Treading deeper into red

As we all know by now, PDVSA has recently managed to successfully float a bond issue for US$ 1.8 billion in the international financial markets. Mr. Giusti, its President, as well as some external market analysts maintain that PDVSA’s asset base is immense while its debt load is relatively small. According to all of them, the company should be in a position to use more leverage.

As a Venezuelan citizen, father of three other Venezuelan citizens and therefore, at least in theory, a minority shareholder of PDVSA, I must admit that rarely have declarations by “people in the know” caused me so much anguish.

Venezuela used to be the target of the international financial community due to the existence of vast oil sector assets and reserves that ranked us among the wealthy nations of the world. This resulted in the contracting of loans that ultimately resulted in our overbearing external debt load. These resources have been poorly managed and have definitely not contributed to the well being of the country.

Should PDVSA now go out and contract debt and issue liens or mortgages on our petroleum assets without insuring that the resources obtained thereby are used to repay debt previously acquired, we are condemning the country to total ruin.

Evidently we all know about the fiscal bind we are in as a consequence of the fall in world oil prices. It is easy to argue in favor of new indebtedness as a transitory way of squaring our national accounts when the alternatives are 1) inflation as a result of fiscal deficits or 2) deepening recession due to an effort to balance the before-mentioned fiscal accounts.

What is not, and cannot, be permissible is to allow PDVSA to take over roles corresponding specifically to the Ministry of Finance and the Central Bank. The nation also cannot allow the evasion, via PDVSA, of the few instruments still in place, which allow us to control national debt levels.

Until now, I figured there was a great national consensus about the need to keep PDVSA’s balance sheet basically free of liabilities. The evidence seemed to be there. To begin with, PDVSA’s current debt doesn’t reach US$ 4 billion. On top of this, the Oil Opening was justified on the basis of a lack of resources available in PDVSA for future expansion. Evidently, the company’s debt capacity was not taken into account then.

We can also clearly remember that during all the restructuring processes undertaken by Venezuela in the past and which finally resulted in the Brady Bond issues, any alternative which was to involve PDVSA’s assets in one way or another as a basis for the restructuring was rejected outright.

We feel that something seems to have changed. From one day to the next, we are told that an offshore company, PDV Finance, has been set up to facilitate the assignation of accounts receivable or to undertake factoring transactions. At the same time, we understand that Mr. Giusti has expressed his surprise at PDVSA’s capacity for leverage. This cannot possibly surprise anybody expect those that have never even contemplated it.

We remember that a few months back, when the Brady Bond swap came to light, we were witnesses to the debate related to the application of the Law of Public Credit. For a smaller amount, many protested the fact that Congress was not properly and directly consulted. Today’s silence, then, is outright baffling.

I sincerely hope, for the sake of my country, that things have really not changed radically and that someone has not decided to take the stick to the PDVSA piñata.

Some analysts have gone on record as saying that PDVSA qualifies for loans at lower interest rates, and that the country therefore has a good deal going. I remind these analysts, however, that the true final cost of any debt transaction depends on what the resources are actually used for. In this sense, our governments have been masters at converting even the most generous loans into expensive ones through sheer wastefulness.

I remind those that console themselves with the fact that the resources made available by this new debt are aimed exclusively at covering PDVSA internal requirements how fungible these resources really are. For example, the US$ 2 billion raised by the oil opening, which should theoretically have been applied towards PDVSA’s investment program, were really spent on our central “dis-administration’s” unproductive payrolls. If this permeability becomes a habit, we are merely allowing them to dig all of us deeper into the hole.

Therefore, as a Venezuelan, I also remind Mr. Giusti and his other co-Directors that their function is to be the custodians of Venezuela’s riches. Their function is not to raise the specter of generous credit lines and basically act as a croupier or as a Maecenas to the government of turn.