Not A Great Week In Venezuela…

February 27, 2016


It was not a great week in Venezuela. While it is true that if you were a bondholder of Venezuela 2016 you were very happy to get paid on Friday, the average Venezuelan felt pretty lousy all week.

Monday was a day of darkness and protests. Darkness because during the day, the East of Caracas had a very serious black out which had lingering effects for days and that same evening, the West of Caracas suffered the same fate, including the Miraflores Presidential Palace. Someone sent me a picture (mostly black) claiming that was the darkened palace, which left me wondering whatever happened to the emergency power plant and if Maduro was actually there during the blackout. But I have not seen it anywhere else, except the news that the area was dark.

That evening, people took to the streets in Catia (West), Petare (East) and there was pot banging in Chacao (Middle). In the West and the East riots were over food lines and insecurity, but the Government made sure the “Pueblo” could not express itself by sending out the National Guard in Robocop suits to repress the protests.

The next day, the full Cabinet and the Vice-President went to the National Assembly to present the President’s Annual Report, called “Memoria y Cuenta” (Memory and Accounts) which is the subject of numerous jokes about No memory and tales (Cuentos)).

And that was indeed the way it was.

Vice-President Aristobulo Isturiz showed up in his best suit (Whatever happened to his red shirts?) to tell a tale of progress, democracy and prosperity in Venezuela. There were the usual mentions of “Economic War” causing the few problems the country has like inflation, but the Vice-President even stated that the country was “solvent” in 2015 despite the 20% of GDP deficit.

And he said nothing about food lines, health care and crime…

As Aristobulo told his tales, electricity workers were still trying to turn on the lights in the East of Caracas and as the session drew into a close, night was falling and Caracas was shutting down for the day. With Shopping Centers forced to close early (and open late), the people have no excuse to be out in the streets early. The only excuses they used to have, a little shopping, some last minute supermarket visit, are no longer valid. The recessionary effect of this measure will make the economy tank even more if rains do not begin early this spring.

Meanwhile, President Maduro continued turning on his Fourteen Engines of Production, holding daily Court on nationwide TV to turn on the “Fishing Engine”, the “Medicine Engine” or whatever. But wishing it will not make it so, as all of those invited to be part of each engine always complained about the lack of raw materials, dollars and parts to get the engine going.

But Maduro’s promise is that in 100 days the engines will be producing, forgetting that all “100-day” promises during seventeen years of Chavismo have failed miserably.

Meanwhile at the National Assembly, Chavista supporters got unruly, Ramos Allup got mad and tried to move them out, which they refused, which caused the session to be suspended. Such is the state of democracy in Venezuela. As if this was not enough, Maduro congratulated them for their victory, which stopped the discussion on a Bill called “Law for National Production” a strange legal instrument which some opposition Deputies think will somehow promote national production of goods and widgets.

Never have so many been so lost and confused…

The Bill is truly obnoxious, admitting, recognizing and accepting that there are exchange controls, price controls and even stating that there will be no privatizations in some areas of the economy.

Such is the mind set of opposition leaders after seventeen years of populism.

Then on Thursday the Government published a Memorandum of Understanding in which it settled with a tiny Canadian company called Gold Reserves which had been awarded US$ 740 million over the nationalization of the Las Cristinas gold concession. According to this fantastic (imaginative?) piece of paper, the tiny company (US$ 15 million in assets, US$ 45 million in debt and US$ 11 million in losses in the first nine months of 2015) will invest US$ 5 billion in Venezuela and lend US$ 2 billion to the country. Implied in the MOU is that this new gold company is payment in lieu of an actual cash payment to the company. At least there was no 100 day promise involved.

On Thursday, a protest on the healthcare crisis tried to reach the Ombudsman’s office, but in the distorted and bizarro world of Chavismo Democracy, this is not allowed. Thus, the Constitution allows protests, but the National Police and the National Guard don’t allow it. The Constitution has an instance for people to address their complaints, but this instance is not available if you try.

Only Chavismo…

Then on Friday, the anti-climatic payment of the 2016 Venezuela bond took place. Good for the bondholders, bad for people needing everything, as the debate starts anew on what will happen in October when PDVSA will have to make payments of over US$ 3.05 billion. So far, the Government has understood the political and financial implications of default, the question is at which point the political consequences of continuing to pay become more significant as unrest balloons out of control.

Stay tuned…

32 Responses to “Not A Great Week In Venezuela…”

  1. mercedes atencio Says:

    Larry, my husband, Hernan Atencio, the one who worked for GTE wants to know who your father is.

  2. IslandCanuck Says:

    Henry Ramos Allup ‏@hramosallup 6h6 hours ago
    Advertencia a prestamistas extranjeros: nulos d nulidad absoluta contratos interés nacional q suscriba gobierno chavista sin autorización AN

    A warning to all foreign lenders: absolutely void any contracts with a national interest signed by the chavista government without the authorization of the Assembly National

    Good work Henry!!

  3. m_astera Says:

    How long will this slow-motion train wreck continue? I’m guessing as long as the Guardia Nacional and policia continue to get paid to oppress the people. Or until the people get hungry enough to fight back. At this point it’s not about political ideologies, it’s about money and food.

    • Larry Says:

      many authoritarian regimes cease when cash to lube gears runs out. Venezuela with its strategic geographic location and wealth in natural resources a little different. You mention GNB and “law-enforcement” but dont mention FANB. You have this civil-military thing that is really a military dictatorship in disguise. As a country, you still refuse to acknowledge realities from cocaine (consumption, resale, transport) and the military. You have a militarized country and you cannot bring yourselves to talk about the military instead focusing on what you know. To me, there is still a long way to go in understanding the situation.

  4. Romano Says:

    PDVSA was given ownership rights on all mines in Venezuela. It estimated the current value of such “assets” in 40 billon USD. In 2014 PDVSA had to hide huge losses, so it sold 30% of the rights to the Central Bank in payment of the debt it had whit the institution.. As the rights had no book value for PDVSA it all turned in a nice profit, very convenient and necessary to offset the losses.

  5. Lee Kuan Yew Says:

    “But Maduro’s promise is that in 100 days the engines will be producing, forgetting that all “100-day” promises during seventeen years of Chavismo have failed miserably.”

    And Millions of wise, “alphabetized”, innocent “Pueblo” people will buy into the lies, as they always do. Or at least they will remain Chavistas, and keep adoring Chavez, and blame everything on Maduro and the MUD burgueses.

    Such a wise, educated, smart “Pueblo”, so well-informed, and with an extraordinary memory.. As long as they find more Tigritos and get more Freebies from the corrupt regime, they get by..

    • There’s a need to have uncensored tv and radio that reaches small owns and the barrios.

    • .5mt Says:

      Meh, the people are all stupid, listen to me.
      Meh, the people are all thieves, what else could it be?

      Ima Trollvista ain’t it plain to see?
      You crakas starting to wear on me,

      Everyone one is stupid except for me
      I got a silly job trolling blogs you see

      Whitebread is a lackey a gringo like me
      But he makes a lotta cabbage, that I I never will see,
      I am paid like Hector, by the word.
      But I’ll never get paid and that’s the word.

  6. Good post. Do you have info on the Guri water level and what it implies?

  7. Rockdoc Says:

    The las Cristina’s gold deposit has so many warts that will make it difficult to ever exploit. It is overrun by informal and illegal miners who will all have to be removed prior to development ever beginning. Under laws and regulations in effect when I worked in Venezuelabas a geologist in the gold mining industry many of the illegal miners will have rights to the first 100 meters or so of the ground . Deals will have to be struck to buy these people out..

    This is just one of the many hurdles that will have to be overcome not even taking into consideration the technical and financial hurdles. Let’s not even go near environmental concerns that a large open pit will generate amongst the local people let alone international watchdog groups.

    Assuming that there is a viable resource at today’s gold prices and cost structures if a green light was given tomorrow it would take 3 – 5 years to bring this into production. Development costs could easily exceed 2 billion dollars

    At the moment this looks good for Gold Reserve only as there stock holders may be appeased a bit and they can wait for a change in government hat will be more favourable to foreign investment.

    Right now I am not aware of any reputable mining company that would invest in Venezuela given the insecurity and demonstratable lack of guarantees no matter how written or deemed enforceable.

    Venrus was a joint venture between the government and Rusoro and in the end Venexuela confiscated their interests without compensation.

    In the end this will not bring any near term financial gain to Venezuela and given previous arrangements will fall apart if it even gets started

    • moctavio Says:

      I agree completely, I think its all fluff, the stock of Gold Reserves has not traded for two days awaiting a press release from the company, I guess its difficult to write something consistent with what the Government said without lying.

    • Larry Says:

      Rockdoc, in Venezuela, diamond and gold mining is now controlled by FARC and ELN.

      • Larry Says:

        Arco Minero que preparan para entrega es al norte del Estado Bolívar. Al sur, y en el Estado Amazonas, la minería la controlan FARC y ELN.

      • Rockdoc Says:

        The operations that the FARC control are small informal operations. A lot of these are placer or alluvial operations and production is minimal a few to a fewb10’s of ounces. What the country needs is real operations that produce 100,000 ounces per year plus. Los Cristina’s if developed could produce up to 500,000 ounces. These types of operations would have some significance for the country bit still pale compared to oil.

    • Lee Kuan Yew Says:

      ” Deals will have to be struck to buy these people out..”

      You can bet your childrens’ college fund, and the house, that there is something very, very fishy on that Canadian gold deal..

      Why choose a small, bankrupt freaking Canadian company for gold, at this stage? Mega- GUISOS, of course, corruption, theft, millions under the table.

      The Chavista Criminal Thugs probably struck a deal with some shady Canadian or International Thugs, made a couple friends at night having their whiskicitos.. exchanged millions in illegal profits, y listo el pollo!

      When in doubt, look no further than Galactic Corruption in Kleptozuela. It explains just about everything.

    • Dr. Faustus Says:

      Interesting post, Rockdoc. Could it be that Gold Reserve’s management was “bum-rushed” by the Chavista’s into signing that MOU? ” Sign here, or no one gets out of Caracas!” None of this makes any sense. What lending institution is gonna hand-over 5 billion bucks to these guys within a 30-60 day period? Weird. There is still no official press release from Gold Reserve on the specifics of the agreement. No time for PR’s, running for their lives? Can’t wait for Monday. Fascinating story here.

    • Roger Says:

      In the early mid 90’s we built a Packet Digital Radio link to connect PTO. Ordaz to Las Cristanas mine. Now I have worked with a lot of very remote Coal and Uranium mines but, this looked right out of the California Gold Rush. First, the mine had no production equipment and was doing test bore holes and small test pits. I asked them, how are you going to get Drag
      Line Shovels, 200 ton ore trucks and Bulldozers and such into here? Not to mention the large processing plant that needs to be built. They said, yea its a problem but were working it! The road thru there is part of the Pioneer Highway to Sta. Elana and the Grand Sabana and is very light two lane road. The mining that was going on was informal and mostly Brazilians. The GN was everywhere and I’m sure, each checkpoint took a pinch from every poke that went thru! The town was all bars and whorehouses. They even had hitching rails for the donkies! We spent some time down the road at the town of El Dorado and needing hardware, found ourselves in a warehouse. In one corner was a huge stack of 5 gallon glass water jugs filled with Mercury! My local Gringo partner and I quickly decided we needed to leave and take a Polar break across the street! Just like the heavy crude. projects need not only large investments but also, skilled engineering and workforce and the infrastructure to support it.

      • Larry Says:

        Roger, I envy you in that you where down there and got to see that. Been hearing those stories my entire life… my dad did a lot of work in telecom down there during 60s and 70s with GTE and many stories like yours of remote mountain tops or jungle accessible only by helicopter…

        • mercedes atencio Says:

          My husband worked for GTE in Guayana installing proyect Edelca 523. Curiaras, chalanas helicopters were the only ways to move around the jungle. Good and interesting times and they did a good job!

  8. Min Finanzas and BCV, were among the happiest, after re-purchasing nearly 30% of 1500 Venezuela16, at average price of 90-93% BCV paid in full, at 100% including the last coupon. Banks and others which received Treasury orders to purchase Venezuela16, even though they had inside info that there is not going to be any “default” they feel anxious since numbers shows an astringent liquidity position at Treasury, however they had to support the “refritada”.

  9. IslandCanuck Says:

    Also they announced during the week that on Friday they would announce the new rules related to travel dollars & pensioners & students abroad.

    It’s now Sunday morning & nothing.

  10. Wanley Says:

    Grim indeed. The blackouts are news because they happen in Caracas. The rest of Venezuela has had them for years. The electric generation must be really collapsing when they can’t keep Caracas lighted for political purposes.

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