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.
Venezuela is one of those classic south American countries politically. It either has a government that is extremely socialist or extremely oligarchic.
Venezuela has traditionally been governed by people tied closely to the media empires in the country. Extremely powerful and rich people that use the counter as their plaything. The poor suffer and the upper class prosper. The gap between rich and poor grows.
At some point the balance tips and you get a coup d'etat. They promise the poor that they will take care of them and fuck the rich. Slowly the country turns into a dictatorship.
The US doesn't like socialist governance in their back yard, so they look for ways to turn the screws on that country to flip it back to the rich capitalist trickle down economics ideology.
In the old days they would just send the CIA down there and have a few people assassinated, or provoke unrest and supply weapons to right wing paramilitaries.
Today it is easier to starve then out financially and since both Russia and Venezuela both truly rely on raw material resource exports, especially oil and gas, persuading OPEC to crush the price of oil has been damaging to both of the US's enemies.
In Venezuela's case, it still had huge oil reserves and cash, so the US is just playing the waiting game.
I find both typical political models in south American politics bad, but the US foreign policy doesn't help matters either way.
During the 1990s when Nigerian brady bonds (restructured 80s-era emerging markets loans) were trading at prices in the 30s on the dollar, this was routinely cited by the sales and trading operation of the dominant brady-trading investment bank that I worked for, as a reason why they weren't defaulting... because chunks of them were held by Nigerian authority figures.
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?
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?
Of course the food shortages affect everyone, but cperciva is right, the government is handing out bags with food in the poorest sectors of the population. When these people are faced with the food shortage, and then they receive a handout from the government, they are being controlled and manipulated.
The government has stated before that these handouts (called CLAPS) are not for the middle class (which has been opposing the government), only for the lower classes. Of course, they claim that the middle class can afford food and that they are defending the poor.
Guess what? The rapidly shrinking middle class is also suffering from the huge lines which start as early as 6pm the day before outside the supermarkets to buy a bit of food. Those of us that cannot go to the lines (because we need to work to actually afford food) need to buy in the black market (called "bachaqueros", almost always someone with govt connections) at 10x the regular prices.
We have the exact same situation with medicine. Patients are dying in hospitals because there's no medicine. Something as simple as Acetaminophen is incredibly hard to find.
I have a newborn daughter and she was supposed to get her 2 month vaccinations and I cannot find them anywhere.
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.
Because desperate people tend to do desperate things like hanging government officials from lamp posts. I agree governments like to capitalize on uncertainty, but Venezuela is way, way past the point where it works in the government's favor. If this goes on for much longer they're going to have a bona fide revolution.
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."
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.
> 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.
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.
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.
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.
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.
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]
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.
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.
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.
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.
> to submit to foreign capital and governmental institutions
Wat.
Venezuela ALREADY taps the bond market for money. That's why they're sending billions of hard currency to bondholders. They're already submitting. That's the point.
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.
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.
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.
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.
> 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.
[+] [-] roymurdock|9 years ago|reply
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.
[+] [-] junto|9 years ago|reply
Venezuela has traditionally been governed by people tied closely to the media empires in the country. Extremely powerful and rich people that use the counter as their plaything. The poor suffer and the upper class prosper. The gap between rich and poor grows.
At some point the balance tips and you get a coup d'etat. They promise the poor that they will take care of them and fuck the rich. Slowly the country turns into a dictatorship.
The US doesn't like socialist governance in their back yard, so they look for ways to turn the screws on that country to flip it back to the rich capitalist trickle down economics ideology.
In the old days they would just send the CIA down there and have a few people assassinated, or provoke unrest and supply weapons to right wing paramilitaries.
Today it is easier to starve then out financially and since both Russia and Venezuela both truly rely on raw material resource exports, especially oil and gas, persuading OPEC to crush the price of oil has been damaging to both of the US's enemies.
In Venezuela's case, it still had huge oil reserves and cash, so the US is just playing the waiting game.
I find both typical political models in south American politics bad, but the US foreign policy doesn't help matters either way.
[+] [-] ktRolster|9 years ago|reply
[+] [-] vegabook|9 years ago|reply
[+] [-] ArkyBeagle|9 years ago|reply
The first part makes more sense - and it's not a conspiracy theory - they want to keep access to bond markets.
[+] [-] Shivetya|9 years ago|reply
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?
[+] [-] cperciva|9 years ago|reply
[+] [-] rafaelm|9 years ago|reply
The government has stated before that these handouts (called CLAPS) are not for the middle class (which has been opposing the government), only for the lower classes. Of course, they claim that the middle class can afford food and that they are defending the poor.
Guess what? The rapidly shrinking middle class is also suffering from the huge lines which start as early as 6pm the day before outside the supermarkets to buy a bit of food. Those of us that cannot go to the lines (because we need to work to actually afford food) need to buy in the black market (called "bachaqueros", almost always someone with govt connections) at 10x the regular prices.
We have the exact same situation with medicine. Patients are dying in hospitals because there's no medicine. Something as simple as Acetaminophen is incredibly hard to find.
I have a newborn daughter and she was supposed to get her 2 month vaccinations and I cannot find them anywhere.
The situation here is just incredibly difficult.
[+] [-] rmsaksida|9 years ago|reply
[1] https://www.theguardian.com/world/2014/feb/14/venezuela-viol...
[+] [-] gohrt|9 years ago|reply
The starving public aren't meaningfully pro or anti any faction in government, they are civilians trying to scratch by.
[+] [-] gozur88|9 years ago|reply
[+] [-] countrybama24|9 years ago|reply
"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-...
[+] [-] fovc|9 years ago|reply
[+] [-] Alupis|9 years ago|reply
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.
[+] [-] Analemma_|9 years ago|reply
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.
[+] [-] dublinben|9 years ago|reply
[+] [-] brianlweiner|9 years ago|reply
I'm more likely to believe that influential Venezuelans are exposed to the current bond market and are seeking to delay the reckoning.
[+] [-] hiou|9 years ago|reply
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|9 years ago|reply
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.
[+] [-] redstripe|9 years ago|reply
[+] [-] cjensen|9 years ago|reply
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
[2] http://www.npr.org/sections/money/2012/10/22/163384810/why-a...
[+] [-] tim333|9 years ago|reply
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|9 years ago|reply
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.
[+] [-] cossatot|9 years ago|reply
[+] [-] ddebernardy|9 years ago|reply
https://en.m.wikipedia.org/wiki/Venezuela_Crisis_of_1902–190...
[+] [-] danharaj|9 years ago|reply
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|9 years ago|reply
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.
[+] [-] PantaloonFlames|9 years ago|reply
Wat.
Venezuela ALREADY taps the bond market for money. That's why they're sending billions of hard currency to bondholders. They're already submitting. That's the point.
[+] [-] pvaldes|9 years ago|reply
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|9 years ago|reply
[+] [-] rdiddly|9 years ago|reply
[+] [-] rmsaksida|9 years ago|reply
[+] [-] oldmanjay|9 years ago|reply
[+] [-] known|9 years ago|reply
[+] [-] stevedekorte|9 years ago|reply
[+] [-] conistonwater|9 years ago|reply
> 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.
[+] [-] nellyspageli|9 years ago|reply
[+] [-] luojiebin|9 years ago|reply
[+] [-] luojiebin|9 years ago|reply