Monday, June 1st, 2020

Will You Be Able to Recoup Bad Investments in Venezuela?


The country of Venezuela is a textbook example of how bad governance and corruption can take a prosperous country down to chaos and poverty. Along the way many businesses have been confiscated by the governments of Hugo Chavez and Nicolás Maduro. There are unending street demonstrations as shortages of food and basic necessities worsen. If the Maduro government falls and new elections bring in a competent and non-corrupt government will you be able to recoup bad investments in Venezuela? For that matter why are we speculating about such a situation at this time?

Goldman Sachs Buys Venezuela Oil Company Bonds

Forbes just published an article about how Goldman Sachs bails out Venezuela by buying bonds.

Quite the fun economic story today as Venezuela gains the cash to stay away from national bankruptcy a little longer with help from the arch-capitalists at Goldman Sachs. No doubt this is what both Nicolas Maduro and Hugo Chavez have meant all these years by Bolivarian socialism freeing the people from Yanqui Imperialism. What happened is that the Venezuelan Treasury owned some bonds issued by PDVSA, the national oil company. They sold those bonds to Goldman Sachs at a serious discount to face value. It does in fact make a certain sort of sense as the Venezuelan government is currently scrambling around for cash, just any cash and cash right now.

The capitalists at Goldman Sachs don’t throw money away. So in a country where everything is going bad how will they get paid for their bonds? First of all the bonds are from the national oil company which is the only money making entity in today’s Venezuela. Second, perhaps, these folks know something that the rest of us don’t. Perhaps the Maduro government is on its way out and better times are ahead!

Business Takeovers

As things have gone from bad to worse over the last decade or more in Venezuela the government has repeatedly confiscated private property. Most recently a General Motors plant was taken and GM responded by announcing that it was ceasing all operations in the country and leaving according to The Washington Post.

General Motors announced on Thursday that it was pulling out of Venezuela after authorities seized its auto plant, in a fresh sign of the turmoil gripping the South American country as antigovernment protests swell.

The company is not the first foreign firm whose assets have been confiscated by Venezuelan authorities, but those actions have typically been preceded by repeated public threats from the socialist government.

The goal of the socialist government seems to be to put all tools of production in the hands of the government. The problem for Venezuela is that the skilled people who run these businesses are replaced by government stooges. The end result is coming to be as troops assault and kill protesters in the streets.

What Happens When Maduro Goes Away?

The likely scenario is that the current government will eventually collapse and a reasonable leadership will assume power. This appears to be what Goldman Sachs is thinking by purchasing Venezuelan oil company bonds. One need only look at the revitalization of socialist disasters such as East Germany to imagine how well Venezuela could recover without Maduro and the remaining Chavistas. In all likelihood those who had their businesses confiscated will be able to recoup formerly bad investment in Venezuela. It will simply be a matter of time.

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