Venezuela&a;rsquo;s president Nicolas Maduro has joined the #resistance. He blamed President Trump for his economic woes, saying in an Associated Press interview on Thursday that the country&a;rsquo;s ruling Socialists United of Venezuela (PSUV) will rebuild the country ... only if Trump stays away.
Which prompts&a;nbsp;the question, what was he waiting for before? The economy was swirling around the galactic blackhole before Trump was elected president.
Bonds were defaulted on at least a year before sanctions. They were also defaulted on despite the fact that Russia and China have been financing Venezuelan oil firm PdVSA&a;mdash;to no avail. Goldman Sachs even bought $2.8 billion worth of PdVSA bonds in 2017, helping secure the price.
Venezuela&a;rsquo;s economy has contracted for the last two years and will contract again this year, the first year Washington imposed sanctions on PdVSA oil and bond trading, a move that only went into effect last week.
&l;/p&g;&l;blockquote class=&q;twitter-tweet&q;&g; &l;p dir=&q;ltr&q; lang=&q;es&q;&g;&l;a href=&q;https://twitter.com/hashtag/EntrevistaAP?src=hash&a;amp;ref_src=twsrc%5Etfw&q; target=&q;_blank&q;&g;#EntrevistaAP&l;/a&g; El presidente de &l;a href=&q;https://twitter.com/hashtag/Venezuela?src=hash&a;amp;ref_src=twsrc%5Etfw&q; target=&q;_blank&q;&g;#Venezuela&l;/a&g; &l;a href=&q;https://twitter.com/NicolasMaduro?ref_src=twsrc%5Etfw&q; target=&q;_blank&q;&g;@NicolasMaduro&l;/a&g; revela conversaciones se cretas de su canciller con el enviado de EEUU &l;a href=&q;https://t.co/y9JVgzyUdf&q; target=&q;_blank&q;&g;https://t.co/y9JVgzyUdf&l;/a&g;&l;/p&g; &a;mdash; AP Noticias (@AP_Noticias) &l;a href=&q;https://twitter.com/AP_Noticias/status/1096395221535985665?ref_src=twsrc%5Etfw&q; target=&q;_blank&q;&g;February 15, 2019&l;/a&g;&l;/blockquote&g;
Venezuela&a;rsquo;s economic crisis has nothing to do with Washington, though Maduro and PSUV will work overtime making sure the electorate believes just the opposite.
Any CIA spooks roaming around in disguise did not create the PSUV disaster now unfolding. Despite years of recovering oil prices (from the $30s in 2016 to $55.31 today for WTI crude), Venezuela just keeps getting worse.
Central bank reserves, what the market knows of them, were just under $11 billion in 2017. Odds are&a;nbsp; they are not much better today. To put that into perspective, Brazil&a;rsquo;s foreign currency reserves are around $376 billion. Colombia has $47.7 billion in reserves.
&l;img class=&q;dam-image ap size-large wp-image-bb258c41f68e41ef8cb822b5b59103fe&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/bb258c41f68e41ef8cb822b5b59103fe/960x0.jpg?fit=scale&q; data-height=&q;639&q; data-width=&q;960&q;&g; Antigovernment protesters in Caracas on&a;nbsp;February 12, 2019. (AP Photo/Boris Vergara) photo credit: ASSOCIATED PRESS
Maduro has been doing the rounds with international media. Today it was the Associated Press story. Earlier this week, it was the BBC, where he said that humanitarian aid was a ploy by the U.S. to make his government look bad.
His government is at a crossroad. There are three routes to take.
One road has PSUV and the military continuing to rally around Maduro, keeping him in power in hopes to exhaust the opposition. Sanctions then make the economy worse, because after April 28 PdVSA is banned from selling crude oil to the U.S. Trump is even toying with extraterritorial sanctions, a potential death blow.
&l;img class=&q;dam-image ap size-large wp-image-72310df47a3549768bfbdf5181cf54f9&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/72310df47a3549768bfbdf5181cf54f9/960x0.jpg?fit=scale&q; data-height=&q;676&q; data-width=&q;960&q;&g; Venezuela&a;rsquo;s self-proclaimed interim president Juan Guaido. He says he supports U.S. military intervention, but such a radical move would set the table for more anti-American, and anti-capitalist revolutionary movements in Venezuela for many years to come. (AP Photo/Ariana Cubillos) photo credit: ASSOCIATED PRESS
The other option is that the PSUV leadership convinces Maduro to step down in order to save the party. Many people still support PSUV due to its founder, the late Hugo Chavez. There is a large enough portion of the electorate that view Maduro as the problem, not PSUV. In this option, PSUV remains in power but opens the door to allow for more sharing of power with the National Assembly.
The National Assembly president, Juan Guaido, is calling for new elections. He says Maduro can run in those elections. Maduro was re-elected in May 2018, but the Supreme Court disqualified key opposition figures from challenging him on the ballot. It would be like Joe Biden, Bernie Sanders, Kamala Harris, Elizabeth Warren and Beto O&a;rsquo;Rourke being banned from running against Trump in 2020.
The final option is for U.S. military intervention. Guaido supports this, but so far Congress has come out against it. Any effort by the U.S. government to put boots on the ground or support a coup with American military logistics would set the table for another Chavez character in the future.
&l;img class=&q;dam-image ap size-large wp-image-dcbdfe474832455a864484b422b9edf6&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/dcbdfe474832455a864484b422b9edf6/960x0.jpg?fit=scale&q; data-height=&q;639&q; data-width=&q;960&q;&g; Maduro tells the AP &a;ldquo;hands off Venezuela.&a;rdquo; The Socialists United are warning people through a new media campaign that Washington meddling in Venezuelan affairs will lead to a new Vietnam. (AP Photo/Ariana Cubillos) ASSOCIATED PRESS
Maduro&a;rsquo;s grip on power is weakening but not broken.
Barclays Capital analyst Alejandro Arreaza said in a note this week that he suspects PSUV will oust Maduro by April.
&l;p class=&q;tweet_line&q;&g;The next few weeks will say a lot about Maduro&a;rsquo;s hold on the presidency.&l;/p&g;
&a;ldquo;It seems difficult to believe that the Maduro regime and the corrupt ruling elite could withstand the pressure from the cash-flow shock post-sanctions as well as the increasing diplomatic pressure from the international community,&a;rdquo; says Siobhan Morden, a managing director at Nomura Securities in New York who has been watching this unfold for years.
Guaido claims that the military is fine with a political transition, but there have been no serious defections from the 2,000 generals in the Venezuelan army.
If the economic crisis doesn&a;rsquo;t provide sufficient motivation, then the Guaido team could shift towards closed-door negotiations with party and military leaders to reassure them amnesty and reconciliation in a post-PSUV government. (Think how the dismantling of the FARC went down in Colombia, for example.)
Meanwhile, Trump will warn of more threatening alternatives beyond extraterritorial sanctions. These include the targeting of offshore revenues and cutting off access to offshore assets.
&l;img class=&q;dam-image ap size-large wp-image-09c27768664e41e19de1da044ff7afd4&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/09c27768664e41e19de1da044ff7afd4/960x0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; A doll of Venezuela&a;rsquo;s late president Hugo Chavez with a flyer of&a;nbsp;current&a;nbsp;president Nicolas Maduro stuffed in its shirt and held aloft by a supporter during a pro-government demonstration this week. Many PSUV supporters see Maduro as the problem. Their loyalty to the party stems from their loyalty to Chavez. (AP Photo/Rodrigo Abd) photo credit: ASSOCIATED PRESS
&l;p class=&q;tweet_line&q;&g;Venezuela has become geopolitically relevant after two years of everyone watching it fall to pieces.&l;/p&g;
It is now a top priority for the Trump administration in Latin America, perhaps a close second to Mexico.
&a;ldquo;The only obvious strategy for the Maduro regime is resisting against increasing international and domestic pressure until the military reaches a breaking point,&a;rdquo; says Maduro. When that breaking point comes, then the option of PSUV convincing Maduro to walk is more plausible.
What happens in that transition remains the prerequisite for sanctions removal and the next phase of economic recovery.
Any recovery will include negotiations with bondholders before bigger financial aid packages can be made.
A &l;em&g;Financial Times&l;/em&g; article from Thursday titled&l;a href=&q;https://www.ft.com/topics/places/Venezuela&q; target=&q;_blank&q;&g;&a;nbsp;&a;ldquo;Venezuela&a;rsquo;s Collapse Eclipses Post-Soviet Crash&a;rdquo;&a;nbsp;&l;/a&g;says the 54% plunge in the country&s;s economic output is worse than what Russia faced in the early 1990s. With no money to speak of, an 80% haircut on PdVSA and Venezuela bonds is&a;nbsp;the worst-case scenario.
American bondholders of Venezuelan debt can only sell those bonds to non-U.S. individuals and entities. For some long term holders it is liquidate and lock in a loss, while short-term holders who have been buying PdVSA bonds at distressed levels need to wait and see what happens to the price after debt negotiations.
&a;ldquo;We&a;rsquo;re not in and glad we stayed out,&a;rdquo; says Katherine Renfrew, a bond fund manager for TIAA Investments. &a;ldquo;It&a;rsquo;s going to take a long time for Venezuela&a;rsquo;s economy to recover from this one.&a;rdquo;
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