Dear Editor,
It is reported that having severe liquidity problems, Venezuela sold more than US$4B oil debt owned by the Dominican Republic to Goldman Sachs for US$1.75B or 41% of the value. Goldman Sachs made a 59% profit or US$2.3B from the Dominican Republic’s PetroCaribe debt which was around US$4.09B in August 2014.
According to reports on Bloomberg, Goldman Sachs is also holding talks with the Venezuelan Government to reach a similar agreement with the Jamaican Government. The deal is a huge bargain for Goldman Sachs – the only negative is the debt has 20 years. It also shows the desperation for a country where inflation is more than 63% and which faces the world’s widest budget deficit.
It is imperative for Venezuela to get cash to sustain social spending and subsidies granted to countries such as Cuba, Nicaragua, Guyana, Haiti and Jamaica. As it was not enough for Venezuela, the government went into debt for the state company, forcing it to incur obligations, currently about US$50B.
The situation has worsened dramatically in recent months with falling oil prices which led the Venezuelan basket of crude to decline from US$99 per barrel in June 2014 to US$68. Economists are projecting that Maduro needs a price for a barrel of oil above US$100 to maintain his spending and ensure stability of his region.
The scenario looks very difficult for Venezuela’s leader and the country may sell all its oil debt (including the debt of Guyana) to Goldman Sachs. This process will involve large losses for Venezuela and raises serious questions about the credibility of its operations. It could be seen as a crime in Venezuela to give a 59% discount on oil debt. The senseless oil policy adopted by Chávez and followed by the present President cannot be sustained. Venezuela is an oil rich country where 7 out of 10 commodities cannot be found on the shelves of supermarkets.
Can Guyana relook at this arrangement and take some proactive actions? Can Guyana negotiate and pay off its outstanding dues to Venezuela under the PetroCaribe arrangement with a 59% discount? The rice industry also should be looking for alternative and less lucrative markets in 2015 and 2016. Venezuela needs an oil price in the vicinity of US$115 to US$120 to balance this budget which seems quite unlikely in the first half year of 2015. We can see how socialist policies and senseless governance is destroying a beautiful country.
Yours faithfully,
Pravinchandra Dave
