beyondbrics

As Hugo Chávez gallivants around the globe courting controversy, back home Venezuelans are falling over themselves to get a piece of the action on the latest debt issue by state oil company PDVSA. So much so that there are rumours flying around that it could increase the amount from $3bn to as much as $4.5bn.

In effect, the very same Venezuelans who decry the way their revolutionary leader spends the country’s money (the latest talking point being Russian tanks and a nuclear power station), are desperately scrabbling to lend him more.

But then again, who can blame them? In a country where, thanks to capital controls, dollars are hard to come by, such an opportunity to access foreign currency is not one to pass up lightly. Not only is it a better deal than the black market (economists say the implicit exchange rate of the bond, which Venezuelans pay for in local currency and can then sell on for dollars, is about 6-7 bolívars to the dollar, compared to about 8 on the black market), but it is also legal.

It’s a godsend for companies who can’t get enough (or any) foreign currency at either of the cheaper fixed official rates offered by CADIVI, the government-run exchange control board, of 2.6 and 4.3 bolívars to the dollar, for those importing “essential” and “non-essential” goods respectively; or the roughly 5.3 bolívar rate at which you can effectively get dollars through the SITME, a mechanism run by the central bank.

And droves of individual Venezuelans are rushing to buy a bond that allows them to save their earnings in a currency that preserves its value rather better than the bolívar, which is afflicted with an annual inflation rate of around 30 per cent.

Meanwhile, others are more far-sightedly asking how wise it is for PDVSA to contract yet more debt. During the 2004-2008 oil boom, PDVSA’s debt increased from $3.7bn to $19bn. Its first-half accounts for 2010 show debt of $22bn, but including a $1.5bn debt issue in August and this latest one, it rises to $26.5bn.

But that only tells half the story. PDVSA books liabilities of $23.5bn, but prefers not to mention the as much as $20bn that some analysts reckon it owes for the various nationalisations it has yet to pay for (although it seems Exxon cut the amount it is seeking through international arbitration from $12bn to $7bn).

On top of that there’s the $20bn PDVSA is borrowing from China. Add to that the fact that this year PDVSA’s profits fell and it had to shell out more for Chávez’s social programmes, which he relies on to bolster his popularity, and many see cause for concern.

Be that as it may, for now at least no one’s doubting the Venezuelan government’s willingness to pay its debts; and the unparalleled interest rates, with Venezuelan debt ranked among the riskiest in the world, are hard to ignore.