The Chavez Government has been threatening to bring to market a bond issue by Corporacion Venezuelana de Guayana. All the work was done, balance sheets for the company were cooked up for the last three years and a credit rating was sought. And that was the problem, the rating was so low that it would be nuts to bring it to market because CVG would have to pay a huge yield to get the deal done.
But as part of the cookbook to make sure Venezuela’s economy is destroyed, the National Assembly approved two weeks ago that the Central Bank can buy bonds issued by Venezuelan corporations. This is not the law yet, but will soon be, after all, Chavez controls how the National Assembly breathes.
Thus, today we got the announcement that Chief Economist Chavez approved the bond issue. Read: BCV will buy it!
Think about the possibilities and the implications:
–It is sold to the BCV in exchange for Bs. Thus, BCV prints a bunch of Bs. to buy it. CVG turns around and buys US$ at Bs. 2.15 per $ to buy stuff abroad. Reserves don’t go down, the BCV has the bonds!
–It is sold for $. Reserves don’t go down, because the BCV has the bonds, CVG spends the US$ and/or brings some back to pay unions.
–Reserves are at around US$ 33 billion, but of that not all of that can be used, there are drawing rights, gold and other instruments. Add to them the CVG bond, which they will be unable to sell.
–Come December Chavez will ask for US$ 8 billion for his Fonden. The money for Fonden will come out of the cash, not the instruments, so that BCV’s reserves will become even more illiquid.
Will they really do this? You bet they will. They have done US$ 11.3 billion in $ denominated bonds this year and US$ 9 billion in local bonds, they will do this one and next year’s budget calls for an additional US$ 14 billion in debt. These guys’ irresponsibility has no limits. This is a bubble, we all know it is being inflated, but we don’t know when it will explode.
But it will.
The Devil's Excrement 
October 29, 2009 at 3:42 pm
Great post!
October 29, 2009 at 11:05 am
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October 29, 2009 at 10:51 am
Miguel said: “The average price would have to rise $40 per barrel to cover the deficit this year.”
What has happened to the production numbers?
Last I read they had fallen again. This is almost as important as the price per barrel.
If they had 1.4 million bpd (?) for export last year & now the number is around 1 million bpd (?) after taking out national consumption & the giveaways to Cuba & others then the price would have to rise quite considerably to get back to where they were.
What do they need in production at US$60 per barrel just to meet internal costs?
October 29, 2009 at 9:05 am
What is the real story about this item in Aljazeera Magazine ?
Describing Colombia as a “hostile government” Hugo Chavez said he believed that “the hand of the CIA and the government of the United States” were behind the alleged plot.
“They will be judged according to Venezuelan law and will be granted their rights… they were captured red-handed, practicing espionage and it’s not the first time… we will not release them,” he added.
The arrest follows reignited tensions after the weekend murder of 10 members of an amateur Colombian football team in Venezuela, an incident the government promised to investigate.
Chavez said officials believe the agents were using fake names and were purportedly helping investigate the killings, adding that a lone survivor was assisting in the investigation.
S
October 29, 2009 at 8:03 am
And don’t forget, we are not out of the woods yet, in terms of the global finacial crisis. There are arguments for making a case that oil will fall agasin next year, in the prescence of another crisis. Nothing has been said very openly about the stiull unresolved pandoras box that commercial mortgages represents.
Be that as it may, subordinating the Central Bank in such a fashion is going to make the debt issues of the past seem like child’s play compared to the hole this government is taking us toward.
In the words of CAP I ” La administracion pasada dejo al pais al borde de un abismo. Hoy hemos dado un paso hacia adelante”
October 29, 2009 at 7:43 am
The average price would have to rise $40 per barrel to cover the deficit this year. That means the average next year would have to be near $100 and Hugo will not “invent” new projects to spend on.
October 29, 2009 at 7:29 am
Oil prices are rising and might mitigate excessive Vzla Gov’t spending. Chavez will be more cautious since the oil price collapse last year but it is not his money and he does not care.