Caracas Chronicles

You’ve heard it a dozen times by now. Members of the National Assembly keep repeating it. Hell, this blog does too: the government needs approval from the National Assembly to incur in any type of debt.

The government can kick and scream all it wants, but foreign creditors know the score: the regime’s debt deals that are being struck without Assembly approval, from the Fintech repo and all those PDVSA credit transactions, are wide open to legal challenge if the regime falls. I mean, article 312 of the Constitution is pretty clear, right?

The Assembly is already warning honchos in Wall Street not to borrow Venezuela any more money or else. It’s become holy word in the opposition’s political sphere.

It’s strictly politics: bluster from players who know they’re holding a weak hand and are trying to do the best they can with it.

The only problem is, if you have any kind of legal training, you can quickly spot big problems with this argument.

Article 312 in Detail

Let’s take a look at article 312 of the Constitution. At all of it, I mean:

The highlighted bit is the bit that always gets left out of opposition talking points. There are explicit exceptions to Article 312’s principle that all debt must be authorized by law.

Article 150 is an obscure and hardly ever-cited constitutional provision that has been carried over in our constitutions again and again since the 19th century

Constitutions are usually declarations of principles from which it’s hard to extract definitive guidance to help you solve particular cases. That’s why there are laws and regulations. In Venezuela, most dispositions governing public credit are contained in the Ley Orgánica de la Administración Financiera del Sector Público (the Framework Law on the Financial Administration of the Public Sector). Title III of the Law establishes the procedures for public credit transactions, all the approvals and the procedures that must be followed when the Republic directly enters into public credit transactions.

Now, let’s take a look at article 101 of the Law:

“Title III…

In other words, Article 101 fleshes out the exception established in the constitution’s article 312. Entities excluded from the authorization requirement include BCV, companies created under the Hydrocarbons Law, BANDES, public banks, public insurance companies and iron and steel companies. None of these entities need authorization from the Assembly to incur debt. And their credit transactions don’t need to be included in the annual indebtedness law (ley paraguas).

But you are probably thinking now that this article was rammed through the unconstitutional enabling law of 2015? It wasn’t, it has existed even before chavismo was a thing.

Find any PDVSA or BCV financing deal that was approved as a public interest contract by the National Assembly at any point between 1830 and 2017.

Neither PDVSA nor Banco Central have ever requested or gotten authorization from the National Assembly to incur debt. Try to look up any approval from the Assembly for the issuance of Venny bonds, you won’t find them, they don’t exist because they’ve never been required.

My guess is that this exception was carved out to protect what was seen as technically sound, smooth-functioning institutions during the cuarta from political meddling by Congress in their operations.

Article 150 is no Better

The Assembly also cites article 150 of the Constitution to say that because these contracts amount to public interest contracts, the financings need AN approval:

Article 150 is an obscure and hardly ever-cited constitutional provision that has been carried over in our constitutions again and again since the 19th century, even though there’s little case law developing it. I don’t mean to get into a legal history lesson, but I challenge you to find any PDVSA or BCV financing deal that was approved as a public interest contract by the National Assembly at any point between 1830 and 2017. You won’t find them either.

The Correa Gambit

OK, so maybe under Venezuelan law it was all legal in some narrow, technical sense. It still shouldn’t count. After all, it was contracted by a dictatorial government, the very definition of “odious debt” any new government is entitled to disregard, right?

Well, odious debt is a dubious legal theory that originated during the peace negotiations after the Spanish-American War which is not recognized under international law. It has been used recently by lefties such as Rafael Correa as an argument to get out of paying foreign debt contracted by previous governments.  

Do you really think the wisest thing we can do know is try to ñángara our way out of the mess chavismo left by quoting non-sense from freaking Rafael Correa before the foreign court that hears any dispute about the financings? This is just not what a serious government trying to solve the external debt mess left by irresponsible populist does.

Neither PDVSA nor Banco Central have ever requested or gotten authorization from the National Assembly to incur debt.

Look, I understand where the Assembly is coming from and I commend them for doing all they can to make life hell for the government. But it’s strictly politics: bluster from players who know they’re holding a weak hand and are trying to do the best they can with it.  

The truth is that Venezuela right now is a devastated economy that produces almost nothing and spends a big portion of the cash it receives on servicing debts that never should have been taken on. The solution to this is assistance from multilateral institutions and attracting foreign investment by protecting property rights, economic liberties and reestablishing the rule of law. This will be carried out by a serious, market-friendly, well-advised, technically-sound new government that knows better than to misread the Constitution or to rely on flimsy legal theories to weasel out of paying our debts.