November 11, 2016

Do not odious debts derive directly from odious credits or odious borrowings?

I refer to Jonathan Wheatley’s, Andres Schipani’s and Robin Wigglesworth’s FT: Big Read on the finances of Venezuela “A nation in bondage” November 11. I am taken aback by its distant coolness to what are life and death issues. “revenue-to-payments ratio”?

Sir, I have often asked, and not only in reference to Venezuela: does not what is being financed have anything to do with financing… is it only a matter of risk premiums being right? Let me go extreme to make my case. Should a bond issue that financed some extermination chambers be repaid? And should it then matter whether those chamber use Zyklon B, or the lack of food or medicines. Of course, whether those responsible for any deaths did it with intent, or only because of sheer ineptitude, matters a lot. But for informed financiers? How much “We didn’t know” can you really claim these days?

Sir, the world would be well served by having a Sovereign Debt Restructuring Mechanism but, for such a SDRM to also serve We the People well, and not only governments and their financiers, it would have to start to identify very clearly what should be considered odious debt derived from odious credits and odious borrowings.

And it should also define very clearly how much financiers could aspire to have their cake and eat it too. The article quotes Siobhan Morden, a Latin American strategist at Nomura saying “Investors who this year bought a PDVSA bond maturing in April 2017, for example, have made a 70 per cent profit, thanks to coupon payments and a price rise of 50 cents on the dollar as the bond approaches maturity” 

Two questions stand out: The first: should these bondholders be repaid the same as those who purchased the issue originally and held on to it? Perhaps yes, perhaps no. 

The second: Anyone out there thinks this 70% profit over a short period was just a result of a strict financial analysis, or did it contain some inside information that could affect its legal validity.

FT, yes I am Venezuelan, and so I might very well be too much on the crying side on this issue, but what would you in FT say if UK fell into the hands of a totally inept government and this one is kept in place by financiers out for a quick buck?

Sir should only a non-payment cause a default of sovereign bonds? Are there not implicit moral negative covenants that could be called on by the world, such as not letting your people starve only to serve the debt?

PS. Just to make my arguments clearer and therefore hopefully stronger in Venezuela I have been on this issue long before the Chavez/Maduro times.