Venezuela, The Starving Socialist Dystopia (Part 1)

Venezuela: what happens now after official default
Robin Wigglesworth | November 14, 2017


Rating agency S&P on Monday night confirmed what many analysts and investors have been bracing for in recent years: Venezuela is officially in default on its sovereign debts, after missing $200m of interest payments on two government bonds.

Yet there remain more questions than answers surrounding Venezuela’s plans to “refinance and restructure” its financial liabilities, and the path forward for the oil-rich but economically stricken Latin American country.
How much does Venezuela owe?

Venezuela has about $63bn of foreign bonds outstanding, according to Torino Capital, while the central bank estimates the country’s overall foreign debts at about $90bn. The real number, say most analysts, is much higher.

PDVSA, the state oil company, has sold $28.6bn of bonds and owes billions of dollars more in “promissory notes”.

Venezuela owes another $4bn or so to creditors that have taken it to the World Bank’s ICSID court. Stuart Culverhouse, chief economist at Exotix, thinks total public sector external debts range between $100bn and $150bn.
What does Venezuela want to do?

Even this is uncertain. Venezuelan president Nicolás Maduro has mentioned “refinancing” and “restructuring” the country’s external liabilities.

But a refinancing usually implies something voluntary while a restructuring means forcibly “haircutting” creditors. Crucially, US sanctions imposed this summer in practice means both options are off the table.

That Mr Maduro named vice-president Tareck El Aissami as the lead negotiator with bondholders complicates matters further. Mr Aissami has himself been sanctioned by the US as an alleged narcotics trafficker, which means US investment groups — the biggest holders of Venezuelan debt — cannot enter talks with him.

That led to most international bondholders staying at home rather than risk being inadvertently snared by US sanctions and, as a result, it was a “non-event”, said Siobhan Morden, head of Latin American fixed income strategy at Nomura, noting that only 10 non-Venezuelan investors might have been in attendance.

“There was no official statement on the missed coupons despite what would have been an ideal venue to clarify. The doublespeak continues with officials insisting on debt reprofiling while at the same time committed to pay their debt,” she wrote in a note to clients.
So why is Venezuela doing this?

With a competent government and more orthodox economic policies, Venezuela could probably handle its debt burden. Although oil exports are declining, it still boasts the world’s largest proven reserves and prices are at their highest level for more than two years.

But chronic mismanagement by governments under Hugo Chávez and now Mr Maduro and the oil slump has taken its toll. According to the IMF, the economy has shrunk by a third over the past five years.

Worries that a default would trigger creditor lawsuits that could imperil its vital oil export revenues have spurred Venezuela to stay current much longer than many expected. It has managed this largely through largesse from China and Russia and pushing the hardship on to ordinary Venezuelans by sharply limiting imports.

The country’s options appear limited. In addition to Monday’s missed payments on bonds due in 2019 and 2024, Venezuela is overdue on $420m of coupons on $8.6bn worth of bonds that mature in 2023, 2025, 2026 and 2028, demonstrating the “significant fiscal strain” the country is facing, S&P notes.

Foreign currency reserves are below $10bn — and much of this is in gold that will be hard to liquidate. China is wary of deepening its financial exposure to Venezuela while the country has already restructured some of its bilateral loans from Russia.

How have markets reacted? Badly. The price of Venezuela’s bond maturing in October 2019 collapsed from nearly 50 cents on the dollar to about 24 cents last week, as investors panicked after the restructuring announcement and bank traders pulled out of the market, causing prices to “gap” lower. The price recovered slightly on Monday, before tumbling again on Tuesday after it went into default.

Some investors have hoped that the difficulty Venezuela would face in restructuring its debts — coupled with a less onerous payment schedule in the coming months — might allow breathing room until later in 2018.

But missing Monday’s payment deadline on its sovereign debt makes that look overly optimistic. The increasingly dour view is reflected in the cost of Venezuelan credit-default swaps, a kind of debt insurance, that has spiralled higher since the restructuring announcement.
Can Venezuela extricate itself from this mess?

Russia could provide a loan secured by Venezuelan oil assets that the government could either use to pay creditors or to buy back some of its bonds at their current big price discount.

Venezuela could also seek to improve its fiscal space by separating PDVSA from the state, defaulting on the latter debts while staying current on the oil company’s bonds. That could in theory prevent creditors from interrupting PDVSA’s oil sales, while letting Venezuela’s sovereign creditors stew. Suing countries is much harder than companies with assets that can be seized.

Venezuela’s state debts could in theory be restructured without a traditional debt exchange, through co-called “collective action clauses” that bind all creditors to any deal agreed by a certain majority. PDVSA’s bonds don’t have CACs but Venezuela’s mostly do, which could allow those bondholders to vote to agree a restructuring without falling foul of US sanctions.
Could that work?

Probably not. Restructurings are usually backstopped by an economic adjustment programme, to give creditors the confidence that the losses they swallow will result in a durable turnround. “Unless the government can persuade creditors of its ability to repay future debts, it’s difficult to foresee a point from which any successful renegotiation can begin,” says Edward Glossop of Capital Economics.

Moreover, ringfencing PDVSA from the government will be tricky. Crystallex, a Canadian miner, is already suing Venezuela and arguing that PDSVA is the “alter ego” of the state. If Crystallex wins, it opens the door for all creditors to try to seize Venezuelan and PDVSA assets interchangeably.

The most likely outcome, investors and analysts say, is a protracted period of financial limbo with a restructuring precluded by US sanctions and Venezuela facing a barrage of lawsuits that will tie it up for years to come.

https://www.ft.com/content/5f07e298-c326-11e7-a1d2-6786f39ef675
 
Last edited:
Russia and Venezuela agree $3bn debt restructuring

http%3A%2F%2Fcom.ft.imagepublish.prod-us.s3.amazonaws.com%2F58e6c65a-ca0f-11e7-8536-d321d0d897a3


Russia has come to the aid of Venezuela with a deal to restructure $3.15bn of sovereign debt, allowing Caracas to meet obligations to other creditors and underlining Moscow’s role as the crisis-hit country’s main foreign backer.

Rating agencies this week declared Venezuela in default on several of its international bonds, worth more than $60bn in total. The country has said it will have to restructure the debt as part of what is set to be one of the largest sovereign defaults in history.

“Venezuela is advancing towards the recomposition of its external debt, to the benefit of its people,” Simon Zerpa, Venezuela’s economy minister, said from Moscow.

The intervention by Moscow allowed Venezuela to sidestep major western creditors, and analysts said the country was emerging as a “test case” for sovereign defaults, which are normally handled through a group of postwar institutions like the International Monetary Fund and the Paris Club. Both Russia, which is a member of the Paris Club of international creditors, and China, which is not, are emerging as alternate venues for embattled countries seeking to avoid debt restructuring managed by traditional economic powers like the US and Western Europe.

“There is now the possibility of a lot of bilateral sovereign and quasi-sovereign [credit] exposure that is not being transparently reported”, said Douglas Rediker, a former US representative on the IMF board. “No longer do you have the certainty that the Paris Club is going to reflect [the positions of] the vast majority of creditors”.

Moscow has provided billions of dollars to Venezuela in recent years through sovereign debt purchases and cash advances to PDVSA, the state-owned oil company, from the Kremlin-controlled Rosneft. Russia said on Wednesday it had agreed to restructure the $3.15bn of debt by allowing Venezuela to repay it over a 10-year period, with “minimal repayments” in the first six years, freeing up cash to meet other near-term debt payments.

“Debt relief provided to the republic [of Venezuela] as a result of this debt restructuring will allow it to allocate funds for the development of the country’s economy, improve the debtor’s solvency and increase the chances of all creditors to return loans previously granted,” Russia’s foreign ministry said in a statement.

Wilmar Castro Soteldo, Venezuela’s agriculture minister, who flew to Moscow to sign the deal, said the agreement covers bilateral government obligations only and does not relate to money owed to Rosneft by PDVSA. Mr Soteldo said the deal would facilitate increased trade ties with Russia, describing the agreement as a “financial and political decision of strategic importance”.

Rosneft, which has loaned PDVSA about $6bn in payments guaranteed by oil supplies and a 49.9 per cent stake in Citgo, the Venezuelan oil company’s US subsidiary, said on Tuesday that it had received “several hundred million dollars” in repayments that were being serviced on schedule. It added that it did not at present plan to provide the country with any more financial support. Rosneft is in talks with PDVSA over exchanging the Citgo stake with other assets, such as oilfield rights, because of concern in the US about the prospect of the Russian company holding the stake.

On Monday, Caracas missed a deadline to pay $200m in interest on two of its government bonds, prompting S&P Global, the rating agency, to formally declare it in default. The oil-rich nation, which was hit hard by the 2014 collapse in energy prices, is overdue on $420m of further interest payments on other sovereign bonds, as well as payments on debt issued by PDVSA.

Russ Dallen of Caracas Capital, a boutique investment bank that follows Venezuela, said there were signals that the government was shifting its stance on the possibility of defaults. Previously, it has insisted that all payments would be made. But at a press conference on Tuesday, Jorge Rodríguez, the new information minister, said Venezuela would continue to meet its debt obligations “but not by mistreating our people as in times past”

“They are planting the first seed,” Mr Dallen said.

Although PDVSA was excluded from the agreement with Russia, its bonds have been trading at higher prices than similar bonds issued by the sovereign. PDVSA faces a much lighter repayment schedule this year and next, and is a vital source of earnings for Caracas.

“PDVSA is the moneymaker so Caracas will want to keep it safe,” Mr Dallen said Nicolás Maduro, Venezuela’s president, announced two weeks ago that the country would have to “refinance and restructure” its foreign debts. But the first meeting with international investors offered few details on how the country would seek to tackle the crisis.

Socialist Venezuela is already under EU-imposed sanctions for human rights abuses, while some officials are under a number of US sanctions. Some countries have called for restrictions to be increased to include travel bans for some members of the administration and the freezing of assets, as well as an embargo on oil exports to the US.
https://www.ft.com/content/5f3084c6-ca03-11e7-ab18-7a9fb7d6163e
 
Last edited:
Venezuela's president accused of crimes against humanity
Andrew Buncombe, New York | Thursday 16 November 2017

nicolasmaduro-hague.jpg

Venezuela’s ousted chief prosecutor has called on the International Criminal Court to capture President Nicolas Maduro and charge him over what she claims are crimes against humanity.

Luisa Ortega, who was fired after breaking with the Maduro governmentearlier this year, appeared at The Hague where she filed a complaint, based on the 8,290 deaths she says took place between 2015 and 2017 at the hands of officials who received instructions from the government.

“[They happened] under the orders of the executive branch, as part of a social cleansing plan carried out by the government,” she told reporters.



“Nicolas Maduro and his government should pay for these crimes against humanity just as they must also pay for the hunger, misery and hardship they’ve inflicted on the Venezuelan people.”

She added: “We have been forced to turn to an international organisation, because there is no justice in Venezuela.”

According to Reuters, her complaint, which included 1,000 pieces of evidence, also accuses a number of top officials, including Defence Minister Vladimir Padrino and intelligence chief Gustavo Gonzalez of being involved in the alleged abuses.

Mr Ortega was associated with Mr Maduro, and his predecessor Hugo Chavez, for many years. Yet she broke with him this summer after Mr Maduro pressed ahead with a plan to create powerful legislature called the Constituent Assembly.

The new constitutional assembly can override the traditional National Assembly, which the opposition has controlled since elections in 2015.

The opposition decided to boycott the vote over the assembly, ensuring that it would be filled with allies of Mr Maduro.

Indeed, the new, 545-member assembly voted to fire Ms Ortega on its first day of operation, accusing her of being a “traitor”. Since then, she has fled the country and has toured different countries denouncing the government she once worked with.

Mr Maduro, who was elected in 2013, pushed ahead with the assembly after claiming it was the only way to empower people and bring about peace. More than 120 people died in clashes this summer between protesters seeking to force Mr Maduro to quit and the security forces.

Mr Maduro has faced widespread international criticism and both the US and the EU have imposed fresh sanctions on the country.

http://www.independent.co.uk/news/w...st-humanity-accusations-icc-a8059551.html?amp
 
Last edited:
Or basing ur whole economy on oil and watching as it becomes as cheap as water
Lets not pretend the right woulda done much better
Top ten dumbest things I've heard. How's Saudi Arabia doing? Dubai is rich for what reason? What is America doing in the middle east?
 
Top ten dumbest things I've heard. How's Saudi Arabia doing? Dubai is rich for what reason? What is America doing in the middle east?
Saudis economy is a basket case ...oil runs out tommorow or gets replaced and their economy will make venuzuela look like heaven, dubai is diversifying its economy and the u.s is there for many reasons as it is in other areas without oil
 
Saudis economy is a basket case ...oil runs out tommorow or gets replaced and their economy will make venuzuela look like heaven, dubai is diversifying its economy and the u.s is there for many reasons as it is in other areas without oil

You do realize that Venezuela production droped due to lack of investment and renovation right?

Oil price is ciclic, had they invested on the up they would be able to keep healthy. They did the opposite killed private business, spent money to stay in power and fucked oil production.

I know you are trolling but come on do better
 
images


They are now bellow 2M and will only get worse since they defaulted and have no money to produce more
 
You do realize that Venezuela production droped due to lack of investment and renovation right?

Oil price is ciclic, had they invested on the up they would be able to keep healthy. They did the opposite killed private business, spent money to stay in power and fucked oil production.

I know you are trolling but come on do better
No one is arguing that they shouldnt have invested more
 
Top ten dumbest things I've heard.

For the new-comers to the thread: The "low oil price destroyed the Venezuelan economy, not socialism!" apologists have already been thoroughly destroyed on page 3-4.

You do realize that Venezuela production droped due to lack of investment and renovation right?

Oil price is ciclic, had they invested on the up they would be able to keep healthy. They did the opposite killed private business, spent money to stay in power and fucked oil production.

I know you are trolling but come on do better

The sad part is he wasn't actually trolling. Go back to page 3 to see @Rod1 taking him to school.

This is why you never say stupid shit in Arkain2K's megathreads, especially on Page 1. It will come back to haunt you for years to come.
 
Last edited:
Man this isn't at all how my tweed jacket wearing community college paralegal studies professor told me socialism would work out. That guy is really smart too. He wears glasses and keeps a pen in his ear. Dumb barbaric yokels must have sabotaged it yet again. I suspect racism.
 
Last edited:
Man this isn't at all how my tweed jacket wearing community college paralegal studies professor told me socialism would work out. That guy is really smart too. He wears glasses and keeps a pen in his ear. Dumb barbaric yokels must have sabotaged it yet again. I suspect racism.
This is not socialism - they never gave the people the means of production. The state took it all more akin to communism.
 
This is not socialism - they never gave the people the means of production. The state took it all more akin to communism.

This definition is obsolete via being too broad. The people effectively own the means of production in modern, caste-mobile capitalism.

Early socialist writers were extremely myopic. They lived during the transition from monarchy to merchant-rule and assumed — based on industrialists drawing labor from the peasantry — that capitalism was permanently conjoined to the caste system and the throne had simply changed hands. We now know that capitalist wealth is the most fickle type, that it's rare for an individual to spend life within one income bracket or "collar-type" much less an entire family or village.

Modern "true socialism" is a ponzi scheme. There is no system of checks/balances to prevent "the people" aka collectives from evolving into state dictatorships therefore they inevitably do, always, and this should be considered a defining feature of socialism.
 
Last edited:
Back
Top