The “4” that matters

/ July 21, 2014
This is made from granite that you paid for

This is made from granite that you paid for

The official press in Venezuela is full of details on the state visit of Chinese leader Xi Jinping. As part of his Caracas tour, agreements will be signed, swords will be passed around, sashes will be worn, tombs will be visited, oil will be traded, and a full-blown one-directional slobber-fest will take place. But the only thing, the only number that matters … is a “4.”

No, not the “4” in the sign above Chávez’s tomb. Rather, it’s the $4 billion China has allegedly pledged to contribute to the China-Venezuela fund.

With parliamentary elections coming next year and the economy increasingly under stress, the Venezuelan state needs fresh funds. Thankfully, the Chinese are here ready to provide it, presumably in exchange for future shipments of oil they will surely get with a heavy discount off the market price.

Few details will emerge, but really, that is all this visit is about.

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29 thoughts on “The “4” that matters”

  1. Even the beach sand will be owned by China. El Chiguire talked about this a couple of days ago: “el presidente de China viene a ver que cono fue lo que se compro”
    Don’t move if you are getting raped, you don’t want the rapper to enjoy it that much because it might want to repeat it….

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    • Woho!!! Really really hard that last sentence…Our country it’s not our country anymore. Not just owned by the chavistas, also the Chinese government has more power than regular citizen, not to mention Cubans…i just wish better days come to those who fight and work hard for their country

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  3. The more the regime owes to China the less income it receives from the oil exports and the greater the financial burden in the end . Every cent borrowed from China has to be paid using the proceeds from future oil exports which are then paid direct to China by customers of Venezuelan oil . Meantime not only doess Venezuelan inhabitants need those funds to import stuff to keep on living but the Oil industry needs more and more money just to keep producing the same volumes at an increasingly higher cost.!!

    Arent sure the crude is sold at discount , but at least some of the chinese imports of goods and services which those loans are used to fund may be more costly than can be bought elsewhere in an open market.

    In any event the conditions under which China lends money to the regime is much less onerous than those it would have to accept for loans from the international finance market. !!

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  5. At this point, it doesn’t seem like $4 billion will get them very far. It isn’t enough to save the economy. It isn’t enough to actually increase oil production (at least not the way the Chavistas manage it). It won’t last long enough for them to use it to buy votes next year. All this could possibly do is buy them another couple of months of grace.

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  6. I wonder what the loan conditions are… Is this money the gov can use freely or must it be destined to specific uses?

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  7. The thing is more or less like this (according to the form they have recently agreed over the loans): they do an agreement based on a fake interest rate “X” and a fake oil price as well, around 50$ or 60$ the barrel. Think about the barrel’s actual price 100$ and that would mean Venezuela will send roughly twice the number of barrels otherwise would have sent if they had not used a future fixed oil price. China is cover its back with a huge mattress and its level of hesitation was so high the Chinese president had to come to personally close the business. That’s why all the chavistas “se le colgaron de las bolas”, because only China can provide such a juicy loan to Venezuela government nowadays. Some people see good things involved in this type of business. I don’t see any. The FMI is still patiently its time…

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    • This, and the Chinese re-sell part or all of the Venezuelan crude at market prices for a profit, since they don’t have the refineries (like Citgo does) to process high-sulfur product. Plus, usually, 1/2 of loan to be in non-convertible Chinese currency to buy over-priced high-commissioned Chinese “Haier”-type products to be sold at below-cost prices in Bi-Centenario supermarkets or used as giveaways in “Tu Casa Bien Equipada”. Net net, $2 billion or less cash-in-hand for what should have been $4 billion cash, or just another drop in a bottomless bucket.

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      • The system described by daniel appears to be a tad over elaborate and would depart from past practice , still anything is possible , what is definitely true is that Chinese loans conditions are better than anything the regime can get from the international finance markets right now.

        I think it was setty who did a study of Chinese purchase patterns and determined that while initially they did resell a big percentage of what they bought from Venezuela largely because their refineries werent adapted to the processing of heavier venezuelan crude , As supplies continued over the years however the percentage of resold volumes has grown steadily smaller so that currently the percentage of resold volumes is relatively modest . indicating that most of its is either getting processed in China or converted into asphalt .

        It is true that part of the loans are in remimbis ( chinese currency) so there is a strong incentive to use it to buy all kind of chineses goods rather than use it to buy goods from other countries.

        With limitations however the chinese can be very versatile in producing a huge range of goods at good prices with good delivery times so there is no necessary disavantage to buying from China except that there are certain categories of goods where buying them from other sources definitely assures a better quality of product at more reasonable prices. !!

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        • If you compare the interest rate the international finance market would require vs the interest rate required by the Chinese regime you would see evidently an advantage. Moreover the Chinese regime doesn’t make any further demand in terms of a structural reform of the economy. So from this point of view Venezuela has an advantage (well the government, not the country). However, the trick here is that the interest rate required by the markets is transparently attached to the several risks Venezuela is involved while the interest rate required by China is purely nominal attached to a fake price of the oil’s barrel. Consequently the real interest rate paid by Venezuela ends up being extremely far from the one which you can find written in the contract. I mean the Chinese are not stupids…they know they’re a kind of replacement of the FMI but that comes at a price. I’m not sure the international market offers a worse business than the Chinese regime, in any terms, even in terms of interest rate.

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          • The Chinese deals are much worse than any with the IMF would be due to lack of transparency, over-charging on obligatory Chinese goods purchases, and large commissions/corruption. Of course, the Chinese deals do not demand swallowing the bitter pill of putting Venezuela’s economic house in order, as would a deal with the IMF..

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  8. “The government said on Sunday the fund (the joint Chinese-Venezuela fund) has about $40 billion in it, though it was not clear if that included the amounts covered by Monday’s agreement.”

    Really? Who sez? The upcoming Lopez trial and THAT statement should be the two primary points of contention for the opposition. Where is the money? 40 billion? Prove it! Show us the documents. Right now!

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  9. Pardon me, but.. or is that butt ?… my eye was drawn to the red tights worn by the ceremonial soldiers. Rather obscene, wouldn’t you say? At the very least, not very soldierly.

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  10. Maybe they are re-inventing 19th century imperialism with their own people as victims.
    And I am very fascinated by this: https://dolartoday.com/otra-bomba-filtran-revelador-audio-de-embajador-de-venezuela-en-alemania/
    The blockade to react to the most obvious signals for a need of even partial change is complete inside Chavismo. They see no alternative to keep on with the self-destruction of the country fueled by more and more credits from foreign countries.

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    • I cannot believe that you take seriously dollar today, that a web page run by Bacrin and Casas de Cambio in Cucuta to devaluate the bolivar so they can buy more product in Venezuela with less pesos or dollars coming from drug traffic ,after all according to Dian of Colombia 1/3 of colombian eat at least some subsidiazed food products from Venezuela and 10-15 % of gasoline is smuggled again from Venezuela.The illicit economy on the frontier is close to 8 billion dollars, 8 mil millones is more than half of the 17 billion money laundry in Colombia.The web page dollar today is part to it .How stupid and anti national is the opposition

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  11. If I have it straight, many of the loans the chinese gave this regime never went thru assembly approval. So, does that mean that the next government can not pay them based on the illegitimate nature of the arrangement?

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    • My understanding is that the Chinese lenders are as careful about ensuring the legality of their transactions as the most orthodox of western financial lenders and will insist on all formalities being met before disbursing any loan amounts.

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  12. Wait…I read Venezuela has to deliver now 100000 barrels of oil to China for this money. Is that right? PDVSA can hardly increase its production. That means simply less oil for the USA. The USA can deal with that but that also means the only thing Maduro managed to do was to get now some money.
    How long can it last?

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    • Exactly! And consider that the oil being sent to the U.S. supplies the feedstock to keep the Citgo refineries running. This supplies some of the shortfall of gasoline in Venezuela, and generates the revenue that goes to pay Citgo’s debt.

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      • Currently of some 580.000 bls per day sold to China , 350.000 bls are used to pay or securitize Chinese loans . Yesterday there was the announcement that an additional 4 billion dollar loan would be paid via the supply of 100.000 bls a days. Much of this money I understand will go towards paying bondholders money payable to them towards the end of the year.

        So if the intent is to raise exports to China to 1 million Bls per day , then that means that 450.000 of those bls will go to pay for Chinese loans and 550 000 will be paid to Pdvsa and brought to the country. To be noted is that some 400.000 bls per day sold to India would be wiped out the day that Iran is allowed (by lifted sanctions) to sell oil to India , its next door neighbor.

        Thus unless production is increased substantially ( which a very uncertain thing) , the additional exports to China will come from oil which ceases to be purchased by India. .

        There are ongoing talks between Iran and the UN to lift the sanctions if Iran pledges to certain restrictions on its production of material which can be used to build atomic weapons . In the near future a break through is possible in the negotiations and Iran may see its oil export sanctions lifted which will cause Venezuela to have to look for new markets real fast.

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        • There are some big “ifs” in that scenario. Somehow, the image of a loser pawning his last possessions to take a run at the blackjack tables is coming to mind.

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    • There is something wrong or at least incomplete in your statement. 100.000 barrels is only about 10 million dollars at current prices. The loan was 4 billion dollars. You meant 100.000 barrels of oil per day, right? If so, for how long does Venezuela have to do this?

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      • In ordinary oil industry or journalistic practice , volumetric oil numbers usually referr to number of bls per day , not per year . So the reference should read 100.000 bls per day which equivalent to a bit of over 36 million bls per year . Taking out the high freight cost of transporting oil to China 36 million bls at US$ 95 per bl would amount to 3.240.million US$ . Most likely Pdvsa will be given 40 to 50% of the purchase price ( to allow it to cover a mimimum of its ongoing operating expenses for producing that oil) so that the amount of funds actually used to pay the loan plus interest is probably $ 1.620 million per year , assumming that interest yields are 6.5% per anum then the loan should be payable in about four years. This is all very conjectural and approximate , the true period could vary somewhat depending on a number of unknown conditions .

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  13. Even in death, Chavez has some of the best government funded housing available. The Museo Militar was one housing project that Chavismo actually completed. The full-time red-uniformed attendants for a dead person is going way to far.

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    • You have to read the next post to understand why they need to have red-clad soldiers there all the time.

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