Venezuela faces a restructuring between odious creditors and odious debtors, so it behooves us ordinary Venezuelans citizens to intervene and block any odious deals.

Sir, Jonathan Wheatley and Robin Wigglesworth when reporting on the surreal sort of restructuring of Venezuela’s debt by the equally surreal Maduro government write: “Venezuela is already a serial defaulter. It has defaulted on miners, oil companies and other enterprises whose assets it has seized without compensation. It has defaulted on unpaid suppliers to PDVSA, the national oil company. Most seriously, it has defaulted on its people, denying them access to basic foods and medicines, causing an epidemic of weight loss and turning injury or illness into a mortal danger.” “Venezuela bond repayments: dead and alive” November 28.

Sir, the creditors, if they had carried out any minimum due diligence, would have been perfectly aware their financing would not be put to any good use, so for me, all their loans, given only because of juicy risk-premiums or other profit motives, are just odious credits.

And the borrowers, knowing very well they were contracting that debt for no good purposes at all, defines all these borrowings to be odious debts.

So here we are Venezuelans citizens, with children, parents and grandparents dying for lack of food and medicines. Are we now just supposed to sit down and allow this restructuring to happen on whatever odious terms the creditors and the debtors agree on in a petit committee?

No way! As a minimum, for a starter, our General National Assembly not yet in exile needs to authorize our Supreme Court of Justice in exile, to take charge so as to at least determine what could be deemed to be bona fide, dubious, or outright odious credits.

https://teawithft.blogspot.com/search?q=odious+credit

@PerKurowski

A former Executive Director of the World Bank, for Venezuela (2002-2004)

Jockeying for position to currently advise Venezuela on its debt restructuring could have serious legal, or at least reputational consequences

Sir, Robin Wigglesworth, with respect to Venezuela’s debt writes: “Any restructuring will be a Herculean task, given US sanctions” “Debt restructuring battle brews over Venezuela” November 21.

It is not only the US sanctions. Since many, or probably most Venezuelan consider those debt origination in odious or at least totally non-transparent credits we have not the faintest trust in that negotiators helping the government to restructure is helping us.

So any negotiator now would have blacklisted himself, for those restructuring negotiations that can only begin in earnest when the Maduro government is gone.

Also I cannot understand that, for instance one of the prime renegotiation advisors you mention like the “mysterious art-loving Mexican billionaire called David Martinez”, can be so naïve so as to believe that the threat of US sanction to Americans will not be extended to anyone substituting for Americans.

In summary you do not advise governments that are violating basic human rights without the possibility of facing very serious consequences for that. As a minimum they should be aware that many of us Venezuelan will, when we can, try to recoup any odious restructuring fees paid to them… and keep them away forever from Venezuela

Personally I am much in favor of the Venezuelan Supreme Court of Justice in exile, requested by the Venezuelan National Assembly, initiates the first stage of any debt restructuring, namely classifying all those debts in bona-fide, dubious or odious. 

https://teawithft.blogspot.com/search?q=Venezuela+debt

@PerKurowski

Even though there is hunger, could Venezuela be servicing religiously its debt because of who the bondholders are?

Sir, even though Venezuela is suffering lack of food and medicines, it is doing all it can to pay its foreign bondholders. Andres Schipani quotes Bank of America’s Francisco Rodriguez in that “Venezuela could continue paying bondholders for longer than it keeps paying Maduro’s salary”, “Maduro’s Venezuela on the brink of default" February 12.

Could it be that all these bondholders are in fact the same usual local friends of the government and who in these bonds have just found another way to further exploit this poor-rich country? I mean it is hard to visualize any ordinary reasonably responsible investor, no matter how big the spreads, putting money in Venezuelan bonds while knowing without doubt that the resources raised by debt will be wasted just the same way as the greatest oil-boom in history has been wasted.

The world needs a sovereign debt restructuring mechanism (SDRM) but, for that to serve us citizens any useful purpose, and not even be counterproductive, it must begin by establishing clearly the differences between bona fide lending and odious credit.

@PerKurowski ©

We’ll soon need a Sovereign Debt Restructuring Mechanism SDRM for most countries of the word. Especially for the “safe”

Sir, Chris Giles writes: “Three times in four weeks, BoE has opted to provide more economic stimulus” “The Bank of England is a dove with clipped wings” December 3.

And reading it, all stimuli had, one way or another, to do with facilitating governments to have easier access to credit so as to be able to run larger deficit spending schemes. It is truly scary stuff.

Add to that, that for the purpose of setting the capital requirements for banks, the sovereigns have been assigned a zero percent risk weight while those who most generate the strength of a sovereign, the private sector, have been assigned risk weights from 20 to 150 percent, and it should be clear to all that we are heading towards the mother of all sovereign debts crises… especially that of those sovereigns perceived as the safest.

@PerKurowski ©

The best Sovereign Debt Restructuring Mechanism (SDRM) is the one that most reduces the need for it.

Sir I refer to your discussions about a “holy grail… a sovereign debt restructuring mechanism (SDRM) — a bankruptcy procedure for states.” “To err is human, to forgive is statesmanlike”. July 27

Even though I agree with the need for a SDRM, we citizens need to be very alert to how it is designed. Bank regulation’s bureaucrats/technocrats, behind our backs, have already given public borrowings an enormous unearned/undue advantage, by allowing banks to hold much less capital against public debt than what they are required to hold against private sector debt. 

If on top of that we now also make it easier for government bureaucrats/technocrats, hiding behind the mantle of “sovereignty”, to get out of the debt they contracted, then we have really messed things up for ourselves.

In this respect I believe any acceptable SDRM should begin with:

First and foremost by eliminating all incentives that can help governments contract too much debt.

And then by defining clearly what, when compared to ordinary credit to the public sector, should be  deemed as odious credit. For instance, credit not awarded in a transparent way, or awarded when it was clear that the resulting debt might not be sustainable, and was therefore of speculative nature, should not receive the same treatment in a SDRM, as public credit awarded transparently and when there was no doubt about the sovereigns capacity to serve it.

Let us be very clear about that the best SDRM is the one that reduces the need for it.

And of course it is human to err… but that does not mean that bank regulators should not admit their mistakes and be held accountable for it. Pseudo-statesmen forgiving behind curtains their own mistakes... really?

How can you ask creditors, or taxpayers, to take a hit on Greece, while pardoning, even promoting, bank regulators?

@PerKurowski

“Spaniards you will not have to pay Spain's debts, and you will not have to work too much” stinks pure cheap populism

Sir, Wolfgang Münchau writes “There is nothing controversial about the statement that if debt is unsustainable it needs to be restructured”, “The radical left is right about Europe’s debt” November 24.

Indeed, absolutely right. But then Münchau holds that Podemos of Spain “may be the one that comes closest of all those in the Eurozone to offering a consistent approach to post-crisis economic management”.

If a knowledgeable Münchau cannot differentiate between understanding the need of debt restructuring, and using that need in terms of haranguing “screw those capitalists”, in order to gain self interested power, then Europe is indeed in trouble.

Just two days ago Tobias Buck reported that Podemos’ European election manifesto included “a commitment to a 35-hour workweek, and to lowering the retirement age to 60”.

Does not “Spaniards, you will not have to pay Spain debts, and you will not have to work much” stink cheap populism?

When discussing sovereign debt restructuring, let us begin with the beguine

Sir I refer to Martin Wolf’s “Holdouts give vultures a bad name” September 3.

Without opining on the sovereign debt problems of any particular country (like in this case Argentina’s) I have often said we need more clarity in the terms we use.

For instance any sovereign debt holder who acquired the debt at moments when it paid low risk premiums, and the debtor country seemed to be going in the right direction with sustainable debt, should be classified as a bona fide sovereign creditor.

On the opposite side, any debt holder who acquired the debt at moments when it was paying high-risk premiums, because the debtor country was deemed to be going in the wrong direction, towards unsustainable debt, should be classified as a speculative sovereign creditor.

And there are no clearer frontiers between those two categories, than the implicit risk premiums at the moment of investing in that debt… for example 400 basis points over the lowest rate paid by sovereigns for similar debt.

And I believe that, if a country needs to renegotiate its debts, the speculative holders should not expect to have the cake and eat it too, meaning collecting high risk premiums and full capital. For instance, any interests collected over a certain base risk premium defined, should first be deducted from principal owed, in order to allow for some justice with respect to the bona-fide creditors.

The above is not intended as a fully thought out solution, especially when we know that many speculative debt holders could dress up their positions as bona-fide, but at least it also helps to remind us that, both among hold-outs and restructured there could be good and not so good creditors.

But I say all this because just as important, or even more important than any restructuring of sovereign debt, is to send the right signal about when these debts were originated… as so much of renegotiated sovereign debts should never have really come into existence.

I believe us citizens who suffer bad governments, can always benefit from new tools that put some dampers on their possibilities to contract debt, usually only to benefit some few, and to be paid by future generations. Where would for instance the debt-squandered-away levels be for many countries where it not for holdouts?

And so, when discussing sovereign debt restructuring mechanism, we should begin with the beguine. 

For example any debt restructuring for a sovereign debtor who is in problems for causes mostly of his own making, should include clear mechanisms which at least shows an intention of that not happening again. By the way, that is most often an integral part of any private sector debt rescheduling, for instance maximum debt levels, minimum cash reserves and so on. 

A sovereign creditor who just plays out the card of “take your hit and leave me alone” might very well merit some bad vulture holdouts, I mean for the benefit of us tax paying citizens.

PS. Beside sovereign credit risk ratings, should we not also have sovereign governability and ethic ratings?

PS. And, in all these matters, let us never forget that what might appear as a benefit to some, might very well reappear somewhere down the line as a cost to another.

When restructuring the World Bank you might want to start even higher than its presidency.

Sir, I refer to your editorial “Restructuring hell at the World Bank”, April 10.

You end it stating “If there is a silver lining to the bank’s turmoil, it is this: the Bretton Woods Institutions belong to the world. From now on, they must be headed by the best people available”

Not so fast! When presenting my book Voice and Noise, May 2006, in which I reflected on my experiences as an Executive Director of the World Bank, 2002-2004 this is what I said:

“Although we proudly name ourselves the World Bank, the fact is that we are more of a “Pieces of the World Bank”, with 24 Executive Director representing parochial interests. As a consequence I sadly had to conclude in that the World itself, call it Mother earth if you want, in these times of globalization, is in fact the Bank’s most underrepresented constituency.

This needs to be fixed, urgently, as we need to be able to stimulate a profoundly shared ownership for the long-term needs of our planet; that is if we want to survive as a truly civilized society worthy of the term civilization. As I see it, adding a couple of truly independent seven-year-term Executive Directors, whose role would be to think about the world of our grandchildren, way beyond the 2015 of the Millennium Development Goals—could be what the World Bank most needs now.”

And Sir, I still stand by that. 

The way the World Bank’s Executive Directors are nominated by ministries, does not guarantee the existence of sufficient intellectual and independent diversity at the Board. And that is the number one condition that needs to be satisfied in order for any international finance institution, to become something more than a well intended mutual admiration club, run by an also well intended management in natural pursuit of their own and perhaps even more parochial objectives.

PS. I have been asked by a representative of the civil society, whatever that now means, to add some additional straight to the point explanations of what I mean, and so here it is:

1. I guarantee that if one Joe the Plumber or one Nancy the Nurse, selected through lottery from 25 plumbers or 25 nurses, substituted for one of the 25 current executive directors, chosen also by lottery, we would have a 75% chance of ending up with a more commonsense and wise Board of Executive Directors at the World Bank, and less than a 1% chance to end up with something meaningfully worse.

2. If the Basel Committee for Banking Supervision (or perhaps the IMF) had counted with one biologist or an expert in the contagion of diseases, they would never ever have introduced something as dumb as the risk-weighted capital requirements for banks which, besides distorting the allocation of bank credit, amplify dramatically the consequences of any insufficient or any excessive ex ante perception of risk. And the world would have been saved from the current crisis. The ongoing intellectual incest is so bad that even 7 years after the outburst of the crisis they still do not realize what they have done.”

3. With reference to William Easterly’s 'The tyranny of experts', the real nightmare is to be in the hands of a group of similar experts on the same subject.

4. One of the best ways to control for the dangers of group-think, is to subject the group to the authority of some who is guaranteed not to belong to the group, and has no reason for wanting to belong to the group.

PS. Whenever you click on to social media, say this little prayer: “Please God, save me from becoming a victim of intellectual incest”

But Greece should insist they only speak with ECB... for now.

Sir in “Europe manages a wise compromise” March 27 when you quote Churchill in that “the eurozone makes the right decision in the end, though not before exhausting all other alternatives” someone could interpret you as naively believing that the Greece problem has been ended, and we wouldn’t want that, would we?

Since in fact Greece is living an economic impossibility and since IMF represents hair that cannot be cut, if I was Greece I would much prefer calling IMF for help after a restructuring, not before.

By the way, if you were a young Greek and Greece were set upon making good on their debt no matter what, would you stay in Athens or go to Hamburg?