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Fracas in Caracas
Venezuela Burns Money, China

The only thing in a sorrier state than Venezuela’s finances is Venezuela’s ability to handle the sorry state of its finances. The petro-state’s strategy seems geared toward maximizing the suffering of its people while minimizing its chances to ever turn things around. Case in point: Venezuela is defaulting on promises to its ally, China. The FT reports:

Last week, Venezuela’s national gazette made it official that Caracas no longer needed to export 330,000 barrels bpd to China to pay for its loans. Instead, according to BancTrust, a boutique investment bank, PdVSA can now send as much or as little oil to Beijing as it wants. Furthermore, the terms of the loans have been extended beyond their current three years, perhaps indefinitely. China’s Ministry of Commerce has since confirmed the changes, pointing out they were made at Venezuela’s request.

[…] China apparently agreed to the debt rescheduling perhaps because its banks believed in taking the long view. After all, Venezuela has the world’s largest oil reserves – so one day it will pay. But was the rescheduling China’s preferred choice? As the old saying goes: if you owe the bank $5, you have a problem, but if you owe the bank $5m, the bank has a problem. Either way, China is unlikely to be a source of fresh finance for Venezuela from now on.

Defaulting appears to have been the least painful way to palliate Venezuela’s most recent economic convulsions, during which the government resorted to novel means of enforcing rationing. But since the ideologues who led the country into these straits have no appetite for real reform, Venezuela will be back in the same place before long—this time down one powerful ally to bail it out.

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  • Jacksonian_Libertarian

    Big Government doesn’t work, and Big Government married to leftist stupidity is much worse.

  • david1952000 .

    At some point China will start telling Venezuela what to do and when to do it. The Chinese don’t give without getting. Can’t wait to hear all the screaming about sovereignty when the ax falls. Maybe a Chinese military base in Venezuela or a flood of immigrants to set up shop?

  • Brett Champion

    It’s not like the Soviets made money subsidizing Cuba all those years. If China feels that Venezuela is a strategic asset, it will continue to back the Venezuelan government.

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