There's almost nothing good to be said for sovereign default. Nothing is quite the disaster for an entire nation's foreign investment, for credit access both public and private (the little guys get socked up the wazoo), or for the value of a nation's money and savings than a nation that refuses to pay its bills. Just ask the boobs who ran Argentina a few years back. And then there's...Venezuela.
Venezuela is a socialist hellhole, but it seems to defy Lady Thatcher's iron dictum of socialist regimes: that eventually you run out of other people's money. It's easy to see why: Chavistas have learned to manipulate the international debt markets, quite unlike other communist dictatorships that came before them. They're well aware of Lady Thatcher's summary and apparently have learned from history. So instead of scrapping the failure that is socialism and creating value, which would require capitalism, they borrow cash from capitalists abroad. Russia and China have bought a lot of their issued debt. Chavista elites have bought a lot of it, too. Hedge fund speculators have dipped right in, and so have U.S. investment banks.
Goldman Sachs in particular has been taking heat for buying $2.8 billion in Venezuelan debt. The Venezuelan debt purchases pay Goldman 30 cents on the dollar, which isn't a good deal for the country, money-wise, but it's discounted because no one thinks Venezuela can really go on as it does. For Chavistas, this isn't a problem, since paying the bonds back is someone else's problem down the road. They intend to enjoy the cash now. But the bond issuance and its willing buyers in the markets do prop up the Chavista regime and undercut Venezuela's democratic opposition – even as the country starves for lack of food and medicine. The cash will likely go to Russia and China to pay for their loans to Venezuela. In short, Goldman's purchase wasn't any ordinary sovereign bond buy; it was a lifeline to the Chavista regime.
The Chavistas, being communists, don't particularly believe in paying their bills. They've defaulted on food bills, on oil supplier bills, on medical bills, on airline bills to private companies. They're not very different from Castro, who never paid a bill in his life – and that's who their teacher is. But they also know that should they default on their sovereign debt, they will lose access to any of the credit that keeps their other people's money regime running. That day should have come and gone long ago. But it didn't, because the likes of Goldman Sachs went and bought more of their bonds even as the country starves. This has prompted the Venezuelan opposition to soul-search in the morality of paying these bonds.
Not only have Venezuela's opposition questioned the rightness of paying for this Chavista spending spree, but they've since threatened to make it unpleasant for Goldman, warning the investment bank that should they take power, they may just walk out on paying those bonds.
The ball got rolling on this concept back in 2014 with an article titled "Should Venezuela Default?" by first-rate Harvard economist Ricardo Hausmann. The Chavistas screamed "financial outlaw" and "hitman" and threatened lawsuits against Hausmann, who is also Venezuelan, solely for raising the question of the morality of not defaulting.So, should Venezuela default on its foreign bonds? If the authorities adopted common-sense policies and sought support from the International Monetary Fund and other multilateral lenders, as most troubled countries tend to do, they would rightly be told to default on the country's debts. That way, the burden of adjustment would be shared with other creditors, as has occurred in Greece, and the economy would gain time to recover, particularly as investments in the world's largest oil reserves began to bear fruit. Bondholders would be wise to exchange their current bonds for longer-dated instruments that would benefit from the upturn.Others have since voiced similar sentiment.
None of this will happen under Maduro's government, which lacks the capacity, political capital, and will to move in this direction. But the fact that his administration has chosen to default on 30 million Venezuelans, rather than on Wall Street, is not a sign of its moral rectitude. It is a signal of its moral bankruptcy.
Hausmann has done more soul-searching on the morality of paying these bonds in a piece he wrote a few days ago, titled "The Hunger Bonds," noting the creepy dynamic of what they finance:You might invest in the EMBI+ because it promises higher returns, or because you want to make your savings available to a larger segment of humanity. But if you do, you will root for Venezuelan debt, which means wishing for really bad things to happen to Venezuela's people.At a minimum, he wants Venezuela yanked from the JP Morgan Emerging Market Bond Index (EMBI+) to keep Venezuela's rose-sucker dynamic from draining resources from honest emerging markets bonds and to keep Venezuela the pariah state it is.
As has been widely reported in the media, Venezuela is experiencing one of the most calamitous economic collapses ever, accompanied by massive doses of political repression and human-rights violations. So investing in the EMBI+ means that you rejoice when Wall Street analysts inform you that the country is literally starving its people in order to avoid restructuring your bonds.
Your happiness is easily explained: Venezuelan imports, after having collapsed by 75% from 2012 to 2016, are down more than 20% in the first quarter of 2017. That's good news for you as an EMBI+ investor, because it means that more money is left to service your bonds. Meanwhile, Venezuelans are involuntarily losing weight and searching for food in garbage piles. Sure, it's a humanitarian catastrophe. But, to you, it's a fabulous investment opportunity.
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.
You will also be rooting for US judges to seize assets and impound money to pay you. In fact, analysts who are bullish on Venezuelan debt have been lobbying the government and opposition leaders with an implied threat: even considering a restructuring of your bonds, they point out, will allow those managing your assets to cause havoc in Venezuela.
If you are a decent human being, investing in Venezuelan bonds should make you feel "mildly nauseous," to borrow a phrase recently used by former FBI Director James Comey while testifying to the US Congress. Emerging-market fund managers feel a similar discomfort. They currently spend a disproportionate share of their time "getting the Venezuelan call right," because their bonuses are based on their over-performance relative to the index – of which Venezuela is the main driver.
Venezuela's opposition are right also in injecting an element of uncertainty into bonds for investors, warning that they may not service the debt. If they were operating in a normal even if shambling democracy, it might be questionable, but they are not. They and Venezuela's starving people have been operating in a dictatorship in democracy's clothing for years. They have had so much taken away from them. Only a club to Venezuela's overseas investors might make a difference. It's time for the West to stop bankrolling this vile Chavista regime.
Tuesday, May 30, 2017
Wednesday, May 10, 2017
Having lost the support of many civilian judges across the country, the government of Venezuelan dictator Nicolás Maduro is reportedly sending civilian protesters before military tribunals to face charges of “terrorism” and “inciting rebellion,” or sedition.
Trying civilians on civilian criminal charges in military courts is a direct violation of the Venezuelan constitution, the federal criminal code, and “human rights treaties signed by the Republic,” the Venezuelan newspaper El Nacional notes.
The NGO Foro Penal (Criminal Justice Forum), along with the opposition party coalition Democratic Unity Roundtable (MUD), allege that at least 75 people have faced a military tribunal for participating in peaceful protests against the socialist government, and another forty were scheduled to appear when the news broke Monday. NGO attorney Alfredo Romero is representing these civilians in court.
Romero told the Colombian newspaper El Tiempo that many of these individuals are facing charges of looting, not political activity. “Supposedly, these people are detained for having participated in looting, but the charges in their records have nothing to do with that,” he explained. “To give you a specific example, one person from whom the police confiscated four pieces of ham is facing charges of contempt and sedition. Now they claim he was insulting the guards. Most are charged this way.”
Among those facing a military trial are also the individuals believed responsible for toppling a statue of late dictator Hugo Chávez in Zulia state last week. Eighteen people were arrested for participating in that incident, though some argue that they had no hand in toppling the statue and were arrested for taking photos of it. One of these, a man identified as José Martínez, is being processed in a military tribunal under charges of “terrorism.” Two of the accused are minors, according to Venezuela’s NTN24.
The Argentine newspaper La Nación reported on Tuesday that the number of civilians in military custody for participating in protests had risen to nearly 300 by press time. El Tiempo puts that statistic at 51 people over the weekend, citing a Venezuelan government official.
Venezuela’s minister of defense, Vladimir Padrino López, reportedly confirmed the use of military tribunals for civilians on Tuesday. “When there is an aggression against a guard or a member of the Bolivarian National Armed Forces (FANB), or property of the FANB, military charges and military jurisdiction perfectly applies,” NTN24 quotes Padrino as saying.
That argument appears to have convinced few international observers. The head of Foro Penal, Gonzalo Himiob, accused the Venezuelan socialist government of attempting to “construct a false narrative in which there exists in Venezuela an armed rebellion.” The opposition is not known to possess any weapons, given the ban on civilian possession of firearms in the country.
“Venezuela’s part military, part civilian regime represents the very worst of a dictatorship,” the head of the Organization of American States (OAS), Luis Almagro, said in response to the news. “Having military judges charge civilians is utterly out of proportion, legally speaking… a state of rights does not exist even in appearance.”
The use of military tribunals appears to be part of something Maduro has called the “Zamora Plan,” a military initiative of which few details exist publicly. The initiative appears to target the opposition and any dissenters within the military’s ranks but also includes mass detentions of civilians.
BBC World cites the Minister of Justice and the Interior, Néstor Reverol, stating last week that the plan was necessary to subdue “the terrorist right wing.”
“The terrorist right wing has instigated rebellion, which is a military crime, just has it has committed crimes against guards and destroyed the property of the FANB,” he said, echoing Defense Minister Padrino.
A new wave of daily protests erupted in Venezuela in March following an attempt by the Supreme Court to strip the National Assembly of its power, installing itself as the federal legislative body instead.
While that attempt failed, protests continued in response to the flagrant violation of the nation’s constitution. Among the tactics to subdue protests the government has adopted are the use of various weapons against protesters: tear gas, rubber bullets, and armored tanks in particular. Leaders of the opposition have argued that soldiers are increasingly disenchanted that they have been forced to turn their weapons against civilians and are deserting en masse.
Thursday, May 4, 2017
A Venezuelan national guard armored vehicle careened into a crowd of anti-government demonstrators in Caracas on a day of furious protests that left more than 300 people injured.
The newspaper El Nacional published videos Wednesday showing the vehicle backing up as a gasoline bomb burst on its windshield. Crowds raced toward the vehicle and then suddenly fled as it advanced, and masked soldiers battled protesters in a chaotic melee. Rocks, bottles, shots and tear gas filled the air. One person was confirmed dead in Caracas.
Injuries throughout the city included 134 traumas and 17 cases of people overcome by gas, Mayor Ramon Muchacho of the opposition-dominated Chacao municipality said in a post on his Twitter account. Those hurt included lawmakers Freddy Guevara and Julio Montoya. The opposition coalition, known as MUD, said in a statement that more than 300 people were injured in today’s clashes.
The South American nation has been riven by protests for weeks, and President Nicolas Maduro has called for a popular assembly to write a new constitution, a fresh attempt to consolidate control. Hundreds of thousands have taken to the streets to protest what they say is a plummet into autocracy. Protests over the past month have resulted in at least 30 deaths, and opposition politicians have vowed to continue street actions.
In a video that went viral on social media Wednesday, Maduro was shown dancing on state television. The camera pans out a window to show National Guard troops firing tear gas at protesters in eastern Caracas.
“Maduro is so disconnected and divorced from the country’s reality that he was having a good time dancing while he ordered Venezuelans murdered,” the opposition coalition said in a posting on its Twitter account announcing a march on Thursday at 10 a.m. by the country’s student movement.
Wednesday, May 3, 2017
CARACAS, Venezuela (AP) — Venezuela's embattled president issued a decree Monday for writing a new constitution, ratcheting up a political crisis that has drawn hundreds of thousands of anti-government protesters into the streets.
President Nicolas Maduro gave no details on how members would be chosen for a planned citizen assembly to produce a new charter, though he hinted some would selected by voters. Many observers expect the socialist administration to give itself the power to pick a majority of delegates to the convention.
Opposition leaders immediately objected, charging that writing a new constitution would give Maduro an excuse to put off regional elections scheduled for this year and a presidential election that was to be held in 2018. Polling has suggested the socialists would lose both those elections badly amid widespread anger over Venezuela's economic woes.
Speaking hours after another big march demanding his ouster ended in clashes between police and protesters, Maduro said a new constitution is needed to restore peace and stop the opposition from trying to carry out a coup.
"This will be a citizens assembly made up of workers," Maduro said. "The day has come brothers. Don't fail me now. Don't fail (Hugo) Chavez and don't fail your motherland."
If the constitutional process goes forward, opposition leaders will need to focus on getting at least some sympathetic figures included in the citizens assembly. That could distract them from the drumbeat of near daily street protests that they have managed to keep up for four weeks, political analyst Luis Vicente Leon said.
"It's a way of calling elections that uses up energy but does not carry risk, because it's not a universal, direct and secret vote," Leon said. "And it has the effect of pushing out the possibility of elections this year and probably next year as well."
The constitution was last rewritten in 1999, early in the 14-year presidency of the late Hugo Chavez, who began Venezuela's socialist transformation.
The leader of the opposition-controlled National Assembly, Julio Borges, called the idea of a constitutional assembly a "giant fraud" by Maduro and his allies designed to keep them in power at any cost. Borges said it would deny Venezuelans the right to express their views at the ballot box, and he urged the military to prevent the "coup" by Maduro.
"What the Venezuelan people want isn't to change the constitution but to change Maduro through voting," he said at a news conference in eastern Caracas, where anti-government protesters once again clashed with police Monday.
Anti-government protests have been roiling Venezuela for a month, and Borges said more pressure is needed to restore democracy. He called for a series of street actions, including a symbolic pot-banging protest Monday night and a major demonstration Wednesday.
Earlier Monday, anti-Maduro protesters tried to march on government buildings in downtown Caracas, but police blocked their path — just as authorities have done more than a dozen times in four weeks of near-daily protests. Officers launched tear gas and chased people away from main thoroughfares as the peaceful march turned into chaos.
Opposition lawmaker Jose Olivares was hit in the head with a tear gas canister and was led away with blood streaming down his face. Some demonstrators threw stones and gasoline bombs and dragged trash into the streets to make barricades.
A separate government-sponsored march celebrating May Day went off without incident in the city.
At least 29 people have died in the unrest of the past month and hundreds have been injured.
People of all ages and class backgrounds are participating in the protests. The unrest started in reaction to an attempt to nullify the opposition controlled-congress, but has become a vehicle for people to vent their fury at widespread shortages of food and other basic goods, violence on a par with a war zone, and triple-digit inflation. Maduro accuses his opponents of conspiring to overthrow him and undermine the country's struggling economy.
The move to rewrite the constitution underscored many protesters' chief complaint about the administration: That it has become an unfeeling dictatorship. Sergio Hernandez, a computer technology worker who attended Monday's protest, said he would not return to his normal life until Maduro's administration had been driven out.
"We're ready to take the streets for a month or however long is needed for this government to understand that it must go," he said.