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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

#11

Post by knowaveragejoe »

brianlweiner wrote: post #3
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…

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.

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

#12

Post by Alupis »

saryant wrote: post #10
Alupis wrote: post #5

Earlier quoted context omitted.

> 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…

I believe you are making my point.

Venezuela's future will depend on and require foreign investments and expertise.

Burning that bridge (or not burning it) is a calculated risk.

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

#13

Post by dublinben »

Alupis wrote: post #9
dublinben wrote: post #4

Earlier quoted context omitted.

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…

The government of Argentina voluntarily took the position that they would not settle with the outstanding debt holders. They could have settled 15 years ago and regained access to international debt markets right away.

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

#16

Post by conistonwater »

stevedekorte wrote: post #14

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

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.

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

#17

Post by hiou »

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…

Not sure what part of this is warrants down voting? There are valid points even if they might be a a little off the mark

Venezuela is very dependent on financing for its oil exploration and infrastructure. The reality is that they simply need to hold the fort until oil rebounds in a year or two. Otherwise a huge portion of their future oil extraction will go to financing as opposed to Venezuela. It is certainly a risk but to say the opposite is not a huge risk with serious consequences is pretty naive.

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

#18

Post by Alupis »

dublinben wrote: post #13
Alupis wrote: post #9

Earlier quoted context omitted.

> 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…

The government of Argentina voluntarily took the position that they would not settle with the outstanding debt holders. They could have settled 15 years ago and regained access to international debt markets right away.

Doing so would not have made the situation much better.

To an outside investor, Argentina is a lot more risky now that they've proven they're willing to default when things get rough. That kind of risk isn't impossible to overcome, but it's very expensive. For a struggling nation without a strong economy, foreign investments can be lifeblood.

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

#19

Post by bpodgursky »

conistonwater wrote: post #16
stevedekorte wrote: post #14

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

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 o…

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.

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

#20

Post by hiou »

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…

Exactly. And this is why defaulting is so dangerous. To lose access to that foreign investment in the future would be disastrous for that plan.
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