Translated by Ollie Richardson & Angelina Siard
The restructuring of the State debt of Venezuela, which the Russian Ministry of Finance agreed to, caused a predictable negative reaction from some of the public. The memory of the irretrievable credits and other “brotherly help” that was thrown around by the leadership of the USSR is too alive. However, in this case, even if to look at the situation with the Venezuelan debt through the eyes of a cynical financier, the actions of Moscow are nothing like a charity. If to concisely formulate the Russian-Chinese strategy in the Venezuelan direction, a simple mathematical calculation will present itself: so that the country with the world’s largest reserves of oil doesn’t fall into the clutches of Washington or the IMF (which in this case are the same thing), it is worth postponing the paying back of its debts for some years. The stakes placed on the Venezuelan side much more exceed the sum of the postponed interest payments.
If to call things by their proper name, Venezuela is now actually subjected to a raider attack, which assumes bringing the country to a state of artificial bankruptcy. It is worth highlighting the artificiality and the political nature of the problems that Caracas faced, because it is precisely this that explains the desire of Moscow and Beijing to lend a shoulder to Maduro’s government instead of bringing the country to a default for the joy of the US State Department.
Despite the really difficult economic situation, Venezuela, until recently, steadily continued to make payments on its debts. However, because of a new package of sanctions imposed by the US against Venezuela and its government institutions and companies, the last payment “floated” (disappeared, in a literal sense) in the European “Euroclear” clearing system (European clearinghouse of the American bank JPMorgan) and in the Clearstream system (clearinghouse of the German Deutsche Börse AG), which are used for payments on Venezuelan bonds. Although representatives of the clearing systems refuse to comment, participants of the market take into account the possibility that they are afraid of pursing payment because of the fear of falling under American sanctions and penalties as “accomplices of the Maduro regime”.
There is the reasonable suspicion that payments were specifically delayed so that the American S&P rating agency had a formal reason for ascertaining a default. It is precisely the fact that such a scheme was originally applied to the State Venezuelan company Electricidad de Caracas, whose default was declared because the holders of its bonds didn’t receive payment, that points precisely to this scenario. However, after the declaration of a default the funds suddenly in a magic way were carried through Euroclear. It is impossible to exclude that a similar scheme of “artificial default” was implemented also with the governmental bonds of Venezuela, after it was set in motion against one of largest Venezuelan State companies.
All of this operation for obstructing Venezuelan financial operations was carried out, probably, to cause panic among investors in Venezuelan bonds and the direct sovereign creditors of Caracas — Russia and the People’s Republic of China. The Russian Ministry of Finance took a pro-active part in decreasing the panic, and the statement that in the next six years Venezuela will not have to pay $3.15 billion had a positive impact on the market — the world saw that nobody is going to leave Maduro to the mercy of fate. The Chinese Ministry of Finance, which Venezuela owes a whole $23 billion to, stated that so far proposals for debt restructuring haven’t been made, but expressed “full confidence” in the solvency of the government of Maduro.
Against this background the failure of the quite original scheme that began with the introduction of a new package of anti-Venezuelan sanctions becomes partly clear. Proceeding from the indirect data that was published in the material of The New York Times about was going on in the market of Venezuelan bonds after the announcement of an artificial default, it is possible to rather confidently reconstruct this scheme. The Trump administration imposed sanctions not only against Maduro and the government of Venezuela, but also against specific members of the government (at first sight it’s a completely senseless gesture, as it is difficult to imagine a Venezuelan official with a country house in Miami, and here it doesn’t concern some special honesty of the citizens of this country, but the fact that it would have been taken away long ago during the previous stages of the fight of Washington against the local authorities. But the idea was in this). The second stage of this scheme was provoking the default of Venezuela and the actual coercion of the Venezuelan authorities to the beginning of negotiations on restructuring its external debts, which are about $150 billion. It is very probable that the State Department hoped that against the background of panic, long-term holders of Venezuelan bonds, such as the American bank “Goldman Sachs” and numerous European investment funds, will sell their bonds to American “vulture funds”, which specialize in “collection work” against bankrupt countries and which over the past few decades already earned tens, if not hundreds of billions of dollars on the crises in Argentina, Greece, and Costa Rica.
In case the stake placed on panic works, the representatives of “vulture funds” would refuse substantive negotiations on restructuring bond debts, and they had an ideal pretext: any deal concluded with officials of the government of Maduro who are under sanctions is — from the point of view of American legislation — on the one hand illegal, and on the other hand — criminal. In this situation the “vultures” could immediately pass to “desert” — to arrest and sell via auction the oversees property of the government of Venezuela and its state oil company PDVSA. Besides having an opportunity to grab the American oil processing capacities of PDVSA and its large network of American gas stations, the “vultures” would receive carte blanche to hunt for Venezuelan oil and currency payments to PDVSA worldwide, which would complicate the economic situation in Venezuela even more strongly and would put it on the edge or even over the edge of an economic and political catastrophe.
Unfortunately for the US and fortunately for Venezuela, the plan failed at the stage of creating panic. As The New York Times reported, in a few weeks the “vultures” didn’t manage to collect a significant package of Venezuelan bonds in the market, and the holders of 91% of the total amount of debt nevertheless came to Caracas for negotiations. Now they and the Venezuelan government are faced with an extremely non-trivial task — to find a way to provide the continuation of payments without leaving their recipients under sanctions in the lurch. Sceptics specify that the Venezuelan authorities don’t have the necessary knowledge and experience. Reserved optimists, in turn, note that, most likely, the scheme of circumventing sanctions will be developed by bond holders, among who there are enough experts in legal, semi-legal, and frankly illegal (from the point of view of the US State Department) financial engineering. The Venezuelan crisis is far from being over, but, at least, it was succeeded to beat off the main American attack.
As strange as it may sound, over the past few months the situation in Venezuela has improved, and it didn’t worsen. The possibility of a “color revolution” was the main risk for Caracas, but it was successfully seriously reduced after President Maduro’s team was able to successfully hold regional elections and create a new, loyal-to-Maduro legislative structure in the form of the Constitutional Assembly. The internal political ingredients for a “color revolution” didn’t definitively disappear, but even the western critics of Maduro recognise that his power is now more stabler than it was earlier. Moreover, a gradual rising of oil prices give it an additional margin of safety. Now the main challenge is keeping the opportunity to make payments on the foreign debt and to receive money for oil. This is equally the problem of Caracas and its private western creditors, against the background of which “Rosneft” – which lent $6 billion to Venezuela and didn’t restructure its debt – has an additional advantage. Unlike other creditors, “Rosneft” doesn’t need access to Venezuelan currency payments, because it can receive “payments” in the form of oil deliveries. To arrest a tanker with already Russian oil is a difficult task, even for the most influential American “vulture funds”.
In general, despite all the difficulties Venezuela, which is reliably protected by Russian weapons – bought using the same re-structured Russian $3.15 billion credit, has rather a good chance of continuing to remain a thorn in the most sensitive region of the planet for Washington. For us [Russia – ed] this is not only an opportunity to create a strategic irritant for our transatlantic partners, but also an opportunity to make good money from it. Of course, such earnings always assume a certain risk, and nothing can be done about it, but it is essentially impossible to construct an energy superpower without risks. According to the estimates of “Reuters”, in 5 large oil projects in Venezuela “Rosneft” owns 40% of the shares, and probably soon such projects will be not 5, but 14. Moreover: according to the estimates of the same source, “Rosneft” receives from Venezuela about 220,000 barrels of oil per day, which is the equivalent of about $8.8 million per day, or $3.212 billion per year, if to proceed from the very conservative price of $40 (!) per barrel. It is definitely worth fighting for such an asset.
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