Venezuela: a new Chinese Colony?

If you had to invest YOUR Money in another country, I’m sure Venezuela wouldn’t even
be on the list, right?
Well, friends here at VisualPolitik, China’s Government doesn’t agree with you…
“China agrees to invest $20bn in Venezuela to help offset effects of oil price slump”
But hold on just a second because this is not only about China.
Have you ever heard of Goldman Sachs?
One of those banks that symbolizes American capitalism at its purest form?
Well… they too saw a lot of business opportunities in Maduro’s Venezuela.
“Goldman Buys $2.8 Billion Worth of Venezuelan Bonds, and an Uproar Begins”
Yep, you heard that right.
While Venezuela is having one of the worst economic catastrophes humanity has ever witnessed,
they keep making deals with the world’s biggest investors.
This is why, despite the scarcity, the extreme poverty, and the hyperinflation, Nicolas Maduro
is buying state of the art weapons to maintain an army almost nobody could attack.
An army that has over 5000 rockets manufactured in Russia.
In October this year, 2017, Maduro met Vladimir Putin again to buy weapons.
Meanwhile, Venezuela is the biggest partner China has in the region.
They have received way more Chinese money than any other Latin American country.
So now you might wonder…
What’s the point of all of this?
Finance wise, China is blind to ideology.
And the same goes with the American banks.
Their only goal is to make money.
But, at a first sight, Venezuela doesn’t look like a good place to do business.
So How come did Venezuela come to the attention of so many investors?
Where is the deal here?
Well, today we are going answer to all of those questions but before we do, let’s
take a look back at history.
A RISKY BET
Here is some advice.
If you ever want to become a dictator in your country, and repress your opponent and torture
your political foes, there is something you need…
MONEY!
Yes, normal citizens can die from starvation but your police and your army cannot miss
any pay day.
The biggest problem for an authoritarian leader like Nicolas Maduro, the Venezuelan president,
is if the army strikes against him.
But, if you’ve been following VisualPolitik for a long time, you know that Venezuela has
almost no private companies.
So there is not so much money to be collected in taxes here.
Further, oil exports are no longer profitable since the oil prices went down in 2012.
In other words, his only way to pay for all this repressive apparatus is by getting loans
on the international market.
But hold on just a second because things are not as easy as they seem!
Venezuela is a country with a terrible economic problems.
This means, if you lend them money, chances are they will never give it back.
This is why we say Venezuelan bonds are a high risk investment.
And what do countries do when investors don’t trust them?
Well, they raise the interest rate!
And this is why Venezuelan bonds have a yield of over 10 and 12% while a German bond, which
is way more reliable, doesn’t surpass the 0.5%.
OK, but what does this mean?
Well, let’s imagine we invest 1000 USD in Venezuelan bonds to be paid in 10 years with
an interest of 10%.
Theoretically, the Venezuelan government is expected to gives us back those 1000 USD we
lent them.
But, in the meantime, we will receive 100 dollars every year as an interest payment.
Oh yes!
I know what you are thinking!
This is a great business right?
Well, don’t get to excited yet.
As we said before, Venezuela has a pretty high chance to default.
If the Government of Caracas, the capital of Venezuela, declares bankruptcy in, say,
two years, we will have lost 80% of our investment.
This is why, despite the high interest rates, Nicolas Maduro has found it harder and harder
to sell his bonds.
And this explains news like this:
Goldman Sachs’ Venezuela bond purchase sparks anger
It paid about $865m for $2.8bn worth of bonds.
OK, OK, but… what does this mean?
Well, it means Goldman Sachs bought Venezuelan bonds for a third of their value.
In other words…
Theoretically, the government of Venezuela is expected to pay back 2.8 Billion USD to
Goldman Sachs despite the fact they paid only 865 million USD.
And why does Venezuela accept this deal?
Well, first they need cash as soon as possible.
Second, they know they will never pay it back…
So now you might wonder…
Why do bankers lend them money if everyone knows Venezuela won’t pay back?
Where is the business appeal here?
So, it is in the interest rates.
Think about it… if Venezuela gives Goldman Sachs 10% of those 2.8 billion every year,
it means the bank will have covered their real investment, those 865 million USD, in
less than 3 years.
After that, everything is profit.
So, of course, investors know Venezuela is going to default.
The question here is WHEN are they gonna do it?
So investors are making a high risk bet here.
If Venezuela keeps paying for, at least, 4 years, banks will win.
If they don’t, banks will lose.
And the truth is Nicolas Maduro is the first one interested in not declaring bankruptcy...
On one hand, he needs to keep bankers on his side so he can pay his repression machinery,
and on the other hand, PDVSA, Venezuela’s state oil company has several properties abroad.
Factories and refineries in countries like Haiti and the Dominican Republic.
If Caracas defaults, some of those investors might seize them.
This is why, for several years, Venezuela has prioritized their debt payments over anything
else.
Maduro’s foreign currency reserves went from more than $50 billion to less than 10
billion.
And this explains why a magazine like FORBES said this about Venezuelan bonds in 2016.
“Venezuela might be the worst country in Latin America but its Bonds look great.”
In the middle of 2017, Donald Trump had to pass a law banning American banks and hedge
funds from investing in Venezuela...
Nonetheless, no matter how badly Maduro tried, his economy was weaker than he thought...
“Venezuela to restructure foreign debt, default looms as possibility.”
Yes, you heard that right.
Goldman Sachs and the rest of those hedge funds who bought Venezuelan bonds at a discount
price… they have lost their bet.
Nonetheless, there is still one investor that is far from being worried.
Yes, of course we are talking about CHINA.
CHINA’S PUPPET
As we said at the beginning, Venezuela is the country that received the most Chinese
money in Latin America.
But, unlike the private bankers, China’s government does not buy bonds on the market.
Instead, Xi Jimping had a personal meeting with Nicolas Maduro.
A meeting where they negotiated a special deal.
A loan that is not to be paid back with money, but with oil.
This way, Beijing makes sure they have an oil supplier no matter what happens.
But hold on just a second because this formula has its drawbacks too..
As you know, PDVSA is a hyper bureaucratic company, with thousands of workers hired by
Chavez out of pure nepotism.
This means, oil drilling is harder and harder for them.
In fact, lately, those dinosaur juice shipments are arriving late to China.
But despite all of that, China keeps their loyalty to Venezuela…
”We are showing solidarity with the Venezuelan people because we are supporting the principles
of United Nations.
This is what we have to do”
So the question is Why?
What does China get from Venezuela now that they are facing problems with their oil payments?
The answer lies in the long run.
Just think about it: Beijing has already lent $50 billion to Caracas.
Now they just need patience.
And stability...
Maduro need some more years to pay back his debt?
No rush!
Xi Jimping can wait!
However, there is something that could risk the payback of these debts.
And that is a change in government.
What would happen if the opposition to Nicolas Maduro took power?
Would they be that willing to meet their obligations to those who helped the dictator?
The one who sent them to jail and tortured them?
Mmmm… that sounds ‘risky’, doesn’t it?
And ‘risk’ is the least favourite word for the Chinese communist party.
And it explains things like this one...
“Venezuela defends purchase of Chinese riot-control gear after more than 70 deaths in street protests.”
China has already sold over 350 million dollars worth weapons to Maduro so he can stay in
power.
Thanks to these movements, Caracas is China’s biggest ally in the region.
Basically, the Venezuelan government is to become the puppet of the Chinese communist
party.
So, what happens?
Maybe China want to build new infrastructures in South America so they can complete their
‘silk road’ project?
Well, no problem!
Venezuelan diplomats will support them with no questions asked.
Does China want to have a military base in the region?
Welcome to Venezuela!
Just like that, thousands of square miles to place your army as you please!
In other words… there is no better ally than the one that needs you in order to survive…
“Venezuela hopes no country hinders China's 'fantastic' Silk Road initiative.”
Nonetheless, there is still doubt here… having as much power as they have, China might
request other kinds of reforms.
For instance, if Venezuela keeps facing problems with their oil payments, they might force
Maduro to fire people at PDVSA and make it more productive.
They could even take over the exploitation of the oil.
So here it is the question…
Can Venezuela become China’s colony?
Do you think China is going to seize Venezuelan oil for ever?
Please, leave your answer in the comment section below.
If you want to learn more about how the Venezuelan crisis started, check out this other video.
And don’t forget to visit RECONSIDER MEDIA.COM, the podcast that provided the vocals on this
video that are not mine.
As always, remember that we publish brand new videos every week so hit that subscribe
button and you will not miss any post.
If you liked this video, give us a thumbs up and, as I always say…
I’ll see you next time.
Tesla, Is the Dream of Elon Musk at Risk? - VisualPolitik EN How is RWANDA stepping out of MISERY? - VisualPolitik EN Why is ISRAEL Wrong About the WEST BANK? - VisualPolitik EN Is Norway a Country Addicted to Oil? - VisualPolitik EN How Far Does Putin’s Power Go? - VisualPolitik EN Why is Transylvania seeking autonomy from Romania? - VisualPolitik EN Why Is New Zealand the Most Prosperous Country on Earth? - VisualPolitik EN Why Is AMERICA Not Afraid of ROBOTS? - VisualPolitik EN Why does THE WORLD need RYANAIR? - VisualPolitik EN How Did New Zealand Become Rich? - VisualPolitik EN

Venezuela: a new Chinese Colony? - VisualPolitik EN

Latest Posts