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Venezuela Refuses to Default, and Few People Seem to Understand Why

bloomberg.com

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Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#21

Post by venomsnake »

redstripe wrote: post #6
Alupis wrote: post #2

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 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.

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.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#22

Post by g_delgado14 »

knowaveragejoe wrote: post #11
brianlweiner wrote: post #3

Earlier 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.

Do you have any more information on this? I'm pretty out of the loop on the Venezuela situation and would like to know more, but don't even know where to begin.

Within the article theres a QuickTake explainer [0] on Vzlas economy

[0] - http://www.bloomberg.com/quicktake/venezuela-price-revolutio...

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#23

Post by krapp »

venomsnake wrote: post #21
redstripe wrote: post #6

Earlier quoted context omitted.

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.

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.

No offense to Iceland, but the world economy is far less affected by the loss of Icleandic financial institutions than American ones.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#24

Post by treebeard901 »

venomsnake wrote: post #21
redstripe wrote: post #6

Earlier quoted context omitted.

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.

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.

If something is too big to fail -- it must fail immediately? That is an interesting perspective.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#25

Post by 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.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#26

Post by 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.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#27

Post by venomsnake »

treebeard901 wrote: post #24
venomsnake wrote: post #21

Earlier quoted context omitted.

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.

If something is too big to fail -- it must fail immediately? That is an interesting perspective.

And that is called paying the Dane-geld;

But we've proved it again and again,

That if once you have paid him the Dane-geld

You never get rid of the Dane.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#28

Post by retube »

redstripe wrote: post #6
Alupis wrote: post #2

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 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.

Iceland has a population of 330k. I.e the size of a small back water town. Whatever they do has 0 impact globally.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#29

Post by abpavel »

Alupis wrote: post #5
brianlweiner wrote: post #3

Earlier 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…

> Exxon is only one foreign company

It's starting to sound like you're one of the bond holders or securities tied to the bonds. Exxon is consistently in the top 10 on F500, and was an absolutely critical part of bloodline. Nationalization of Exxon was the an act of desperation, the last gasp, not "just one company". Having visited Venezuela, it is obvious there are huge problems with the state of affairs that no foreign investments are going to solve. (Edit:identation)

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#30

Post by AnimalMuppet »

danharaj wrote: post #26

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…

> 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.

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