Venezuela’s Stubborn Self-Service Station

Venezuela’s state oil company PDVSA came up empty in initial efforts to attain minimal 50 percent debt swap acceptance, despite higher yields in exchange for maturity extension, as creditors questioned the reliability of US Citgo gas station collateral again pledged to close the deal after issuance last year. Arbitration claims have also been filed against the assets serving to block agreement, as equity holders are likewise disturbed they would rank behind creditors in the new arrangement. Prices had lurched to 80 cents to the dollar before the failure, which may prompt further term enhancement for the $5 billion operation. At a ceremony marking Colombia’s peace accord with FARC rebels later rejected by referendum, President Maduro met with US Secretary of State Kerry but continued to foreclose the possibility of turning to the IMF or other “imperialist” institutions for help. He is in office until 2019, and the captive courts have not authorized signatures for a recall vote and stripped the opposition party-dominated parliament of budget powers. The private sector formal foreign exchange rate was devalued, but dollars are still scarce, as 800 percent inflation is reported and staple goods are only available on the black market aided by reopening of neighbor borders. The President’s approval rating is just 20 percent, and the cabinet is replete with military officers without appetite for takeover or large scale arrests so far while keeping their distance from leading civilians. Groups continue to return from advising and staffing the security forces in Cuba, where normalization with Washington took another step with easing of personal and business travel and banking and export rules within the confines of the decades-old embargo. President Obama before leaving the post released a broad policy directive designed to establish a bilateral relations foundation into the next administration. It cited increased private sector ties in agriculture, health and technology as a theme, and regulatory progress eliminating Havana’s penalties on dollar conversion. The dual exchange rate system and state monopolies persist, and the government remains in default on pre-revolution debt despite relief granted by other bilateral creditors. It has not applied for readmission to the Bretton Woods institutions, although Cuban economists have participated in research and events incorporated in the work agenda.

The island hosted Colombia’s guerilla negotiations, as the demobilization pact was defeated by a whisker in October’s plebiscite. Stakeholders went back to the table to forge compromise provisions that could win endorsement, but the political jolt was another setback for the sovereign rating already on negative outlook. A truckers strike could gap GDP growth at 2 percent, and inflation is far from the 3 percent target with the benchmark interest rate near 8 percent. President Santos, who got the Nobel peace prize for his effort, had planned to pivot to fiscal reform passage post-referendum with the deficit at 4 percent of GDP. Personal income and consumption tax increases are in the mix, along with simplification and loophole closure, but the working coalition in Congress has turned shakier. Andean observers betting on changes are now looking to Peru, where equities are outperforming as the MSCI Latin America winner and main tax goal is to collect informal money escaping the system to date but also denying citizens their social service fill.