Venezuela Bondholders Get Warning Inside Manhattan Law Office
Venezuela Bondholders Get Warning Inside Manhattan Law Office
(Bloomberg) -- A prominent Venezuelan economist who has been mentioned as a potential future finance minister for the South American nation delivered a harsh warning to a group of money managers and strategists gathered at a Manhattan law firm Tuesday night.
Miguel Angel Santos, a lecturer at Harvard University, said at a panel discussion that the next government in Caracas will need to restructure roughly $157 billion of overseas debt “aggressively” and focus on a humanitarian aid package and boosting imports to relieve shortages.
“We’re putting up a strategy to isolate and protect the assets of Venezuela and warranty that the new money coming in the country to finance the reconstruction doesn’t go to pay the legacy creditors,” he said at an event organized by the Venezuelan American Association at the offices of Pillsbury Winthrop Shaw Pittman.
Santos is a member of a think tank of sorts at Harvard focusing on Venezuela, led by Ricardo Hausmann, that’s been advising opposition leader Juan Guaido, who the U.S. has recognized as the country’s rightful leader. His message -- which was broadly in line with past comments from Hausmann -- was directed to a crowd that included representatives from Goldman Sachs Asset Management, JPMorgan Chase & Co., Aurelius Capital Management, Gramercy Funds Management and MacroSynergy Partners.
Santos said Venezuela will probably need $60 billion to $70 billion from the International Monetary Fund as well as foreign grants. A morning-after plan for Venezuela if President Nicolas Maduro’s regime is eventually ousted, which he and Hausmann have contributed to, highlights the need to open up the nation’s oil industry to private investment and to boost imports to $34 billion within the first year under a new president from less than $10 billion in 2018. In an optimistic scenario, Santos said that within five years Venezuela could produce 2.2 million barrels per day and boost per-capita income back to 1965 levels.
“We’ll make the country jump from 1947, which is where we are now, 18 years into 1965 within five years,” Santos said. “That’s a lot to say, but that also means that a lot of the damage that’s been done is permanent.”
One other potential source of funding, which Santos isn’t counting on, is the billions of dollars the U.S. has said Maduro’s government looted from the Venezuelan people. Santos said it’s possible Guaido would partner with a risk consultancy firm to try to claw back the missing cash.
While Santos spoke about a future Venezuelan government, his co-panelists at Pillsbury cast doubt upon how quickly a regime change would occur.
Cynthia Arnson, who directs the Latin American program at the Woodrow Wilson International Center for Scholars in Washington, said the idea of a quick political transition is wishful thinking. The Trump administration is more likely to pursue quiet diplomacy rather than secondary sanctions short term, according to Russ Dallen, managing partner at Caracas Capital.
When a debt restructuring eventually happens, Santos said Venezuela’s long list of creditors, including bondholders, Russian state oil giant Rosneft, the Chinese and ConocoPhillips could get treated differently. China may accept a haircut in net present value, according to the Harvard lecturer.
“I haven’t heard debt repudiation,” Santos said. “Do we want to keep on selling oil to China? We do. Do we want to keep on importing goods from China? I’m sure we will. Do we want cheap loans below market rates from the Chinese Development Bank? We want it.”
To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net
To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net, Brendan Walsh
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