Goldman’s deal with Venezuela
AT THE firm’s highest levels, Goldman Sachs personnel are not indifferent to ethical and public policy concerns, whether that helps or hurts the bank’s bottom line. We know this because CEO Lloyd Blankfein took to Twitter for the first time ever to repudiate Donald Trump’s decision to withdraw the United States from the Paris accord. “Today’s decision is a setback for the environment and for the US’s leadership position in the world,” Blankfein declared. Previously, he had gone public in opposition to the president’s proposed travel ban.
What, then, are we to make of Goldman Sachs fund managers’ recent purchase, at a steep discount, of $2.8 billion worth of bonds issued by the stateowned oil company of Venezuela; that is to say, the same government that guns down pro-democracy protesters on a near-daily basis and subjects its people to vast corruption and economic privation?
Well, the first thing to be said is that the transaction was a sweet deal for Goldman and its clients. The firm paid only $865 million for the securities, a near-70 percent markdown. Of course, Goldman’s fund will be entitled to $2.8 billion in 2022, when the bonds mature, and meanwhile gets 19 percent annual interest, a cool $756 million. The second thing to say, though, is what a terrible deal this is for the people of Venezuela, since on the other end of the transaction stands the Venezuelan central bank.
The cash Caracas reaped will help President Nicolás Maduro survive the short-term, or even remain in power long enough to pay back Goldman in 2022, necessarily by imposing more brutal austerity. Yes, the opposition might be in power by then. But the firm would probably break even under any scenario short of total debt repudiation, which would not be in a democracy’s own interest.
No wonder former Venezuelan Planning Minister Ricardo Hausmann, now teaching at Harvard, calls them “hunger bonds”. Sure, Goldman was trying to keep pace in the emerging market bond market – to meet such standards as the JPMorgan Chase Emerging Market Bond Index, of which Venezuela’s debt is a highly remunerative component. But that just shows Wall Street as a whole needs to rethink dealing in this illegitimate regime’s obligations the same way it deals in, say, democratic Chile’s, or even the debt of more responsible undemocratic countries.
Even among the world’s odious regimes, Venezuela is a special case; Hausmann has suggested the financial community could collectively curb incentives to do deals such as Goldman’s by removing Venezuelan bonds from market indexes. If Goldman Sachs and the rest really want a reputation for social responsibility, they will eagerly seek alternatives to business as usual with Caracas.