2017:
President Trump Banned the Venezuelan Government from U.S. Financial Markets
On August
24, 2017, President Trump issued Executive Order 13808 prohibiting the purchase
of new debt or equity issued by the government of Venezuela and its State oil
company, PDVSA, as well as the purchase of previously issued debt held by the
government.[1] Banks were prohibited from lending to the government and to
PDVSA. The ban also barred dividend payments to Venezuela from its offshore
subsidiaries [1] The ban did not include financial transactions to import oil.
The ban was the
result of the Venezuelan government’s decision to hold elections for a Constituent
Assembly. Trump promised that if the
elections were held, the United States would respond with “strong and swift
economic actions.” [2] The vote took place, and Trump responded three weeks
later with the financial ban.[1]
By
prohibiting issuance of new debt by the government or PDVSA, the EO effectively
prohibited any restructuring of the country’s existing debt, as restructurings rely
on the exchange of old bonds for new bonds.[1] Governments restructure debt
with creditors agreeing to extending maturities, cutting principal or cutting
interest rates.
The
Venezuelan government announced in November 2017 the creation of a commission
to restructure its debt. The Trump administration warned US bondholders that
attending a meeting on debt restructuring could put them in violation of the EO
with potential penalties of 30 years in prison and $10 million in fines.[4] The
commission produced no results largely because there was no legal way in which
US investors could negotiate with it. [5]
PDVSA debt
at that time totaled roughly $30 billion, on which $7.1 billion in principal
and interest was due over the next two years. Much of this debt service could
have been postponed with restructuring.[3] President Maduro accused the US of
trying to cause Venezuela to default on its bond payments.
The
Executive Order prohibited CITGO, the PDVDSA affiliate that had some 5,500 gas
stations in the US, from repatriating profits. From 2015 through 2017, CITGO
had provided $2.5 billion in dividends to PDVSA.[3]
Loss of
access to credit stopped PDVSA from obtaining financial resources that could
have been devoted to investment or maintenance.[1] There were at least two
lending channels open to the industry before the ban: loans to joint ventures between
PDVSA and multinational companies and direct financing from suppliers. PDVSA
had begun to finance a significant part of its arrears with service providers
through the issuance of New York law promissory notes. The EO put an end to
these types of arrangements.[5] Oil production in Venezuela was 20% lower in
2018 than in 2017. This was largely due to the loss of credit and therefore the
ability to cover maintenance and carry out new investments necessary to
maintain production levels.[3]
Oil prices
increased by 20% in 2017due in large part by OPEC nations agreeing to
production cuts. President Maduro was given credit for the OPEC agreement due
to his lobbying effort. However, Venezuela’s oil production did not increase in
response to the higher price due largely to the financial ban which prevented
needed investment. Trump’s financial ban was estimated to have resulted in a
loss of oil export income of $6 billion/year.[5]
1.Rodriguez,
Francisco, The Collapse of Venezuela, University of Notre Dame Press,
2025.
2. Reuters, Trump
Threatens Sanctions if Venezuela Creates Constituent Assembly, July 18,
2017.
3. Weisbrot,
M and J. Sachs, Economic Sanctions as Collective Punishment: The Case of
Venezuela, CEPR, 2019.
4. Weisbrot,
M, Trump Doubles Down on Sanctions and Regime Change for Venezuela, Venezuelanalysis,
2017.
5.
Rodriguez, F., Sanctions and Oil Production: Evidence from Venezuela’s
Orinoco Basin, Latin America Economic Review, (2022)31:6.
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