Free At Last

 If you’ve followed us for a while you’ve heard of the CITGO 6 right? They’re the 6 oil executives that were living in Houston,Tx., the home of CITGO, a US based oil refiner owned by PDVSA (Venezuela government-owned oil company). Back in 2017 they were summoned to an “emergency meeting” at PDVSA headquarters in Caracas. When they got off the plane they were arrested by Maduro’s security forces, tried (on trumped-up charges), convicted (remember, at on time the conviction rate in Maduro’s Venezuela was : rulings for Chavismo – 50,000…rulings against Chavismo – zero), and imprisoned. One of the 6 was released after a few years but the other five languished in jail.

 Well, AP reports that, in a prisoner swap deal with the US, the Venezuelan government agreed to release 7 Americans unlawfully detained by the Maduro regime. Nicolas Maduro keeps a healthy supply of political prisoners for just such an occasion. Included in the seven prisoners released were the remaining five of the CITGO 6. Yes folks…they’re free at last!

 So, who did the US release for their part of the deal? That would be the two nephews of Venezuela First Lady, Cilia Flores (Maduro refers to his wife as the “First Combatant”), convicted of drug trafficking when they were trying to raise money for Cilia’s political aspirations. I guess it could have been worse. There is no shortage of people Maduro would like to see released and when I first saw the story I thought, “Oh no! Please tell me they didn’t release Alex Saab!” Well, we can rest easy for now. Saab, the architect of Nicolas Maduro’s fraudulent CLAP, government food program, and other shady deals is still in custody and due back in court in December. That is, unless the Biden administration is stupid enough to trade him for an “oil deal”, which would be a farce as Venezuela has no spare oil production to provide the US with anything.

 Moving on…As we’ve known for a while, it’s very difficult to get a bank loan in Venezuela. tells us that this lack of credit has Venezuela businesses seeking loans abroad. The reason behind this is the Maduro regime’s requirement that banks must retain 73% of their deposits in the BCV (Venezuela Central Bank). That leaves Venezuela banks with a credit portfolio of $583 million, while analysts say financing needs in Venezuela are 10 times that. Banking in Venezuela is mostly transactional, not providing credit.

 Most of the foreign loans are to large businesses since the collateral requirements are very high (given that they’re Venezuela businesses it’s understandable) and small businesses can’t afford it. It’s just another example of the Maduro regime’s lack of basic economic understanding. FYI, Maduro has boasted in the past, when he made key monetary policy decisions, that decisions were made without input from economists or anyone in the financial/banking community. Gee, I wonder why they all failed… and continue to fail.

 And speaking of BCV, Caracas Chronicles tells us that the Central Bank will appeal the UK court ruling that granted authority over the gold in BOE (Bank Of England) vaults to the ad hoc board controlled by the Venezuela opposition’s parallel government, which is officially recognized by the UK

 And in more BCV news, the BCV established changes in the currency exchange system for banks, eliminating the minimum purchase requirement but establishing a limit of 8,500 Euros. I know they don’t want banks holding too much foreign currency but come on! They already have to send 73% of deposits to BCV. At least let them hold their cash reserves in something other than the rapidly devaluing bolivar (Venezuela local currency).

 OK, enough of that. Let’s head Down The Rabbit Hole…

 Chapter 1/ continued…

 When Hugo Chavez came to power a little over 20 years ago one of his major achievements was the Barrio Adentro (inside the barrio) Program. I, like most people, thought this was a good idea.The opening of thousands of small hospitals in poor neighborhoods and rural areas that previously had little or no access to healthcare had to be a good thing. What could have been something so positive turned into an abysmal failure due to a poorly conceived and even more poorly implemented plan.

 As I explain this I’ll try to be as brief as possible but there are a few factors that need to be considered so please bear with me.

 In the early years of building up the program oil prices were beginning what would be a 10 year run of rising prices hitting all-time highs and remaining up there for years. For an oil-dependent economy that should be good news.

 In the early days of Chavez’s tenure oil production was also high (over 3 million bpd, barrels per day, versus a little over 700,000 bpd recently, and it’s been much lower).

 At the same time, Chavez struck a deal with Fidel Castro to supply Venezuela with 25,000 Cuban doctors in return for oil shipments both at the time and for years to come.

 So the money is rolling in and you have cheap labor to staff the program. It should have been a slam dunk to set up a program that was almost indefinitely sustainable and would benefit the Venezuelan people for generations. The only way it could fail would be an unprecedented series of mistakes, miscalculations, and levels of greed and corruption never seen before in Venezuela.

 Well, you guessed it! That’s exactly what happened.

 The biggest factor to the failure of this and basically every area of the Venezuelan economy and society was the massive borrowing campaign the Chavistas embarked upon. I know, it sounds crazy. With all that money rolling in why would you be borrowing $60 billion from China and billions more from Russia? The only thing I can think of is the infamous trifecta of greed, corruption, and a lust for power combined with a healthy dose of economic ignorance.

 Nothing lasts forever. Other oil-dependent economies have sovereign wealth funds or “rainy day” funds, if you will. Keep your debt low and serviceable and with the cushion of your wealth fund you be fine no matter what happens. Norway is a good example of this although they also have other businesses than oil. The massive borrowing by the Chavistas took away all their wiggle room and mortgaged their future. Who worries about a rainy day when the sun is shining?

 The sun shone brightly for a while and spurred on by the widespread support of the populace the Chavistas pushed the envelope even further. They ran up a $6 billion tab with the pharmaceutical companies and expropriated various companies that would later be needed to support the healthcare sector.As is the norm, when private sector companies are expropriated by governments their production drops precipitously if they’re fortunate enough not to go out of business altogether.

 More tomorrow…..

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