Venezuela Refuses to Default, and Few People Seem to Understand Why
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Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#2If 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.
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#3If 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 per…
But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges?
I'm more likely to believe that influential Venezuelans are exposed to the current bond market and are seeking to delay the reckoning.
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#4If 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 per…
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.
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#5If 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 per…
But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges? I'm more likely to believe that influential Venezuelans are exposed to the current bond market and are seeking to delay the reckoning.
> But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges?
They seized/nationalized Exxon's assets, which certainly burnt that bridge (Exxon promptly filed for arbitration). But Exxon is only one foreign company.
Perhaps Venezuela sees a future of no foreign petroleum companies, but rather use foreign investments/loans to build their own internal petroleum operations. This seems likely after nationalizing the existing plants.
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#6If 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 per…
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.
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#7If 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 per…
> 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.
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#8If 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 per…
> 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 charg…
> 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.
Very good point. However, it's likely in order to build and maintain such infrastructure, Venezuela would need foreign investment and expertise...
If they burn all the bridges, this may not be possible to accomplish. Perhaps they could find someone willing to take on the risk, but it may cost them even more than just continuing to pay the debts and ride-out the petroleum slump.
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#9If 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 per…
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.
> Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year
15 years later (and arguably not in a much better condition than before). We shouldn't pretend a nation-state default has few/zero negative ramifications.
> Someone will eventually be willing to lend you money, at the right price.
You are right... but money gets a lot more expensive. It could very well be more expensive than riding out the temporary slump (which is largely tied to the petroleum markets from my understanding).
Re: Venezuela Refuses to Default, and Few People Seem to Understand Why
#10Earlier quoted context omitted.
But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges? I'm more likely to believe that influential Venezuelans are exposed to the current bond market and are seeking to delay the reckoning.
> But Venezuela has already seized and nationalized foreign-owned assets. Surely that burnt plenty of bridges? They seized/nationalized Exxon's assets, which certainly burnt that bridge (Exxon promptly filed for arbitration). But Exxon is only one foreign company. Perhaps Venezuela sees a future of no foreign petroleum companies, but rather use foreign investments/loans to build their own internal petroleum operation…
After nationalization Venezuela told all PDVSA workers that they either had to be loyal to Chavez or quit.
Many of the best left, knowing they could take positions with the supermajors or service contractors in other countries. PDVSA was left with a hodgepodge of lackeys and hacks who don't know what they're doing.
That problem is compounded by the fact that Venezuelan crude is a pain in the ass to deal with. Some of the nastiest on earth. Extremely heavy and sour (which is also why Venezuelan crude trades at a discount to the benchmarks).