
Venezuela Refuses to Default, and Few People Seem to Understand Why - wallflower
http://www.bloomberg.com/news/articles/2016-07-04/venezuela-refuses-to-default-few-people-seem-to-understand-why
======
roymurdock
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.

~~~
ArkyBeagle
Just as a first-order guess of your second half, what you describe sounds
highly illegal.

The first part makes more sense - and it's not a conspiracy theory - they want
to keep access to bond markets.

~~~
mistermann
There's illegal, and then there's "illegal". You'd think with what we see in
the news today you wouldn't have as many people saying public officials can't
do something because it's illegal.

~~~
ArkyBeagle
The problem is that law and rules may constrain officials in unexpected ways,
leading to "illegal" but maybe not so bad. Officials may have "the root
password" so to speak.

In this case, I think it probably would be bad, but its a haul to say that
this applies here. "Maintaining access to bond markets" requires less lifting
so I'd start looking there.

The current email server controversy highlights this - an appointed cabinet
official may actually be subject to slightly different rules than other
people. Of course this is perceived as unfair, but it might just be inherent
in the system design - I don't actually know. There is emerging in security
and safety culture a Fundamentalist "no exceptions" mentality. But formal
systems have holes - we know this.

------
cperciva
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?

~~~
rafaelm
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.

The situation here is just incredibly difficult.

~~~
Pyxl101
I'm sorry to hear that. What has the experience been like for you to buy food?
Are you stuck in the lines as well? How do restaurants obtain raw ingredients
with which to cook?

~~~
rafaelm
Well, I've basically just been eating what I can find the easiest. I don't
really go to the lines. I cannot afford to waste a whole day in a line where I
don't even know what they are going to hand out or if I'm even going to be
able to buy something.

I just came back from a friends place and he told me he almost got stuck in a
dangerous looting situation because people got pissed because they've been in
line for 10 hours and the food ran out. Plus the National Guard and the
military are getting paid by black market gangs to let them cut in line and
people notice that.

For example there have been long lines in every bakery to buy french bread,
which is very common to eat here. I just don't eat it. Same thing with arepas,
which is one of our main dishes. Since you can't get the flour (called Harina
Pan) without waiting over 12 hours in line I just don't eat it. I've got some
I bought from one of the black market guys some time ago but we are running
out soon.

More and more stuff is getting more scarce. Rice disappeared some time ago,
milk shows up every now and then. The food that you can get is extremely
expensive. For example, ketchup had been missing for some time now. Suddenly
it's everywhere. It used to cost around Bs.200 and now it costs Bs. 1500.

I wouldn't mind going without certain goods, but now with a baby I'm
constantly worried. Diapers and formula are almost non-existent. We stocked up
last year on diapers when they could still be found and the baby is doing OK
right now because my wife managed to breastfeed exclusively. But not everyone
is so lucky.

I don't really know how restaurants manage, I've got a friend that has a small
fast food place and I know he pays some guys from a bakery for bread, and meat
is already expensive so you can get that pretty easily. But I know a hotel
nearby that had to remove arepas from the breakfast menu (which was
unthinkable here) because they cannot find the flour and I guess they don't
want to pay black market rates.

This is the kind of thing that happens when you have a currency exchange
control and price controls. Stuff gets locked in an artificial price for too
long and the producers just give up. The government tried to regulate the
price of eggs. Next day, you could not find a single egg anywhere. The flour
used to make arepas was regulated at an absurd price, something like Bs.30.
Not even the packaging costs that.

One common misconception though, is that we cannot find any food. The basic
things like rice, flour, bread, milk, etc are what's hard to find. If you've
got the money and you want to go to a restaurant and get a lobster you can.
But the basic stuff we used to eat every day for a reasonable price cannot be
bought without going to the lines or paying black market prices. Medicines are
hard to find for everyone.

Recently there was quite a commotion on the social networks because some
dumbass from Europe came here to make a video for some pro-govt guys and said
everything was peachy because he went to the liquor stores and found
champagne, went to a gourmet market and saw foie gras, lobster and jamon
serrano. But he forgot to mention he probably could not find a square of
toilet paper to wipe his ass :)

Sorry for the huge wall of text and rambling. It's really hard to put my
thoughts in order when I try to explain this stuff, especially in a foreign
language.

~~~
lando2319
> The government tried to regulate the price of eggs. Next day, you could not
> find a single egg anywhere.

If the results are so glaringly ineffective, why do you think the Government
keeps pursuing price controls?

Is this Hubris, do they not see the effect on supply from their insulated
mansions, or do they just think they can get it right this next time?

~~~
rafaelm
I think it's just plain old populism. They go on TV screaming about having to
"defend the poor from the big bad private sectors that want to topple the
government with their economic war with artificially induced high prices. The
price of eggs has to be Bs.500 a carton!"

Meanwhile , just the cardboard for producing the packaging for the eggs costs
Bs.200, chicken feed Bs. 300, the govt increases the minimum wage 4 times a
year to fight "the economic war",etc.

Of course, anyone producing eggs is now working at a loss, so they just
produce less and move part of the production to the black market.

I really have no idea what their endgame is. Maybe the idea is to actually try
to finish off the private producers that are left in the country.

------
countrybama24
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."

[http://www.wsj.com/articles/in-decaying-venezuela-debts-
get-...](http://www.wsj.com/articles/in-decaying-venezuela-debts-get-
repaid-1456358943)

~~~
fovc
How much are those assets worth? Wouldn't the bonds be worth more if these
assets were that substantial?

~~~
al_chemist
Assets are worth more to Venezuela than anyone else is willing to pay. In case
of defaulting, creditors can takeover those assets cheaper than they could buy
them otherwise.

------
Alupis
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.

~~~
redstripe
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.

~~~
venomsnake
Iceland didn't default. They let their commercial banks die without
intervention from the government. Also known as what the US Treasury should
have done in 2008. If something is too big to fail - it must be killed
immediately.

~~~
dragonwriter
> If something is too big to fail - it must be killed immediately.

No, if its too big to fail, it must not be allowed to fail -- but also must be
as expeditiously as possible broken up into units which are not too big to
fail.

~~~
Florin_Andrei
Kind of like gradually splitting up your giant monster truck Java thing
running all your endpoints into a variety of microservices.

~~~
dragonwriter
> Kind of like gradually splitting up your giant monster truck Java thing
> running all your endpoints into a variety of microservices.

That's a perfectly apt analogy. "Too big to fail = must be killed immediately"
is like saying if you have an Java monolith that is a SPOF for your entire
business, you must immediately blow up the server running it to protect
yourself from the danger of it failing later...

------
cjensen
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]

[1] [https://en.wikipedia.org/wiki/Citgo](https://en.wikipedia.org/wiki/Citgo)

[2]
[http://www.npr.org/sections/money/2012/10/22/163384810/why-a...](http://www.npr.org/sections/money/2012/10/22/163384810/why-
a-hedge-fund-seized-an-argentine-navy-ship-in-ghana)

------
tim333
"Never assume malice when stupidity will suffice"

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
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.

~~~
ktRolster
The United States tried the same thing in the 70s after the Nixon Shock. Same
result: shortages.

------
ddebernardy
To Venezuela's credit, things didn't go so well when they tried to default
wearly last century.

[https://en.m.wikipedia.org/wiki/Venezuela_Crisis_of_1902–190...](https://en.m.wikipedia.org/wiki/Venezuela_Crisis_of_1902–1903)

------
danharaj
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.

~~~
AnimalMuppet
> Violent dictatorships are seldom rational.

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.

~~~
danharaj
> 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.

The current situation is shit. Paths forward should be judged against their
alternatives and their possibilities. Global powers love that they can coerce
the impoverished into decades-long deals of economic servitude and their
ideology pushes it as the only reasonable way forward. Dictatorship and
submission to global capitalism aren't the only options.

~~~
AnimalMuppet
What's your better option?

~~~
danharaj
The state of Venezuela could not in any way be justly called representative of
the people of Venezuela. I'm an anarchist, i would like to see the abolition
of all states but i'm well aware that most people find that unreasonable. At
the very least, no solution that involves negotiation between Maduro's
dictatorship and their international creditors is a just representation of the
interests of the people.

Democratic economic self-determination is alternative possibility. It may
work, it may not work, but it's an option that attempts to achieve justice.

~~~
AnimalMuppet
> The state of Venezuela could not in any way be justly called representative
> of the people of Venezuela. [snip] At the very least, no solution that
> involves negotiation between Maduro's dictatorship and their international
> creditors is a just representation of the interests of the people.

Very, very true.

Unfortunately, there's this group of thugs with guns who run Venezuela, and
who aren't going to go away even though the people of Venezuela would like
them to. Given that the Maduro "government" _de facto_ exists, and refuses to
quit, what should be done?

> Democratic economic self-determination is alternative possibility.

I'm not sure what you mean here. Do you mean letting the people of Venezuela
vote on what should be done to rescue their economy? If so, you aren't going
to get that, because step one of what needs done is getting the country out of
the hands of Maduro and his crew, and Maduro isn't going to let anyone vote on
whether that happens (or anything else about the management of the economy).

So far as I can see, any path forward is going to have to coerce Maduro into
doing something that is anathema to his ideology. If you've got an alternative
that works with the existence of Maduro, I'd love to hear it.

------
pvaldes
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.

~~~
bubuga
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.

~~~
pvaldes
This statement was succesively dismissed as fake in five occasions by several
judges that couldn't find any proof of this. If we trust in what some spanish
newspapers said, Podemos was bankrolled by Venezuela, Iran, Venezuela, Bin
Laden, Venezuela, North Korea, Fidel Castro, Russia, Venezuela, Spectre and
Ronald McDonald.

------
rdiddly
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.

~~~
rmsaksida
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.

~~~
dragonwriter
> I can't recall the last time the IMF ran a country down to food and medicine
> shortages

Among the cases where it has been argued that IMF-driven austerity measures
did that are Romania in the mid 1980s, Malawi in the early 2000s, and, most
recently, Egypt earlier this decade. There are probably others.

~~~
ptaipale
However, compare to what would have happened in these countries without IMF
intervention. That "austerity" is what happens when you run out of credit.
That IMF is involved is no proof that IMF "ran down to" something.

------
known
Venezuela could try [http://qz.com/260980/meet-the-countries-that-dont-use-
their-...](http://qz.com/260980/meet-the-countries-that-dont-use-their-own-
currency/)

------
stevedekorte
Do those making the decision to pay these bonds happen to hold any of these
bonds themselves?

~~~
conistonwater
It's right there:

> _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._

~~~
bpodgursky
It's really a pretty good deal for them -- buy the debt for 50 cents on the
dollar, and then make the decision to not default, guaranteeing a payout.

------
luojiebin
it's insteresting

------
luojiebin
odd

