Caracas Chronicles

A publisher friend (more on that later) sent me a copy of José Toro Hardy’s Llegó la Hora, and I found a piece of news that I wasn’t aware of. It turns out that the Chinese are not subsidizing us, but rather … it’s the other way around!

One of the cool things about Toro Hardy (full disclosure – he’s Quico’s uncle) is that he goes and reads the actual agreements the Venezuelan government signs as well as the documents chavista bureaucrats scribble their name on.

When he went into the fine print of the agreement with China, one of the things he points out is that the Chinese lend to us at favorable interest rates, and we have to ship oil to them in the future, which is in effect a loan taken out on public goods, something the Constitution explicitly prohibits.

Furthermore, a document uncovered by Miguel Angel Rodriguez a little more than a year ago shows Rafael Ramírez telling Chávez that the reference price for the oil we ship to China … is $40 a barrel.

Just so you understand, not only are the Chinese lending us money, but the oil we ship to them in return is valued far, far below market price. It’s like having to sell the crown jewels to pay your debts, only the pawn shop is giving you less than half the market price – and you have to take it!

In the end, the loans to China are not only unconstitutional, but they are an unacceptable subsidy to the Chinese. They are, in effect, lending us at prices far, far above market rates. If we took out a credit card loan and paid it with oil sold at market prices, we would probably be better off.

Of course, the details have not been confirmed so this may all be speculation, but all this  raises serious questions about the relationship with China moving forward. Nobody likes being gouged, and it’s even less attractive when you’re being gouged thanks to the guy that had your job before you.

(At any rate, the book is a fun read. It’s a compilation of Toro Hardy’s columns in the newspaper. I can see where Quico’s writing gene comes from …)

Update: Miguel Ángel Santos has a different take. Apparently we sell at market prices. The $40 is the money used to pay the loan. If the price is higher than $40, we keep the rest. But … (and here is where Miguel Ángel falls short) what if the price is lower than $40? Aren’t the Chinese basically guaranteeing we pay them back, even at the expense of having to borrow to do so?