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Venezuela Liquidating Assets As Economic Crisis Worsens
Submitted by Nick Cunningham via OilPrice.com,
Venezuela is at a political crossroads, with an all-important parliamentary election set to take place in December. Meanwhile, the Venezuelan economy continues to deteriorate as the state seeks to stave off default and a brewing financial crisis.
The state-owned oil company PDVSA is looking to push off debt repayments that are due in 2016 and 2017, hoping to buy two more years of breathing room. Eulogio del Pino, the president of PDVSA, confirmed that the oil company completed debt payments of $4.2 billion that matured last month, and will pay another $1 billion due in the near future. But PDVSA is also seeking to work with bond holders to extend the deadlines for short-term debt until 2018 and 2019.
The comments from del Pino highlight the growing difficulty Venezuela is having in dealing with the collapse of crude prices. For a country that depends on oil exports for 95 percent of its export revenue, the bust in oil prices is hurting the South American OPEC member worse than most.
Bond prices for the government and PDVSA have collapsed, a development that del Pino blames on speculators seeking to drive down their value. Based on market sentiment, there is a strong consensus that Venezuela is facing the likelihood of default within the next year. Still, Venezuela thus far has been careful to meet debt payments, something that del Pino argued should give PDVSA credibility as it seeks to renegotiate maturity terms with bondholders.
But cash is running low. Gold reserves are falling sharply as Venezuela liquidates them to raise funds to meet debt payments. Also, the Wall Street Journal reported that Venezuela withdrew $467 million in cash reserves that it keeps with the International Monetary Fund, a sign that Venezuela is scrambling to raise as much money as it can. “Venezuela and PDVSA has a major liquidity problem,” Goldman Sachs analyst Mauro Roca told the WSJ. “If they are able to in some way to push those payments down the road through financial engineering they’ll be able to continue muddling along.”
Venezuela’s GDP could fall by 10 percent this year, the worst economic performance in the entire world. The country suffers from shortages of basic goods, including food and medicine. And inflation is running at around 85 percent, at least according to official estimates, which are likely vastly understating the true inflation rate. Crime rates are some of the worst in the hemisphere.
It is hard to see how the fortunes for Venezuela will improve in the near-term. Oil prices are showing very little sign of rebounding in a substantial way. Venezuelan officials have been pleading with OPEC to alter course and pursue a stronger price target. Venezuelan President Nicolas Maduro says that oil prices need to rise to $88 per barrel in order to guarantee global oil investments. “If the price of oil stays at $40, there will be a depreciation of investment, and within a few months we are going to see a price of $150, $200. Who does this suit? Nobody,” Maduro said on state TV.
His pleas fell on deaf ears. Saudi Arabia continues to dismiss calls from its fellow OPEC members to abandon its strategy of pursuing market share. “Let the market determine the price,” Saudi oil minister Ali al-Naimi said at a conference in late October.
Venezuela’s heavy crude fetches a lower price than some international benchmarks. While WTI traded for around $46 per barrel for the week ending on October 23, PDVSA was earning just $39.47 per barrel.
The economic crisis could quickly undermine political stability, especially with elections scheduled for December 6. Maduro’s mismanagement of the economy and the worsening economic crisis has cut into the popularity of the Chavista government. That would suggest that the opposition would score a major victory in the legislative elections in a few weeks, but there are few reasons to be optimistic about the fairness of the vote. On October 26, Maduro declared an “emergency” and said that he would activate an “anti-coup” plan ahead of the elections, an ominous development considering that the government routinely cracks down on opposition figures, jailing them on trumped up charges. And with state control of the media, the playing field is tilted in favor of the ruling party.
Late last month, Brazil withdrew its involvement in election monitoring after Venezuela rejected the officials Brazil put forward. Maduro is doing his best to keep international observers from scrutinizing the election.
The election will take place just as the OPEC meeting will be wrapping up in Vienna, which is expected to yield few benefits for Venezuela. All signs point to OPEC continuing its market share strategy, keeping a lid on any substantial price rebound in the short-run. That does not bode well for Venezuela as it teeters on the brink of catastrophe.
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You can't liquidate your way into Solvency.
Yes you can, it just requires slave labor.
300 years ago, the sea pirates of the Caribbean looted the prosperous towns around Maracaibo in Venezuela. Today, the bankster pirates do it from the comfort of their high-rise lairs thousands of miles away.
Never make eye contact while eating a banana.
Dems words to live by!
If only there were an economic system that could prevent scarcity of goods and services.
If only I could shit gold while flying to the moon on a flaming unicorn, but impossible goals are pointless to consider.
Food is no longer gender neutral.
85%+ of their 33 M people live in just 4 metros. 52% are mestizo, 40% white European, rest full black or indian.
Obviously they're scared to get out of the big city at night.
Should be weathiest, most prosperous in Latam...instead a shithole
This scenario has got "dollarization" writ large
It shows the shortcomings of static-thinking central planning. You build an economy and budget based on the price of a commodity today. Well, do prices ever change? Duh. So now we will get treated to see how this move works out. "Liquidating into solvency". Could be an entertaining fiction novel, eh? Venezuela will still not be a lesson for US politicians and central bank planners. Because they see themselves as so much "smarter". This is gonna be good...
This is what happens when you put a bus driver in charge of a command economy.
"You! with the banana! Sell your phys gold back into the system, or we collapse your economy!"
Positive development for Venezuela:
The cost of hiring Venezuelan professional girls, converted into dollars. will drop. This should further 'stimulate' tourism, LOL.
A couple cases of TP will buy you a harem.
In the case of TPP, harem buys YOU
stimulate tourists
Yes...socialism works... trust me... (Bernie S) Look how well Venezuela is doing..
Liquidating gold to raise funds? wait what....
I think they are screwed. Electing different politicians is going to solve it? Ha Ha Ha Ha Ha!
So wait ... a cuntry where toilet paper is worth its weight in gold is liquidating ass?
memories memories, here is a goody:
"During one of Chavez's customary lectures on the "curse" of capitalism and the bonanzas of socialism, the Venezuelan leader made reference to GM's bankruptcy filing, which is expected to give the U.S. government a 60 percent stake in the 100-year-old former symbol of American might.
"Hey, Obama has just nationalized nothing more and nothing less than General Motors. Comrade Obama! Fidel, careful or we are going to end up to his right," Chavez joked on a live television broadcast.
During a decade in government, Chavez has nationalized most of Venezuela's key economic sectors, including multibillion dollar oil projects, often via joint ventures with the private sector that give the state a 60 percent controlling stake."
"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title."
Source?
I'm having trouble wrapping my mind around a 10% contraction in a single year. That is a mind-blowing collapse.
"And inflation is running at around 85 percent" I guess the current slump in pm prices don't look so bad down there.
-But ..but but your Highness, we have nothing left to liquidate !
-That's perfectly fine alfred. Go in front of this anti aircraft gun , close your eyes and count to ten.
I stopped reading at: all-important parliamentary election
10% negative GDP is not surprising at all, in a country whose main contributor to GDP has always been government spending and that in turn is directly related to government revenues and that in turn is related to oil prices. This correlation already held true before Chavez took power, and since he nationalized a lot of industries and with it overall productivity levels slumped to record lows, it is even more true now. The near 300% inflation rate can be explained like that.
In any case the 'wait and see' moment continues, parliamentary elections will be held on December 6 which are completely rigged, the Cubans in the country made sure of that. Plenty of dead people will vote, people living arboad without access to a ballot will also vote and all of them for Maduro of course. And while the opposition stresses that the elections will mean political change, I doubt Maduro and the crony militaries backing him are willing to hand over power like that. The bigger question thus is, how much longer the Venezuelan people are likely to put up with vote rigging and the complete erosion of democracy, not to mention the economic hardship.
Mass protests and more deaths may unfortunately be inevitable after the election and the final curtain call for Maduro may still have to be postponed until he defaults sometime next year.
It's a good role model of how socialism can ruin a prosperous nation, this should be studied by any economics student.
I believe capitalism also ruined a prosperous nation back in 2008.
I agree, but the donward spiral of the US started way before that...
That would be Corporatism that ruined and is still ruining the USA.
Capitalism without Failure is like Christianity without hell.
Again, who loans money to these idiots?
sell it, nationalise it, sell it, nationalise it, repeat as long as there are gullible idiots.
You have to be a moron to do business with Venezuela or lend them money. This is a nation that is swirling the drain.
Venezuela, this is the most cold hearted shit I've ever seen http://www.liveleak.com/view?i=f00_1446995918
Paradise squandered.
They will soon start voting with bullets.
Krugmenonics is called for to fix this problem. All Venuelula needs to do is have every other person digging a hole. Then jump in. The people left, then cover the people in the hole with dirt....
In less than a week, government's economist will be able to prove poverty has been cut in half and unemployment is at zero percent. Which results in the government raising the interest rate to stop inflation!!!
I believe Hugo Chavez was served Polonium Tea or something by Satan USA (as to Yasser Arafat) .
He paled & died so quick with cancer.