Archive for July 24th, 2013

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

July 24, 2013


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!