The Devil's Excrement

Many
people tend to minimize Chavez’ ability to think and plan long term. Politically, Chavez
has always stuck to his long term plans and continues to do so. Thus, one needs
to analyze all of the following events in its proper context:

-PDVSA
buys back its debt last summer in an operation that had no financial
justification: It left the company with practically no debt and the price paid
was too high. The only possible explanation was that it was being done to
protect the company’s Board from prosecution, since it had been unable to file
its financials (Is it impossible?) under US
law.

-CITGO
also repurchased its debt. The possibility of this being done to protect its
Board was not feasible, as the company has filed and continues to file
financials due to the partnerships it has.

-Chavez
announces that the country will sell CITGO because the company makes little or no money. This
despite the fact that the company is making record profits and according to one
of its partners, Lyondell, receiving up to US$ 5 per barrel of oil above
market price, under the terms of its contract.

-Chavez
threatens to not export more oil to the US. This could only happen if CITGO
is sold, as the Venezuelan oil company PDVSA, has long terms agreements with
CITGO.

None of
the above events makes sense, unless the plan is to have the country eventually default on
its foreign debt, the moment oil prices drop. The excuse? Easy: The revolution needs
the funds. With no debt in the US,
no property in the US and no
exports to the US, the
effect on Venezuela
will be minimal.

If not,
look at Argentina.
It not only defaulted, but restructured its debt under terms extremely negative
for debt holders who had no recourse but accept. If Argentina
can do it, why can’t revolutionary Venezuela do it too?

Investor
beware.

This entry was posted on March 22, 2005 at 10:10 pm and is filed under Venezuela.