When restructuring Venezuela’s debt, start with identifying all odious credits.

Colby Smith writes “analysts reckon Venezuela has some $140bn debt outstanding with over $65bn owed to bondholders and another roughly $40bn due to China and Russia.” “Venezuela’s welter of debt will mean a messy restructuring” February 2.

The key word here is “reckon”… because the indebtedness of Venezuela has clearly not followed a transparent process. Frequently there are references to odious debts, but very rarely or never to the fact that these most often arise from odious credits that should never have been awarded. That “odiousness” extends from a shameful lack of due diligence to outright participation in corrupt acts.

All citizens in the world would greatly benefit from having a clear definition of what should be considered odious credits, and of its consequences. Without it, any Sovereign Debt Restructuring Mechanism (SDRM) similar to the one proposed 2002 at the IMF by Anne O. Kruger, would be found wanting.

PS. Because Robin Wigglesworth has touched on this theme I am copying him. 

https://ftalphaville.ft.com/2016/05/06/2161045/donald-trump-and-the-sovereign-debt-restructuring-mechanism-revisited/

https://www.ft.com/content/fa6850cc-96c3-11e7-b83c-9588e51488a0

When will the world stop referring to those giving odious loans, odious credits, as investors?

Sir, the Lex column “Venezuela debt/Maduro: crypto communist” of August 23 writes: “It beggars belief that a country with the world’s largest oil reserves has failed financially…when prices for oil, its sole commodity, fell. Borrowing has filled the gap… Investors, including the asset management arm of Goldman Sachs, can look forward to a lengthy default”

In your editorial of August 22, “The desperate plight of Maduro’s Venezuela” you wrote: “Much of the world, especially supporters of “Chavismo” from the Panglossian left, has been disgracefully silent about Venezuela’s crisis for too long. The country is all but a failed state. As a drug-trafficking hub and the source of a huge exodus, it is already an exporter of instability.”

And I must ask when is the world going to stop referring to those who help finance regimes that are notoriously inept or/and commits awful violation of human rights as “investors”, and not as the lowly and dirty financiers they are?

Is for instance financing the smuggling of drugs more morally reprehensible than financing a regime like Maduro’s? Would you ever dream of introducing to your family and friends one who had helped finance the construction of Auschwitz, as an investor?

Yes, credit ratings might be needed, but more does the world need ethic ratings. It is way past time the world begins to understand that most odious debt there is, has its origin in odious credits, and that we need a Sovereign Debt Restructuring Mechanism that takes that in consideration.

http://unsustainabledebtsustainability.blogspot.com

@PerKurowski

Should bonds that finance violations of human rights have to be repaid?

Sir, I find it hard to comprehend the big raucous one can often hear about financing what endangers the environment, or companies that employ children; and then reading “Venezuela’s hospitals do not have medicine, the stores do not have food or toilet paper, but there is an almost surreal confidence that bondholders will do quite well out of the coming restructuring, even with the damage done by governmental incompetence and corruption” “Chaos reigns as Caracas makes every effort to please foreign bondholders” John Dizard, September 3.

Sir, what if the International Court of Justice decided, as it should, those bonds should not be paid, on account they were financing the violation of human rights?

I have been for many years, soon many decades, been voicing support for the need of a Sovereign Debts Restructuring Mechanism, but that SDRM must begin by defining very clearly what is to be considered as odious credits and odious borrowings. If not, We the People, will get screwed.

Is Venezuela violating human rights? There’s food and medicine scarcity, and people are dying because of it, but petrol (gas) is being given away at US$ 1cent per liter (US$ 4cents per gallon). So you tell me!

@PerKurowski ©

As a Venezuelan, I would sure like to know who those financing those who are destroying my country are

Sir, Elaine Moore and Andres Schipani report “Venezuela keeps paying foreign lenders despite blackouts and food queue riots” May 10.

But, when considering all that is going on in Venezuela, why should its creditors be treated with such neutral anonymity? Who are they? Is it okay for them whatever the nation does, as long as they get their high interest rates?

I am not implying there is something similar horrible going on in Venezuela, but are these investors who could for instance finance cremation ovens in Auschwitz, without blinking their eyes, as long as the price was right?

If you finance someone who is committing human rights violations, does that not make you an accomplice? And don’t tell me these lenders, in today’s globalized world, are innocently unaware of what is happening in Venezuela,

As a Venezuelan I would sure like to know who those financing those who are destroying my land are. I am by no means saying they are all the same. Many of them might have lent money to the revolution when things though bad seemed more normal. But most of all I would like to know if among them are some of the vultures that already had by other means been eating of what soon seems to become a carcass of a nation… and now want to have another last bite.

The world’s governments might urgently need a Sovereign Debt Restructuring Mechanism… but we citizens, we only really need it, if it comes together with a clear definition of what are odious public credits and what are odious public borrowings.

PS. And it is not a new issue for me

@PerKurowski ©

Where are the citizens, the taxpayers, in all the discussions about sovereign debt restructuring?

Sir, I refer to Robin Wigglesworth’s and Elaine Moore’s interesting discussion about sovereign debt restructuring. "FT Big Read. Sovereign Debt." May 9.

In it they state: “The International Monetary Fund and finance industry bodies have spent the past few years overhauling aspects of the sovereign bankruptcy architecture….

In April 2013, the US Treasury orchestrated an informal group of creditors, bankers, lawyers and governments to find a solution to the problem. Over the course of a year the ‘Sovereign Debt Roundtable’ meetings were attended by representatives from multilateral institutions, major governments and the London-based International Capital Markets Association.”

And I have to ask: Should not citizens be present there in order to make sure they are not forced to pay what could be considered odious borrowings by the governments or odious credits given by the lenders.

I know that all the costs or additional risks for creditors that could result from any Sovereign Debt Restructuring Mechanism will be reflected, one way or another, sooner or later, in the interest rates of the loans. Even so I am all for a SDRM as it represents a golden opportunity to reduce the risks that we citizens, we taxpayers, are taken to the cleaners, by any arrangements between governments and their bankers.

For instance, it would be great if governments, who cannot earn the right to be trusted by the markets sufficiently, and therefore had to accept risk premiums over x%, had no access to markets, otherwise being willing to accept, on us citizens’ behalf, interest rates in line with payday loans.

And what if the feeling you have is that those collecting payday high interests are some creditors who are "very" close to the government?

Equally a creditor that knowingly lends to a government that is not functioning, as it should, that is for instance violating human rights, should not see his debt classified for repayment in the same conditions than more bona fide lender.

Sir, let me give an example from Venezuela. Would you like your children have to repay a foreign debt contracted, at high interest rates, only because a government, even though there is lack of food and medicines, sells petrol at less than 2 US$ cents per liter?

Whenever we sit down to work out unsustainable debt… I would like that debt qualified.

PS. And there’s more and more and more on this issue.

@PerKurowski ©

Venezuela, and the world, is in need of a clear definition of what are odious credits and odious borrowings.

Sir, you write “China, which has loaned Caracas more than $65bn in return for oil deliveries, potentially has a big role to play. Having extended some of these loans’ maturities, officials in Beijing said that they hoped “Venezuela can properly handle” its current situation” “The ice finally begins to crack in Venezuela” May 19.

For me there are odious credits and odious borrowings, and you can bet Britain would never ever, or at least not currently, be allowed to take on public debt in such a non-transparent way, as when China lent money to the 21st Century Socialism.

You write: “A lack of basic goods and medicine has led to protests and lootings. Shortages of foreign currency, prioritised to pay overseas debts, have forced a 40 per cent drop in imports in the past year”

Who are these powerful foreign creditors that force the government to prioritize paying debt over securing food and medicine to its people? Could they be the same vagabonds that have ruined the country and are now set on to re-ruin it?

Should the creditors and or their advisors, knowing what the government was doing, have lent to Venezuela only because the risk premiums were attractive? And if so, should they have a right to be repaid?

I am not by far implying that something similar was the case in Venezuela, but, only to make the point, let me ask: Should one financing the cremation ovens of Auschwitz have a right to be repaid?

In the world there is much need for a sovereign debt restructuring mechanism but, if that is going to make us citizens any good, before entering in the notion of odious debts, it must clearly define what is odious credits and odious borrowings.

By the way, if such a definition had existed, and could have applied to odious mortgages such as those that ended up in AAA rated securities, then you might have saved yourself from the 2007-08 crisis.

PS. Are those recommending investors to lend to a country that has made no merits to receive credit, only because the rewards are high, not de facto pimping a country?

PS. Any government having to pay 3% more for public debt than the one paying the least, should not have right to contract debt.

@PerKurowski ©

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 ©