venezuela sells petrocaribe DR debt

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barker1964

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Apr 1, 2009
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the gorgon said:
the Dominican Republic has defaulted on debt before, so all this trumpeting is entirely based on whether or not the debt gets repaid at all. what if the DR stiffs Goldman? who lost?
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Please don't think for one second that Goldman Sachs went into the deal without a backup plan. And certain assurances from the Dominican Government. Think mineral rights plus land deals. People like that think in 10-20 terms. They will never lose.
 
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the gorgon

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barker1964 said:
Please don't think for one second that Goldman Sachs went into the deal without a backup plan. And certain assurances from the Dominican Government. Think mineral rights plus land deals. People like that think in 10-20 terms. They will never lose.
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they made a deal with Venezuela to buy the outstanding DR debt. they have no contract with the DR, so i do not see how there can be assurances. if you took out your mortgage with Bumfuk Bank, and they sell it to Horseass Holdings, you have no agreement with the latter.
 
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barker1964

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Apr 1, 2009
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the gorgon said:
they made a deal with Venezuela to buy the outstanding DR debt. they have no contract with the DR, so i do not see how there can be assurances. if you took out your mortgage with Bumfuk Bank, and they sell it to Horseass Holdings, you have no agreement with the latter.
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A company like Goldman Sachs looked at every possible outcome. We will never know the full terms of the deal but I assure you they did not enter this deal with blinders on. Eventually the terms of the deal will come to light. Those in the know all say it's a win win situation for Goldman Sachs. At this point they have access that we don't to be able to make those statements.
 
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the gorgon

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Sep 16, 2010
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barker1964 said:
A company like Goldman Sachs looked at every possible outcome. We will never know the full terms of the deal but I assure you they did not enter this deal with blinders on. Eventually the terms of the deal will come to light. Those in the know all say it's a win win situation for Goldman Sachs. At this point they have access that we don't to be able to make those statements.
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Goldman Sachs has bought the debt, and i believe that they are going to mix it in with other debts, and sell it off in collateralized debt obligations. that way, Venezuela gets it off their ledger, Goldman also does, and some guys get stuck with some assets which might end up great, or toxic. 2007-8 redux, possibly.
 
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barker1964

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Apr 1, 2009
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the gorgon said:
Goldman Sachs has bought the debt, and i believe that they are going to mix it in with other debts, and sell it off in collateralized debt obligations. that way, Venezuela gets it off their ledger, Goldman also does, and some guys get stuck with some assets which might end up great, or toxic. 2007-8 redux, possibly.
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More than likely that will be the outcome. But anyway they will come out ahead. Also if their International division bought the bad debt they can do what Ford did in the financial collapse. Just do a debt switch and write it down. Like I said either way a win win. At this point we are just speculating, cause there are so many avenues for them to spin this in a positive cash flow for them.
 
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the gorgon

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Sep 16, 2010
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barker1964 said:
More than likely that will be the outcome. But anyway they will come out ahead. Also if their International division bought the bad debt they can do what Ford did in the financial collapse. Just do a debt switch and write it down. Like I said either way a win win. At this point we are just speculating, cause there are so many avenues for them to spin this in a positive cash flow for them.
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not because Goldman has a winning strategy means Venezuela loses. the only time we can make that determination is when the loan is paid back in full. if the DR defaults on the deal, then at least Venezuela gets 41%, not zero. Goldman will have a field day selling derivatives, so they won't lose. the guys holding the assets could be the ones taking the bath.
 
bronzeallspice

bronzeallspice

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the gorgon said:
they made a deal with Venezuela to buy the outstanding DR debt. they have no contract with the DR, so i do not see how there can be assurances. if you took out your mortgage with Bumfuk Bank, and they sell it to Horseass Holdings, you have no agreement with the latter.
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So Venezuela was paid by GS the outstanding debt owed by the DR. So now the DR owes GS.
 
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chic

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Nov 20, 2013
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i think they see the ability to pay also the ability to steer policy....tax's are in govt hands...and d.r. is a highly taxed area.... helping the d.r. steer is to raise revenue.
they could have there finger on a certain course of payback....
 
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playacaribe2

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Jan 9, 2004
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the gorgon said:
did they say what the terms of the sale were? what did GS pony up to take over the debt?
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As was stated above, GS paid Venezuela 41 cents for every dollar of debt.

Additionally stated above, and I concur, I do not believe the DR really believed they would have to pay it back to Venezuela (absent some token payments).....but there is a new sheriff in town....so to speak. And while I expect GS to sell the debt in tranches, they may well retain the so called servicing rights (for a fee) of collecting those payments.


Respectfully,
Playacaribe2
 
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the gorgon

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Sep 16, 2010
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chic said:
i think they see the ability to pay also the ability to steer policy....tax's are in govt hands...and d.r. is a highly taxed area.... helping the d.r. steer is to raise revenue.
they could have there finger on a certain course of payback....
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whaa???????
 
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playacaribe2

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Jan 9, 2004
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the gorgon said:
playacaribe2 said:
you confused me there, playacaribe. i always thought that when you have large outstanding dollar debts the way to pay them off was by revaluing your currency, so that it takes less of your money to buy dollars.
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While that strategy can be employed by a normal fully integrated first world economy, it would not work well for the DR.

By that I mean, if the DR were to strengthen its currency, your scenario is accurate. But because the economy is reliant on tourism and exports, those industries would be devastated in a scheme to strengthen the currency....and here is why.

Tourism is basically a price point business. Too high a price....and mass market tourism, which is the DR's stock in trade, is off to a better price alternative. That in turn gives you less dollars....not more....net net.

Same thing for exports. If you strengthen your currency to require more dollars to buy Dominican avocadoes, suppliers simply find another source of avocadoes....and exports suffer and your income of dollars declines.

On the other hand, if you keep your currency weak or weaken it further, you attract tourists/dollars or exports/dollars as you are more competitive against other tourist destinations and other countries exports.

And while that is a somewhat simplistic explanation, it pretty much explains how the DR needs to currently operate to keep dollars coming in.

While the outstanding debt under Petrocaribe is large...it is spread out over a long period.

And this in no way ends Petrocaribe.....but it should certainly be a clear signal to the DR....that absent some miraculous change in Venezuela...the end is certainly in sight.


Respectfully,
Playacaribe2
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the gorgon

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Sep 16, 2010
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playacaribe2 said:
the gorgon said:
While that strategy can be employed by a normal fully integrated first world economy, it would not work well for the DR.

By that I mean, if the DR were to strengthen its currency, your scenario is accurate. But because the economy is reliant on tourism and exports, those industries would be devastated in a scheme to strengthen the currency....and here is why.

Tourism is basically a price point business. Too high a price....and mass market tourism, which is the DR's stock in trade, is off to a better price alternative. That in turn gives you less dollars....not more....net net.

Same thing for exports. If you strengthen your currency to require more dollars to buy Dominican avocadoes, suppliers simply find another source of avocadoes....and exports suffer and your income of dollars declines.

On the other hand, if you keep your currency weak or weaken it further, you attract tourists/dollars or exports/dollars as you are more competitive against other tourist destinations and other countries exports.

And while that is a somewhat simplistic explanation, it pretty much explains how the DR needs to currently operate to keep dollars coming in.

While the outstanding debt under Petrocaribe is large...it is spread out over a long period.

And this in no way ends Petrocaribe.....but it should certainly be a clear signal to the DR....that absent some miraculous change in Venezuela...the end is certainly in sight.


Respectfully,
Playacaribe2
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your scenario neglects to integrate elasticities into the equation. lowering of prices in order to become more competitive has severe limitations, especially in the field of tourism. regardless of how much you can lower prices by your exchange rate regimen, you have to be able to increase supply concomitantly, or it is wasted effort. if you are at a point wherein additional tourist footfall exceeds carrying capacity, you enter into the world of diminishing marginal returns real fast. it is not as simple as it appears. the same goes for agriculture, which depends upon the little matter of absolute advantage in matters of market share. you cannot keep dropping prices in order to be competitive which a country with has absolute production cost advantages, based on things such as economies of scale and appropriate resources, because that can take you to the point wherein you are looking at negative returns.
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playacaribe2

Gold
Jan 9, 2004
10,912
2,247
113
the gorgon said:
your scenario neglects to integrate elasticities into the equation. lowering of prices in order to become more competitive has severe limitations, especially in the field of tourism. regardless of how much you can lower prices by your exchange rate regimen, you have to be able to increase supply concomitantly, or it is wasted effort. if you are at a point wherein additional tourist footfall exceeds carrying capacity, you enter into the world of diminishing marginal returns real fast. it is not as simple as it appears. the same goes for agriculture, which depends upon the little matter of absolute advantage in matters of market share. you cannot keep dropping prices in order to be competitive which a country with has absolute production cost advantages, based on things such as economies of scale and appropriate resources, because that can take you to the point wherein you are looking at negative returns.
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As I said, my scenario was a simplistic explanation....albeit an accurate one for the DR economy.

If the DR could strengthen their currency to gain more dollars to pay off their debt.....they would do it in a heartbeat. But as I pointed out above it won't work based on their economy.

The Banco Central has adopted a weaker peso economy....and as such...50:1 is much more likely than 28:1.

But there is plenty of room in the 28:1 camp...if you care to join Pichardo.


Respectfully,
Playacaribe2
 
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