Sunday, December 14, 2008

An Answer to the Ecuador Question. Maybe.

Last night, I found myself at a very nice party in which Claire and I were the youngest people there by quite some bit. There were a few people there involved in the financial world, including a fellow whose job regularly brings him to China. Understandably, much of what we talked about was related to the ongoing financial crisis.

I did, however, ask them Holly's question about Ecuador's high interest rate. Their answer was, roughly ''Ecuador would have such a high interest rate because they have lousy credit. And by the way, defaulting on that debt is only going to make their credit worse and make it impossible to get loans.''

Their belief was that what Rafael Correa has done is unbelievably stupid and most likely driven by the hope that Hugo Chavez will do more to help the country than is reasonable to expect. They attributed a lot to Chavez's influence, and to give an idea where these fellows are coming from, they referred to him as a ''countrywrecker''. However, they're Canadians, and basically Tories, so they weren't exactly positive about many of the things the US has done in recent years either. These guys are not neocons.

An interesting thing to note here is that Venezuela has extremely thick oil, which means that there's really only one country with the refineries to handle it- you guessed it, the United States. This is why the US and Venezuela, who play arch-enemies in the papers, actually do so much business together.


Holly said...

Interesting. So, it really IS just like a mortgage or car loan or whatever. Which means that the credit/lending systems are both usurious and more or less universal. Except that guy who started the very small scale lending program in ... southeast Asia? That has something like a 95% payback rate.

The Pagan Temple said...

By extremely thick oil, do you mean shale oil? If so, I think Canada has one refinery that can deal with it, and Russia as well, which would explain why Russia has been cozying up to Venezuela, or at least, I think, was at one time. I got this information about the shale oil problem second hand though, so I'm not sure about that either. The recent drop in oil prices doesn't bode well for Chavez. Anybody that is depending on that guy for anything is really short sighted.

Rufus said...

I'm fairly certain that they don't export much oil to Russia because Russia has its own oil, which is really what's funding their growth. The big countries right now for growth are Brazil, Russia, India and China- this is why they're now talking about the 'BRIC coutries'. Of those, Russia's in the worst position though because its growth is so largely tied to its oil.

Venezuela is also petroleum rich. I'm not sure if the guy was talking about shale oil or not, but looking on the government fact page on Venezuela, it looks like the US is their largest trading partner by quite some bit. As far as exports go, the US gets something like 14 times the exports that China does- 42% of the country's exports as compared to 3%. Russia doesn't even make the list. The next closest is the Netherlands who gets 13.5% of Venezuela's exports. But their economy is almost totally dependent on exports to the US.

Since 90% of their exports is petroleum, I'm willing to bet dollars to donuts that the US imports the majority of what they pump out. This makes the whole game of pretending to be eternal enemies pretty amusing. But, let's be honest- the US has never had a problem with pretending to be deeply opposed to countries that it trades heavily with. The mistake that Chavez has made is in taking himself too seriously. He's not Che Guevara- he's a client of the US. What's going to happen is that the US will eventually decide that it's not going to pay the full asking price for Venezuelian crude and there's literally nothing he can do about it.

There are some people saying that oil prices will stay low- I don't buy that at all. But, with demand as high as it's getting on a finite natural resource, there's a fairly high chance that the next 'spike' in prices will be the last.

The Pagan Temple said...

It's been a while, but if I remember right, Chavez nationalized some oil company holdings of US firms. He paid for them, but not what the companies wanted, and pretty much forced them to accept. He did the same thing with some European company that makes cement. So, while he's a trading partner, he's not exactly our puppet. He is very problematic for us, not just in Venezuela, but throughout South America.

You're right of course about the oil prices. The current low price can't possibly last, and is probably a result of decreased consumption in the face of some of the current economic hardship. That will change pretty quickly.