Forbes.com, May 30, 2017 @ 11:07 AM 20,649 The Little Black Book of Billionaire Secrets
Congratulations To Venezuela - Goldman Sachs Bails Out The Country By Buying Bonds
Quite the fun economic story today as Venezuela gains the cash to stay away from national bankruptcy a little longer with help from the arch-capitalists at Goldman Sachs. No doubt this is what both Nicolas Maduro and Hugo Chavez have meant all these years by Bolivarian socialism freeing the people from Yanqui Imperialism. What happened is that the Venezuelan Treasury owned some bonds issued by PDVSA, the national oil company. They sold those bonds to Goldman Sachs at a serious discount to face value. It does in fact make a certain sort of sense as the Venezuelan government is currently scrambling around for cash, just any cash and cash right now.
Some aren't happy about it though:
The president of Venezuela's opposition-run Congress on Monday accused Wall Street investment bank Goldman Sachs of "aiding and abetting the country's dictatorial regime" following a report that it had bought $2.8 billion in bonds from the cash-strapped country.
They did not, of course, pay anything like face value:
Goldman Sachs, long seen as emblematic of the global capitalism Mr Maduro claims to despise, was reported to have negotiated to buy the bonds at a heavy discount, paying 32 cents for each dollar of debt. The bonds are due to be repaid in full in 2022. The deal would provide Venezuela with an immediate windfall of around $865 million. Neither the Venezuelan central bank nor Goldman Sachs has commented on the purchase.
No one's really willing to finance Venezuela directly. But the oil company itself does have first call on the oil, and that means those bonds are almost certainly a better bet than the sovereign debt. As to why Venezuela sold at that price it just needs cash and needs cash right now. It's a fire sale price.
But it's one that could well work out well for Goldman Sachs.
In the New York Times today we've a call for international intervention in Venezuela. I don't expect that to get far to be honest:
The world isn’t even close to being ready to respond at the scale required, even if access was available. This must be remedied — and fast. First, the United Nations Secretary-General, António Guterres, should appoint a humanitarian coordinator to oversee preparations for assisting the people of Venezuela and begin mobilizing financial and other support from donors. Second, the United Nations should publicly insist on being given access to Venezuela to conduct a comprehensive assessment of its needs. And finally, the international community must demand that Mr. Maduro not only allow assistance to enter Venezuela, but that it be distributed exclusively by reputable international organizations on the basis of need.
No, I really don't think that's going to happen. And then there's Ricardo Hausman, who used to be the a minister in Venezuela:
Now assume that you want to hold Venezuelan debt because you are hoping that President Nicolás Maduro will lose power and that a more sensible, democratically minded government, more in line with your moral compass, will emerge. Even in that case, you will still want the gains from Venezuela’s future recovery to be used preferentially to service the old debt issued to finance the corruption and national destruction brought about by Maduro and his predecessor, Hugo Chávez. You will not be rooting for the recovery of livelihoods that Venezuelans deserve after having lived through this nightmare.
What he's saying is that you shouldn't be investing in Venezuelan bonds at all. Because whatever payment you get from them is going to be money diverted from trying to rebuild Venezuela once Maduro is thankfully gone. But I think he's wrong in that. For my own reading is that Venezuela's economic condition is serious but not difficult.
Sure, the economy is a disaster, inflation is predicted to be 2,500 percent this year, 70% of the population can't get three meals a day and there's pretty much no medicine of any kind in any of the hospitals. Mothers and babies are dying as a result. But just because the situation is bad doesn't mean that it's complicated. Venezuela still has oil, there's s till a market for that. The county's debts aren't in fact all that high as Maduro and his crew simply haven't wanted to borrow money. What's killing the place is the most appalling economic mismanagement.
There's a point that we all have to recall about economies. Growing one for the first time is difficult. Growing that same economy for the second time after a disaster is much easier. Germany was bombed flat in 1945. By 1951, certainly 1952, it was back to pre-war levels of income. Take the idiot economic policies out of the Venezuelan economy and we'll see 8 and 10% growth for a number of years. Because they do still have that oil.
And that's what the Goldman Sachs bet on that debt is. That, when Maduro falls--no one believes he won't, it's when not if--that debt will be worth more than it is now. Remove the cause of the economic disaster, Bolivarian socialism, and the disaster goes away.