mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
The Fracas in Caracas
Venezuela Teetering on the Brink of Default

Venezuela has the world’s largest proven oil reserves, but that might not stop it from defaulting on its debt. The Financial Times reports that the Bolivarian Republic is in trouble with its creditors:

Until recently, bond investors drew comfort from Venezuela’s $85bn annual oil exports. But confidence was shaken this week as yields on short-dated bonds issued by PDVSA, the state owned oil company, shot above 25 per cent. Venezuelan credit default swaps also rose to levels comparable to Argentina, even though Buenos Aires is already in default after it refused to comply with a controversial US legal ruling ordering it to pay holdout creditors. [….]

Venezuela’s public finances certainly look tight. Despite $21bn of reserves, less than $3bn of these are liquid. The government also has about $9bn in obscure off-budget funds, plus eventual proceeds from Citgo’s sale.

If Venezuela defaults, it will join Argentina in the most recent round of Latin American fiscal delinquency. These countries are, by natural endowments, two of the richest countries in the world. They have both tried to blaze a trail for “alternative models” and they have both denounced capitalism as a failed system.

Somehow we don’t think that what Simon Bolivar had in mind for Latin American was a future of bankruptcy and toilet paper shortages, but that is what the so-called “Bolivarian Revolution” seems to be best at producing.

Features Icon
show comments
  • LarryD

    So, start by claiming “Capitalism” is a failed system; switch to socalism; result is shortages and default.

    Seems to me proof that socalism is a failed system, and that socalists are “reality challanged”.
    “Repeatedly doing the same thing over and over, while expecting the results to differ.”

  • PKCasimir

    The establishment media gets fascinated with a statistic and continues to use it relentlessly without ever determining if the statistic is meaningful. The fact that Venezuela has the world’s highest proven oil reserves (A determination made by the most incompetently run oil company in the world – BP) doesn’t mean that that oil is extractable at a cost that yields a profit. In fact, a large percentage of Venezuela’s oil reserves is extremely difficult to extract and, at current world oil prices, cannot be extracted profitably. As a practical matter,Saudi Arabia has the world’s largest oil reserves because that oil can be easily, and profitably, extracted.
    So, Venezuela is nowhere near as oil rich as the establishment media continues to proclaim. That said, however, if not for Chavismo, it could be a country as rich as Norway.

    • Corlyss

      BP ain’t the only one that says that:

      “Venezuela is nowhere near as oil rich”
      I rarely hear that reference to Venezuela’s oil that it isn’t followed immediately with mention of the fact that it is “dirty” oil that requires US refineries to make it useable. They need us, and to the best of my knowledge we have not done a thing to leverage that into reminding them who is the big dog in the Western Hemisphere. Nope. We just go on pretending they aren’t letting Iran and Al Qaeda build bases there that we are going to have to deal with as soon as we dump Doofus.

      • grinlap

        Yes, agreed; as mentioned in the Wiki article If the reference to “reserves” means “proven reserves”. Proven reserves is a clearly defined accounting concept and oil companies in general compute it once a year for their annual reports and tax returns. The heavy Venezuelan oil trades at a discount on the world market because it’s so hard to refine. Venezuelan light oil production has also decreased significantly. PDVSA needs to mix the light oil with the heaviest oil to get it to flow in their pipelines. The shortage of local light oil has required importing light oil to mix with the heavy. Talk about poor management.

  • andrewp111

    If Capitalism failed and Socialism failed, they will have to have an Islamic revolution.

  • Jacksonian_Libertarian

    Socialism never works, and some very serious people have tried to make it work like Stalin, and Mao who between them murdered 150 million of their own citizens trying to force it to work. The fact is the Government Monopoly suffers from the same disease that all monopolies suffer from, the lack of the “Feedback of Competition”. It is the “Feedback of Competition”, that forces continuous improvements in Quality, Service, and Price, in free markets. As the Government Monopoly gains more and more power, the information that comes from the “Feedback of Competition” is lost, and waste, decay, and corruption, are the inevitable result.

    • Corlyss

      “Socialism never works, and some very serious people have tried to make it work like Stalin, and Mao who between them murdered 150 million of their own citizens trying to force it to work.”
      As David Horowitz observed almost 10 years ago in his C-SPAN “In Depth,” inveterate Socialists, like so many of the Boomer generation that gave the US the execrable Dim party we have now, NEVER give up on it because they have convinced themselves that the system fails only because the vessels, not the message or the system, were fatally flawed and if they only had the right people, like Americans, the system would prove itself the universal cure for mankind’s ills that they know it to be. They are permanently delusional.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service