Nobody Is Going to Bail Out Venezuela

Henkel Garcia U, Andres Bello Catholic University (UCAB)
Venezuela, the South American country convulsed by economic and humanitarian catastrophe, has defaulted on some of its debt after missing an interest payment due in October.
Even as investors meet in Caracas to discuss restructuring US$60 billion in foreign debt, the country is in urgent need of international financial assistance.
Yet few nations are rushing in to offer financial assistance to the ailing country. Under the authoritarian regime of Nicols Maduro, Venezuela is isolated in Latin America, and the United States, Canada, and the European Union have all imposed sanctions against Venezuelan officials. Maduro has at times suggested he would not even accept humanitarian aid.
Still, no indebted nation is totally alone in this world. As a financial analyst, I know there are always international players who see opportunity in the problems of others. And for Venezuela, my home country, all hope of a bailout rests with China, Russia, and the International Monetary Fund.
Will they do anything to help?

This post was published at FinancialSense on THE CONVERSATION /1/15/2017.

Could Bitcoin Help Venezuelans As Crisis Deepens?

Protests continue to rage in Venezuela as inflation soars to unprecedented levels and the price of oil remains low. The country’s national currency is now worth less than fictional gold in Azeroth, the setting of the popular massively multiplayer online role-playing game World of Warcraft, pushing Venezuelans to bitcoin to hedge against the nation’s struggling economy.
So, What Happened?
Under President Hugo Chavez, Venezuela underwent a revolution, bringing social programs such as education and health care to the people, propped up by increasing oil prices. During his presidency, however, Chavez was accused of bending the economy for personal gain, human rights violations, and intimidation of the media. Price controls placed on basic goods, including food, initially meant to redistribute wealth and reduce costs, led to hyperinflation and shortages. Crime and violence also increased drastically under Chavez, leaving the country as one of the most violent in the world. Venezuela’s misfortune increased, however. In 2013, Chavez passed away and his Vice President, Nicols Maduro, took power. Worries of corruption mounted while plummeting oil prices created an economic climate which was less than desirable. Maduro’s inherited economic burden, in addition to the leader’s failure to diversify the country’s economy led to widespread protests in 2014.

This post was published at Zero Hedge on Aug 13, 2017.

Goldman Sachs Accused of ‘Aiding and Abetting’ Venezuela’s ‘Dictatorial Regime’

A very risky deal with a huge yield.
It didn’t take long for sparks to fly after the Wall Street Journal reported on Sunday that, ‘according to five people familiar with the transaction,’ the asset management division of Goldman Sachs had bought Venezuelan bonds with a face value of $2.8 billion from the Central Bank of Venezuela that it had held as part of its international reserves.
The sale of the bonds – issued by state-owned oil company Petrleos de Venezuela S. A. (PDVSA) in 2014 and due in 2022 – was completed on Thursday, according to the sources. That day and on Friday, the central bank’s international reserves jumped by $749 million, to around $10.86 billion, Reuters reported today. According to Reuters’s sources, including one at Goldman – oh my, all these leaks – the negotiations took place via middlemen in Europe.
This cash, as the Wall Street Journal put it, is ‘a lifeline to President Nicols Maduro’s embattled government as it scrambles to raise funds in the midst of widening civil unrest.’ The Journal describers the economic and social situation the Maduro regime is presiding over this way:
Mr. Maduro’s increasing authoritarianism coupled with critical food and medicine shortages have spawned two months of almost-daily street demonstrations, costing at least 60 lives. The economy is also suffering, having shrunk 27% since 2013. Venezuela is saddled with what the International Monetary Fund estimates will be an inflation rate of 720% this year.

This post was published at Wolf Street on May 29, 2017.

Venezuela Rises Up

On April 4, 2017, Venezuelans decided they had had enough. Enough of the shortages. Enough of the interminable store lines. Enough of the hunger, and of the inflation, and of the crime and of the government’s crackdown on the opposition. Enough of everything.
In cities all across the country that day, they took to the streets to protest.
And haven’t left since.
For 44 days and nights, they have demonstrated against President Nicols Maduro almost without pause. At times they’ve been peaceful; at other times violent. Government forces and militia groups have responded with an iron fist. They’ve beaten scores of protesters, dragged some in front of military tribunals and killed others.
At last count, the death toll was 43.

This post was published at bloomberg

Price Controls Are Disastrous for Venezuela, and Everywhere Else

Images of citizens waiting in lines to get basic goods – toilet paper, flour, milk – throughout supermarkets in Venezuela abound across the internet. Such surreal imagery is the norm in present-day Venezuela. From the 1950s to the late 1990s, Venezuela was Latin America’s most economically and politically stable country. Fast-forward to the present, and Venezuela is not only undergoing an unprecedented economic collapse, but it is also on the verge of becoming a failed state.
Understanding Venezuela’s Shortage Crisis
How could a country that was once so prosperous fall to such lows? Basic economics dictates that goods do not just vanish out of thin air. To comprehend the phenomenon of shortages in Venezuela, a cursory analysis of the economic measures passed by Hugo Chvez’s regime and his successor, Nicols Maduro, is needed.
The main culprit in Venezuela’s economic tragedy is government intervention, specifically price controls implemented during the Chvez and Maduro administrations. These controls have been the underlying factors behind the rampant scarcity of basic goods in Venezuela.
Venezuela’s Current Price Control Experiment
Emboldened after an unsuccessful coup attempt against his government in 2002, Hugo Chvez initiated a series of interventionist measures with the aim of preventing capital flight. These measures included expropriation of key industries, exchange controls, and price controls.
Despite the harmful nature of these policies, the flow of petrodollars thanks to high oil prices could give Venezuelan businesses the luxury of importing basic goods and raw materials as a short-term, fallback measure. Even with high oil prices, shortages of price controlled goods began to slowly pop up in 2006 due to the exchange and price controls.

This post was published at Ludwig von Mises Institute on Aug 16, 2016.