United States and Latin America. Let me say right off the bat, that I am in total agreement with the decision: The embargo is obsolete, made no sense and in the end, and it was just hurting the people of Cuba the most.

To begin with, the normal state of things is to have diplomatic relations between countries, no matter how unfriendly they may be and how deep the political divisions between the are. Relations are normally broken only when countries threaten each other and it has certainly been a while since this has happened between the US and Cuba beyond the rhetoric of claiming the US is the enemy of Cuba (and vice versa), something that will now simply have to go away.

The blockade of Cuba has certainly not worked, neither has it helped human rights on that island and it has had a negative impact on the people of Cuba, but not so much on the economy of the island. After all, in Venezuela, with no embargo, lots of trade with the US and lots of oil, the Government has tried the imitate the Cuban model and its economy is fast becoming the same failure as the Cuban one.

So, for the US, the policy has not worked at all, why keep it? How do you reason that you will keep it: We decided this 50 years ago, it has done nothing, we screwed up, but let’s just keep it because we are all used to it or is by now programmed into our DNA?

That’s precisely why it needs to end: The embargo was an utter failure!

If the US, or any other country for that matter, broke relations with any country that violated human rights or was run by a Dictator, countries would then  save a lot of money on diplomats, because they would have to reduce their Ambassadors significantly. If this were the criteria, neither Egypt, China, or for that matter Venezuela, would qualify for having diplomatic relationships with the US and European countries that value Human Rights. And while people may support sanctions on Venezuelan individuals, I don’t think an economic embargo would help Venezuela or Venezuelans on Human Rights, but would create the same “blame the US” propaganda tool that has been used in Cuba to blame the failure of the revolution on the US.

I do agree that the agreement reached between Obama and Raul Castro seems so far  fairly one-sided: Cuba appears to have gotten the best part of the deal. But do we really know all the details? I imagine lots of details are still being worked out. But this is not a short term decision, this is in my mind a deal struck thinking long term by both sides. A deal that has been decades in the works, given that Kissinger tried in the 70’s (via Fausta) to end the embargo, and he was part of a Republican administration! Imagine that!

And the US-China rapprochement in the 70’s can be a good comparison. It was started by Kissinger, but relations did not become formal for some eight years. Eight years from now, Raul will be 91 and Fidel 96, if any of them are alive. Clearly, Obama is planning ahead to the demise of the most visible leaders of the Cuban revolution and likely Raul is thinking long term too, no matter how much he claimed that the revolution will not steer away from its course. Obviously, Obama thinks he can convert Cubans to the capitalist mode, while Raul is thinking more of some Cuban-style mixed system, which would benefit the population of Cuba. Just think, US tourism alone could become the main driver of the Cuban economy, while keeping it under the control of the Government. In the end, an open relationship between the USA and Cuba will certainly lead to a more open Cuba. How can I be against that? How can that not help change the Cuban mindset?

But I am sure that Obama’s gambit with US-Cuban relations also has a fairly large electoral component. That is, a component aimed at helping the Democrats retain the White House in the next Presidential election. After all, the Republicans face a shift in demographics that does not help their chances of taking the White House, unless the candidate’s name is Marco Rubio. And Rubio now has to be very careful if he decides to fight the removal of the embargo, because if he fails, he will look like a loser. And he is likely to fail, even if the Republicans control the Senate, simply because it is an issue which no longer has the passion that it may have had in the past. The ineffectiveness of the embargo is the best argument against it. But at the same time, the end of the embargo will remove a very emotional topic from the political table, particularly in ever important Florida.

As to whether Maduro knew or not about what was going on, my feeling is that he clearly was left out in the cold. Just think, not only did Maduro hold on Monday a rally devoted exclusively to the issue of anti-Americanism (When was the last time Chavismo held a rally only against the US?), but Maduro spent the whole week prior to that making sure he made the US the enemy, “thinking whether we should have relations or not”, accusing the local Embassy of conspiring against him and saying that the US was behind the drop in oil prices, only to hurt Venezuela. But the worst part was, that as the details of the US-Cuba agreement were being ironed out, Maduro spent last weekend in Cuba.

And he was clueless and out of the loop.

Nicolas can´t be happy about all this. But maybe he was told it was not his problem anyway.

Nicolas is not Chávez and such a shift in policy (and history!) is likely to confuse him and maybe even make him screw up. It is not an easy change, his idols have decided to talk to the Evil Empire, leaving Venezuela alone in blaming all of its ills on the US.

For now, people are just wondering how the agreement will affect the Cuban cigar industry, Major League Baseball, Tourism, communications and the like. Many US companies are salivating at the possible opportunities. Cubans are also happy, but some are also somewhat bewildered by the agreement. It is not easy to change the party line 180 degrees in a country where all of the media is controlled and the story had a single script up to now.

And who knows what it all means for Venezuela and the Bolivarian revolution. If it creates divisions between Cuba and Venezuela, then it is all for the better. The same is the case if it creates differences among the various Chavista groups vying for power. But for now, there is not enough information. The agreement is historic, but only history will be able to tell us its significance and how it changed (or not) the region.


About Vacuums And Announcements

December 16, 2014

About ten and even more years ago I met a group of very smart young people who embraced blogging in 2003-2006 and later many of them migrated to Twitter. They seemed very young, bright and energetic to me. Today most of these people have become opinion makers, reporters, professors, broadcasters and most are still very active. Now, rather than seeing them as young, I see them as wise beyond their years, hardened and weathered by the “revolution”. Among them Naky Soto and her husband Luis Carlos Díaz, do a periodic “hangout” in which they do political analysis which should put some experts to shame. Naky also still has a blog, called “El Zaperoco de Naky” (Naky’s Mess?). Yesterday she posted this and I liked her description of Maduro’s Sunday interview, combined with yesterday’s march and the bizarre Maduro oath so much, that I asked if I could translate it and post here. Enjoy!

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My father in law complained to me that yesterday I did not do a summary of the economic announcements by Nicolas. I could not do it, because he said nothing. All the sumptuousness of the setting chosen in the Miraflores Palace for the interview conducted by José Vicente Rangel, made the poor performance less comprehensible. Imprecise and erratic as ever, Nicolas made an effort to maintain an idea over the polished floor: he knows and controls everything that happens in the country and just because of that he affirmed that people buy things because they have money (explaining scarcity), that there are errors to correct in Cencoex errors (the same as with CADIVI); and because he had no way of explaining our foreign exchange system exchange system, he opted to assure us that Sicad II will be adjusted.  He added that bureaucracy (as if it was a subject) is the clumsy one in the process, that increasing the price gasoline is not urgent, and to our relief, that we have no debt with China. Of course, with great conviction he said that he will come out victorious in the economic war in 2015. Despite lower oil prices, he repeated that the budget for 2015 has its  resources guaranteed.

Today’s march originally was to celebrate la bicha” that Constitution approved only by 30% of the voters 15 years ago; in the midst of the  Vargas tragedy. But the announcement by the US Congress on potential sanctions against Venezuelan officials who have violated human rights intervened. The anti-imperialist binder was a gift that he could not fail to open. This crossing of reasons facilitated the “arroz con mango”* of Nicolas’ speech, fiercely shouting for the sovereignty that nobody will threaten as long as he is alive, but happy because of the fifteen years of “la bicha”. The deceased one was frank to call it that, there’s no better motto for a Constitution that is humiliated daily by its editors.

With very tight shots, the official nationwide broadcast tried to conceal the failure of the summons, the vacuum in Avenida Bolívar. Nicolas began with a long story about the history of the deceased, that one we all know. Given the notable boredom of the audience, Nicolas was kindled by mixing it with his enemies: the monster of Ramo Verde (Leopoldo López), the pelucón (long haired) (Lorenzo Mendoza, president of Polar), the one nobody loves (Henrique Capriles), Aznar (who he called a murderer several times), the right, the bureaucracy, etc. This is a very tedious loop.

In response to the Yankee attack, he proposed creating a committee of Human Rights jurists to bring to justice those gringos for their war crimes. He mixed up the Grinch with Gremlins, and supported his ravings with the chants of the cheerleaders event: PSUV’s youth who contributed more slogans than people. He announced without any stupor that he would delegate his presidential responsibilities on Arreaza, Jaua and Hector Rodriguez, to devote himself exclusively to defeat the economic war.

But the closing was the saddest part. Not even Diosdado was able to hide his displeasure, looking at Nicholas as if he was a militant of Primero Justicia. Holding up a replica of the Bolivar’s sword, Nicholas began improvising this disastrous oath:

“I swear by the immortal spirit of the Indians, of Guaicapuro, by the immortal spirit of the indigenous resistance. I swear by the people of African descent, for Andresote, by José Leonardo Chirinos. I swear by Negro Primero. I swear by the  liberators, by José Félix Ribas, Urdaneta , Sucre, Ezequiel Zamora, by the martyrs, by Alberto Lovera, by Jorge Rodríguez, by Robert Serra I swear before the immortal sword of Simon Bolivar, who will not give peace to our souls, nor rest in our struggle to see emerge in Venezuela a homeland of peace. I swear by the example of “comandante eterno” that I will work for the unity of the people, for the military-civic union and that we will achieve with the greatest commitment that this oath is transformed into the great victory of 2015, 2019 . So I swear. “

….
The Constitution states in its Article 29 states: The State is obliged to investigate and legally punish offenses against human rights committed by its authorities Actions to punish crimes against humanity, serious violations of human rights and war crimes. are barred. The human rights violations and crimes against humanity are investigated and tried by ordinary courts. Such offenses are excluded from the benefits that may result from punishment, including pardons and amnesty. “

There are now 50 dead Uribana. In the 3 years of managing Iris Varela 1463 are dead prisoners. The minister has not faced any investigation.

And they dare claim that they honor the Constitution.

Rangel-grande*Arroz con Mango, literally “Rice with mango” means a strange mixture, something that does not go well with each other.


Maduro Keeps Sending The Wrong Messages

December 14, 2014

I have been trying to write other posts, but the news are such that I have to set them aside and write more about very current events. One of my biggest complaints about the Maduro Government (and Chávez before him) is that while they carefully plan what they say to the Venezuelan “people”, they don’t apply the same analysis to what they tell (or not!) to foreign investors. Very simple messages, or simply informative messages would go a long way towards improving the outlook of Venezuela’s debt, mor so in the face of the recent drop in oil prices.

When I heard that José Vicente Rangel was going to have Maduro today in his program in Televen, I thought this would be an effort to do just that. Instead, the opposite was done. The interview did exactly the opposite. Clearly, the interview was going to be friendly, on tape (Maduro was not even in Venezuela today, so that this was not live) and a perfect chance to assure invetsors that he was in control. Instead, Maduro sent the wrong message (s). Start with gas prices:

He suggests that most people agree gas should be increased, but he says the time is not right, it would be like adding fuel to the fire and he has to wait until “speculative forces” in the economy subside.  He also states that there is no rush, even with the fall in oil prices, there is no rush to to do it and he has the funds to do things and the price of gas could be increased in 2015 or 2016. He has to wait until inflation is controlled. #FAIL

Maduro also said that he would “modify” the Sicad 2 market, something that would help, but is only a small problem in the scheme of things. He did not say the Bs. 6.3 rate would be modified (he ratified it would remain), nor Sicad 1, only that Sicad 2 would be modified.

Maduro repeated in the interview his phrase from four months ago: “The money form China is not debt, it is financing” (El dinero de China no es endeudamiento, es financiamiento). Oh yeah, how I would love to get financing that is not debt for myself!

He also said that sometimes he feels he should just break relations with the US, as if relations were normal. The two countries do not have Ambassadors, but worse, does Maduro understand what this could imply? Maybe he should look to Nigeria, a country that used to export one million barrels a day to the US in 2010, but now sends not a single barrel to a country with which it has friendly and normal diplomatic relations.

Nor did this sentence, said earlier helped much:

“There is no possibility that Venezuela will declare a default, unless we decided not to keep paying the debt”

Oh, I see. It’s like me saying I promise to  keep writing this blog, unless I decide to stop. I guess the only positive was that he did say that is what Chávez wanted, to keep paying debt. But the first part certainly was not very reassuring.

Just  another day of Maduro sending the wrong messages to markets and investors, let’s hope that oil does not continue hurting bond prices, as it is, they have been slaughtered in the last week and Maduro seems intent on not helping.


Maduro’s New Script

December 9, 2014

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PDVSA 2022 bond in the last three months. It was losing 14% of its value today, with a yield to maturity of 31.4%

As Venezuela and PDVSA bonds were tumbling today (see graph above) on their worst day in memory, people were taking Maduro’s words about the country’s inability to borrow in jest. But think again.

For the past four or five days, Maduro has been following what is clearly a new script. He began by attacking the US Embassy, saying he would reconsider the relations between the two countries, as the local Embassy was a constant source of conspiracies against Venezuela. He followed up by insulting the Head of the IMF, Christine Largarde, saying she had spaghetti in her head and finished with saying rating agencies were conspiring to push Venezuela into default by giving the country a credit rating below what it deserved.

Last night, Maduro went back to the narrative, blaming credit agencies and saying that Venezuela was suffering from an economic blockade for political reasons that made it such that the country no longer had access to international loans or financing.

You may laugh all you want at what he says, but I don’t. He is making a very specific narrative out of all this and I am not sure where it is heading. It may be that he just wants to blame  the US for the intensification of the crisis in the next few months or simply, that he is preparing the ground in case there is no money to pay international investors. There is a one billion Euro payment in March, which looks doable, but there are much larger maturities in October 2015. But investors have so far believed that Venezuela had a “willingness” to pay, and the action in the markets today indicated some people were losing faith.

It did not help that Bloomberg reported today on a meeting with investors at a New York law firm, which actually took place like ten days ago. This meeting actually ended in a somewhat positive note, as many suggested that Venezuela and PDVSA could not get away with a restructuring below current prices for most bonds, as the oil cash flow would not justify it.

Meanwhile, the adjustment continues, very few things are being imported and long lines have begun appearing at gas stations, a suggestion that PDVSA may be importing less and gasoline is being selectively distributed.

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But I would take Maduro’s words seriously, he is following the script, wherever he wants to take it…

 

 


A Short Note On My Hyperinflated Arepa Index

December 7, 2014

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Two weeks ago, as I left Caracas on Nov. 22nd. to be precise, I wrote about the cost of a breakfast which I found expensive for Venezuelans, which included cheese arepas. As I returned to Caracas two short weeks later, I went to have a single cheese arepa at the same place. Imagine my surprise when I found that the Bs. 120 cheese arepa of fifteen days ago, now costs Bs. 156.

That is a 30% increase in two weeks. A year ago I would eat two for Bs. 120.

Thus, I will keep reporting on the hyperinflated arepa in the future.

BTW, they are still delicious…

 


Say What? Venezuela Sold What To Goldman Sachs?

December 2, 2014

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Most people ended up looking like the guy above when they read this morning the headline in the Herald : “Venezuela sells to Goldman Sachs part of its oil debt”, an article that is actually not that well written, as it says that Goldman Sachs “earned” 59%, which is incorrect, Goldman Sachs would only “earn” that if it waited 20 years for the Dominican Republic to pay the loans. Time is money and money earns money over time.

What the report claims is that Venezuela sold Goldman Sachs the debt that the Dominican Republic has with Venezuela, because PDVSA has been selling oil for years to this country, whereby, the Dominican Republic pays 50% upfront (which varies) and the remainder for 20 years at 2% interest rate (which also varies, but let’s keep it simple). After all these years, that country has a debt of about US$ 4 billion with Venezuela, which it will have to pay interest of 2% per year and eventually pay all of the US$ 4 billion. What the article claims is that Venezuela sold this debt for US$ 1.7 billion, or a 59% discount.

My understanding is that this is not a done deal, but it is close to being completed and that in the end the buyer is none other than the Dominican Republic itself. Let’s assume it is true and explain it.

Suppose you lend $1,000 to your buddy, you trust him, like him, much like Petrocaribe and Chavismo likes to have the votes of Caribbean countries. Thus, I tell you let’s do this: You pay me 2% (all of twenty dollars) per year and twenty five years from now, you pay me my $1,000. This means that at the end of the 20 years, I will get $500 in interest and my $1,000.

Except that in five years, I am in trouble, lost my job, but you can’t pay me when I ask and you have only paid me $100, still have to give me $400 in interest in the next 20 years as well as my original $1,000. So, I go to another buddy and ask him at what price he would buy this debt from me and you pay him the interest. My buddy says: “Well, I don’t know him, so, for me to be interested, I would have to buy it from you at 40% of its value, so that I get paid 5% per year (the same $20 per year) and in the end he gives me $1,000 for the $400 I paid you, that means I get $600 additional dollars at the end, or about 30 dollars per year additional in interest. I don’t know the math involved, but that is about $30 more per year, so that I got paid in this simple math I use, about $50 per year on my money, which is 12.5% in my dumb and simple math”

We close the deal.

This is what reportedly is happening. Dominican Republic owes Venezuelan US$ 4 billion. Goldman buys it for US$ 1.7 billion and now the Dominican Republic pays Goldman or whomever Goldman sells this debt to eventually. Well, 2% per year is US$ 80 million, so that Goldman will get US$ 80 million a year or 4.25% per year in interest, but at the end of the twenty years, Goldman receives US$ 4 billion or US$ 2.3 billion more, which comes out to US$ 115 million per year the debt was held. That’s another 6.7% per year, or a total of 11.95% (The actual numbers is 11.38% when you do the math properly).

Well, that is about what the Dominican Republic would pay for a twenty year bond. Except that, I am told that it is the Dominican Republic that is behind the whole operation (Your buddy sneaked around and asked the other guy to buy the debt from you). Goldman buys it, it issues a new bond for the Dominican Republic, and voila, the Dominican Republic has reduced its debt by US$ 2.3 billion and Goldman made commissions at every step.

Why would the Dominican Republic want to do this? Well, easy, the Dominican Republic has debt of about US$ 12 billion between bonds and its Petrocaribe debt and other international loans. But its GDP is around US$ 60 billion, that means its debt is 20% of GDP.  By doing this, they chop off US$ 2.3 billion off the total debt, so that it will be easier for that country to make payments in the future. In fact, investors may even decide that they can buy Dominican Republic debt at lower interest rates, since it has improved ts finances. It is win-win for the Dominican Republic.

What does Venezuela gain? It gets US$ 1.7 billion today in cash, and nothing down the line, it buys time without adjusting the economy and maybe losing an election.

This proves how idiotic the whole Petrocaribe thing was, except to buy votes at international venues. Venezuela, which has been issuing debt at yields to maturity of 10-15%, was lending money to countries at 2%, when most of these countries pay less than Venezuela in the international markets.

Think about it this way: we sold that could be sold at $100 at $50 (50% upfront) plus the remainder we only got  40% for or $20, i.e. we gave them a $30 discount per US$ 100 barrel.

Not great business.

In fact, of the top three Petrocaribe debtors, Dominican Republic pays the highest interest of the three. Jamaica and Bahamas actually pay much less. Jamaica pays 6.5% for its 10 year bonds and Bahamas pays 4.6% for its 2024 bonds. Bahamas is “investment grade”, a country with “adequate capacity to pay debt”, versus Venezuela’s “vulnerable position”. Thus, we are giving very easy terms to country’s in much better shape than we are. (In fact, Bahamas’ GDP per capita is close to US$ 22,000 per inhabitant, while Venezuela’s is US$ 14,000 at the official rate of exchange)

There could be additional operations like this with these or other countries, but remember, nothing has been confirmed yet, I just thought I would explain since people have asked so many questions. In fact, others like Jamaica and Bahamas, could yield higher percentages of their debt for Venezuela, as they represent much better risks.


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