How Venezuela Got No Dollars From $65 Billion Bond Sales
In the past decade, Venezuela and the nation’s oil company Petroleos de Venezuela SA have sold $65 billion of dollar-denominated bonds without ever seeing a dime.
Sure, they got money, but took in no dollars. To preserve foreign reserves while injecting some much-needed hard currency into the economy, the government, PDVSA and the central bank sold the debt to local investors in return for bolivars. Buyers then sold the notes abroad to obtain U.S. currency, which has become scarce as Venezuela tries to limit capital flight.
With $4.5 billion of debt coming due this month and reserves at an 11-year low, Venezuela is realizing the bond sales didn’t actually buy it much time and are instead exacerbating a cash crunch that’s fueling concern the country will default. The nation’s bonds have plummeted 9.5 percent in the past month, the most in emerging markets.
“Bonds were being sold as a foreign-exchange mechanism and then being flogged out at a deep discount, so the government has got a big foreign currency liability and absolutely nothing to show for it,” David Rees, an economist at Capital Economics in London, said by phone.
http://www.bloomberg.com/news/2014-10-07/how-venezuela-came-away-with-no-dollars-from-sales-andes-credit.html
