Caracas Chronicles

Bloomberg’s Ye Xie and Nathan Crooks have a very interesting article profiling the cozy relationship between Hugo Chávez and his bondholders. They make the case that, in spite of all his rhetoric, Chávez has never missed a bond payment, and the 14.7 percent per year Venezuelan bonds have yielded in the last 13 years or so far outstrips the performance of comparable assets.

The money quote after the break:

While calling debt the tool used by the U.S. “empire” to exploit Venezuela, Chavez honored his obligations even after a three-month nationwide strike in 2003 all but shut down the country’s oil industry and caused the economy to shrink 7.6 percent that year. He made an interest payment on a bond that is tied to oil prices in 2005 after a four-month delay prompted S&P to temporally downgrade Venezuela’s credit rating to selective default.

…

Chavez paid off the debt because non-payment would lead creditors to seize Venezuelan oil shipments, which supply half of the government’s revenue, according to Simon Nocera, a former economist at the International Monetary Fund. Bond investors can also freeze Venezuelan assets overseas, including refineries and gas stations of Citgo Petroleum Corp., a subsidiary of PDVSA, he said.

My only quibble with the piece is the net debt to GDP ratio of 22 percent that they cite. Even chavista mouthpieces such as the CEPR estimate it at 45.5 percent of GDP, saying that it’s 25 percent if you exclude PDVSA, which you really shouldn’t. But those numbers are probably inflated because of how GDP calculations are affected by the price of oil and Venezuela’s overvalued exchange rate (although, admittedly, I have not looked at this issue carefully). Perhaps one of our resident macroeconomists can chip in.

Regardless, it’s a terrific piece, so go read it now.