Saying the U.S. won’t help underwrite “tyranny,” the Trump administration on Friday restricted Venezuela’s ability to borrow money from American creditors, a prohibition intended to starve President Nicolás Maduro’s troubled government of much-needed cash.
The Treasury Department, following through on President Donald Trump’s threat of economic sanctions, banned debt trades for bonds issued by the Venezuelan government and its state-owned oil company, Petróleos de Venezuela SA, the economy’s financial driver. But it continued to avoid the penalty that would inflict the most damage to the South American country: an oil embargo.
“Maduro may no longer take advantage of the American financial system to facilitate the wholesale looting of the Venezuelan economy at the expense of the Venezuelan people,” Treasury Secretary Steven Mnuchin said, warning of future escalating sanctions.
Banning purchases and trades of new Venezuelan debt could further cripple Caracas’ ability to pay off interest on its growing national debt. The oil-producing country is in the middle of an unprecedented economic collapse caused by plunging oil prices and rampant mismanagement that has led to hyperinflation, violent crime and widespread food and medicine shortages.
The U.S. debt ban could push Venezuela closer to financial default. Maduro’s government, denounced by the U.S. and its regional allies as a dictatorship, will have to turn to its other major financiers, China and Russia, who already hold significant stakes in the country’s all-important oil industry.
Maduro insists his government is a democracy under siege by interventionist foreign powers.
“The illegal measures President Donald Trump took today against the Venezuelan people simply violate international law,” Maduro said Friday. “They ratify an imperial path of aggression against Venezuela.”
Lending to Venezuela, an expensive risk given the country’s negative credit rating, had already dried up, with major banks wary of hurting their reputations by financing an increasingly isolated regime.
Venezuela is due to make about $3.5 billion in bond interest payments in October and November. The U.S. wields unusually vast power over Venezuela’s economy: The U.S. buys about half of Venezuela’s oil, an industry that accounts for about 95 percent of Venezuela’s export revenue.
“This is an important change in the type of sanctions, because it moves from individual sanctions to government sanctions and PDVSA sanctions,” said Francisco Monaldi, Latin American Energy Policy fellow at Rice University’s Baker Institute for Public Policy. “But it’s probably the milder, the least severe, sanctions that could be implemented, though this dramatically increases the changes of a default by Venezuela unless — and this is important — Russia or China steps in.”
Existing Venezuelan debt traded in the U.S. was issued by PDVSA, which the U.S. suspects has become a corrupt, money-laundering enterprise. The sanctions don’t prohibit the resale of those bonds, only transactions involving new PDVSA debt.
But trades of existing bonds issued by the Venezuelan government itself — which are different from PDVSA bonds — will be disallowed, a move intended to harm and sow discontent among Maduro’s inner circle. The prohibition affects bonds held exclusively in Venezuela, mostly by high-level government, military and business leaders. Those bondholders will now find it more difficult to sell those securities in international markets.
“We urge those around Maduro to take note, to take heed, and to actively distance themselves from the violence and the dictatorship,” a senior administration official said.
Exempt from the ban: financing for oil exports and imports and transactions involving PDVSA’s U.S. unit, Citgo — though Citgo will be prohibited from distributing profits back to the Venezuelan government. That way, according to the White House, Citgo won’t be able to act as a back-door government financier.
Citgo donated half a million dollars to Trump’s inauguration earlier this year and hired the firm co-founded by former Trump campaign manager Corey Lewandowski to lobby against sanctions.
Under the sanctions, short-term Venezuelan debt transactions will be allowed, to keep money flowing for oil shipments. So will financing for humanitarian goods, including food and medicine.
Among the vocal advocates for financial sanctions was Florida Sen. Marco Rubio, who argued that targeting Venezuela’s ability to borrow would hurt Maduro without alienating regional allies who fear an outright oil ban would devastate the downtrodden Venezuelan people.
“I never had any doubt that President Trump would take the decisive and significant measures he promised, and I’m glad to see him take a course of action in line with what I have been advocating for,” Rubio said in a statement. “This measure will go a long way toward preventing the Maduro regime from using Wall Street to finance its repression and tyranny.”
Trump warned Maduro on July 17 that continuing to undermine Venezuelan democracy would result in “strong and swift economic actions.”
The sanctions come two days after Vice President Mike Pence traveled to Doral — the heart of Miami’s Venezuelan community — to reassure expatriates that the White House remained committed to intensifying pressure against Maduro.
He emphasized the importance of working with Western Hemisphere allies who took the White House’s side against Maduro but then denounced Trump’s offhand remark Aug. 11 that a “military option” was not off the table.
“No military actions are anticipated in the near future,” National Security Adviser H.R. McMaster said Friday.
Pence telephoned congressional leaders directly to inform them of the new sanctions.
“Clearly the Trump administration is listening to opposition leaders in Venezuela, the U.S. Congress, and members of the Venezuelan community in South Florida and has taken a firm stand to protect American values and interests in our hemisphere,” Diaz-Balart said in a statement.
Some Democrats were also supportive, including Florida Sen. Bill Nelson and Weston Democratic Rep. Debbie Wasserman Schultz. Both encouraged even steeper penalties.
“These new sanctions are a step in the right direction, but they don’t go far enough,” Nelson said in a statement. “The administration needs to ban at least some of the Venezuelan oil being imported into the U.S., until constitutional democracy has been restored in Venezuela.”
Venezuelan bond prices initially fell Wednesday after the first reports emerged of a potential trade ban, but they had rebounded by Friday afternoon, suggesting savvy bondholders who already knew the debt was a risky investment were relieved the sanctions weren’t worse.
Maduro loyalists inaugurated a legislative superbody earlier this month in defiance of Western Hemisphere and European governments, which condemned the new constituent assembly as proof that Venezuela had slid into dictatorship. Since then, the government has stepped up its efforts to consolidate power, overruling the opposition-held parliament, ousting the country’s attorney general and sentencing six opposition mayors to prison.
Russia-style economic sanctions had been under consideration for weeks. In 2014, the Treasury Department prohibited U.S. purchases of new Russian bonds after Russia invaded Ukraine’s Crimea peninsula.
With the Venezuela sanctions, however, the U.S. took the unusual step of prohibiting trades of existing bonds held exclusively by Venezuelans. Had the ban extended to PDVSA bonds, it could have also hurt U.S. investors. A chief Trump administration worry was to shield the U.S. from any potential impact.
“If this doesn’t have the ultimate impact that the administration may be wanting, I think they’re prepared to do more,” said Eric Farnsworth, vice president of the Council of the Americas and Americas Society in Washington. “They’re trying to strike a balance between showing concern and taking steps that will hurt the leaders of the regime — and not hurt the Venezuelan people.”
In May, Goldman Sachs bought $2.8 billion of deeply discounted Venezuelan debt from a broker, unleashing harsh criticism against the bank. Goldman will still be able to sell those bonds it already owns — but any similar purchases in the future will be prohibited.
To protect its reputation against backlash, Swiss giant Credit Suisse decided on Aug. 11 to voluntarily ban certain Venezuelan bond trades.
Ordoñez reported from Washington. Miami Herald South America correspondent Jim Wyss contributed from Bogota, and El Nuevo Herald reporter Nora Gámez Torres contributed from Miami.