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Comrades: Russians try to rescue collapsing Venezuela by restructuring $3.15 billion in debt
It doesn't change how fundamentally bad the situation is, but it buys the socialist Maduro regime some time to try to stave off default.
What kind of communist would you be if you didn't help a needy comrade out?
Oh. Right. Russia's not communist anymore. Not in name, anyway, and not in the sense of Russia itself operating under a true communist economic system. Putin's Russia is more of a crony capitalist regime.
But in a geopolitical sense, the Russians are pretty much friends with anyone that's hostile to the United States, and that certainly includes every socialist regime on the planet. It especially includes the socialist disaster that is Nicolas Maduro's regime in Venezuela, which has gone from a cash-flush, oil-rich society to a debt-ridden basket case thanks to Hugo Chavez and his hapless successor.
Venezuela entered today on the verge of default, and in the eyes of some credit rating agencies, it was already in default. But what a guy Vladimir Putin is! He stepped in and, at least in a limited sense, saved the day while denying the Venezuelan people one more nail in the coffin of a regime they desperately need to be rid of:
Russia threw a lifeline to Venezuela on Wednesday, restructuring the more than $3 billion it is owed by its economically and politically troubled South American ally.
The Russian Finance Ministry said the debt of $3.15 billion would now be repaid over 10 years, with minimal repayments during the first six years.
“Reducing the debt burden to the republic from the restructuring of liabilities will allow the funds that have been freed up to be allocated to the country’s economic development, to improve the liquidity of the debtor, and to increase the chances of all creditors to recoup credits provided to Venezuela,” the Russian finance ministry said in a statement.
The agreement comes just as Venezuela’s cash-strapped government teeters on the edge of a default on some $150 billion in outstanding debt. Struggling with a crumbling state-led economic model, President Nicolás Maduro’s administration is seeking to renegotiate payment terms with its creditors in an effort to free up import dollars needed to resolve chronic shortages of food and medicine.
“Venezuela is advancing toward the recomposition of its external debt, to the benefit of its people,” Mr. Maduro’s top economic adviser, Simon Zerpa, said in a Twitter post, lauding the deal with Russia.
Venezuelan officials said the agreement would allow them to increase imports from Russia, including of wheat. The restructuring deal Wednesday doesn’t cover $6 billion in debt that Venezuela’s state energy giant PdVSA still owes to Russia.
Let's keep this in perspective. The Russian debt restructuring represents barely 1 percent of Venezuela's total outstanding debt, and it doesn't even include all the money Venezuela owes to Russian creditors. If this is all that happens, it's not going to save Venezuela from default and it's not going to save the Maduro regime.
But what Maduro is hoping for is that other creditors will follow Russia's lead and offer similar deals. From a strictly financial perspective, it seems foolish to do so. As long as Maduro's regime stays in power, it will continue the policies that have led it to the brink of collapse. It will smother productivity and confiscate what little business profits the private sector can still generate, while mismanaging the country's oil reserves through a combination of corruption and incompetence.
Creditors usually agree to restructure a debtor's debt on the condition that they change the behavior that got them in trouble in the first place. Venezuela is not going to do that. Extending terms will merely mean you wait longer for the inevitable default.
Now, if you want to please the Russians or for whatever reason stave off regime change in Caracas, maybe you'll be willing to join Putin in throwing Maduro a lifeline. The world would be better off if that did not happen, although the next steps for Venezuela are going to be ugly either way:
On Monday Caracas missed interest payments due on two government bonds and one bond issued by the state-owned oil monopoly known by its Spanish initials PdVSA. Venezuela owed creditors $280 million, which it couldn’t manage even after a 30-day grace period.
Venezuela is broke, which takes some doing. For much of the second half of the 20th century, a gusher of oil exports made dollars abundant in Venezuela and the country imported the finest of everything. There were rough patches in the 1980s and 1990s, but by 2001 Venezuela was the richest country in South America.
Then in 2005 the socialist Hugo Chávez declared that the central bank had “excessive reserves.” He mandated that the executive take the excess from the bank without compensation. Today the central bank has at best $1 billion in reserves.
Falling oil prices are partly to blame, but the main problem is that chavismo has strangled entrepreneurship. Faced with expropriation, hyperinflation, price controls and rampant corruption, human and monetary capital has fled Venezuela.
As of Tuesday evening, the International Swaps and Derivatives Association still had not declared Venezuela in default. That matters because this will trigger the insurance obligations inherent in the credit default swaps. But S&P Global Ratings declared the country in default Monday. On Tuesday morning the Luxembourg Stock Exchange issued a suspension notice for the bonds with missed payments.
The Russians might think they can put off Maduro's day of reckoning, but there's no reversing course if the socialist policies that led Venezuela to this point aren't abandoned. And there's little chance Maduro could do that and maintain power, because his hold on power at this point depends on the same state command-and-control that sees political opponents thrown in prison and the private sector shackled by the government.
The Venezuelan people were fooled by Chavez's charisma and his promises of populist revolution that would reward the people with better lives. They have long since realized their mistake and want the Chavista regime gone. The rest of the world should at least have the decency to get out of the way and let the regime collapse under its own socialist weight. But Putin has never been big on decency, especially when he has an opportunity to stick it to the United States and extend his own influence to our detriment.
The problem is a lot of decent Venezuelans are suffering in the meantime. It's not just economic deprivation. Crime is out of control and basic everyday goods are almost impossible to find. Venezuela is a dangerous place to be, and even Venezuelans who manage to make their way to American often find themselves being blackmailed for money via threats to the lives of their family members who are still there.
This is what you get with socialism. And in case you've forgotten, there's no difference between it and the Democratic Party. Who says so? They do.
Dan's new novel, BACKSTOP, is a story of spiritual warfare and baseball. Download it from Amazon here!