A New York investment bank bought bonds from the Venezuelan central bank at a steep discount and got a lot of heat for doing so. The military is applying more violence to protesters as support from the rank and file appears to be shrinking.
5/30 – Wall Street Journal – Goldman Sachs Under Fire for Venezuela Bond Deal – Goldman bought $2.8B of bonds issued by the government-owned oil company for $865M. That is 31% of face. If, and this is a big if, the bonds were to be paid in full, on-time, at face value that would produce a 40% return.
Goldman is in a PR mess because the bonds were held by the Venezuelan central bank, meaning Goldman essentially put almost a billion dollars into the government’s hand.
Article says Goldman has been increasing their holdings of Venezuelan debt over the last few months. Their play is that if government gets its finances in order, the bonds will soar in value and Goldman will make a huge profit.
Article says the government will spend around $10B this year for servicing its debt and a roughly equal amount on all imports. While $898M isn’t a huge amount in relation to that need for hard currency, it is equal to about one month of debt service, or one month of imports.
5/31 – Wall Street Journal – Why Investors Get Mixed Up in Venezuelan Debt – Very quick summary of article: Investors get tangled up in debt from unsavory governments because the big oil companies issue so much that they are a major part of the market for emerging country debt and, far more importantly, the big players can make money off of it.
6/1/17 – AFP at Yahoo News – Troops attack AFP, other reporters in Venezuela – Government troops attacked reporters who were covering and photographing protests. There have been multiple incidents.
6/8/17 – New York Times – Fury Fuels New Forms of Venezuelan Protests – Video report shows three incidents of government officials being heckled in other countries. One got shouted out of a restaurant, one shouted at while trying to buy bread, and a mayor’s daughter being hounded while on vacation.
There are initial signs that the government may be losing support from the police and military.
5/17/17 – Wall Street Journal – Riot Police on Venezuela’s Front Lines Seek a Way Out – National guard soldiers and other security officers are getting tired of riot duty. They barely get fed and aren’t paid for the large amount of overtime. If this is a correct description, the government is losing support of the security forces.
That is never a good sign for a dictator.
6/8/17 – ABC News – All eyes on Venezuelan military as country teeters – Extended interview with a military lieutenant provides the framework for showing the military’s support for the socialist government is wavering. Even with special food privileges, their families getting to cut to the front of the line at grocery stores, and getting bonuses paid in U.S. dollars, soldiers are suffering and their families still aren’t quite getting enough to eat.
Soldiers are giving more injuries than they receive (no surprise there since they have the rifles, tear gas, and armored vehicles) yet are starting to worry about their own safety. If the government falls, soldiers worry about being prosecuted for their abuse (a quite reasonable concern).
As an indicator of the wavering support, article says one officer who publicly told his troops not to fire on civilians is in jail. A dozen other officers are reportedly in prison. Three officers fled to Columbia seeking asylum.
Maybe, just maybe, this expected humanitarian crisis which was caused by intentional government policies will be ended by the military. Maybe.