Publicado en The Washington Post
Venezuela is living through a second week of rowdy anti-government street protests, with demonstrators fighting running battles with riot police employed by a government that has virtually run out of money. Nothing is as revealing as how you spend when money’s really tight. That’s when you reveal your down-at-the-core commitments, the things you really believe in.
For Venezuela’s Socialist Revolutionary government, that turns out to be Wall Street.
On Wednesday, even as protesters in Caracas dodged tear gas canisters and water cannons, Venezuela’s state-owned oil giant, PDVSA, will be dishing out $2 billion to pay international bondholders. This, it turns out, is sacrosanct. In 18 years of revolution, Venezuela has never missed a bond payment.
It’s hard to overstate the hardships Venezuelans have had to endure so the payment could be made. It meant draconian cuts to everything else: government services, public investment, even food and medicine imports. These are the kinds of cuts that make themselves felt not just in an economist’s equations, but in people bellies: Last year, three out of four Venezuelans reported losing weight because they couldn’t find enough food to eat.
It’s the central paradox of the Bolivarian Socialism. By this point, the revolution has now stiffed everyone it could have possibly stiffed: the United Nations, small-scale miners, airlines, the all-important oil service contractors that keep its oil industry running, its own diplomats, even newborn babies. Everyone, pretty much, except Wall Street.
This is bizarre: Absolutely everyone can see that on its current policy path, Venezuela will not be able to keep servicing its debt much longer. Barring fundamental changes in economic policy or an unexpected surge in oil prices, all Venezuela can do is keep putting the inevitable off a little longer, borrowing against collateral and squeezing its population harder and harder to keep bondholders happy.
That can only last as long as it has assets it can pawn off — which is clearly not much longer. The low-hanging fruit was picked clean long ago, leaving Venezuela to make more and more distressed deals to borrow less and less money on worse and worse terms. The unseemly last minute scramble for cash only adds to an already unmanageable pile of debt, and purely to pay off existing debt. It’s like turning to a loan shark to make your credit card payments.
The strange thing is that it’s not even all that clear why the government fears default so much. For one thing, since it’s so visibly strapped for cash, and so far behind on so many of its non-Wall Street obligations, foreign partners have been treating Venezuela as though it’s already in default for quite some time. After all, Venezuela is already shut out of regular credit markets: That’s why it has to keep making those exotic, last-minute deals.
Normal countries can buy imports against an invoice to be paid in 30 or 45 days. But burned again and again on their accounts receivables, Venezuela’s partners insist on up-front payment to sell it even the most routine supplies. That’s exactly the kind of treatment you’d expect after default — meaning Venezuela ends up with the worst of both worlds: It keeps nickel-and-dime-ing its own people to save money to make payments, but it doesn’t get even the courtesy of a 30-day grace period when it buys food.
It’s a hideous Catch-22. So hideous, it’s achieved the impossible: touching the moral conscience even of some Wall Street bond investors. BlueBay Asset Management has cut its exposure to Venezuelan bonds, even though they were returning an astronomic 50 percent per year, after realizing the import crunch the government has to impose to pay them back is leaving millions hungry. Diego Ferro, the investment co-chief for Greylock Capital, a major Venezuela bond investor, has dubbed its strategy “Suicidal Willingness to Pay”.
So why does the government insist on paying Wall Street, no matter what? It’s an open-ended mystery.
There’s no shortage of cynics out there convinced that many Venezuelan bonds have been gobbled up, for cents on the dollar, by the regime’s own leaders. That would make sense. Venezuela bonds are cheap, because nobody believes they’ll really be repaid. Many believe regime officials use the proceeds of Venezuela’s rampant corruption to snap up their own bonds for pennies on the dollar, only to make sure it gets paid back at full value a few years later. In this telling, the rest of Wall Street getting paid is a side-effect of a ploy to essentially loot the country.
Who owns a given bond is not a matter of public record, so it’s impossible to tell how much Venezuelan debt is held by the regime’s own hierarchs —or, more likely, by their front men. What we know for sure is that this kind of shenanigan can be hugely profitable, as long as you can stomach some nasty side-effects, including the collapse of democracy, the economy, society and basic decency, along with the hell of tear gas and riots Caracas has turned into this week.