Socialist Venezuela would never sell out its friends to Wall Street, right? Yet it appears that is exactly what Caracas wants to do. Pressed by the oil price collapse, rattled by fears of default, facing rising social tension as imports collapse due to lack of foreign exchange, and seemingly unable to put its economic house in order, the country is trying to raise desperately-needed cash by selling debts owed to it by the Dominican Republic and Jamaica on to Goldman Sachs. Chavismo turns to the vampire squid?
The idea has been circulating for a while in the investment banking community. But now details have emerged in the press, as reported by El Nuevo Herald, and Petroleum Argos. Essentially, the trade involves Venezuela securitizing debts owed under its $3.5bn a year subsidised oil program, called Petrocaribe.
http://blogs.ft.com/...?
Cheap crude oil is devastating the already ailing economy in Venezuela. Although they print plenty of their sorry sovereign currency (the bolivar) they can't use it to pay foreign vendors and creditors because no one wants it after it has been devalued five times nine years and inflation is now running at more than 60%.
http://www.businessweek.com/...
Workers are leaving for other countries:
Fernandez, 33, is part of a growing exodus of skilled oilfield workers from Venezuela, where real wages for engineers have fallen to the equivalent of less than $400 a month, about 9 percent of the global average. The world’s worst inflation, swelling crime rates and a plunging currency are prompting others to move abroad, dragging down oil production at a time when slumping crude prices threaten the country’s export revenue.
http://www.bloomberg.com/...
The currency has lost 85 percent on the black market since Maduro took office in April 2013. The inflation rate, at 63 percent, is “destroying wages,” said Jose Bodas, general secretary of the Federal Union of Venezuelan Oil Workers or FUTPV, which represents about 100,000 workers at PDVSA. “There’s no oil worker in the world that makes as little as you do in Venezuela.”
Since the currency is avoided Venezuela cannot buy basic materials, parts, or anything that needs to be imported.
Venezuela's Future: 'Barbarity' and 'Looting' as Oil Drops
Oil accounts for 95 percent of Venezuela's export earnings,and combined with gas, it's 25 percent of the country's gross domestic product. As the price of oil hits a four-year low at $70 per barrel, the OPEC nation's oil-dependent economy is set to implode, experts say, bringing deeper political instability and chaos to the world's 10th-largest oil exporter.
Anti-government protests flared earlier this year as Venezuelans started to feel the effects of the economy's staggering 60 percent inflation and currency controls that have generated scarcity of basic needs such as toilet paper and toothpaste.
http://www.nbcnews.com/...
Viera says shortages have made it impossible for hospitals to find essential medical products such as gauze and acetaminophen.
So no, having a sovereign currency is no answer to your problems. Neither is having an economy dependent on oil revenue. This is why price stability is so important to central bankers. We are fortunate that our dollar is considered to be the most stable major currency in the world.
Here is hoping that Goldman helps out Venezuela long enough to get the people past the misery they are enduring. They deserve better than the likes of Goldman coming in to extract some fees from them in return for buying their debtors off.
Don't count on it though.