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January 30, 2019

Venezuela's dictator Maduro feels the big crunching sanctions bite

By Monica Showalter

Economic warfare went out of style with the Bush and Obama years, but it's back, with a huge crunching sound, the sound of a giant shark bite, on Nicolás Maduro, the socialist dictator Venezuelans are trying to get out of there.

The crushing move is from President Trump's sanctions, announced this week:

They're literally fleeing any truck with the dictatorship right now.  That cuts Maduro off from Venezuela's only source of money.  No wonder he was trying to drain the country's gold reserves over in Britain a few days ago – he needs money.  And lucky him, Britain said no.

This didn't escape the notice of Venezuelan oil experts.  Pedro Burelli, a former board director of PdVSA, the Venezuelan state oil company, says it's big blow, too:

A quickie Microsoft Translate:

You begin to see the effect of the penalties @USTreasury on @PDVSA. Oil companies from all over the world start breaking relationships with the state oil company.

Implication: So unless you have absolutely no trade relationship with the U.S., you're getting yourself and your money away from Venezuela as fast as you can.  Anything else means you can trade with Venezuela and only Venezuela, and how's that working out with the oil industry falling apart as Venezuelan soldiers try to run the thing?

It gets worse.  Here's one from the New York Times:

WASHINGTON – The State Department said Tuesday that it had given the Venezuelan opposition leader Juan Guaidó the right to control assets and property in the United States bank accounts of the government of Venezuela.

Secretary of State Mike Pompeo gave the certification to Mr. Guaidó last Friday, two days after Mr. Guaidó declared himself interim president, but the United States government had kept it secret until now.  The move is part of a campaign by President Trump and his top foreign policy officials to oust President Nicolás Maduro, an authoritarian leader who is serving a second six-year term after elections last year that many have denounced as illegitimate.

"This certification will help Venezuela's legitimate government safeguard those assets for the benefit of the Venezuelan people," said Robert Palladino, a State Department spokesman.

That cash includes the central bank reserves held at the U.S. Federal Reserve.

This is hardball.  Unless Russia fronts Maduro some survival money, he's going to be out soon.

Johns Hopkins University economics professor Steve Hanke, a top monetary expert and close watcher of Venezuelan shambles, notes that the tide seems to be turning:

Specifically, he notes that it's visible in the currency markets, which are an important market signal of where things are going.  In his Forbes column, he writes:

But, the largess for loyalists has dramatically dried up.  Indeed, the BMP [black market premium for the currency] has turned negative.  What does this unusual negative BMP mean?  Well, it implies that market participants expect the bolivar to appreciate relative to the greenback, and that individuals are willing to pay a premium to obtain bolivars on the black-market.  This indicates that those in the market, at least for today, expect the Grim Reaper to put an end to Chavismo and Venezuela's death spiral.

The markets are pricing in a Maduro exit.  No dictator can last without money.  No socialist dictator can last without other people's money.  The money spigot has been cut off.  Maduro is going to go.

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