How much money will Russia lose in Venezuela

January 26, 2019

by Ivan Danilov

Ivan Danilov is a famous Russian economist and influential blogger.

Source

featured image © REUTERS / Manaure Quintero

Translated by Scott

The crisis in Venezuela has once again brought into question why the Russian state, as well as state-owned companies, invest money and issue loans to some countries. Many journalists and experts have already rushed with pleasure to calculate alleged financial losses of the Russian side, forgetting both that Caracas has not yet fallen and pro-American usurper has not won yet, and that Russia is not the USSR and is not engaged in charity.

It is particularly instructive to compare two strains of American propaganda: one aimed at the Russian audience through the American NGOs and the media-lured “leaders of public opinion,” and the other — aimed at the Venezuelan audience through lured Venezuelan politicians. The message “the money of the Russian budget and Rosneft went to useless support of the Venezuelan regime and will never be returned” targets the Russian audience, and the message “Russia robbed Venezuela with the help of bonded loans and contracts, taking control of a significant part of Venezuelan oil” targets the Venezuelan audience. It is easy to see that according to the laws of logic in one case the American propaganda should lie, because it is impossible to be a stupid benefactor and ruthless moneylender at the same time. However, in reality, the situation is even more interesting: American propaganda lies in both cases: Russia and Russian state-owned companies are not “geopolitical Shylock,” and they are not “geopolitical mother Teresa,” either. Moscow really helped and will continue to help Caracas, while always sensibly combining idealism with pragmatism.

Let’s start with the fact that Russia is not the main creditor of the Venezuelan economy and not even the second most important. If we take the Western (the most unflattering for Russia) estimates from the Bloomberg business information agency, it turns out that the leader in investments and loans is China with 70 billion dollars, but the honorable second place belongs to very influential and very respectable banks and investment funds, mainly from the US and the UK. According to the most conservative estimates quoted in the Reuters material, they lent to the governments of Chavez and Maduro, as well as the Venezuelan state oil company PDVSA to the amount of about $50 billion.

Among Venezuela’s creditors there are such giants of the financial world as the American investment conglomerate BlackRock (the largest investment fund in the world, assets under management — 6,789 trillion dollars) and the most influential American Bank Goldman Sachs, which is known for its extraordinary opportunities of political lobbying in the US and the European Union. By the way, the Venezuelan opposition has repeatedly said that it will not pay the debts of the “anti-people regime” (especially the opposition does not want to pay the Goldman Sachs Bank, which literally saved Maduro in 2017). So, paradoxically, several very large and influential American financial companies are rooting for Maduro , because they are unlikely to want to run into a “write-off in the name of democracy” for at least $50 billion.

For comparison, the highest estimate of the total amount of loans and investments made by Russian structures in Venezuela is $17 billion, and this amount does not take into account some important aspects. First, Venezuela has long been paying off Russian and Chinese creditors with oil and shares in Venezuela’s oil fields — and this has been generating serious revenues for Venezuelan creditors for many years.

Secondly, Russian loans (it is worth noting that a similar scheme is used by the US, China, the UK and EU countries around the world) are often tied to the supply of Russian goods and services — that is, the money has already turned into salaries, for example, for domestic gunsmiths. So, to speak about losses of $17 billion is at least inaccurate and more than premature.

Unfortunately, in the Russian information field there are often sounding statements that the Venezuelan government is not to blame for anything, that economic difficulties are a myth or that economic difficulties (primarily hyperinflation) are 100% the result of American sanctions. That’s not so. No American sanctions can explain the fact that the Venezuelan gold reserve has been in London for many years at the disposal of the Bank of England, which, according to the latest information, refuses to return it at all, and in the current crisis situation, this gold may well become the budget of the pro-American junta.

No sanctions can explain the fact that the key Venezuelan assets, bringing the country’s main foreign exchange revenue (for example, an oil refinery and a network of Citgo gas stations), are located in the USA and in all the years of confrontation with America, the official Caracas did not bother to sell them and buy something similar in any other — friendly to Venezuela — country.

No sanctions can explain an absolutely insane policy of monetary stimulation of the economy, which has led to the fact that inflation in Venezuela has long been measured in tens or hundreds of thousands of percent per annum, undermining the economy and the standard of living of the population so that even toilet paper becomes a luxury product. It is time for Caracas (as well as some Russian economists) to realize that it is impossible to solve economic and social problems by “printing and distributing money.” According to the Central Bank of Venezuela for October 2018, which refers to Trading Economics, inflation in Venezuela was more than 1 300 000% — a level when the national currency turns into a wrapper, which can only be use to heat up a house during the next power outage. The fact that Venezuelans massively support Maduro despite the fact that prices increase by at least a few tens of percent every day for several years — a real miracle. Again, hyperinflation cannot be attributed to sanctions or falling oil prices. It is enough to look at the country on which American sanctions, American intervention and civil war hit much harder —  Syria. According to the CIA, at the peak of the war in 2016, the Assad administration managed to keep inflation at only 43.9%, and in 2017 it was brought down to 25.5%-that is, inflation is falling, and the economy is gradually returning to normal.

This example clearly shows the difference in financial discipline, and this comparison is clearly not in favor of Caracas.

We are now witnessing a rather acute political crisis, but for Venezuela such crises are, unfortunately, almost routine. Suffice is to recall actively supported by the US riots in 2014 and 2017, during which the legitimate government in Caracas also kept literally in the balance. If the administration of Maduro this time, too, will be able to keep the situation, it may even bring positive results at least in terms of changing the economic policy of the Venezuelan leadership, which just a few months ago (although Venezuela has been in a difficult economic crisis for many years) asked the Russian leadership to develop a plan for the normalization of the Venezuelan economy. If the legitimate government retains power and if the Russian plan is adopted for implementation, Venezuela will have a good chance to get out of the crisis and dramatically reduce its risks in the future. This will be good for Venezuela itself and for all its economic partners.

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