President Trump just signed an executive order deepening the sanctions on Venezuela, confirming the rumors of a ban on trading in Venezuelan debt that sent VENZ/PDVSA bonds tumbling.
(Click to enlarge)
As we noted previously, on Tuesday evening, the WSJ reported that the U.S. government is considering "restricting trades in Venezuelan debt as it seeks to punish President Nicolás Maduro for undermining the country’s democracy" and that "the unprecedented move would temporarily ban U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by the Republic of Venezuela and state oil company Petróleos de Venezuela SA, according to a person who was briefed on the proposal."
One option being considered is banning the trading in just some papers issued by the state oil company to limit its access to external funds, said a third person.
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The ban would be the first step against the Venezuelan financial system since Mr. Trump promised “swift economic action” against Mr. Maduro for installing a parallel parliament staffed with loyalists earlier this month.
The sanctions ban dealing in any new debt (or equity) issue by PDVSA and all Venezuelan government debt.
All transactions related to, provision of financing for, and other dealings in the following by a United States person or within the United States are prohibited:
(i) new debt with a maturity of greater than 90 days of Petroleos de Venezuela, S.A. (PDVSA);
(ii) new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela, other than debt of PDVSA covered by subsection (a)(i) of this section;
(iii) bonds issued by the Government of Venezuela prior to the effective date of this order;
(iv) dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled, directly or indirectly, by the Government of Venezuela.
Statement by the Press Secretary on New Financial Sanctions on Venezuela
President Donald J. Trump has signed an Executive Order imposing strong, new financial sanctions on the dictatorship in Venezuela.
The Maduro dictatorship continues to deprive the Venezuelan people of food and medicine, imprison the democratically-elected opposition, and violently suppress freedom of speech. The regime's decision to create an illegitimate Constituent Assembly —and most recently to have that body usurp the powers of the democratically-elected National Assembly—represents a fundamental break in Venezuela's legitimate constitutional order.
In an effort to preserve itself, the Madura dictatorship rewards and enriches corrupt officials in the government's security apparatus by burdening future generations of Venezuelans with massively expensive debts. Maduro's economic mismanagement and rampant plundering of his nation's assets have taken Venezuela ever closer to default. His officials are now resorting to opaque financing schemes and liquidating the country's assets at fire sale prices.
As Vice President Mike Pence has said, in Venezuela, "we're seeing the tragedy of tyranny play out before our eyes." No free people has ever chosen to walk the path from prosperity to poverty. No free people has ever chosen to turn what was once, and should still be, one of South America's richest nations into its poorest and most corrupt.
and most corrupt.
We will not stand by as Venezuela crumbles. The President's new action prohibits dealings in new debt and equity issued by the government of Venezuela and its state oil company. It also prohibits dealings in certain existing bonds owned by the Venezuelan public sector, as well as dividend payments to the government of Venezuela.
To mitigate harm to the American and Venezuelan people, the Treasury Department is issuing general licenses that allow for transactions that would otherwise be prohibited by the Executive Order. These include provisions allowing for a 30-day wind-down period; financing for most commercial trade, including the export and import of petroleum; transactions only involving Citgo; dealings in select existing Venezuelan debts; and the financing for humanitarian goods to Venezuela.
These measures are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela's corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance.
The United States is not alone in condemning the Maduro regime. Through the Lima Declaration of August 8, our friends and partners in the region refused to recognize the illegitimate Constituent Assembly or the laws it adopts. The new United States financial sanctions support this regional posture of economically isolating the Madura dictatorship.
The United States reiterates our call that Venezuela restore democracy, hold free and fair elections, release all political prisoners immediately and unconditionally, and end the repression of the Venezuelan people. We continue to stand with the people of Venezuela during these trying times.
Of course, this will just add fuel to Maduro's fire talk about America waging economic war against the Latin American nation (as opposed to the utter collapse of the country being due to decades of Bernie Sanders-style socialism).
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As we noted previously, Maduro is afraid what would happen to PDVSA assets once the country defaults (not to mention to the army's support of his regime, which has been solid as long as the money keeps flowing):
Most analysts and investors believe that this is because the government wants to keep the oil flowing. PDVSA is responsible for half of Venezuela’s fiscal income and some 90% of its exports, according to Standard & Poor’s. For some analysts, Venezuela’s fear is that a debt default would push investors to try to seize PDVSA’s foreign assets.
Mr. Dehn has another theory over what is behind that fear: that PDVSA’s so-called joint venture partners, such as Russia’s Rosneft and China, would pull lines of credit if the country defaulted. That would starve it of working capital and prevent it from producing oil.
“If he stops [servicing the debt]…oil production will stop. The government will fall,” said Mr. Dehn.
The decision to block trading of Venezuela bonds could well be the tipping point that forces creditors to finally give up on the Caracas regime, leading to a prompt default and the fall of Maduro, in the process Washington will once again have succeeded in toppling a foreign regime, this time without firing a single shot.
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