Monday, May 01, 2017

Venezuela Staggers in Dysfunctional Failure

"While they [Venezuelan bonds] are able to muddle through, your exposure to Venezuela is going to outperform almost everything else in the emerging-market bond universe."
"However, you have to be very careful to have an exit strategy. You're looking at an advanced stage of cash-flow stress."
Siobhan Morden, head of Latin America fixed-income strategy, Nomura

"The probability of default is rising."
"So far,  their willingness to pay [Venezuela's interest on its international debt] has been pretty firm, surprisingly so given the political situation."
"But you have to ask how long that can continue when they are probably spending more on debt service than [on] imports."
Stuart Culverhouse, head, sovereign and credit research, Exotix Partners, London investment bank
Demonstrators clash with riot police on armored car during rally against Venezuela's President Nicolas Maduro in Caracas, Venezuela May 1, 2017. REUTERS/Carlos Garcia Rawlins

"I don't want a civil war."
"I convoke the original constituent power to achieve the peace needed by the Republic, defeat the fascist coup, and let the sovereign people impose peace, harmony and true national dialogue."
Venezuelan President Nicolas Maduro
Thus, the May 1st announcement to his supporters of the production of a new popular assembly able to re-write the constitution, The new creation would have the power to call general elections and dissolve public powers. It would elect merely half of the current 500-member assembly, a process in which political parties could not become participants. Understandably, the opposition is calling for protests reflecting the obvious fears, that Maduro is intent on manipulating elected seats, giving additional weight to pro-government workers and unions while ensuring supporters filled the assembly.

In hopes that elections could be avoided, scheduled for next year. And since Venezuelans endure long wait lines for basic necessities while hunger is spreading, how likely would it be in a legitimate, uncorrupted election that Maduro would be re-elected given public reaction to his disastrous administration? His efforts to continue sidelining the opposition and pay the political cost of the recession and the fury of the suffering people of an ailing Venezuela make certain he will leave no feint untried to prolong his detested and failed government.
 

Demonstrators wave as the helicopter passes while rallying against Venezuela's President Nicolas Maduro in Caracas, Venezuela May 1, 2017. REUTERS/Carlos Garcia Rawlins

Venezuela's present and its future lie in ruins. Oil production and international reserves in an accelerated fall, the Maduro government's efforts to pay for imported food and drugs and meet its short-term bond payments have strained it to the fullest, even though imports have been slashed and shortages have impacted horribly on people's lives. This is a situation brought on by stupidity and neglect, of an industry in decline, the country's oil production in free fall.

Fifteen years ago, under Hugo Chavez with Venezuela in possession of money to spare from the sale of its oil, Chavez lavished funding on making a splash for the poor of Venezuela, improving their lives and future prospects in badly needed reforms. He also gave away oil to neighbouring countries, and went so far as to provide Venezuelan-subsidized oil to help poor Americans heat their homes for winter. This show of generosity to demonstrate what a socialist government was all about, neglected the nation's infrastructure.

Nothing was invested at a critical period in the country's natural resources extraction in upgrading its refinery infrastructure, and it is now in a state of disrepair with no funding available to modernize  and make the industry effectively reliable. And nor will Venezuela's financial state improve while oil remains at $65 a barrel, at the most optimistic estimates. The external bond debt of the government has beggared the nation, an event that took its time but which the socialist government of Hugo Chavez initiated.

China, which had reliably given Venezuela the bulk of its new project loans guaranteed by oil shipments to an energy-hungry economy, has now stepped silently back; no more of that for China with a collapsing Venezuelan economy where inflation grows at a monthly 20 percent and where oil production is down to two million barrels a day; reduced by over a million barrels from the last two decades.

Demonstrators hold placard that reads: 'No more dictatorship' while rallying against Venezuela's President Nicolas Maduro in Caracas, Venezuela May 1, 2017. REUTERS/Carlos Garcia Rawlins

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