Argentina, and so many others need, urgently, clear definition of what are odious public-sector credits and borrowings

Sir, I refer to Benedict Mander’s “Macri is surrounded by former bankers as he seeks international investment” May 13.

I have always been convinced that most of debt that at any point of time gets to be qualified as “odious”, has had its beginnings in odious credits or in odious borrowings.

Odious public sector credits are those that lenders approve even though they know the resources will not be put to a good use, only because the risk-premiums are right. A really extreme example of this would be an oversubscribed public bond issue to finance something like the crematoria ovens of Auschwitz. 

Odious public sector borrowings are those carried out by governments, in lieu of real correcting measures, or because of other political short term interests, without any consideration as to how it is going to be repaid and who are going to repay, usually those of a generation down the line.

And so therefore I have always held that, no matter how important it was to introduce a Sovereign Debt Restructuring Mechanism (SDRM) that had to begin by defining clearly what should be considered as odious credit or odious public borrowings. That since these, for the good of us all, should not receive the same treatment as bona-fide credits.

And in this respect when I read that “luring money back into an economy starved of investment after a decade of interventionist policies” is considered “a vital element” I feel it might be time again for us to prepare to cry for Argentina.

And, just in case, this has nothing to do with who governs Argentina, in fact I very much welcome the recent change. It is what I have opined in my country Venezuela, pre-Chavez, during-Chavez, and that I will surely also opine after the long overdue Chavez/Maduro change comes into fruition.

To use a credit card to buy food and medicine for the people is understandable but, for governments to load up on credit card debt as a substitute for doing the reforms that are needed, or to finance new investments supposed to “take care of it all”, that is just immoral.

When it comes to public sector debt, and for instance capital requirements for banks, it would serve us citizens much better if ethic or good governance ratings were used instead of simple credit risk rating… a good credit risk rating resulting from the government receiving large oil revenues, is just to add salt to injury.

@PerKurowski ©

Odious debt is often mentioned, but its origin is most often those odious credits and odious borrowings that abound

Sir, Benedict Mander, with respect to Argentina issuing debt writes: “These yields don’t exist anywhere else in the world in countries with such low levels of debt,” said [enthusiastically] Facundo Gómez Minujín, managing director at JPMorgan’s Argentina unit. “Argentina targets $30bn debt issuance” May 2.

Is that not a sign that Argentina, if it took on debt, should demand to pay less or just leave it like that?

And by the way, what has the fact that Argentina has low level of debts to do with anything? Is not debt to be contracted only if you have something really worthy to do with it, something that will allow you to repay the debt and leave some decent returns?

I do not know much about Argentina, and I do not intend any similitude, but I do know that I profoundly dislike all those who knowing how bad it was run, and how little with its huge oil revenues it should need credit, still financed the disastrous XXI Century Socialism Venezuela, only because risk premiums seemed good. Had they not done so, Venezuela could perhaps already have been able to rid itself of The Tragedy. Had they not done so, Venezuela would not, on top of all its other current mindboggling difficulties, need to add the service of totally unproductive contracted debt.

For me good governments are those who stay out of debt even if conditions seem fair, only on account that debt basically represents advance fiscal revenues, to be paid later by the next generation.

We do need a Sovereign Debt Restructuring Mechanism (SDRM) but, if it is going to produce reasonable results for the citizens, then it has to begin by defining very clearly what is odious credit and what are odious borrowings. I have sometimes argued that any public borrowing that offers to pay more than a specified number of basis points over what the best debtor is paying, could be considered as odious.

I know it is way too extreme, and has absolutely nothing to do with Argentina or Venezuela, but the question needs to be asked, so that the point I am making becomes utterly clear: Would bonds issued for the construction of the crematoria ovens in Auschwitz be included in any debt restructuring… or should these just be thrown out… or should the financiers also be judged?

@PerKurowski ©

Can accounting really be allowed to base itself on known fictions?

Sir it is with amazement I read Barney Jopson, Benedict Mander and Miles Johnson reporting on how “Venezuela devaluation dents big companies”, February 12.

I understand the locals are prohibited from even thinking in terms of a different foreign exchange rate than what the current oilygarchs in power allows them to, though even so, most of them do, at least in the shadows.

But that grown-up foreign companies hang on to a rate that drives only a part of the economy, and have not created reserves to cover for this and other adjustments of the fx fiction to come, is astonishing. It sort of falls in the same category of naiveté as bank regulators believing that an AAA to AA rating has so little implicit risk so that they can allow banks to leverage over 60 times to 1 on such exposures.

Honestly, something is terribly wrong if auditors can ok balance sheets based on a known Bs. fiction.

You pay for what you paint!

Sir Benedict Mander in “Venezuela’s state oil company gears up for a $2bn bond issue” May 8, quotes experts with “expected to be a two year zero-coupon bond yielding about 16 per cent” and that it “will not affect the yields on existing PDVSA or sovereign debt – one of the best performers in emerging markets this year”. It is hard to understand how they would get away with that.

That said PDVSA with all the richness that it controls, if it was well run, should have to pay only some basis points more than the risk free rate and so, in order for your readers to understand better what is going on, perhaps you should have translated what was painted on the PDVSA oil tanks in the photo. It says "Fatherland Socialism or Death"… hence 16 percent.

The Global Coalition of Oil-Cursed Citizens

A good piece on Venezuela

Having been quite critical of some of Benedict Mander’s previous reports on Venezuela let me just express that I found his “Venezuela’s televised revolution”, August 8, accurate and balanced… though I guess that Mander will be exposed to criticism from any of the extremes that crowd our airwaves, c’est la vie… I write weekly in Venezuela in green but most of my readers there can only read me in yellow or blue.

I guess it is time for your reporter to change location

Sir I am sorry but Benedict Mander completely misses the angle when in “Red tape congests Venezuela’s roaring car trade”, July 11, he describes the governments “new rules that 30 per cent of cars sold from next April must have dual natural gas and petrol tanks” as something extraordinary. I just need to ask what extraordinary measures he believes the Crown would have to take to reign in car sales if it sold petrol at 4 cents of a dollar per litre and if it subsidized the import of new cars by means of an exchange control system.

When a foreign reporter does not see the absolute grotesque in the state giving away petrol at prices below distribution costs, I guess that reporter has been to long in the country and has become blind to its realities. There is supposedly a study that shows that people after having lived long enough close to a railway station do not even hear the trains, because of natural anatomic process of adjustment.

What kind of reporting is this?

Sir Benedict Mander reports that “Drivers put cars blame on chávez for Caracas congestion” May 30, and nowhere does he mention that the purchases of cars is subsidized by means of the foreign exchange system and that petrol is sold for about 2 cents of a Euro per litre, and which has made a small country like Venezuela import 750.000 new cars to place on already jammed roads, in just two years. What kind of reporting is this?

Is Benedict Mander trying to hide the fact that this supposedly socialist government is taking way over 10% of Venezuela’s GDP from the poor people who have nothing and giving it to those citizens who have a car?

Mr Mander should apologize

Sir, Benedict Mander reports, May 9, that “a parade of rowdy and at times hysterical protesters yelled and whistled their way through central Caracas recently in a desperate attempt to be heard before Venezuela’s oldest and most popular television is silenced forever” and I just ask who is he to come and characterize the protesters as “hysterical”. Has he any idea of what it is to live in a country where all the judiciary and the military respond and obey blindly one who loves to be called “The Commander” and the Congress has 167 members that support him and none, zero, zilch against even though the whole world knows it is a highly polarized country, and where now they are going after the free media?

I truly think Mr Mander owes these protesters an apology.