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Venezuela Refuses to Default, and Few People Seem to Understand Why

194 points by wallflower 10y ago

Alupis 10y ago
If Venezuela defaulted on foreign debts, it will be very difficult (and/or expensive) to borrow again in the future. Venezuela is essentially hedging their situation is temporary (however temporary, temporary is), and having a good economic standing in the future may depend heavily on foreign investments (particularly since Venezuela is a petroleum based economy). Burning those bridges now could cripple Venezuela permanently. The same question could be posed of any nation with impoverished citizens and foreign debts. We could even examine the USA, which has never defaulted, even during the height of the Great Depression. Choosing to default on those debts and instead send temporary (and likely insignificant, once the bureaucracy runs it's course) aid to some citizens jeopardizes the entire nation. Simply put, the trade-off is not worth it.
- brianlweiner 10y ago
  But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges? I'm more likely to believe that influential Venezuelans are exposed to the current bond market and are seeking to delay the reckoning.
  - Alupis 10y ago
    > But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges? They seized/nationalized Exxon's assets, which certainly burnt that bridge (Exxon promptly filed for arbitration). But Exxon is only one foreign company. Perhaps Venezuela sees a future of no foreign petroleum companies, but rather use foreign investments/loans to build their own internal petroleum operations. This seems likely after nationalizing the existing plants.
    - saryant 10y ago
      After nationalization Venezuela told all PDVSA workers that they either had to be loyal to Chavez or quit. Many of the best left, knowing they could take positions with the supermajors or service contractors in other countries. PDVSA was left with a hodgepodge of lackeys and hacks who don't know what they're doing. That problem is compounded by the fact that Venezuelan crude is a pain in the ass to deal with. Some of the nastiest on earth. Extremely heavy and sour (which is also why Venezuelan crude trades at a discount to the benchmarks).
      - Alupis 10y ago
        I believe you are making my point. Venezuela's future will depend on and require foreign investments and expertise. Burning that bridge (or not burning it) is a calculated risk.
        woodandsteel 10y ago
        >Venezuela's future will depend on and require foreign investments and expertise. Well yes, but you seem to be assuming Maduro is rational on economic matters. But if that was so, the Venezuelan economy would not be in such a terrible mess.
        ptaipale 10y ago
        Alas, it looks like the Chavez and Maduro governments are not really capable of calculating risks, or even understanding rational processes. They are completely ideological short-term opportunists.
    - hiou 10y ago
      Exactly. And this is why defaulting is so dangerous. To lose access to that foreign investment in the future would be disastrous for that plan.
    - abpavel 10y ago
      > Exxon is only one foreign company It's starting to sound like you're one of the bond holders or securities tied to the bonds. Exxon is consistently in the top 10 on F500, and was an absolutely critical part of bloodline. Nationalization of Exxon was the an act of desperation, the last gasp, not "just one company". Having visited Venezuela, it is obvious there are huge problems with the state of affairs that no foreign investments are going to solve. (Edit:identation)
  - knowaveragejoe 10y ago
    Do you have any more information on this? I'm pretty out of the loop on the Venezuela situation and would like to know more, but don't even know where to begin.
    - g_delgado14 10y ago
      Within the article theres a QuickTake explainer [0] on Vzlas economy [0] - http://www.bloomberg.com/quicktake/venezuela-price-revolution http://www.bloomberg.com/quicktake/venezuela-price-revolutio...
    - rmsaksida 10y ago
      This article is very informative: https://www.washingtonpost.com/opinions/global-opinions/hugo-chavezs-long-con/2016/07/01/26e8b690-3f8c-11e6-80bc-d06711fd2125_story.html https://www.washingtonpost.com/opinions/global-opinions/hugo...
- dublinben 10y ago
  Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year. There is no such thing as "permanent" in the international debt markets. Someone will eventually be willing to lend you money, at the right price.
  - Alupis 10y ago
    > Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year 15 years later (and arguably not in a much better condition than before). We shouldn't pretend a nation-state default has few/zero negative ramifications. > Someone will eventually be willing to lend you money, at the right price. You are right... but money gets a lot more expensive. It could very well be more expensive than riding out the temporary slump (which is largely tied to the petroleum markets from my understanding).
    - dublinben 10y ago
      The government of Argentina voluntarily took the position that they would not settle with the outstanding debt holders. They could have settled 15 years ago and regained access to international debt markets right away.
      - Alupis 10y ago
        Doing so would not have made the situation much better. To an outside investor, Argentina is a lot more risky now that they've proven they're willing to default when things get rough. That kind of risk isn't impossible to overcome, but it's very expensive. For a struggling nation without a strong economy, foreign investments can be lifeblood.
        roymurdock 10y ago
        Or a noose. Debt is a double-edged sword - it all depends on if it's structured in a reasonable fashion, and if it used in a productive manner that can pay down promised future payments.
- redstripe 10y ago
  Can you give some examples of where a country defaulted and was worse off? I think most recently Iceland defaulted and they seem to be doing alright - but maybe given it's size it doesn't really count.
  - venomsnake 10y ago
    Iceland didn't default. They let their commercial banks die without intervention from the government. Also known as what the US Treasury should have done in 2008. If something is too big to fail - it must be killed immediately.
    - krapp 10y ago
      No offense to Iceland, but the world economy is far less affected by the loss of Icleandic financial institutions than American ones.
      - AnimalMuppet 10y ago
        But you're moving the goalposts on this discussion. The question wasn't the impact on the global economy; it was the impact on the national one. So the Iceland example is directly relevant.
        krapp 10y ago
        Part of this discussion seems to be whether or not the Treasury should have done what Iceland did, and I'm just trying to point out that they had valid reasons to do anything but that.
        AnimalMuppet 10y ago
        Clarification: Do you mean the US Treasury? If so, yes, I agree with you. And yes, that has been part of the discussion.
        10y ago
- Analemma_ 10y ago
  > Burning those bridges now could cripple Venezuela permanently. There's not a lot of evidence for this. It's not like no country has ever defaulted before, it happens all the time, and they were able to borrow again once they got themselves functional. Defaulting is bad but certainly not a death sentence. It's especially weird when, as the article points out, bondholders are practically expecting default - and charging interest to match! At a time when it has very little cash, Venezuela is paying extra to avoid a situation that bondholders have already resigned themselves to. > Simply put, the trade-off is not worth it. That's not a sure thing. It could be worth it, depending on how they use the newfound money. It doesn't just have to be buying food, as important as that is. What if they use it to get some functional power plants? The massive brownouts right now are hobbling the economy; there would be much better growth prospects if people had reliable power.
  - Alupis 10y ago
    > What if they use it to get some functional power plants? The massive brownouts right now are hobbling the economy; there would be much better growth prospects if people had reliable power. Very good point. However, it's likely in order to build and maintain such infrastructure, Venezuela would need foreign investment and expertise... If they burn all the bridges, this may not be possible to accomplish. Perhaps they could find someone willing to take on the risk, but it may cost them even more than just continuing to pay the debts and ride-out the petroleum slump.
    - JumpCrisscross 10y ago
      > If they burn all the bridges, this may not be possible to accomplish The bridges were burnt more thoroughly by Chavez's expropriation as well as his and Maduro's price-control and rationing policies. I would put a dollar in Greece or Puerto Rico before Venezuela, despite the formers having defaulted and the latter not.
- hiou 10y ago
  Not sure what part of this is warrants down voting? There are valid points even if they might be a a little off the mark Venezuela is very dependent on financing for its oil exploration and infrastructure. The reality is that they simply need to hold the fort until oil rebounds in a year or two. Otherwise a huge portion of their future oil extraction will go to financing as opposed to Venezuela. It is certainly a risk but to say the opposite is not a huge risk with serious consequences is pretty naive.
- wahern 10y ago
  You're basically saying that Venezuelan officials understand good market and monetary policy. And yet their domestic price controls, which are the _direct_ cause of the country's current dire straits (and not the price of oil) suggests that they don't understand or accept the most basic of economic rules which even market skeptics (like Malaysia's Mahathir Mohamad, credited rightly or wrongly for Malaysia avoiding the worst of the 1997 Asian financial crisis) grudgingly accept. So it's really quite a puzzle. I tend to think all the explanations play a part: 1) maintaining kickbacks and cash flow to powerful players, 2) keeping face wrt Chavism, and 3) ensuring that the national oil company remains (at least in their eyes) a global player.
stevedekorte 10y ago
Do those making the decision to pay these bonds happen to hold any of these bonds themselves?
- nellyspageli 10y ago
  Did you read the article?
- conistonwater 10y ago
  It's right there: > The next argument is something of a conspiracy theory born in part out of the opaque nature of the country’s finances. It posits that close associates of the administration are major holders of the country’s bonds and that the government fears it’d lose their much-needed support if the payments stopped coming in. Efforts to obtain comment from government press officials on this and other aspects of the story were unsuccessful.
  - bpodgursky 10y ago
    It's really a pretty good deal for them -- buy the debt for 50 cents on the dollar, and then make the decision to not default, guaranteeing a payout.
roymurdock 10y ago
The second "conspiracy theory" explanation presented in the article seems the simplest and most plausible: Close associates of the administration are major holders of the country’s bonds and...the government fears it’d lose their much-needed support if the payments stopped coming in. Efforts to obtain comment from government press officials on this and other aspects of the story were unsuccessful. Either that, or debt-holding institutions are willing to kick back a fraction of coupon payments to high ranking officials as an incentive to keep the payments flowing for as long as possible before a civil war or coup forces a restructuring. Either way, servicing the debt is keeping government officials paid to the detriment of their starving countrymen.
- Shivetya 10y ago
  I tend to like the pride argument more. To default is to lose face in the international world and at home. Better to sacrifice to uphold one's promises. A false pretense when there is little respect outside of those receiving payments beyond their borders. Perhaps they think they would be admitting defeat and that would cause the coup to occur overnight?
  - hourislate 10y ago
    Interesting that you would think Maduro and his Government have any honor. How could they possibly have any face left in the International world? Communist/Socialist Governments typically use such financial vehicles among many others to systematically remove and transfer some/most of their countries wealth into their own/friends coffers through various arrangements with financial institutions et al all the time. Just another day and another dollar. Pride/Honor have nothing to do with any decisions when it comes to stealing billions. The human cost isn't even part of the equation.
    - JBReefer 10y ago
      Cultural/Male honor is huge in LatAm
      - 10y ago
danharaj 10y ago
The article is fixated on the economic benefits of default, as if economic decisions were only ever decided by economics! Maduro's government is authoritarian and violently imposed. What internal political factors does this dictatorship think preclude the possibility of default? Would default be signaling weakness to competing forces within the country? Is humiliation on the international stage a threat to the ruling party's self image? Violent dictatorships are seldom rational. This article is also written with the tacit acceptance of neoliberal ideology: The only rational choice for an impoverished nation is to submit to foreign capital and governmental institutions and sell the country for the chance to become another dependent market that will bear the brunt of the next global credit crisis and coercive trade deal.
- AnimalMuppet 10y ago
  > Violent dictatorships are seldom rational. Well, they're often rational within their own framework (either an ideological framework or merely the framework of violence and power). That looks irrational to the rest of the world, but it has its own logic. > This article is also written with the tacit acceptance of neoliberal ideology: The only rational choice for an impoverished nation is to submit to foreign capital and governmental institutions and sell the country for the chance to become another dependent market that will bear the brunt of the next global credit crisis and coercive trade deal. Will submitting be better or worse than the current situation in Venezuela? If anyone claims that it will be worse, I'd like to see their justification for that statement.
  - danharaj 10y ago
    > Will submitting be better or worse than the current situation in Venezuela? If anyone claims that it will be worse, I'd like to see their justification for that statement. The current situation is shit. Paths forward should be judged against their alternatives and their possibilities. Global powers love that they can coerce the impoverished into decades-long deals of economic servitude and their ideology pushes it as the only reasonable way forward. Dictatorship and submission to global capitalism aren't the only options.
cperciva 10y ago
There's another possibility which wasn't mentioned in the article: Maybe the government is quite happy with the food shortages. They have used control of the food supply to reward their supporters and to punish their opponents; this gives them tremendous power, and why should they give up that power just for the sake of a few million starving citizens?
- gohrt 10y ago
  Who are the supporters who are getting food, and opponent who are not? The starving public aren't meaningfully pro or anti any faction in government, they are civilians trying to scratch by.
  - homero 10y ago
    The political parties. Imagine if registered democrats got food and republicans did not and changing is not allowed https://youtu.be/5SeVv277d0I https://youtu.be/5SeVv277d0I
    - cmdrfred 10y ago
      I don't know why you are getting downvoted, that seems to be exactly the case according to that video.
- rmsaksida 10y ago
  This is a government that hired militia to shoot teenagers in student protests [1]. While I don't think the food shortages were intentional, there's no doubt they are an useful tool to control the population. [1] https://www.theguardian.com/world/2014/feb/14/venezuela-violent-clashes-chavistas-opposition https://www.theguardian.com/world/2014/feb/14/venezuela-viol...
  - paulmd 10y ago
    This is nonsense. All things equal, they would certainly prefer a population that isn't starving to the point of revolution. That's a really fantastic way to end up with your head on a pike. Venezuela's leaders are certainly putting their personal fortunes and their ideology ahead of the good of the people, and their economy/currency has crashed as a result. But that's quite different from twirling their moustaches as they deliberately set out to starve an entire population as a primary/intended outcome.
tim333 10y ago
"Never assume malice when stupidity will suffice" The government, especially under Maduro, has done so much dumb stuff that I lean toward the stupidity explanation. The main reason there is no food / goods is they try to set the price hugely under market so no one can supply at that price. Plus a huge bunch of other similar issues.
- outworlder 10y ago
  During hyperinflation times, the Brazilian government tried to make illegal to increase prices. Obviously, people and companies could not afford, or refused to, sell at the fixed prices for long. So supermarkets went empty. Several governments in a row tried the same idea to contain inflation, unsuccessfully. So it is not surprising that, decades later, another government is making the sames mistakes.
  - ktRolster 10y ago
    The United States tried the same thing in the 70s after the Nixon Shock. Same result: shortages.
- cossatot 10y ago
  Malice and stupidity are not mutually exclusive.
rdiddly 10y ago
When a nation defaults it becomes the IMF/World Bank's bitch. "Austerity" is imposed, well-connected foreign interests get to run roughshod, and that nation is systematically (oh I mean coincidentally) looted. If you ever needed proof that these loans were designed to accomplish precisely that (a way for lenders to extract wealth from those nations), look no further than the fact that here you have an article that seems to be COMPLAINING about how Venezuela is NOT defaulting.
- oldmanjay 10y ago
  What could we evil rich white people loot from Venezuela at this point?
  - apo 10y ago
    https://en.m.wikipedia.org/wiki/Oil_reserves_in_Venezuela https://en.m.wikipedia.org/wiki/Oil_reserves_in_Venezuela
    - protomyth 10y ago
      We have better oil in the US that is much cheaper to extract. Their oil is pretty low quality.
- rmsaksida 10y ago
  Well, if you put it that way, the chavista governments have been doing a tremendous job at looting the country. If defaulting means having the country looted by the IMF and friends, I'm pretty sure the citizens would rather default; I can't recall the last time the IMF ran a country down to food and medicine shortages, so they're not nearly as good at this looting thing as Maduro and his lackeys have proven to be.
  - dragonwriter 10y ago
    > I can't recall the last time the IMF ran a country down to food and medicine shortages Among the cases where it has been argued that IMF-driven austerity measures did that are Romania in the mid 1980s, Malawi in the early 2000s, and, most recently, Egypt earlier this decade. There are probably others.
countrybama24 10y ago
I'm surprised the article did not mention the theory that they have not defaulted because of the numerous state-owned assets they possess abroad which could be seized by creditors. "Caracas fears a default could open up claims to PdVSA assets, such as rigs, refineries and oil shipments. One target by creditors could be the company’s Houston-based subsidiary, Citgo Petroleum Corp., which has three U.S. refineries that receive hundreds of thousands of barrels of Venezuelan oil a day." http://www.wsj.com/articles/in-decaying-venezuela-debts-get-repaid-1456358943 http://www.wsj.com/articles/in-decaying-venezuela-debts-get-...
- fovc 10y ago
  How much are those assets worth? Wouldn't the bonds be worth more if these assets were that substantial?
  - al_chemist 10y ago
    Assets are worth more to Venezuela than anyone else is willing to pay. In case of defaulting, creditors can takeover those assets cheaper than they could buy them otherwise.
  - slv77 10y ago
    Citgo was stripped of value last year by issuing bonds to pay a large dividend back to Venezuela. It is now so encumbered with debt that any remaining equity value is nominal. Part of the reason was due to various lawsuits related to assets of US companies that had been nationalized and also to repatriate funds to support government initiatives.
luojiebin 10y ago
it's insteresting
luojiebin 10y ago
odd
cjensen 10y ago
Venezuela has a lot of overseas holdings [1] which, thanks to nationalization, are wholly-owned by the Venezuelan government. Those will be liquidated by creditors. I've seen arguments that say otherwise, but there is precedent for liquidating the holdings of a government which fails to pay.[2] [1] https://en.wikipedia.org/wiki/Citgo https://en.wikipedia.org/wiki/Citgo [2] http://www.npr.org/sections/money/2012/10/22/163384810/why-a-hedge-fund-seized-an-argentine-navy-ship-in-ghana http://www.npr.org/sections/money/2012/10/22/163384810/why-a...
ddebernardy 10y ago
To Venezuela's credit, things didn't go so well when they tried to default wearly last century. https://en.m.wikipedia.org/wiki/Venezuela_Crisis_of_1902–1903 https://en.m.wikipedia.org/wiki/Venezuela_Crisis_of_1902–190...
pvaldes 10y ago
For some reason Venezuela is not a problem anymore in Spain after the last elections. Conservative politicians talking louder each five minutes or so about "all is chaos and flames, crying children and vulcano lava in Venezuela", happily forget venezuelan people suffering in just one night. The theme basically vanished from both newspapers and TV since 26 june. Perhaps things in Venezuela aren't exactly how some newspapers tell?... Who knows? All I remember for the country is that people were super-nice and the nature was gorgeous.
- bubuga 10y ago
  My guess is that Venezuela was a theme during the elections because Maduro's regime has been caught bankrolling Podemos, the anti-establishment socialist party that managed to become the second most-voted party in the last two elections.
  - pvaldes 10y ago
    This statement was succesively dismissed as fake in five occasions by several judges that couldn't find any proof of this. If we trust in what some spanish newspapers said, Podemos was bankrolled by Venezuela, Iran, Venezuela, Bin Laden, Venezuela, North Korea, Fidel Castro, Russia, Venezuela, Spectre and Ronald McDonald.
known 10y ago
Venezuela could try http://qz.com/260980/meet-the-countries-that-dont-use-their-own-currency/ http://qz.com/260980/meet-the-countries-that-dont-use-their-...

194 points by wallflower 10y ago

If Venezuela defaulted on foreign debts, it will be very difficult (and/or expensive) to borrow again in the future. Venezuela is essentially hedging their situation is temporary (however temporary, temporary is), and having a good economic standing in the future may depend heavily on foreign investments (particularly since Venezuela is a petroleum based economy). Burning those bridges now could cripple Venezuela permanently. The same question could be posed of any nation with impoverished citizens and foreign debts. We could even examine the USA, which has never defaulted, even during the height of the Great Depression. Choosing to default on those debts and instead send temporary (and likely insignificant, once the bureaucracy runs it's course) aid to some citizens jeopardizes the entire nation. Simply put, the trade-off is not worth it.

brianlweiner 10y ago
But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges? I'm more likely to believe that influential Venezuelans are exposed to the current bond market and are seeking to delay the reckoning.
- Alupis 10y ago
  > But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges? They seized/nationalized Exxon's assets, which certainly burnt that bridge (Exxon promptly filed for arbitration). But Exxon is only one foreign company. Perhaps Venezuela sees a future of no foreign petroleum companies, but rather use foreign investments/loans to build their own internal petroleum operations. This seems likely after nationalizing the existing plants.
  - saryant 10y ago
    After nationalization Venezuela told all PDVSA workers that they either had to be loyal to Chavez or quit. Many of the best left, knowing they could take positions with the supermajors or service contractors in other countries. PDVSA was left with a hodgepodge of lackeys and hacks who don't know what they're doing. That problem is compounded by the fact that Venezuelan crude is a pain in the ass to deal with. Some of the nastiest on earth. Extremely heavy and sour (which is also why Venezuelan crude trades at a discount to the benchmarks).
    - Alupis 10y ago
      I believe you are making my point. Venezuela's future will depend on and require foreign investments and expertise. Burning that bridge (or not burning it) is a calculated risk.
      - woodandsteel 10y ago
        >Venezuela's future will depend on and require foreign investments and expertise. Well yes, but you seem to be assuming Maduro is rational on economic matters. But if that was so, the Venezuelan economy would not be in such a terrible mess.
      - ptaipale 10y ago
        Alas, it looks like the Chavez and Maduro governments are not really capable of calculating risks, or even understanding rational processes. They are completely ideological short-term opportunists.
  - hiou 10y ago
    Exactly. And this is why defaulting is so dangerous. To lose access to that foreign investment in the future would be disastrous for that plan.
  - abpavel 10y ago
    > Exxon is only one foreign company It's starting to sound like you're one of the bond holders or securities tied to the bonds. Exxon is consistently in the top 10 on F500, and was an absolutely critical part of bloodline. Nationalization of Exxon was the an act of desperation, the last gasp, not "just one company". Having visited Venezuela, it is obvious there are huge problems with the state of affairs that no foreign investments are going to solve. (Edit:identation)
- knowaveragejoe 10y ago
  Do you have any more information on this? I'm pretty out of the loop on the Venezuela situation and would like to know more, but don't even know where to begin.
  - g_delgado14 10y ago
    Within the article theres a QuickTake explainer [0] on Vzlas economy [0] - http://www.bloomberg.com/quicktake/venezuela-price-revolution http://www.bloomberg.com/quicktake/venezuela-price-revolutio...
  - rmsaksida 10y ago
    This article is very informative: https://www.washingtonpost.com/opinions/global-opinions/hugo-chavezs-long-con/2016/07/01/26e8b690-3f8c-11e6-80bc-d06711fd2125_story.html https://www.washingtonpost.com/opinions/global-opinions/hugo...
dublinben 10y ago
Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year. There is no such thing as "permanent" in the international debt markets. Someone will eventually be willing to lend you money, at the right price.
- Alupis 10y ago
  > Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year 15 years later (and arguably not in a much better condition than before). We shouldn't pretend a nation-state default has few/zero negative ramifications. > Someone will eventually be willing to lend you money, at the right price. You are right... but money gets a lot more expensive. It could very well be more expensive than riding out the temporary slump (which is largely tied to the petroleum markets from my understanding).
  - dublinben 10y ago
    The government of Argentina voluntarily took the position that they would not settle with the outstanding debt holders. They could have settled 15 years ago and regained access to international debt markets right away.
    - Alupis 10y ago
      Doing so would not have made the situation much better. To an outside investor, Argentina is a lot more risky now that they've proven they're willing to default when things get rough. That kind of risk isn't impossible to overcome, but it's very expensive. For a struggling nation without a strong economy, foreign investments can be lifeblood.
      - roymurdock 10y ago
        Or a noose. Debt is a double-edged sword - it all depends on if it's structured in a reasonable fashion, and if it used in a productive manner that can pay down promised future payments.
redstripe 10y ago
Can you give some examples of where a country defaulted and was worse off? I think most recently Iceland defaulted and they seem to be doing alright - but maybe given it's size it doesn't really count.
- venomsnake 10y ago
  Iceland didn't default. They let their commercial banks die without intervention from the government. Also known as what the US Treasury should have done in 2008. If something is too big to fail - it must be killed immediately.
  - krapp 10y ago
    No offense to Iceland, but the world economy is far less affected by the loss of Icleandic financial institutions than American ones.
    - AnimalMuppet 10y ago
      But you're moving the goalposts on this discussion. The question wasn't the impact on the global economy; it was the impact on the national one. So the Iceland example is directly relevant.
      - krapp 10y ago
        Part of this discussion seems to be whether or not the Treasury should have done what Iceland did, and I'm just trying to point out that they had valid reasons to do anything but that.
        AnimalMuppet 10y ago
        Clarification: Do you mean the US Treasury? If so, yes, I agree with you. And yes, that has been part of the discussion.
        10y ago
Analemma_ 10y ago
> Burning those bridges now could cripple Venezuela permanently. There's not a lot of evidence for this. It's not like no country has ever defaulted before, it happens all the time, and they were able to borrow again once they got themselves functional. Defaulting is bad but certainly not a death sentence. It's especially weird when, as the article points out, bondholders are practically expecting default - and charging interest to match! At a time when it has very little cash, Venezuela is paying extra to avoid a situation that bondholders have already resigned themselves to. > Simply put, the trade-off is not worth it. That's not a sure thing. It could be worth it, depending on how they use the newfound money. It doesn't just have to be buying food, as important as that is. What if they use it to get some functional power plants? The massive brownouts right now are hobbling the economy; there would be much better growth prospects if people had reliable power.
- Alupis 10y ago
  > What if they use it to get some functional power plants? The massive brownouts right now are hobbling the economy; there would be much better growth prospects if people had reliable power. Very good point. However, it's likely in order to build and maintain such infrastructure, Venezuela would need foreign investment and expertise... If they burn all the bridges, this may not be possible to accomplish. Perhaps they could find someone willing to take on the risk, but it may cost them even more than just continuing to pay the debts and ride-out the petroleum slump.
  - JumpCrisscross 10y ago
    > If they burn all the bridges, this may not be possible to accomplish The bridges were burnt more thoroughly by Chavez's expropriation as well as his and Maduro's price-control and rationing policies. I would put a dollar in Greece or Puerto Rico before Venezuela, despite the formers having defaulted and the latter not.
hiou 10y ago
Not sure what part of this is warrants down voting? There are valid points even if they might be a a little off the mark Venezuela is very dependent on financing for its oil exploration and infrastructure. The reality is that they simply need to hold the fort until oil rebounds in a year or two. Otherwise a huge portion of their future oil extraction will go to financing as opposed to Venezuela. It is certainly a risk but to say the opposite is not a huge risk with serious consequences is pretty naive.
wahern 10y ago
You're basically saying that Venezuelan officials understand good market and monetary policy. And yet their domestic price controls, which are the _direct_ cause of the country's current dire straits (and not the price of oil) suggests that they don't understand or accept the most basic of economic rules which even market skeptics (like Malaysia's Mahathir Mohamad, credited rightly or wrongly for Malaysia avoiding the worst of the 1997 Asian financial crisis) grudgingly accept. So it's really quite a puzzle. I tend to think all the explanations play a part: 1) maintaining kickbacks and cash flow to powerful players, 2) keeping face wrt Chavism, and 3) ensuring that the national oil company remains (at least in their eyes) a global player.

stevedekorte 10y ago

Do those making the decision to pay these bonds happen to hold any of these bonds themselves?

nellyspageli 10y ago
Did you read the article?
conistonwater 10y ago
It's right there: > The next argument is something of a conspiracy theory born in part out of the opaque nature of the country’s finances. It posits that close associates of the administration are major holders of the country’s bonds and that the government fears it’d lose their much-needed support if the payments stopped coming in. Efforts to obtain comment from government press officials on this and other aspects of the story were unsuccessful.
- bpodgursky 10y ago
  It's really a pretty good deal for them -- buy the debt for 50 cents on the dollar, and then make the decision to not default, guaranteeing a payout.

roymurdock 10y ago

The second "conspiracy theory" explanation presented in the article seems the simplest and most plausible: Close associates of the administration are major holders of the country’s bonds and...the government fears it’d lose their much-needed support if the payments stopped coming in. Efforts to obtain comment from government press officials on this and other aspects of the story were unsuccessful. Either that, or debt-holding institutions are willing to kick back a fraction of coupon payments to high ranking officials as an incentive to keep the payments flowing for as long as possible before a civil war or coup forces a restructuring. Either way, servicing the debt is keeping government officials paid to the detriment of their starving countrymen.

Shivetya 10y ago
I tend to like the pride argument more. To default is to lose face in the international world and at home. Better to sacrifice to uphold one's promises. A false pretense when there is little respect outside of those receiving payments beyond their borders. Perhaps they think they would be admitting defeat and that would cause the coup to occur overnight?
- hourislate 10y ago
  Interesting that you would think Maduro and his Government have any honor. How could they possibly have any face left in the International world? Communist/Socialist Governments typically use such financial vehicles among many others to systematically remove and transfer some/most of their countries wealth into their own/friends coffers through various arrangements with financial institutions et al all the time. Just another day and another dollar. Pride/Honor have nothing to do with any decisions when it comes to stealing billions. The human cost isn't even part of the equation.
  - JBReefer 10y ago
    Cultural/Male honor is huge in LatAm
    - 10y ago

danharaj 10y ago

The article is fixated on the economic benefits of default, as if economic decisions were only ever decided by economics! Maduro's government is authoritarian and violently imposed. What internal political factors does this dictatorship think preclude the possibility of default? Would default be signaling weakness to competing forces within the country? Is humiliation on the international stage a threat to the ruling party's self image? Violent dictatorships are seldom rational. This article is also written with the tacit acceptance of neoliberal ideology: The only rational choice for an impoverished nation is to submit to foreign capital and governmental institutions and sell the country for the chance to become another dependent market that will bear the brunt of the next global credit crisis and coercive trade deal.

AnimalMuppet 10y ago
> Violent dictatorships are seldom rational. Well, they're often rational within their own framework (either an ideological framework or merely the framework of violence and power). That looks irrational to the rest of the world, but it has its own logic. > This article is also written with the tacit acceptance of neoliberal ideology: The only rational choice for an impoverished nation is to submit to foreign capital and governmental institutions and sell the country for the chance to become another dependent market that will bear the brunt of the next global credit crisis and coercive trade deal. Will submitting be better or worse than the current situation in Venezuela? If anyone claims that it will be worse, I'd like to see their justification for that statement.
- danharaj 10y ago
  > Will submitting be better or worse than the current situation in Venezuela? If anyone claims that it will be worse, I'd like to see their justification for that statement. The current situation is shit. Paths forward should be judged against their alternatives and their possibilities. Global powers love that they can coerce the impoverished into decades-long deals of economic servitude and their ideology pushes it as the only reasonable way forward. Dictatorship and submission to global capitalism aren't the only options.

cperciva 10y ago

There's another possibility which wasn't mentioned in the article: Maybe the government is quite happy with the food shortages. They have used control of the food supply to reward their supporters and to punish their opponents; this gives them tremendous power, and why should they give up that power just for the sake of a few million starving citizens?

gohrt 10y ago
Who are the supporters who are getting food, and opponent who are not? The starving public aren't meaningfully pro or anti any faction in government, they are civilians trying to scratch by.
- homero 10y ago
  The political parties. Imagine if registered democrats got food and republicans did not and changing is not allowed https://youtu.be/5SeVv277d0I https://youtu.be/5SeVv277d0I
  - cmdrfred 10y ago
    I don't know why you are getting downvoted, that seems to be exactly the case according to that video.
rmsaksida 10y ago
This is a government that hired militia to shoot teenagers in student protests [1]. While I don't think the food shortages were intentional, there's no doubt they are an useful tool to control the population. [1] https://www.theguardian.com/world/2014/feb/14/venezuela-violent-clashes-chavistas-opposition https://www.theguardian.com/world/2014/feb/14/venezuela-viol...
- paulmd 10y ago
  This is nonsense. All things equal, they would certainly prefer a population that isn't starving to the point of revolution. That's a really fantastic way to end up with your head on a pike. Venezuela's leaders are certainly putting their personal fortunes and their ideology ahead of the good of the people, and their economy/currency has crashed as a result. But that's quite different from twirling their moustaches as they deliberately set out to starve an entire population as a primary/intended outcome.

tim333 10y ago

"Never assume malice when stupidity will suffice" The government, especially under Maduro, has done so much dumb stuff that I lean toward the stupidity explanation. The main reason there is no food / goods is they try to set the price hugely under market so no one can supply at that price. Plus a huge bunch of other similar issues.

outworlder 10y ago
During hyperinflation times, the Brazilian government tried to make illegal to increase prices. Obviously, people and companies could not afford, or refused to, sell at the fixed prices for long. So supermarkets went empty. Several governments in a row tried the same idea to contain inflation, unsuccessfully. So it is not surprising that, decades later, another government is making the sames mistakes.
- ktRolster 10y ago
  The United States tried the same thing in the 70s after the Nixon Shock. Same result: shortages.
cossatot 10y ago
Malice and stupidity are not mutually exclusive.

rdiddly 10y ago

When a nation defaults it becomes the IMF/World Bank's bitch. "Austerity" is imposed, well-connected foreign interests get to run roughshod, and that nation is systematically (oh I mean coincidentally) looted. If you ever needed proof that these loans were designed to accomplish precisely that (a way for lenders to extract wealth from those nations), look no further than the fact that here you have an article that seems to be COMPLAINING about how Venezuela is NOT defaulting.

oldmanjay 10y ago
What could we evil rich white people loot from Venezuela at this point?
- apo 10y ago
  https://en.m.wikipedia.org/wiki/Oil_reserves_in_Venezuela https://en.m.wikipedia.org/wiki/Oil_reserves_in_Venezuela
  - protomyth 10y ago
    We have better oil in the US that is much cheaper to extract. Their oil is pretty low quality.
rmsaksida 10y ago
Well, if you put it that way, the chavista governments have been doing a tremendous job at looting the country. If defaulting means having the country looted by the IMF and friends, I'm pretty sure the citizens would rather default; I can't recall the last time the IMF ran a country down to food and medicine shortages, so they're not nearly as good at this looting thing as Maduro and his lackeys have proven to be.
- dragonwriter 10y ago
  > I can't recall the last time the IMF ran a country down to food and medicine shortages Among the cases where it has been argued that IMF-driven austerity measures did that are Romania in the mid 1980s, Malawi in the early 2000s, and, most recently, Egypt earlier this decade. There are probably others.

countrybama24 10y ago

I'm surprised the article did not mention the theory that they have not defaulted because of the numerous state-owned assets they possess abroad which could be seized by creditors. "Caracas fears a default could open up claims to PdVSA assets, such as rigs, refineries and oil shipments. One target by creditors could be the company’s Houston-based subsidiary, Citgo Petroleum Corp., which has three U.S. refineries that receive hundreds of thousands of barrels of Venezuelan oil a day." http://www.wsj.com/articles/in-decaying-venezuela-debts-get-repaid-1456358943 http://www.wsj.com/articles/in-decaying-venezuela-debts-get-...

fovc 10y ago
How much are those assets worth? Wouldn't the bonds be worth more if these assets were that substantial?
- al_chemist 10y ago
  Assets are worth more to Venezuela than anyone else is willing to pay. In case of defaulting, creditors can takeover those assets cheaper than they could buy them otherwise.
- slv77 10y ago
  Citgo was stripped of value last year by issuing bonds to pay a large dividend back to Venezuela. It is now so encumbered with debt that any remaining equity value is nominal. Part of the reason was due to various lawsuits related to assets of US companies that had been nationalized and also to repatriate funds to support government initiatives.

luojiebin 10y ago

it's insteresting

luojiebin 10y ago

odd

cjensen 10y ago

Venezuela has a lot of overseas holdings [1] which, thanks to nationalization, are wholly-owned by the Venezuelan government. Those will be liquidated by creditors. I've seen arguments that say otherwise, but there is precedent for liquidating the holdings of a government which fails to pay.[2] [1] https://en.wikipedia.org/wiki/Citgo https://en.wikipedia.org/wiki/Citgo [2] http://www.npr.org/sections/money/2012/10/22/163384810/why-a-hedge-fund-seized-an-argentine-navy-ship-in-ghana http://www.npr.org/sections/money/2012/10/22/163384810/why-a...

ddebernardy 10y ago

To Venezuela's credit, things didn't go so well when they tried to default wearly last century. https://en.m.wikipedia.org/wiki/Venezuela_Crisis_of_1902–1903 https://en.m.wikipedia.org/wiki/Venezuela_Crisis_of_1902–190...

pvaldes 10y ago

For some reason Venezuela is not a problem anymore in Spain after the last elections. Conservative politicians talking louder each five minutes or so about "all is chaos and flames, crying children and vulcano lava in Venezuela", happily forget venezuelan people suffering in just one night. The theme basically vanished from both newspapers and TV since 26 june. Perhaps things in Venezuela aren't exactly how some newspapers tell?... Who knows? All I remember for the country is that people were super-nice and the nature was gorgeous.

bubuga 10y ago
My guess is that Venezuela was a theme during the elections because Maduro's regime has been caught bankrolling Podemos, the anti-establishment socialist party that managed to become the second most-voted party in the last two elections.
- pvaldes 10y ago
  This statement was succesively dismissed as fake in five occasions by several judges that couldn't find any proof of this. If we trust in what some spanish newspapers said, Podemos was bankrolled by Venezuela, Iran, Venezuela, Bin Laden, Venezuela, North Korea, Fidel Castro, Russia, Venezuela, Spectre and Ronald McDonald.

known 10y ago

Venezuela could try http://qz.com/260980/meet-the-countries-that-dont-use-their-own-currency/ http://qz.com/260980/meet-the-countries-that-dont-use-their-...