Take A Breath
We’ll get started with this week’s Venezuela : Down The Rabbit Hole segment, Killing The Goose That Laid The Golden Eggs, shortly but first…Reuters had the headline “Venezuela Opposition Impatient Over US Process To Move Frozen Funds”. First, let me just put this out there. My love for Venezuela and the Venezuelan people aside, anything involving Venezuela and/or Venezuelan people always seems to be a complicated mess. Let’s see if we can break this down into “bite-sized” pieces.
The first piece of the puzzle to the UN-managed humanitarian fund, agreed upon in the talks between the Venezuela opposition and the Maduro regime, to be formed using previously frozen Venezuelan assets, is that all assets of the Venezuelan government have been frozen by the US Treasury Department – OFAC (Office of Foreign Asset Control) to keep Nicolas Maduro and the Chavistas, who the US doesn’t recognize as the legitimate government of Venezuela, from getting their hands on money that rightfully belongs to the Venezuelan people.
The frozen assets have two purposes. One is to support the government in exile, which is recognized by the US as the legitimate government of Venezuela. The second is to support humanitarian efforts to benefit the Venezuelan people.
Until recently OFAC has communicated with Juan Guaido and his “interim government”. Now the opposition has replaced Juan Guaido and dissolved his “interim government”. They replaced Guaido with a new president and a board has been appointed to handle financial matters but it’s taking a while to coordinate all the processes. Now the opposition is getting impatient but it’s not a simple two-way approval process. Everybody needs to take a breath.
Complicating this whole situation we have a multitude of creditors all with valid claims against the Venezuela government and some that already have arbitration awards. Any major transaction would get the attention of the creditors and there would be a risk of seizure so there are going to have to be a lot of small transactions, which means a lot of back and forth , which will take a lot of time.
Then you have the Maduro regime saying there will be no further talks with the opposition on issues like free and fair elections, judicial reform, etc. until the assets are released and the UN-managed fund is operational so if the opposition wants to negotiate with the regime for the upcoming 2024 presidential election they’re going to have to make something happen.
Just so you know, if we take the Chavistas at their word, and that’s a big “if” they now say they won’t negotiate until all sanctions against Venezuela (the Chavistas) are lifted so this may be “much ado about nothing”, the process will take however long it takes, and there won’t be any further talks between the two sides anyway.
Now, let’s head Down The Rabbit Hole…
Chapter 3/ Killing The Goose That Laid The Golden Eggs…
Venezuela’s government-owned oil company, PDVSA, was once the envy of the entire oil-producing world. They were a founding member of OPEC (Oil Producing and Exporting Countries), the cartel that controls production and therefore pricing of much of the world’s oil. Through many years of savvy business administration, not to mention sitting on top of the world’s largest proven oil reserves, PDVSA became an economic powerhouse. The government was smart enough to more or less allow them a free hand and just sat back and taxed the profits which, as you might expect, were substantial.
The government nationalized PDVSA in 1976, however, they were astute enough to allow the company to operate, more or less, autonomously and continue their partnerships and special associations with a large group of multinational oil companies.
I liken the situation to that of Hong Kong when it was still under British control. When the governor of Hong Kong, a Scotsman, was asked what his greatest fear was for one of the world’s most prolific financial hot spots he said “I can only hope the powers that be, back in London, won’t try to fix it”.
In 1998 PDVSA was the largest company in Latin America and the 10th most profitable company in the world. It was the world’s 5th largest oil exporter with a workforce of approximately 40,000. It had a healthy contingent of experienced engineers, financial professionals, and outstanding operational support. All that would soon be put to the test.
In December of 1998 Hugo Chavez was elected President of Venezuela. The former paratrooper was a man without much formal education, training, or experience in politics, business, or pretty much anything else but he was extremely charismatic. He swept in on a populist wave promising to lift the everyday people of Venezuela out of poverty and allow them to benefit from the oil riches as did the country’s elite. His “Bolivarian Socialism” was heralded as “The New Socialism For The 21st Century”. It was going to right the wrongs of the past and correct all the inequities and, truth be told, there were many of them. I won’t say he promised free everything for everybody, as you hear today to a degree, but he was definitely leaning that way. The Noam Chomskys and Sean Penns of the world led a parade of academics, celebrities, politicians, economists, and revolutionary wannabes fawning over how great this was going to be.
The situation for the ordinary Venezuelan in 1998 definitely needed improvement as is obvious when the poverty rate is in the 50% range. The news was not all bad though. We will get into a then versus now conversation later regarding society as a whole but it is important to note that Venezuela had a growing middle class and the minimum wage was about $200 a month. That’s not much by our standards and admittedly it’s not that much but it did allow the average Venezuelan to provide for essentials and even afford a few luxury items. PDVSA employees fared much better. They had houses, cars, and took vacations. The higher up the food chain you got in PDVSA the better the lifestyle, as is true in any company or developed economy. Keep that $200 a month number in the back of your mind as it will come into play, not just in the overall societal conversation, but in the PDVSA story.
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