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US signals no new Venezuela action, for now

07 Sep 2017 17:00 (+01:00 GMT)
US signals no new Venezuela action, for now

Washington, 7 September (Argus) — Washington is unlikely to immediately follow up on financial sanctions imposed last month against Venezuelan government and state-owned PdV.

The ultimate goal remains to change the behavior of Venezuelan president Nicolas Maduro's government, rather than to overthrow his regime, US deputy national security adviser Rick Waddell said today.

"The targeted sanctions on the regime will induce them to change behavior, without unnecessarily harming the people or the legitimate opposition," he said at a conference hosted by advocacy group the Inter-American Dialogue in Washington.

The US on 25 August imposed sanctions preventing Caracas and PdV from issuing new debt and equity. The sanctions included exemptions that allow PdV continued access to financing needed to maintain crude exports, and allow PdV's US downstream subsidiary Citgo to sustain business operations. President Donald Trump's administration earlier this year added Maduro and dozens of other Venezuelan government officials to the US sanctions list.

The sanctions have not prevented Maduro's government from implementing its plan to sideline the opposition-controlled National Assembly and convene a constituent assembly to solidify the government's control by the ruling party, Psuv.

US sanctions endanger the Opec country's longtime status as as the nearest and most reliable US crude supplier, Venezuela's foreign ministry said yesterday. "Thousands of (US) workers risk losing their hard-earned savings as retirement funds are affected by the ban on Venezuelan bonds," Caracas said.

The financial sanctions may also precipitate a default on Venezuelan sovereign debt, but Waddell brushed off the consequences.

"All of us have seen defaults in Latin America before. There will be some kind of a debt shake out," he said. But the default will hit Venezuela's foreign state partners the hardest, Waddell said. "China owns $60bn of debt backed by oil, and it is hard to see it ever paid in full."

Caracas is lobbying China to establish a new bilateral investment fund that would purchase Venezuelan sovereign and PdV bonds — maturing in 2017-18 — at discounted prices. Caracas and PdV have almost $4bn in combined bond principal and interest due in the final four months of 2017, including $3.5bn in October-November.

PdV was able to make bond payments in November last year and April only because it received $2.5bn from Russia's state-controlled Rosneft as prepayment for future oil deliveries. Rosneft took a 49pc interest in Citgo as collateral.

Russia and China, which have combined exposure in oil-backed loans and upstream oil assets in Venezuela totaling about $100bn, condemned financial sanctions in separate official statements, which also indicated they may be receptive to appeals from Caracas for more financial aid.

"If I were China's central government or the party, I am not sure how much more I would lend," Waddell said. "Whether it is China or anybody else, at some point you have to worry about being repaid."

Steering clear of inducing a government change may also have a pragmatic component, Waddell said. "Regime change is awfully difficult to bring about by economic sanctions."

Waddell, a major general in the US Army Reserves, may be the most senior Trump administration official with direct knowledge of Latin America. Waddell spent 12 years in Sao Paolo, Brazil, as managing director for South America for British energy company BG, which Shell acquired last year. He also served as chief executive for mining company Anglo American's Brazil subsidiary.

The threat of US sanctions more directly affecting Venezuela's oil industry remains on the table. But Washington will not take steps directly affecting the people of Venezuela, US treasury secretary Steven Mnuchin said yesterday.

So far the most effective US action appears to be sanctions on PdV chief financial officer Simon Zerpa, as it chilled the willingness of some of PdV partners to work with the company out of concern of being exposed to US penalties.

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