STUMP » Articles » Around the Pension-o-Sphere: the "Strong Men" of Venezuela and Russia Can Do Only So Much » 23 July 2018, 20:36

Where Stu & MP spout off about everything.

Around the Pension-o-Sphere: the "Strong Men" of Venezuela and Russia Can Do Only So Much  

by

23 July 2018, 20:36

I’m a little off my schedule – been a bit green around my gills. I will look at doubling up my Memory Monday next week, so we can catch up with the state of public finances around the world.

Specifically, Venezuela and Russia.

VENEZUELA SHOWS WHAT HAPPENS WHEN THE MONEY RUNS OUT

Many conservative sites have been noting the Venezuelan fiscal death spiral for some time, noting that when the very newsworthy situation of an oil-rich country having trouble buying oil (as in this 2016 article from the NYT) and a once-developed nation sliding into third-world shitholery, the “traditional” news sources only mention Socialism as the official party name for the ruling party… but not noting that it’s regular old little-s socialism that wreaked such havoc.

So here it comes to pensions.

Seniors block Venezuela streets demanding pension checks

Caracas (AFP) – Perched on plastic lawn chairs and leaning on canes, scores of retirees protested Wednesday to demand payment of their retirement benefits in crisis-hit Venezuela.

About 200 senior citizens blocked traffic on Urdaneta Avenue, a stone’s throw from the presidential palace.

“They are not paying people’s whole pension. We are just getting two million” bolivars, worth 60 US cents at black market rates, said Basilio Octo, 68.

That might get him 15 eggs but it’s a quarter of his monthly income in a country with dizzying hyperinflation.

It could top 13,800 percent this year, the IMF says.

Currency notes are in very short supply; in some markets food and other basic goods can be purchased for three times less if the buyer pays cash.

Unexpectedly, as one might say.

Socialism is not mentioned in the article, but the comments on the article sure do:

Sweetness And Light3 days ago
Socialism looks like a great idea. We should try it here in the US!
Let’s all vote for socialist candidates in the next elections. Just to see what happens. I mean, how bad could it be, right?

Myrmidon3 days ago
Sorry campesino’s the almighty State has run out of Other People’s Money and does not know how to produce the wealth that it was based upon. Never in human history has the socialist dream worked out any differently.

People treat it as if some kind of natural disaster hit Venezuela, as opposed to the very much expected disaster that comes from socialism.

Interestingly, the semi-communist China has been pouring money into Venezuela to keep the ruler afloat. Kind of. In this article from February 2017, we see that China then saw that it had a bunch of bad Venezuelan debt on their books:

Beijing continued to lend to Venezuela last year, but not as much, reducing exposure to one of the world’s worst-performing economies.

Chinese policy banks extended $2.2 billion in credit, compared with $5 billion in 2015 and $4 billion in 2014, according to “Chinese Finance to Latin America and the Caribbean in 2016,” a report this week from the Inter-American Dialogue and Boston University. It draws on data from government, bank and media reports and interviews with officials, the authors said.

….
While China is committed to maintaining a presence in Venezuela, the $2.2 billion credit line extended to Caracas last year can “hardly be considered a lifeline” for Venezuela President Nicolás Maduro, she added. Beijing has opted to stand by its strategic partner, however—in part, analysts said, because it sees that as the best hope for getting Caracas to repay the $62 billion it owes, presumably when oil prices recover.

Yeaaah, you’re not getting that back, China.

In the most recent article, perhaps China can grab assets.

According to reports, all from Venezuelan authorities, the China Development Bank earlier this month pledged either $250 million or $5 billion “in favor of the increasing and strengthening of the country’s oil production.”

Uh, there’s a very large difference between $250 million (aka $0.25 billion) and $5 billion.

Here, let me show you.

That’s quite a range of uncertainty there.

Back to the article:

That Venezuela’s major industry needs “increasing and strengthening” is beyond question. Oil output crashed below a three-decade low to 1.34 million barrels a day last month. That is a million less than just three years ago and 2 million below the level when Hugo Chávez took power in 1999.

Chávismo clearly has been very bad for Venezuela’s oil production. Until recently it was very good for China, however, and its twin goals of expanding its influence and satisfying its need for oil. A report from the Center for Strategic and International Studies stated earlier this year that “China’s influence in Latin America is neither transparent nor market-oriented.”

But China clearly miscalculated in Venezuela, where it is now throwing good money after bad. The CSIS tallies $55 billion in energy-related loans alone that it has extended. Unable to come up with hard currency to service them, Venezuela has been paying in discounted barrels of oil but struggled even to do that after prices collapsed in 2014. China offered a “grace period” on some loans.

….
But why does cash keep flowing in?

Part of it is the potential equity value of that bad debt. Chinese and Russian companies have been given valuable hydrocarbon concessions—in some cases including properties expropriated from Western firms such as Exxon Mobil. While past loans are a disaster, China and Russia now have investments to protect. Disbursing more modest, targeted sums makes sense.

Venezuela needs that cash. Right now it only can sell about 500,000 barrels a day for hard currency.

I’m not sure why they’d trust those supposed concessions. If Maduro is overthrown in a coup, it’s not like the next regime will honor these concessions. I assume they’ve had to write down some of the “loans” on their books, but given the state of transparency of Russian & Chinese financial systems…. I wouldn’t bet on it.

The only way that would make sense is if Russian and/or Chinese military are hanging about in those facilities, making sure they don’t get grabbed the way Exxon’s assets were grabbed by the socialists. They’re not so foolish as to assume honor among themes.

And before I drop Venezuela… Venezuela exported $779 mln in gold to Turkey in 2018

Venezuela exported $779 million of gold to Turkey in 2018, according to Turkish government statistics, further evidence that the South American country is shifting its pattern of trade following a wave of sanctions that began last year.

Venezuela’s Mining Minister Victor Cano on Wednesday said the central bank was exporting gold to Turkey rather than Switzerland due to concerns about sanctions, without specifying the amount that was being sent.

The latest data on Turkey’s Statistical Institute website show that between January and May, Venezuela exported 20.15 tonnes of gold to Turkey, compared with none in 2017. Turkey did not send an equivalent amount of gold back to Venezuela, the data showed.

Not sure why one would expect the gold to come back. Some people need some fancy hidey-holes outside Venezuela…. where they can hide from not only the Venezuelans left behind, but perhaps some other creditors.

PUTIN PULLS A FAST ONE ON PENSION REFORM

I’ve written about this before:

Russian Retirement Age Raised Past Death? Let Me Actuary-splain… :

EXPECTED RETIREMENT LENGTH DEPENDS ON MAKING IT TO RETIREMENT

So there are two pieces to the retirement plan puzzle: the probability of making it to retirement (as seen above), and the expected amount of time in retirement if you do survive that long.

So now we want to look at life expectancy from age 65. Well, expected age at death, which isn’t the same thing, but it’s easier for most people to understand.

So there you go – if they manage to make it to age 65, Russian men can expect to live about 12 – 13 more years. Yes, it sucks that their 2014 results are basically at the same level as 1959.

Supposedly, the World Cup was to distract the Russian people from retirement age being bumped up from 60 to 65 for men, and from 55(yikes) to 63 for women.

Let’s see what’s happened since my June post:

Here’s that last one:

Russia’s attempt to roll out a proposal to increase the pension age under the cover of the World Cup has triggered the worst tumult President Vladimir Putin has faced at home in years, fueling speculation the Kremlin might soften a reform that’s crucial to righting public finances.

A decade in the making but unveiled hours before the Russian national team’s opening game at the soccer tournament last month, it came at a time when incomes stagnate and the economic outlook remains dim. The plan to push back the time people can retire starting next year quickly spilled into protests and a steep drop in Putin’s poll ratings. Among the four parties in parliament, only the pro-Kremlin United Russia supported the legislation on Thursday.

Through it all, Putin kept mum in public, even though he approved the proposal before it went to parliament, according to two officials familiar with the deliberations. Authorities knew that the reform, while seen as inevitable, would be a tough sell, they said. But Putin’s public silence amid the signs of popular opposition has sown uncertainty about the Kremlin’s plans, even within the government, these people said, speaking on condition of anonymity to discuss confidential deliberations.

Lawmakers in Moscow approved the bill in first reading and also extended the period of deliberation by a month until Sept. 24. While that’s leaving the ball in Putin’s court, the president is only likely to speak up before regional elections in September, according to Evgeny Gontmakher, a former government official.

Even “strong men” can do only so much. I assume Putin realizes the Venezuelan option to be less than ideal, and would like to stay in power…. but the drain that is people retiring way too young can’t keep going.

Well, Putin has blinked. Bah.

Putin Says He Doesn’t Like Pension Overhaul Plan

Russian President Vladimir Putin has broken his silence on the changes to the retirement ages that passed Thursday in the State Duma, the country’s lower house: He doesn’t like the plan.

The proposed reforms bump the retirement ages from 60 to 65 for men, and from 55 to 63 for women. Kremlin-friendly political parties, members of parliament, and the general public have protested these alterations, plummeting Putin’s approval rating from 78% to 64% in about two weeks.

The president has been noticeably quiet about this move until Friday, when he said, “There is no final decision,” on the pension changes, Reuters reports. “I will need to hear all opinions and points of view on this issue.”
….

“I like none of the ones linked to raising the [retirement] age,” he said Friday on local television. “And I can assure you that in the government too, there are few people, if any at all, who like them either.”

Yeah, I bet he doesn’t like it. Doesn’t like the effect it has had on his popularity.

I have a really mean suggestion – pay the early retirees in vodka.

Final word from Putin?

“Broadly speaking, you could do nothing for five, six, or even 10 years. We are able to maintain the pension system,” he said. “But what will happen in the medium, and longer-term? Then either the pension system will collapse, or the budget from which we finance the [pension] deficit will collapse.”

That’s actually refreshingly straightforward (unless the Russian budget would actually collapse a lot sooner than 10 years, in which case, he is trying to deflect the very short-term political issue but try to get people to see that somebody is going to get cut.

But again, note that even a fairly authoritarian leader realizes he can do only so much about money.

Both Putin and the Venezuelan socialists would love to keep the status quo… if it didn’t run everything into the ground. Funny how reality can even take down these “strong” types.


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