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Venezuela: a new Chinese Colony? – VisualPolitik EN


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.

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