How much debt is “manageable”?

217According to IMF statistics, Japan’s general government’s gross debt for 2015 is 246% of GDP: the government owes 2.46 times as much as the Japanese economy as a whole produces in a year. For Italy, the number is 134%. The United States? 105%. And for Venezuela? A tiny 40%.

See, we’re doing great, right?

Except, of course, as with everything in Bolivarian Socialism, there’s a catch. Both numbers that go into making that debt-to-GDP ratio are in dispute. And the ratio itself can vary wildly depending on where you come down on those disputes.

Consider:

Official data is old and incomplete. The last known official GDP result is from the 3rd trimester of 2014; official statistics about Central Government debt are from March, 2014; and other relevant information, like the status of Chinese loans amongst others, is mostly unknown.

What should be included as debt? Adding both external and domestic debt from Central Government, Pdvsa and Fondo Chino, Venezuela owes an estimated US$140 bln. (according to JP Morgan) and US$$190 bln. (according to Ecoanalítica). But there are other commitments that some argue should be thought of as debt. For example, we have settlements being forced against the Republic in international courts (like the ones for Exxon or Gold Reserve), and we have the Cadivi-Cencoex amounts approved but not cancelled – currency allocation the government supposedly owes the private sector.

These aren’t financial debt in the strict sense of the term, but they have an element of debtiness to them. In any company, these would be liabilities. Considering them, obligations may be over US$ 240 bln.

Which exchange rate should we use? If we want domestic debt or local GDP valued in US dollars, we have to make a choice amongst 3 official exchange rates, a black market exchange rate, or a different exchange rate estimated on our own.

Let’s consider first our 3 official exchange rates. IMF estimation for the current GDP in national currency for 2014 is BsF 3,145.4 bln. That would be US$ 499 bln. at Cencoex exchange rate (6.3 BsF/US$), US$ 262 bln. at Sicad (12 BsF/US$) or US$ 16 bln. at Simadi (196.9 BsF/US$).

Our choice amongst official exchange rates can take the Venezuelan economy from one the size of Austria to one the size of Papua Nueva Guinea. Of course, this translates into a very, very wide range for the debt-to-GDP ratios. For example, at the 6.3 rate, our debt to GDP ratio is about 33%. At the 12 rate, the ratio would be roughly 63%, while at the Simad rate, our ration would be well over 1000%.

Since Venezuela seems to be neither Austria nor Papua Nueva Guinea, calculations are generally made with an estimated exchange rate somewhere in the middle. Just as an exercise, suppose we said that GDP is about $150 billion, which would actually imply an exchange rate of about 21. This means our debt to GDP ratio is close to 100%.

Some estimate the exchange rate adjusting it for purchasing power parity, while others calculate a weighted average considering how currency allocations in the country might be. In this topic, all we officially know is that less than 2% of allocations from the public sector are made at the Simadi exchange rate. How the 98% of official allocations are distributed between Cencoex and Sicad, or how much of the country’s currency supply comes from the black market, are things unknown. Bottom line: the lower the exchange rate you estimate, the more “manageable” the foreign debt looks in relation to GDP.

The real question: can the debt be paid? Debt should be –and usually is- compared to GDP, to exports, and to external assets (like foreign exchange reserves, accounts receivable, and oil refineries abroad we could sell). Those numbers give us an approximation to how large the debt burden is, but according to some research from the World Bank, debt burden is only one of three significant factors for a “distress event” (that being the moment a country defaults, or refinances, or goes to the IMF for a loan and a “paquete”). The other two significant factors are the quality of institutions and policies, and shocks that affect real GDP growth. We can argue about how good we do on the burden factor, but it’s harder to dispute we do very poorly in the last two factors.

Venezuela has the worst institutions of the world, literally. And due to a hostile business environment and accumulating inefficiencies and distortions, the economy is in recession since the first semester 2014, when oil prices were still close to US$ 100 per barrel. Then oil prices fell, so we got a recession on top of a recession, with people facing rising scarcity, inflation, growing informal markets, increasing poverty and crime.

In this context, both Pdvsa and the Central Government have chosen to honor their commitments and prove their financial strength. Last March, the Central Governmente paid EUR 1 bln. plus interests for its Eurobono 2015. Tomorrow, Pdvsa will pay interests for the Petrobonos 2015 and 2016. Those choices show the Republic and Pdvsa currently find the burden of their debt still tolerable, and default looks like a terrible choice to make –because it is.

The context in which that decision is being made can change. The debt burden might seem heavier some months from now if oil prices remain low, if no more loans come from China, if our local economic crisis gets even worst, and if we have no PetroCaribe receivables left to sell, no more gold abroad to swap, and no more capacity to issue debt from Citgo.

We are already having a hard time accessing foreign financing options, and we are depleting our assets without even being able to stop our foreign exchange reserves from falling. So maybe we’ll gather enough resources to pay our debt for the next years and maybe the willingness of the Central Government to honor its commitments will remain strong.

Maybe we’ll manage, for now, but markets don’t put Venezuela at the top of risky debt in the world (behind Ukraine) for nothing. Something to think about while people try to convince us that our debt burden is completely manageable.

48 thoughts on “How much debt is “manageable”?

  1. With an implicit exchange rate at 116 today, soon to skyrocket with M1 issuance post May 1, an exchange rate of 80 or so might be defendible with an IMF package/large $ loan/concomitant macro-economic correctives, meaning Venezuela’s debt/GDP ratio is in the hundreds of per cent, and, with these correctives not likely forthcoming under the current Regime, and probable continuation of oil pricing under $65 for the foreseeable future, Venezuela is bankrupt and will sink further into its bankruptcy abyss.

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  2. Furthermore, now that most of Venezuela’s productive farms have been duly confiscated, with the predictable result of record low domestic food production, how much money (foreign reserves) does it take to feed 30 million people? If it takes, say, 3 dollars and change a day to feed each person, that’s a hundred million dollars of foreign reserves needed each and every day, or 3 billion a month. Now, how much revenue is currently being generated by PDVSA in oil revenues AFTER having allocated some of the scarce foreign reserves being generated from oil sales to help feed 30 million people, and, …..and,…ALSO manage to pay a record high interest rate on 120 billion dollars in foreign debt? Houston, I think we have a problem…

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  3. The most disgusting part is not the debt or wether we can pay it or not, the most sinister aspect of this is that they got us into debt just to steal it all, our children will have to pay for those billion dollar accounts in Andorra etc and there is nothing we can do about it in the foreseenable future.

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  4. I commend the clarity and simplicity of this post.

    One example here that you don’t have to be incomprehensible when treating complex subjects.

    One question: you suggest there are multiple ways to calculate debt and economy size, according to exchange rate, and how many goods are imported at which rate. So in practice, isn’t it impossible to know anything certain about the Venezuelan economy? Even for the government it has to be impossible to calculate how much is imported using the different Forex mechanisms.

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  5. Bla bla bla Debt/GDP Ratio close to 100%!!!! Bla, bla bla bla bla. Default, bla bla bla, risk, bla bla bla.

    In any case, please keep the circular news flow coming so we can load more bonds cheaply!!

    For opinions/views on artificial and arbitrary metrics I defer to Dr. Robert J. Shiller, circa 2011:

    “…That would clearly be nonsense. After all, debt (which is measured in currency units) and GDP (which is measured in currency units per unit of time) yields a ratio in units of pure time. There is nothing special about using a year as that unit. A year is the time that it takes for the earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance.”

    “….We should remember this from high school science: always pay attention to units of measurement. Get the units wrong and you are totally befuddled”…

    “…Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories.”

    “…The lesson is simple: We should worry less about debt ratios and thresholds, and more about our inability to see these indicators for the artificial – and often irrelevant – constructs that they are!”

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    • Bla bla bla Debt/GDP Ratio close to 100%!!!! Bla, bla bla bla bla. Default, bla bla bla, risk, bla bla bla.

      Just the kind of nuanced analysis we’ve come to rely on for our friendly neighborhood bond profiteer!

      Do your clients even realize how much Adderall you’re on?

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      • Hi Mr. Toro. Sure if you want to be selective and completely ignore the opinion of someone like Dr. Shiller on such matters (Venezuelan specialists du-jour and Wall Street Research Analysts i.e. monkeys as they are often called surely know more).

        I have no clients, I trade for myself and close relatives. Managing other people’s money is quite sensitive and a task I am probably not suitable for (not on the grounds of poor track record but of lack of patience i.e. imagine dealing with people such as yourself who are stubborn and repeatedly fail to acknowledge they are wrong). But well, you know how it is, even a broken clock can be right twice a day.

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  6. Why is Corruptzuela behind Ukraine in debt risk, and behind Honduras in crime? Can’t we be # 1 at something?!

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  7. “Venezuela is bankrupt and will sink further into its bankruptcy abyss.”

    Good. And hopefully the Escasez will also get worse. See if people wake up one day.

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      • Those who decided to leave, about 2 Million, usually the professional, educated elite, clase media, o mas alta, already left long ago.

        And it was not because of the escasez, or even inflacion. In most cases the deciding factor was not to get Killed or Kidnapped; or because they could no longer do their honest business, and keep their properties.

        The people still there, the vast majority, are either the poor, or the enchufados, or both, who can’t leave or don’t want to. The minority are a few hundred thousand of educated folks, who are neither enchufados nor too poor yet, who choose to stay mainly because they still can run a good business.

        These, of course, are merely blog generalizations, give or take a million here or there.

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        • I think this is important to understand–the educated/middle-class Oppo in Venezuela is few and far-between. The Petro-State peons are legion, and easily coerced to try and maintain their meager Petro-State handouts; the difference to make a Regime electoral “majority” can/probably will be provided via electoral fraud.

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  8. Does anyone know the Bf/USD exchange rate offered by big banks in, say, Bogota, Panama, Miami, Mexico City? It seems that these exchange rates would have to be near the black-market rate, or any easy arbitrage would exist. If this is the case, then the black-market rate would reflect the internationally accepted exchange rate, and all lesser rates would just represent internal government subsidies.

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    • This isn’t right. This kind of black market exchange rate reflects the equilibrium rate of the dollars left-over after CENCOEX/SIMADI.

      The closest we could get to a *true* equilibrium rate is a weighted-average of CENCOEX-SIMADI-BLACK, but since the weights aren’t published on time, we can’t even have that. (The estimates I’ve seen are in the Bs.20-40:$1 range.)

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      • According to you, if exchange controls were eliminated the rate will settle around Bs 40 per USD.

        Anyone apart from you (an specialist) shares this opinion?

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        • Many. I have read such figures from BofA, Barclay’s and other groups. I think the 20 – 40 BsF is outdated since so much liquidity has been added to the economy but the 120 BsF that was thrown in the article may be very reasonable.

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          • If that is true, then the government prefers to have a dollar artificially high (increasing inflation, diminishing purchase power, increasing poverty, mining its popularity) to give the population freedom to exchange currency.

            Curious, isn’t it? this Forex fetishism.

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      • If Maduro’s government were to lift FX controls and keep negative real interest rates in bolivares under the current policy framework, the equilibrium rate could settle anywhere between 100-180 BsF/USD. If an opposition government were to lift FX controls after seeking an an IMF loan, re-balancing institutional power, and announcing an economic overhaul, you could get an equilibrium FX rate anywhere from 60-100 BsF/USD. The resulting equilibrium depends on the way controls are lifted and the confidence that people/markets have in the currency.

        The weighted average FX rate is in fact low: 20 to 50 BsF/USD, depending on whether you trust official FX allocation figures and what volume you assign to the black market. Even under the best-case scenario for lifting FX controls, though, I think the resulting equilibrium FX rate will be higher than the range for the current weighted average FX rate.

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  9. Aguantense, compatriotas, que ya viene llegando:

    “Bolivia asegura que puede exportar papel tualé a Venezuela
    El Ministerio de Desarrollo Productivo indicó que Bolivia produce anualmente 32.000 toneladas de papel higiénico, lo que le permitirá exportar a Venezuela unos 60.000 paquetes de 20 rollos cada uno.”

    Dicen que pica un poco con el contrabando de coca, pero nos sale gratis el flete !

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    • 60.000 paquetes.
      De 20 rollitos cada uno.
      Asumamos que sean de los rollitos rendidores de 450 metros cada uno.
      Se supone que en Venezuela hay unas 30 millones de personas…

      Tenemos que:
      60.000 paquetes X 20 rollos = 1.200.000 rollos / paquete

      Ahora, repartimos eso entre los 30 millones de habitantes venezolanos:
      1.200.000 rollos / paquete / 30.000.000 habitantes = 0,04 rollos / habitante

      Ahora:
      0,04 X 450 metros = 18 metros de papel por habitante.

      Suerte rindiendo 18 metros de papel tualé a lo largo de TODO EL AÑO.

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  10. I finally understood what the Chavista politicians will do when Venezuela becomes too ‘human-unfriendly’, they will just move to Europe with their families and outsource their public offices to a subordinate. Best of two worlds, actually — to live in a society without crazy chavistas like them ruining everyone’s lives at the same time thay they keep cashing fat wages.

    http://www.reportero24.com/2015/04/espana-la-lujosa-vida-del-alcalde-chavista-rafael-lacava/

    But they better watch out, because Italy has just opened a very dangerous precedent for corrupt politicians, yes, they better be careful. For the ones who don’t know what I’m talking about, Italy has just deported an Italian citizen for the first time in its history:

    http://agenciabrasil.ebc.com.br/en/internacional/noticia/2015-04/italy-authorizes-extradition-former-banco-do-brasil-director

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    • “…to live in a society without crazy chavistas like them ruining everyone’s lives…”

      UNLESS! They move to Spain where pablo “Uso iPhones de miles de euros pero digo que ser rico es malo” iglesias and juan carlos “cobro y blanqueo capitales” monedero seize the power, implement their version of cadivi and everything goes to hell.

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  11. One other thought on the subject: When discussing the Venezuelan debt let’s not forget that the ability to pay said debt is wholly dependent on the profitability of the oil extraction process. Sure, Venezuela is still pumping oil from old, but very profitable oil fields. But as the focus of new production has increasingly turned to the Orinoco fields (Faja), the profitability of extraction from these fields is highly in doubt, especially at current oil prices. I’ve seen the figure of 50 dollars per barrel as the break even point for heavy oil. If that’s the case, how in God’s name are ya gonna pay-off the interest on the debt, feed the population and pay for imported raw materials? Scary. Really scary.

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    • Thank you Dr Faustus for bringing attention to this very crucial point which is so often overlooked by professional economists and pundits . Increasingly old conventional oil fields are becoming depleted and more expensive and difficult to produce. so that the income to be obtained from our oil exports falls even if the number of bls remains the same because even if production from conventional oil fields is replaced by production of extra heavy crude oil from the faja fields the latter is much more costly and difficult to produce and sell and brings in a much lower per bbl income .

      Additionally for years Pdvsa neglected or mismanaged the upkeep and maintenance of conventional oil fields and other installations so that production started falling , Pdvsa did start a kind of make up effort to recover lost production in 2013 which since has fallen to lower maintenance and upkeep numbers as finances became critical ..

      People too often forget that just to keep the production going, a field and other oil facilities have to be maintained and managed in a certain fashion or production falls or becomes impossible to maintain, for every day in which maintenance is delayed the cost of doing it rises not just because of inflation but because ongoing deterioration increases the longer the time inwhich maintenance is neglected. Pdvsa has huge costs just to put right the losses resulting from past cummulative neglect in the maintennace of operations. We are probably talking of several billions of dollars .

      Another factor is that as Guri power generation falls and becomes less capable of meeting the countrys increased electrical demand , the govt hat to resort to thermopower generators which consumme a lot of refinery products , the volume of high priced refinery products which now has to be dedicated to keep the power going in these thermoelectric plants is between 200 and 300k bbls a day . which if exported would bring in large amounts of forex income for Pdvsa, instead its now used to sattisfy local power demand which fees are heavily subsidized and bring in no forex income.

      If Venezuelan GDP is made up mostly of forex income from oil exports and the volume and profitability of the oil being exported falls , because of all of the above conditions ( not just because oil prices have fallen) then the regime is going to have a hell of a hard time tryng to continue to pay its international debt service .

      The debt service represents a kind of steeple chase , where the height of the obstacles become substantially higher in 2016 and even higher in 2017 after which they level off. The crucial moment will probably no come this year ( which has some large payments due in oct/nov but next year and if by a miracle payment is made in 2016 the hurdle becomes even larger for 2017.

      Meantime production is either falling or in a virtual stalemate , even if the programs which the chinese are financing with the last 5 billion USD loan are succesful they wont bring in ( with luck) some 300k bls of extra production in the next 2 to 3 years and that evidently is not going to be enough unless oil prices rise to arroung a US$70 a bbl level in which case the chances of a default will became less dire but still very high.

      Understand the govt has tried convincing its offshore creditors to extend the period of the bonds so they become due at some later date without much success . With the country being in such a mess and the prospects of the oil industry so dark it isnt difficult to understand their position .

      If a default does ocurr only two things can happen : either the govt is changed or restructured with new faces being brought forth ( BY BY MADURO) , or Venezuela will have to go humbly hat in hand before the IMF to beg a handout of some sort . Doubt very much that the Chinese which even now are becoming much more hard nosed and reticent in giving any financing to the regime will be willing to became a Knight in Shining Red armour to save the regime from its catastrophe.

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      • I understand that conventional lighter oil field production descends some 15% or more/yr. without proper maintenance of the fields, and that Faja production costs some $65/bbl .

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      • Thank you for your compliment. I would add that the concept of ‘profitability’ is completely alien to the Chavista. With oil prices hovering between 50 and 70 dollars per barrel the profitability of the Faja becomes marginal at best. Price has a meaning, as the entire Middle East discovered when new oil from Bakken and Eagle Ford poured into the marketplace at 100 dollars a barrel. It shocked everyone. It will also quickly re-emerge as a dynamic force once the price of oil attempts to break out above 70 or 80 dollars a barrel. Price matters. The real point here, however, is that at 55 dollars a barrel Venezuela is headed to an economic melt-down the likes of which has never before been seen in South America. This is gonna get serious, and very soon.

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        • That’s also great news! Hopefully Corruptzuela will run out of light oil soon, so we get more escasez, so people get finally pissed off and wake up.

          Always look at the bright side, as the song says.

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        • I dont know that the cost of producing / transporting / upgrading / mingling faja crude is as high as 50$ a bl, I read somewhere that the cost was somewhat higher than that of a bl of conventional crude but not as high as one might think , of course much depends on the exchange rate used to calculate the costs .

          Of course Venezuela hasnt ceased to produce conventional crudes and that helps the final numbers , the reserves of conventional crudes although much lower than those of faja crude arent insignificant either .

          Pdvsa recently gave the average per bl cost figure as between $17 and 19$ , Ramon Espinaza puts it at 24$ , the numbers are bound to climb but I havent got any hard data on what the actual costs of producing selling a bl of faja crude might be . No doubt however that as the percentage of the production of faja crude climbs the net forex per bls income of Venezuela is bound to fall , the margins are not going to be those of the past . people ought to keep that in mind . the change is structural not ephemeral.

          On the price of oil in the international markets the general consensus is that they will remain between 50 and 70$ per bls for the next 3 to 5 years . The thing is that if it climbs to 70$ or more it will be easy for the shale producers to restart production and flood the markets will their volumes thus preventing the price from climbing from that level. In oil however there is no certain forecast , anything can happen and will happen , its best to be cautious and see the prices as remaining within the 50 to 70 $ per bls level for quite a few of the following years.

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          • The problem isn’t the cost of producing a barrel of Faja extra-heavy gunk. The problem is that to be able to market the bitumen that comes out of the faja, you need to mix it about 2-parts-gunk-to-1-part-premium-light-sweet-Algerian-oil. (Cuz Western Venezuela doesn’t even produce enough high quality oil anymore to mix with the Eastern crap.)

            It’s the Algerian component that sends costs out of control: a third of an Algerian barrel costs $20, and you have to add those 20 bucks to the 17-25 bucks in local production costs for the gunk itself.

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            • RD, someone in the know, has stated that Faja production costs $65/bbl–it isn’t just extraction/mixing, its transporting by land then tanker through specially-conditioned facilities, then refined only through specially-conditioned refineries=$65/bbl., unless “sold”/exchanged for loans to the Chinese as crude at large 20%+ discounts.

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              • The process is : production , transportation ( by mixing it with diluents and then distilling them out of the mixture) , and then one of three options : blending it with light crudes or upgrading it or blending with refinery produced diluents , after that you get a barrel of conventional crude which can be refined ( not before ) .

                The extra costs will vary depending on which method you use to transform it into a saleable product . blending it with light algerian crudes is just one alternative but the calculation can be complicated by all kind of factors . The margin will be less than we are accostumed to but can still be decent if the operation is organized and run with optimal operational efficiency .

                Pdvsa established the four faja joint ventures to handle this process and it was a money maker , the problem is that now the faja crude volumes are rising ( as the light crude production falls) but we havent built the facilities and havent created the organizations that can handle the added volumes of faja crude.

                It can be done but not with the system we have now .

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            • The faja crude can become saleable also if mixed with refinery produced products (diesel) or with other light crudes (algeria is just one of several) or passed through an upgrader ( price tag 18 bln $ to process 200k bls per day) . If the light crude has to be brought from faraway then -besides its purchase price- the cost of the logisitics and transporation and blending plus cost of time while the whole blend is sold and the money recieved ( 45 days after shipment) also adds to the costs of selling it , the impact of all these costs on the net forex income from its sale can reduce its profitabilitoy to next to nothing . The blended product has to be sold at a price that covers all these extra costs and then leave enough for other uses. Having a professional a- political management of the oil industry ceases to be an option and becomes a necessity . This means that one way or another , at least in part, the oil industry will have to be privatized . and then of course : quien le pone el cascavel al gato ??

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  12. Argentina committed the biggest sovereing debt default in mankind’s history in 2001 (around a 90billion$ default) whilst having a debt-to-GDP ratio of 35% or so. It’s not just the ratio that counts, it’s also the disposable assets or how liquid they’re for covering up your financial dues.

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    • Yes, when I worked in a bank a colleague (who worked in credit) told me: the level of debt doesn’t drive people bankrupt, its liquidity. You could owe just $100 if they are due tomorrow and you can’t pay, you are in default. So imagine two people both unemployed with no assets and probabilities of 90% of finding a job in one year’s time (same salary level). Who is a better credit? Individual A who owes $100 tomorrow, or Individual B who owes $200 due in 10 years time? B has 2x the debt level of A, but A has a liquidity issue. One of the arguments of Varoufakis is that Greece should not have received a bailout because it was insolvent, but, everyone preferred to pretend that it just had a liquidity issue -btw- just an aside.

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  13. Another thing to consider is how much total debt there is in a country (consider that many times private sector debt gets nationalised i.e. bank bailouts). When you look at total debt to GDP (public and private sector debt) then things get scary…,have a look at this recent report by consulting firm McKinsey

    http://www.mckinsey.com/~/media/McKinsey/dotcom/Insights/Economic%20Studies/Debt%20and%20not%20much%20deleveraging/MGI%20Debt%20and%20not%20much%20deleveragingFullreportFebruary2015.ashx

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  14. Malpica , Cilias nephew current finance director of Pdvsa is publicly declaring that more of Pdvsa’s income should be diverted from covering the cost of internal operations and instead be given to the govt to use in social programs. (election campaigns , clientelar gift giving ) , It is reported that this is causing a conflict with Pdvsa’s president Del Pino who is seen as a former protege of now fallen Financial Zar Ramirez. Apparently this has led Maduro to consider replacing Del PIno with someone more amenable to his control . ( another of Cilias proteges) but the proposed diversion of funds would be so disastrous for Pdvsa’s operating capacity that even they objected to the proposal , for now del Pino is being kept as president of Pdvsa until a better candidate can be found that is more agreable to Cilia and Maduro . There is some rumour that former minister Rodriguez Torres is being offered the job. !!

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  15. ISTM that in calculating the debt/GDP ratio, it is necessary to know how much of the debt is in what currencies. All of Japan’s sovereign debt is in yen, AFAIK. Therefore exchange rates don’t matter.

    Venezuela’s sovereign debt is in both dollars and bolivars. Therefore the exchange rate matters.

    Of course there is the other little detail – that the Venezuelan government has incurred very large debts in its state enterprises and special-purpose funds. This Enron-like proceeding allows Venezuela to keep these debts off the books of the state.

    Suppose PdVSA borrows $, buys up Venezuela state $ bonds, and exchanges them for state for new BsF bonds at 6.3. Then PdVSA defaults on its $ borrowing. Would that be a “sovereign default”?

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  16. Is there a debt-service-to-GDP ratio? I suppose that gives a much clearer indication of how close you are to default, no?

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    • Whats most important is not how much money is spent on something but whether that money has been spent productively and effectively or unwisely and ineffectively . Some days ago an argument appeared in these pages on whether the 4th Republic or Chavez spent more on health and education for the poor , what struck me was that the amount of money spent by one or the other was irrelevant because what counted is whether the money had been spent more or less productively in one instance than in the other.

      You can give a man a 1000$ to invest and in a year he returns with 2000 $ ,you give another man the same amount and in a year he returns broke.

      the size of an investments is no evidence that the best or most effective use has been made of that investment , and the latter is what really matters.

      Problem with Pdvsa is that they had neglected doing necessary upkeep and maintenance for some years because the money had to be funneled to fuel political campaigns disguised as social programs ( besides the money lost to mismanagement, waste and corruption) so that when production starting really to drop and they tried stemming the loss , the money they had to spend just to keep production going was probably less than was needed . . .

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