Caracas Chronicles

The fact that Venezuela has irresponsibly taken on enormous levels of debt isn’t really a question. In a flash of clarity back in October 2015, Even Maduro himself said: “We were a country that had income for several years of 90, 100 dollars a barrel of oil. And yet, truth be told, we were spending 120, 130. We were spending more than what we were taking in, and we took in a lot.”

Debt grew due to an explosive mix of inefficient public spending, a complete lack of fiscal oversight from the pro-government majority that ruled the National Assembly up to 2015, and the existence of little-known legal loopholes of approval by the National Assembly.

When a new opposition majority was settling into Parliament, many had high hopes for some oversight into the fiscal wreckage. However, the government set up roadblocks – via Supreme Tribunal decisions – to avoid any oversight in the way they use the country’s checking account.

The National Assembly wouldn’t approve most créditos adicionales and requested to raise the debt limit through the so-called Ley Paragua. The government ignored it. From January 2016 up to mid-May 2017, Maduro signed, sealed and delivered BsF.4.8 trillion in additional resources via Economic Emergency Decrees – you know, the same Decrees that were Constitutionally blocked by the National Assembly but approved but the Supreme Tribunal anyway.

Then came an unexpected decision by the current opposition resistance move: decision No. 156. It authorized the President to amend Venezuela’s legislation on hydrocarbons – specifically article 33 – so he could establish joint ventures in the sector without the authorization of the National Assembly. And, as an afterthought, the sentence declared that the National Assembly’s constitutional prerogatives would henceforth be exercised by the Constitutional Chamber or by another body that the Chamber appointed to that effect.

From January 2016 up to mid-May 2017, Maduro signed, sealed and delivered BsF.4.8 trillion in additional resources via Economic Emergency Decrees.

In any case, the National Assembly has kept on trying to push back any way it can. It issued the “Agreement on the Nullity of the Indebtedness and the Creation of Joint Ventures Companies, Unconstitutionally Entered Into Without Parliamentary Approval and to the Detriment of the Nation’s Patrimony”. In the accord, the Assembly warned foreign banking institutions about the nullity of monetary gold transactions entered into without its approval.

Maduro keeps on talking about the so-called international financial blockade, but it now includes a National Assembly that has the nerve to try to approve budgets and bonds.

National Assembly deputies, like José Guerra, have systematically said that any debt contracted without the authorization of Parliament would be considered void. That makes for a whole bunch of worried investors. Guerra has even claimed he knows for a fact that both the Latin American Development Bank (CAF) and the Inter-American Development Bank (IDB) will no longer make loans to Venezuela because the government hasn’t had the debt ceiling law (Ley Paragua) approved by the Assembly to support the request.

Corina Pons, Marianna Parraga and Olivia Oran from Reuters report that, in recent months, the opposition majority in the National Assembly have sent letters to 13 banks to try and stop the financing of Maduro’s regime. These banks include big names such as Citigroup, Bank of America, JPMorgan, Wells Fargo, UBS, HSBC, Barclays, Credit Suisse, Bank of China, China Construction Bank, the Chinese ICBC and even Goldman Sachs and Nomura.

The letters stress that the duly elected Assembly has not approved new credits and exhorts the banks to think twice before doing business with a regime that has long shown a willingness to take on absolutely reckless amounts of debt.

The opposition majority in the National Assembly have sent letters to 13 banks to try and stop the financing of Maduro’s regime.

Although we haven’t seen any of the 13 letters, a New York financial operator claimed that they were actually some sort of “moral reminders”. And not to be cynical or anything, but morals aren’t what have kept Wall Street going.

And this is where the whole Goldman Sachs–Nomura crazy act just begins.

BCV previously sold untapped PDVSA 2022 bonds to Goldman Sachs and, as stated by our very own Frank Muci, “in return for $865 million now, the government committed to dishing out a total of $3.65 billion through 2022, split between $2.8 billion in principal and $756 million in interest.”

Just as the news came out, the President of the National Assembly, Julio Borges, sent a letter to Lloyd Blankfein, executive director of Goldman Sachs. The letter claims that Julio is “concerned and outraged that Goldman Sachs has decided to enter a bond purchase transaction of $ 2.8 billion with Venezuela’s dictator” and that the transaction violates “Goldman Sachs Code of Conduct and Statement of Human Rights.”

Borges added that “the National Assembly will soon launch an investigation into the matter. I also intend to recommend to any future democratic government of Venezuela not to recognize or pay on this bonds.”

On May 30th, the very next day, the National Assembly approved a proposal put forward by deputy Ángel Alvarado to investigate both the BCV and its President, Ricardo Sanguino. The investigation was to determine the role that BCV and its president had in the Goldman Sachs operation – including possible bribes and kickbacks.

In return for $865 million now, the government committed to dishing out a total of $3.65 billion through 2022, split between $2.8 billion in principal and $756 million in interest.

The National Assembly decided to also ask the US Congress for an investigation into Goldman Sachs to establish its criminal and administrative liabilities. It should be noted that right after the PDVSA 2022 transaction, a member of the Florida Senate, José Javier Rodríguez, decided to initiate an investigation of Florida links with Goldman Sachs.

Right when the  “hunger bonds” movement became a thing, Nomura bought US$100 million in Pdvsa 2022 bonds for only US$ 30 million. Fishy, huh?

On June 1, Julio Borges sent a letter to Nomura Holdings chief executive Koji Nagai, which stated: “There must be a way for Nomura to seek profit that is not made on the backs of the misery of Venezuelans” and “Nomura is violating its own Code of Ethics”.

Borges added that “the National Assembly will conduct a thorough investigation of this dubious transaction and leave no stone unturned to assure that a future democratic government of Venezuela will not have to pay on this immoral debt entered into by an illegitimate authoritarian regime.”

These are serious threats – delivered formally. Kudos to our asambleístas for showing some spine.

However, as we wrote about in the beginning of May, “Not all debt requires National Assembly approval,” the government still has legal loopholes to borrow money from whomever is willing to do so.

There must be a way for Nomura to seek profit that is not made on the backs of the misery of Venezuelans.

Some may argue that selling the Pdvsa 2022 ghost bond doesn’t require the approval of the National Assembly since it’s not a new bond issue and they are simply being placed in the secondary market.

After talking to a couple of lawyers, we concluded that the National Assembly letters are actually moral reminders: don’t hate the messengers, hate the message. And maybe, just maybe, the likes of Goldman Sachs and Nomura are willing to accept such deals because, despite the immorality of the transaction, it’s legal. The banks probably also think they won’t get their money back.

The problem with these moral reminders is that they’re aimed at the wrong target. This is a story about corruption, and the corrupt people who sold out the nation’s interests.

According to article 91 of the Ley Orgánica de la Contraloría General de la República:

Also, article 55 of the Ley contra la Corrupción clearly states:

If selling bonds at 30-31% of their face value can – for any reason – be considered a damage to the value of public property, then those who approved the transaction must face legal consequences. Right? RIGHT!?

This is a story about corruption, and the corrupt people who sold out the nation’s interests.

But after some more investigation, we have now learned that there is an even worse deal than the PDVSA 2022 bond.

It’s called the VENZ 6.5% 2036, which was issued in a private placement to State-owned Banco de Venezuela in December 2016 at the official Dipro rate of BsF 10 per US$. Now, as CaracasChron has explained, five billion dollars of the face value of this phantom bond is being sold for the ridiculously low price of 20 – TWENTY – cents on the dollar.

It took the National Assembly only a day to include the matter in its agenda and on June 6  unanimously approve an agreement in rejection to the illegal sale of the VENZ 2036 bonds.

These decisions are not based on what’s best for the country – but what’s best for their own pockets. And these are the type of horrible transactions the opposition majority of the National Assembly has been trying to block.

This isn’t about morality; it’s rather about salvaguarda – safeguarding the public’s property. People who want to only misuse public resources are criminals. Selling a public asset for far less than it’s worth is an act of corruption. That’s where the focus should be.