US Sanctions on Venezuela: ‘Attempt to Destroy the Economy’
Venezuela’s recession is making it difficult for the country to meet its debt payments, but US sanctions are making a difficult task almost impossible explains CEPR’s Mark Weisbrot
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries coming to you from Baltimore. Due to late debt payments, credit agencies downgraded Venezuela’s debt last week. Meanwhile, the finance minister of Russia announced it is providing Venezuela with $3 billion in new credit so it can make the outstanding debt payments in time and not fall into default. Part of Venezuela’s credit crunch is traceable to U.S. financial sanctions, which make it practically impossible for Venezuela to restructure its outstanding debt because U.S. investors are now prohibited from trading in Venezuelan bonds.
Joining me now to explore this a little further and what it means for Venezuela is Mark Weisbrot. Mark is the co-director of the Center for Economic and Policy Research and is the author of Failed: What Experts Got Wrong About the Global Economy. Thanks for joining us, Mark.
MARK WEISBROT: Thanks, Sharmini.
SHARMINI PERIES: Mark, in order to properly understand this, we need some background on what is happening with Venezuela. Why is it in so much debt, how did it get there, and why is it having such a hard time making its interest payments?
MARK WEISBROT: The economy’s been in decline now for four years. The collapse of oil prices, of course, in 2014 contributed quite a bit to that. Oil prices have rebounded some since then, but their imports, for example, are down about an estimated 79% since 2012. All economies are dependent on imports just for domestic production, and Venezuela is even more than a lot of other economies, so that’s keeping them from recovering. Their inflation is running right now at an annual rate of probably around 1,000%, if you look at the last few months. You have a crisis that has been going on for quite a while now.
It’s an inflation-depreciation spiral. This inflation goes up. You have a depreciation of the currency in the black market, and then that feeds back into inflation. You have a very deep recession, and you have this collapse of imports. All of these things combine to make it very difficult for the government to stop the economic decline.
SHARMINI PERIES: Mark, just how indebted is Venezuela at the moment? Compare that to countries in Latin America and perhaps some notable ones in Europe, for example Greece and Spain, who seem to be in a bit of trouble now.
MARK WEISBROT: The numbers in terms of debt to GDP or interest payments as a percent of GDP don’t really apply here. You’re talking about a severe balance of payments crisis where they’re just barely coming up with the money each time. [inaudible 00:03:33] goes higher each month, they’re barely coming up with the interest payments or the principal that’s due. For example, they had a big principal, over $1 billion, on a PDVSA bond on Thursday. There’s no grace period for that. They seem to have made that payment, although it hasn’t gone through.
This is where the Trump sanctions are really devastating. It is a financial embargo. If not for those sanctions, Venezuela could restructure its debt and push some of these payments off into the future. Then, they would be able to do much better. In fact, the government has proposed a meeting with bondholders. They’ve invited them to discuss restructuring for November 13th, but the Trump administration reacted today with a threat against any bondholders who might attend that meeting or negotiate because they say it would violate the sanctions that the United States has placed against Venezuelan officials, in particular two of the ones that are leading the negotiations.
Of course, any kind of restructuring would be extremely difficult if not impossible under the sanctions because the U.S. sanctions prevent any U.S. nationals or financial institutions from participating in new credits to the Venezuelan government. If you restructure the debt, what you do is you trade the current bonds for new ones. Therefore, they’re trying to prevent … Their sanctions are actually aimed to prevent the restructuring. It really is an attempt to destroy the economy. There’s no other accurate way to describe the sanctions that the U.S. has, and of course it increases the suffering there, because it makes it more difficult to get food and medicines, but it also makes it hard for them to come out of this situation. It’s an attempt to topple the government by further destroying the economy and preventing its recovery.
I should say that in spite of all the grim statistics that I have already cited, there are some signs that their balance of payments crisis could be easing, if not for the sanctions. For example, you mentioned the credit from Russia, but also, if you look at their exports for the first eight months of this year, those are up 28% over last year. That’s important, because that will give them, that has given them a little bit more money not just to pay off debt but also for essential imports like food. There is evidence the situation is getting better, and I think that was one of the factors that led to Venezuela, the government party, winning 18 out of 23 governorships in this recent election.
Again, the people who want these sanctions, and this includes European authorities now who are joining in, they’re really promoting a strategy of violence. I don’t think it’s an exaggeration at all to say that. In other words, they don’t want an electoral or they’re not waiting for an electoral or any kind of negotiated solution, even though the vast majority of the country, 69% of the country in the latest poll, said that they want the government and the opposition to sit down and talk again. The Trump administration and its allies, which include right-wing governments in Latin America and also the European Union, they’re pushing for a destruction of the economy. The only way that works is the way you saw prior to these recent elections. That is, people are in the streets. There’s violent demonstrations. You try and topple the government by creating chaos and violence. That’s the strategy the Trump and Rubio administration, I should include Rubio because it’s really more him than Trump that’s designing this strategy, that’s what they’re pushing for with this financial embargo.
SHARMINI PERIES: Obviously, as you say, this is an effort on the part of the Trump administration and its allies to strangle the government until the population turns on them. That is only going to happen as a result if these recent elections, if that’s an indicator, this is going to happen if the conditions on the ground get more and more and more difficult for them. In fact, what Trump and his allies have done is to really make the Venezuelan people suffer more than they already are. What practical consequences does the inability to restructure its loans have on the government and its ability to pursue economic and social policies to release the stress on the people?
MARK WEISBROT: You can see in Venezuela, for example, they had to struggle to come up with that $1 billion for the latest PDVSA principal payment. They’re already behind in a number of interest payments. There’s a grace period for those, but that will end in a month or so for some of them. Again, it puts the government in constant crisis, and it makes it more difficult to finance the essential imports that people need. That also pushes the economy further into depression and makes any kind of economic recovery much more difficult.
Ironically, it seems to have backfired. Of course, that’s one of the reasons that the governing party won the last election, because over 61% of the people rejected the sanctions and yet the opposition supported them. Of course, you can imagine how unpopular that is, the opposition aligning itself with a foreign power who’s obviously trying to destroy their economy and making their lives worse. That backfired.
Another ironic result also of this policy is that the value of Venezuela’s bonds have plummeted so far that Torino Capital estimates that the total foreign debt, what you can call foreign debt, it’s owned by foreigners, for both the government and the state oil company, PDVSA, now adds up to about $16 billion. The government, if it could get that cash, could buy them back, buy these bonds out. That would be the end of their debt.
Of course, Russia or China could easily finance that. There was some speculation in the media, I don’t know if I would agree with it, but again it’s a possibility, that the reason that the government is announcing a proposed restructuring, and having this meeting on November 13th, and leaving in charge for this meeting two people who are under U.S. sanctions, which makes it very difficult to have the restructuring, is to create the impression of a possible default in order to buy back some of those bonds very cheaply, or all of them. I don’t see where they get the cash for that, but that could be done. President Correa did something similar back in 2007. When he defaulted, actually, he did default on the debt, and was able to buy back a lot of the bonds at a very low price and therefore get rid of some of their debt very cheaply. About a third of their foreign debt was gone. I think that would be one solution to the debt crisis, if the government could somehow come up with this kind of cash.
If they can’t get it from Russia or China, it’s going to be very hard to reach a restructuring agreement with the bondholders because of the Trump sanctions. Again, that’s the main purpose of the Trump sanctions, is to make the debt restructuring impossible and then to create other problems that will wreck the economy further.
SHARMINI PERIES: And the politics of the country further, and then they can put a government that is more friendly to neoliberal policies, and then scoop up in a fire sale all the oil reserves, and oil leases, and so on. I’m sure there’s a plan of that sort in mind.
More importantly right now, President Macri of Argentina and OAS Secretary-General Luis Almagro are urging that the U.S. should impose a wholesale embargo on Venezuelan oil, supposedly in the name of helping the Venezuelan people. What’s behind this, and what consequences would such a move have on Venezuela?
MARK WEISBROT: That would be even worse. That would be much worse, and it would also hurt the U.S. oil industry to some degree, and that’s why the Trump administration didn’t do that. They were considering an oil embargo. Luis Almagro, the head of the OAS, is quite fanatical about this. He’s been trying to topple the Venezuelan government for years now. It is quite outrageous, the head of what is supposed to be a multilateral organization campaigning in this way against a member state. He can’t get the votes in the assembly to support this, so he himself has made it his mission to support the Trump administration and its right-wing allies. President Macri of Argentina, of course, is a longtime U.S. ally and shares the right-wing political agenda of the United States in South America. They’ve really, at least temporarily, destroyed the OAS as a multilateral organization.
It’s now more comparable to, say, the IMF, where it’s run by the United States and its allies as opposed to being an actual multilateral organization, but not completely. One reason they still have each country has a vote. That’s why the body itself has not endorsed the sanctions. It’s just that Almagro is using his position as the Secretary General as much as he can to campaign for the destruction of the Venezuelan economy and the overthrow of that government.
SHARMINI PERIES: All right, Mark. I imagine we’re going to be talking about this soon. We’ll be looking for you on the 13th of November. Thank you so much.
MARK WEISBROT: Thank you.
SHARMINI PERIES: Thank you for joining us here on The Real News Network.