S&P Downgrade Of Venezuela’s Debt To Add To The Noise

September 16, 2014

As if there was not enough noise around Venezuela’s and PDVSA’s debt, credit agency S&P downgraded Venezuela to CCC+ this afternoon, citing concerns about the economy, inflation and increasing risk. This announcement will certainly add to the confusion of the last week or so, where the default opinion piece of Hausmann and Santos, has generated so much discussion and interpretations of what was said, creating such a stir that President Maduro ordered the Prosecutor to ¨take action¨ against Hausmann for seeking to destabilize the country.

One has to wonder what Maduro will say about S&P now.

But in reality, the announcement by S&P is not surprising, because the rating agency already had placed Venezuela on “negative watch“, suggesting that it was considering downgrading Venezuela’s sovereign debt. (So far, the downgrade only applies to the Republic’s debt, but a similar downgrade of PDVSA is likely to follow base on the criteria usually followed by credit rating agencies that no risk can be higher than the sovereign one)

According to the definition by S&P, this downgrade to CCC+ means that Venezuela is “vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.” S&P is not suggesting that there will be a default anytime soon, but that things are getting complicated. But we are sure that the announcement will be misinterpreted.

And I say this, because during the last week, there have been many misinterpretations of statements made by a number of people (including me) and in both Twitter and blogs, terms have been confused.

As an example, I made statements in Twitter that I did not recommend investing in Venezuela and PDVSA bonds at this time, which was taken by some as an indication that I thought Venezuela would default. As I made clear in the previous post, I do not believe that Venezuela will default in October, or that Venezuela is likely to default in 2015 or even in 2016. What I am saying is that on a risk adjusted basis, the return on Venezuelan and PDVSA bonds are just not high enough for the  lack of transparency on the country’s numbers, the political uncertainty and the volatility that these bonds exhibit.

Take, for example, the PDVSA 2022 bond, one of the people’s favorites because of its high 12.75% coupon. Today that bond was yielding about 16.1% per year if you held it until 2022 and had a “current yield” of 14.66%. The latter means that if you buy the bond today at around 86% and in one year it is still at 86%, you will make 14.6% on your money. This is what that this bond has done since the beginning of the year:


As you can see, it started the year at about 92%, dropped in six weeks to 75%, bounced back to 104% only to drop to 80% once again with all the default talk and recovered some to close today at 86%. That is a 19% drop, a 38.7% rise and a 23% drop in the space of less than nine months.

To me, this is too risky, too much volatility, given that I am paid less than the last two drops for holding the bonds. Imagine you are a fund or you have a client that buys at 100% and you have to tell him or her, that the bond is down 23% since the purchase. If it stays down there (nothing guarantees it will bounce back) the fund or your client will lose money over the first year and a half of the investment.

Now, if the price comes down below 80% again, I might be intrigued for aggressive investors (including myself). In fact, I did that when it started bouncing back in February, but sold when the yield became too low again for the risk I perceive. (Again, this is my personal perception of what the risk/return should be)

Add to this, what the Government has done (or not) in terms of giving negative signals to make the bonds even less attractive:

-It invited foreign investors to two meetings in New York with then VP for Economic affairs, both meetings were cancelled.

-It said it wanted to sell CITGO

-It has said nothing about whether or not it (or PDVSA) had significant amounts of funds in Banco Espiritu Santo or its affiliates.

-It has said a few times that all foreign currency in parallel funds will be added to international reserves, but Maduro only mentioned US$ 750 million. Analysts believe that there should be much more than that in the parallel funds

-It has done little in terms of the exchange rate and/or gas prices and moved sideways the only Minister proposing changes.

-There was a report that Venezuela was storing heavy crudes in Caribbean islands, while PDVSA “reviewed its pricing structure”. This was never clarified.

None of this gives you any confidence in the strategy of the Government or the bonds.

But whether you invest or not, has nothing to do with believing in default or not. That is a separate question and I don’t think that there will be default this October, even if I understand that this is a political decision in the end.

But I also think that the discussion has become somewhat circular. When I read Hausmann and Santos, I read: “If the authorities adopted common-sense policies and sought support from the International Monetary Fund and other multilateral lenders, as most troubled countries tend to do, they would rightly be told to default on the country’s debts”

This is an extremely hypothetical question, as the current authorities are not considering this even remotely. In my mind, what Hausmann and Santos said was a number of truths to warn investors not to be so complacent about the country’s debt. ( I also think that an IMF agreement and some adjustments would provide ample funds to avoid default)

In the same manner, when Francisco Rodriguez answers back that the real problem is that Venezuela is selling ten dollar bills for one dollar and it should really just change that, this is another highly hypothetical question as the last year and a half under Maduro has shown that there is no intent to sell the $10 bills for ten dollars, but at most for $2 or $3 dollars, which really solves nothing.

And now to make things even more confusing, people will certainly over interpret and confuse what S&P said today. Which, by the way, will not help the prices of the bonds tomorrow or for the next few days. Neither will it help if they announce they sold Citgo or parts of it, nor if they announce little in terms of correcting the distortions in the Venezuelan economy.

The amazing thing is that some simple steps, like talking to the market (not cancelling meetings), moving assets to international reserves and addressing issues like Espiritu Santo, would have done wonders to calm investors down. Even if you lead a “revolution”, if you want financing, issuing debt becomes cheaper the more transparent and communicative you are with investors. In the end, not doing so, becomes very costly for the country and Pdvsa to issue new debt. Ramirez seemed to have understood that, but currently, it appears as if we are back to Giordani’s days of not talking to those that provide your financing.

And in the end, all Venezuelans will have to pay for it.

52 Responses to “S&P Downgrade Of Venezuela’s Debt To Add To The Noise”

  1. Maria Eugenia Says:

    Gracias por este articulo. Esta muuuuuy bueno!!

  2. Boris Says:

    OT: It appears Evrofinance Mosnarbank is fading into insignificance. Can anyone find information to support or refute this? Eg: https://www.moodys.com/credit-ratings/Evrofinance-Mosnarbank-credit-rating-808152437

  3. mumra Says:

    I’ve been going to https://dolartoday.com/indicadores/ every Friday to watch the ebb and flow of oil prices, and it seems that the Venezuelan basket price is ebbing quite a bit right now. The Average for Venezuelan crude is down to an incredible $86.65. I can see it every time I fill my truck also – I bought gas for $3.01 a gallon this morning.

    My question is: Does China get a set amount of oil, or are they paid back according to the price of oil the day it is shipped.

  4. Ira Says:

    Surprised I haven’t seen a new blog on the U.N. circus going on, so here goes:

    If VZ gets a rotating seat on the Security Council, will the Hugo Princess be the representative there, or only in the General Assembly?

  5. Island Canuck Says:

    Miguel: an interesting article on Venezuela’s gold reserves:


    • moctavio Says:

      Why didn’t they show it to a bunch of people? Why the favoritism, I find that story so silly.

    • Island Canuck Says:

      Maybe they figured that just 1 person wouldn’t have time to count it. 🙂

    • m_astera Says:

      Doesn’t matter if the gold is still in the BCV vaults. What matters is to whom it has been promised as collateral.

      My guess is what’s in the vault is gold-plated tungsten, with the real stuff mostly in China and partly in Cuba.

  6. VJ Says:

    China exige a Argentina que el país no esté en default para conceder un préstamo.
    I wonder if the same applies to Venezuela

  7. Miguel Octavio Says:

    From memory Oct. 8 the Republic, Oct. 28 Pdvsa

  8. Kepler Says:

    Miguel, when is exactly pay time this October? Is there a specific day?

  9. Dr. Faustus Says:

    CARLOS RAÚL HERNÁNDEZ writes in this weekend’s edition of El Universal that, ….Giordoni is back. He’s right. That trip to Cuba by Maduro a few weeks back will have enormous repercussions for the future of Venezuela. It should have been seen as being portentous. The intelligentsia of Venezuela is now fleeing the country, leaving less and less of the voting opposition in Venezuela to cause future trouble. It’s right out of the Cuban playbook, the Mariel Boatlift all over again. Last year Giordani dragged the entire Venezuelan cabinet out to an obscure cemetery plot in Rome to view the burial site of on obscure early communist named Gramsci. Just as today Giordani will now drag the entire Venezuelan economy to Dante’s seventh circle of hell. They’re gonna default…..


  10. Venezuela should default and immediately negotiate a reduced payment to bond holders. The bond holders will surely take a hair cut to 70 % of face value! and Venezuela can issue more debt.

    To show the country is properly managed they will increase gasoline prices and stop selling cheap oil and products to other nations, except Cuba (the Castro regime is a sacred cow and can’t be impacted).

    A gradual bolivar devaluation to a unified rate at 50 per dollar should help.

    Communist orthodoxy should prevail. This requires the full nationalization of all national owned commercial and industrial property, including Schlumberger, Halliburton and other large foreign companies. It should be clear that capitalist roaders won’t be tolerated.

    To replace the elitist esqualids they should use military personnel known for their loyalty to Maduro. To avoid brain drain they should stop people from leaving the country.

    That should take care of the problem.

  11. Armando Scotti Says:

    Usted no ha mencionado en su respuesta lo que yo he querido resaltar. Que los Sres. Hausmann y Santos RECOMENDABAN hacer Default. Ha visto en algún momento y guardando las distancias, a algún Profesional que recomiende a los EEUU hacer Default del pago de su extratosférica deuda, la cual fue degradada por Standard & Poor’s? Muchos de esos pequeños ahorristas, me consta, no tenían idea de las implicaciones que significaba poseer bonos y a los bancos lo único que le interesaba eran sus comisiones y demás. Estoy más que de acuerdo con usted sobre lo comentado, lo cual es tambien público y notorio. Pero hecharle más leña al fuego no me parece prudente, por no decir poco profesional de parte de excelentes profesionales. Con esto quiero dejar concluida mi simple observación sobre una situación extremadamente delicada.

    • moctavio Says:

      La deuda de USA es calificada como A, la de Venezuela como CCC+. CCC+ de acuerdo a S&P 500 quiere decir :

      ‘CCC’—Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.

      De acuerdo a S&P, la probabilidad de que Venezuela haga default de aqui a Septiembre 2016 es del 50%.

      La comparacion es simplemente inadecuada.

      Y sobre lo que dicen ellos, repito, dicen esto:

      If the authorities adopted common-sense policies and sought support from the International Monetary Fund and other multilateral lenders, as most troubled countries tend to do, they would rightly be told to default on the country’s debts.

      Es decir, si las autoridades adopararn politicas con sentido comun y obtuvieran apoyo del IMF estos le recomendarian hacer default.

      No es una rercomendacion, es una realidad.

    • xp Says:

      Re: Que los Sres. Hausmann y Santos RECOMENDABAN hacer Default.

      They did what is called a ‘DUE DILIGENCE’ analysis.
      Should october’s obligations fall due, and the payments
      are not made or ignored, and even if they are covered,
      the recommendations were in order, because they highlight
      the precarious FX cash flow squeeze currently faced by the
      sovereign state – Venezuela.
      It would be criminal to disburse FX funds , under the current
      circumstances. Let the vultures EAT their bonds.
      [p.s. never mind the hate mail :-)]

      • Ira Says:

        Why are bondholders who expect payment categorized as “vultures,” when they expect payment based on agreed upon rates?

        Seriously–I don’t get it:

        Is it simply rich-against-poor hyperbole, or is there a valid finance, banking or historical aspect to the expression?

  12. moctavio Says:

    Yo estoy en total desacuerdo.

    Ud. dice:

    “existen pequeños y medianos ahorristas que aprovecharon el momento adecuado para convertir sus Bolivares en US $”

    Exacto, era un mecanismo de conversion a $ pero no para mantener ahorros significativos en ellos.

    y si:

    ” ¿Qué va a pasar con ellos que dependen de los intereses que producen esos bonos, para medio paliar la crisis socio económica en que está sumergido el país?”

    Es una irresponsabilidad “depender” de un bono de alto rieso como son y han sido los de Venezuela y PDVSA en los ultimos agnos. O no saben o sabian lo que estan haciendo o fueron muy mal asesorados. Si el articulo de Hausmann y Santos alerto a estos ahorristas y se deshicieron de posiciones, les han hecho un gran favor.

    La realidad es que con la actual trayectoria de la economia sera inevitable en algun momento, no se cuando, reestructurar la deuda. Porque la unica manera de no hacerlo es devaluar la moneda (como dice Francisco Rodriguez) de 6 a Bs. 60 y ahi tendras millones de venezolanos que no ni tienen ahorros y cuya capacidad de adquirir bienes esenciales sera dizemada y llevada a casi cero.

    Cual de las dos escoges?

    La c….. no la ponen Hausmann y Santos, sino los Chavez, Giordani, Merentes, etc.. que han presidido este desastre y emitieron bonos a destajo, creando la sitruacion actual.

    Al final lo que ocurrira en algun momento, es un hibdrido, donde se devalua parcialmente y se reestructura tambien.

  13. Armando Scotti Says:

    Una cosa es expresar una opinión personal y profesional sobre la situación económica de un país como Venezuela, de la que, diría, casi todo el mundo está en conocimiento; y otra cosa es RECOMENDAR que un país haga “default”, por cuanto, según sus palabras, se está privilegiando el buen crédito en detrimento del bienestar de 28 millones de habitantes. El Sr Hausmann debe perfectamente saber que dentro de los poseedores de bonos emitidos por Venezuela o PEDEVESA, que al fin de cuenta es lo mismo, existen pequeños y medianos ahorristas que aprovecharon el momento adecuado para convertir sus Bolivares en US $, ¿Qué va a pasar con ellos que dependen de los intereses que producen esos bonos, para medio paliar la crisis socio económica en que está sumergido el país? Se tendrán que suicidar como sucedió con varios de los tenedores de bonos de Argentina ?(Malditos sea De La Rua, los Kirchner y todos los que coadyuvaron). Respetando su méritos profesionales y académicos, creo que, en esta oportunidad, el Sr. Hausmann, conjuntamente con el Sr Santos, y con el perdón de la palabra, la han cagado.

    • ECG Says:

      Sr Scotti,

      Leyendo el escrito de Hausmann/Santos no creo que ellos recomendaban un “Default” a secas mas si proponían que, dado que ellos consideraban que pueden existir serios problemas de flujo de caja en el país en un futuro proximo, era responsable plantearse la opción entre pagar la deuda externa o asegurar las divisas necesarias para la importación de alimentos/medicinas y atender otros asuntos de primera necesidad. Es una pregunta que ellos consideran moralmente pertinente.

      Que Venezuela quizás aun tiene opciones para evitar un default? Si, creo que si. Aun sin tomar ninguna medida seguramente puede abusar del flujo de caja de PDVSA un tiempo mas. También pueden vender activos como están haciendo o pedir mas prestamos a China (los Rusos no tienen plata tampoco).

      Si tuviesen la valentía de devaluar, eliminar envíos a Petrocaribe/Cuba y dinamizar la economía flexibilizando la ley del trabajo, eliminando la ley de precios justos y fomentando la industria local entonces no, no hay que plantearse un default. Pero eso no va a ocurrir. Nuestros gobernantes no tienen la valentía, ni la intension, ni la ideología para tomar estos pasos. Dada esta realidad, entonces, que hacer?

      Finalmente, a pesar de que no creo que hayan recomendado directamente un default, creo que es injusto castigar a Hausmann/Santos (o cualquier economista o analista) por decir lo que piensan. Ciertamente pueden haber consecuencias (sobre ahorristas grandes o pequeños) pero llamar las cosas por su nombre es su obligación. Ellos no son los responsables de que Venezuela se encuentre en una situación tan precaria que haya que plantearse escenarios drásticos. Quedarse callado seria lo inmoral.

  14. Testo XL Says:

    Nice replies in return of this issue with solid arguments and explaining the whole thing
    on the topic of that.

  15. xp Says:

    Factoids, factoids, trivia and more trivia…

    Based on credit ratings provided by Moody’s Investors Service,
    24/7 Wall St. reviewed the
    11 countries with credit ratings of Caa1 or worse.
    These are the 11 countries at risk of default.


    > Moody’s credit rating: Caa1
    > Moody’s outlook: Stable
    > 2014 Gov’t debt (pct. of GDP): 24.8%
    > 2014 GDP per capita (PPP): $10,492

    When Ecuador last defaulted in 2008, President Rafael Correa described the nation’s debt as “immoral” and “illegitimate.” The country’s past debt sales had been tainted by corruption, Correa said at the time. Since 2008, Ecuador’s Moody’s credit rating has steadily risen, reaching Caa1 in 2012. Earlier this year, the country both bought back a substantial fraction of its defaulted debt and issued new bonds for the first time since its previous default. According to figures from the IMF, Ecuador’s economic growth has been relatively healthy in recent years. GDP grew by 5.1% in 2012 and by an estimated 4.2% last year. GDP is forecast to rise by 4.2% again in 2014.


    > Moody’s credit rating: Caa1
    > Moody’s outlook: Negative
    > 2014 Gov’t debt (pct. of GDP): 91.3%
    > 2014 GDP per capita (PPP): $6,696

    Political unrest in Egypt in recent years has made investors wary, leading Moody’s to downgrade Egyptian debt to Caa1 in March 2013. Fears were further compounded by currency devaluation as Egyptians moved their assets into U.S. dollars and out of Egyptian pounds. But despite the country’s low credit rating, yields on Egyptian bonds fell below 5% in June. This may be an indication that investors are less concerned about the risk of political instability in the country. And while its outlook remains negative, Moody’s recently praised Egyptian President Abdel Fattah el-Sisi’s commitment to reduce the government’s budget deficit in the fiscal year starting on July 1, 2014


    > Moody’s credit rating: Caa1
    > Moody’s outlook: Stable
    > 2014 Gov’t debt (pct. of GDP): 63.7%
    > 2014 GDP per capita (PPP): $3,231

    This April, Pakistan issued its first bond in seven years, raising roughly $2 billion in dollar-denominated debt. Pakistan has a multi-billion dollar line of credit with the IMF, but loans are conditional on the country enacting structural reforms to its economy. Pakistan was at risk of default last year until the IMF agreed to lend it money. Tax collection remains a major problem in the country. According to The Express Tribune, only roughly one in 200 citizens even files an income tax return. The country’s total debt amounts to roughly 64% of its annual GDP, even as government spending for 2014 is estimated to be among the world’s lowest, at roughly 20% of GDP.


    > Moody’s credit rating: Caa1
    > Moody’s outlook: Negative
    > 2014 Gov’t debt (pct. of GDP): 51.6%
    > 2014 GDP per capita (PPP): $13,531

    Venezuela’s need for short term cash may lead to trouble in future years. President Nicolas Maduro’s administration plans to issue bonds through the state-owned oil company, Petroleos de Venezuela, to increase the availability of foreign currency in the country. More foreign currency may help tame inflation in Venezuela, which stood at 40.7% in 2013. However, according to Bloomberg, the rate at which the oil company is taking on debt will likely outpace oil revenues in the coming years, making it increasingly difficult to make future loan payments. Venezuela is expected to spend less than 2% of GDP on interest payments in 2014, a number that is likely to balloon if the country continues to rapidly issue debt. Venezuela also has the highest 10-year bond yields in the Western Hemisphere at 15.81% as of June 2014.


    > Moody’s credit rating: Caa1
    > Moody’s outlook: Stable
    > 2014 Gov’t debt (pct. of GDP): 52.9%
    > 2014 GDP per capita (PPP): $18,917

    Argentina’s current problems can be tied back to 2001, when the nation defaulted on about $100 billion worth of debt. While most of the nation’s bondholders at the time agreed to restructure their debt, a few investors refused. After a U.S. court ruled in 2012 that Argentina should not pay its current bondholders without paying the holdouts as well, the country has faced the prospect of yet another default. On July 30, Standard & Poor’s stated that Argentina had defaulted. Other relevant financial bodies, such as the International Swaps & Derivatives Association, are also expected to declare Argentina has defaulted. Argentina has been beset by economic problems for years. Inflation was widely-believed to be well in excess of the government’s reported rates, and Argentina has deliberately devalued its currency, the peso.


    > Moody’s credit rating: Caa2
    > Moody’s outlook: Stable
    > 2014 Gov’t debt (pct. of GDP): 80.4%
    > 2014 GDP per capita (PPP): $8,915

    Belize is a tiny Central American nation with a population of less than half a million residents. The country has suffered from debt problems for years, first defaulting nearly a decade ago, after which it consolidated all of its international debts into a single bond. The country missed a payment on this “superbond” in August 2012, leading to a 2013 debt restructuring that resulted in a longer repayment time, a haircut to the bond’s overall value, and smaller payments for bondholders. Following the restructuring, Moody’s upgraded Belize’s credit rating to Caa2 with a stable outlook. The IMF projects that Belize’s total gross debt will reach 80.4% of GDP by the end of 2014.


    > Moody’s credit rating: Caa2
    > Moody’s outlook: Stable
    > 2014 Gov’t debt (pct. of GDP): N/A
    > 2014 GDP per capita (PPP): N/A

    In April, Moody’s downgraded Cuba’s credit rating to Caa2 with a stable outlook. Weaknesses cited by Moody’s at the time included “limited access to external financing, high dependence on imported goods, political transition risk, and lack of data transparency.” Recently, Russia announced it had written off most of Cuba’s debt, significantly cutting the country’s obligations. Cuba does not pay interest on its debt and its bonds are rarely traded. The IMF does not collect figures for Cuba, which is not a member of the IMF and World Bank.


    > Moody’s credit rating: Caa3
    > Moody’s outlook: Positive
    > 2014 Gov’t debt (pct. of GDP): 121.5%
    > 2014 GDP per capita (PPP): $24,171

    In March of last year, Cyprus received a 10 billion euro loan from the IMF, the European Central Bank, and the European Commission to save its banking system from bankruptcy. Just over a year later, Cyrus returned to global debt markets, raising $1 billion in five-year bonds yielding less than 5%. This was a moderate victory for the Mediterranean island country as its five-year bond yields neared 14% in prior years. Despite rating its bonds as Caa3, the lowest rating before default, Moody’s has a positive outlook on the country. The country’s improving economic performance, coupled with historically low interest rates in other eurozone countries, will likely push more adventurous investors towards Cyprus to take advantage of higher yields.


    > Moody’s credit rating: Caa3
    > Moody’s outlook: Stable
    > 2014 Gov’t debt (pct. of GDP): 174.7%
    > 2014 GDP per capita (PPP): $24,574

    Once the poster child of economic calamity, Greece’s efforts to restructure its debt and impose economic discipline are paying off. In April of this year, Greece returned to international bond markets after a four-year hiatus, raising nearly $4.2 billion in an oversubscribed issue of five-year bonds with a yield below 5%. According to Greece’s Finance Ministry, almost 90% of bonds were issued to investors outside of Greece, indicating that international investors are beginning to view Greek government bonds as a good investment. While this is good news, Greece still has more work to do. The country’s unemployment rate remains above 26% and deflation currently threatens to further depress demand.


    > Moody’s credit rating: Caa3
    > Moody’s outlook: Positive
    > 2014 Gov’t debt (pct. of GDP): 133.7%
    > 2014 GDP per capita (PPP): $9,256

    Jamaica re-entered the global bond market in July 2014 with a bang, raising $800 million, which was well above the $500 million expected by government officials. The expanded deal indicates that investors are excited about investment opportunities in Jamaica. The country’s improving economy may explain some investor exuberance. Despite slow growth and an unemployment rate that has been consistently above 11% since the global recession, Jamaica has reduced government expenditure as a share of GDP from 38.6% in 2009 to an estimated 26.9% this year. Additionally, the Jamaican government expects its budget deficit to be nearly balanced in 2014.


    > Moody’s credit rating: Caa3
    > Moody’s outlook: Negative
    > 2014 Gov’t debt (pct. of GDP): N/A
    > 2014 GDP per capita (PPP): N/A

    Following the ouster of President Viktor Yanukovych in February, who was a close ally of Russian President Vladimir Putin, the political crisis in Ukraine has largely escalated. In March, Russia annexed the Ukrainian peninsula of Crimea in the Black Sea, from Ukraine. Violence between the government and pro-Russian separatists has also been rampant in eastern Ukraine. Financially, Ukraine’s relationship with Russia is also complex. Russia lent its neighbor $3 billion last December, when Yanukovych still ran the country. The bond deal contained a clause triggering automatic full repayment if Ukrainian government debt exceeded 60% of GDP, alongside other conditions that have worried several debt market experts. Due to the ongoing crisis, Moody’s downgraded Ukraine’s credit rating, and the IMF excluded projections for Ukraine from its most recent World Economic Outlook report.

    24/7 Wall St. is a USA TODAY content partner offering financial news and commentary. Its content is produced independently of USA TODAY.

  16. Ira Says:

    Miguel, you’re again trying to apply logic to an illogical regime.

    And as a total idiot in finances, I will still predict a default much sooner rather than later.

    You can’t ignore what’s happening in Argentina–a Latin nationalistic pony that Maduro would love to take a ride on as well–and defaulting will give him some breathing room, which is all he cares about.

    Also important is that Chavismo lives by the Fidelismo play book, and since when has CUBA ever paid its bills?

    You’re crunching numbers; I’m crunching political dogma.

    They’re gonna default early, and their indignation at those suggestions is proof.

    • moctavio Says:

      Defaulting does not give them that much breathing room. I think they will not default, because there are other measures that could raise just as much money, before defaulting. Having said that, it could be a political decision to do it, advised by some hot head, but it makes little sense, for now…Later, this may change.

    • Dr. Faustus Says:

      My money’s on Ira. His logic is dead-on….. ” They’re gonna default early, and their indignation at those suggestions is proof.”

  17. Rick Flowers Says:

    Unless oil suddenly jumps to $200 a barrel, Venezuela will join Zimbabwe in the economic basement. If the oil wealth had been properly managed and invested in infrastructure, it would be a very different country. Ideology and hatred triumphed.

  18. jau Says:

    Now, VNZ14 is yielding (annualized) between 35% to 50% … Even at those levels I would not touch it!

  19. Boludo Tejano Says:

    All this talk of bonds reminded me of this song :You’re Gonna Need Somebody On Your Bond, here performed by Blind Willie Johnson, who also wrote the song.

    For those who would like an explanation of the lyrics: http://en.wikipedia.org/wiki/You%27ll_Need_Somebody_on_Your_Bond
    Regard who in the current political climate in Venezuela who will need somebody on their bond- that is for readers to decide.

  20. syd Says:

    I give this post an AA, nothing to do with alcohol.

  21. xp Says:


    Ancient Greek solution for debt crisis
    By Armand D’Angour
    University of Oxford

    What advice would the ancient Greeks provide to help modern Greeks with their current financial worries?

    1. Debt, division and revolt. Here’s the 6th Century BC news from Athens.

    In the early 6th Century BC,
    the people of Athens were burdened with
    debt, social division and inequality, with
    poor farmers prepared to sell themselves
    into slavery just to feed their families.

    Revolution was imminent, but the aristocrat Solon emerged as a just mediator between the interests of rich and poor. He abolished debt bondage, limited land ownership, and divided the citizen body into classes with different levels of wealth and corresponding financial obligations.

    His measures, although attacked on all sides, were adopted and paved the way for the eventual creation of democracy.

    Solon’s success
    demonstrates that great statesmen must
    have the courage to implement
    unpopular compromises for
    the sake of justice and stability.

    2. What happens next? The Delphic oracle

    Ancient Delphi was the site of Apollo’s oracle, believed to be inspired by the god to utter truths. Her utterances, however, were unintelligible and needed to be interpreted by priests, who generally turned them into ambiguous prophecies.

    Rehearsal at Olympia
    How would the gods on Mount Olympus tackle the IMF and the bond markets?
    In response to, say,
    “Should Greece leave the euro?”
    the oracle might have responded:
    “Greece should abandon the euro
    if the euro has abandoned Greece,” ***

    leaving proponents and opponents of “Grexit” to squabble over what exactly that meant. It must have been something like listening to modern economists. At least the oracle had the excuse of inhaling the smoke of laurel leaves.

    Wiser advice was to be found in the mottos inscribed on the face of Apollo’s temple at Delphi, advocating moderation and self-knowledge: “Know yourself. Nothing in excess.”

    3. Nothing new under the sun: The sage Pythagoras

    If modern Greeks feel overwhelmed by today’s financial problems, they might take some comfort from remembering the world-weary advice from their ancestor Pythagoras that “everything comes round again, so nothing is completely new”.

    Pythagoras of Samos was a 6th Century BC mystic sage who believed that numbers are behind everything in the universe – and that cosmic events recur identically over a cycle of 10,800 years.

    His doctrine was picked up by the biblical author of Ecclesiastes in the 3rd Century BC, whose phrase “There is nothing new under the sun” is repeated more than 20 times.

    “Should vzla leave the Bs.F?”
    the oracle might have responded:
    “vzla should abandon the Bs.F
    if the Bs.F bonds abandoned vzla,”
    and this is an utterly pointless off-topic comment.

    • xp Says:

      As bonds that are rated AAA are perceived to have little risk of default, they offer investors the lowest yields among bonds of comparable maturity. The global credit crisis of 2008 resulted in a number of companies, including General Electric, losing their AAA rating.
      By the end of 2009,
      only four companies in the S&P 500
      possessed the coveted AAA rating:

      ADP Automatic Data Processing,
      JNJ Johnson & Johnson,
      MSFT Microsoft and
      XOM ExxonMobil.

    • Dr. Faustus Says:

      After having just returned from visiting the Oracle at Delphi I’ve decided to invest my entire life savings in betting on a Venezuelan default! OK, OK, I’ll admit that I caught a glimpse of the Oracle speaking to me from behind the wall at Delphi and I was none too impressed. He looked like an aging hippie with lice-infested grey hair and a tie-dyed t-shirt to boot. He seemed like he needed to shower a bit as well as there was distinct odor as well. The Oracle business must be slow at this time of the year. But, in no uncertain terms, he told me that the Venezuelans would be ‘nuts’ to pay the interest on those bonds in October. So, I’m taking all my money and heading to Vegas. Perhaps the Vegas Sports Bookies will take my bet?

      • syd Says:

        Beware! There’s a culture gap in your information. For prophesies, may I suggest a Babalao?

        • Dr. Faustus Says:

          Ooooh! I’d love too. But where can I find a reputable ‘Babalao’ that takes ‘Visa’ and doesn’t require my bringing an animal carcass to the meeting?

  22. m_astera Says:

    a. Borrow money from the IMF, backed by the country’s raw resources
    b. Borrow more money from the Chinese, backed by the country’s raw resources.
    c. Default on the odious debt racked up by the robolution

    Which would be best for the common people of Venezuela, and their children and grandchildren?

  23. moctavio Says:

    ??? So was B or BB. Please explain.

  24. captainccs Says:


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