ROBERT SIEGEL, HOST:
Venezuelans have been protesting and dying in the streets of Caracas, demanding that President Nicolas Maduro resign. While this has been happening, two banks, one American and one Japanese, have provided hundreds of millions of dollars to Maduro's government. It's been done through the sale of Venezuelan bonds. Charles Lane of member station WSHU reports.
CHARLES LANE, BYLINE: The Venezuelan government has been burning through cash. Low oil prices have sent the country's economy into a tailspin. This has dried up imports of important things, like medicine and food.
RUSS DALLEN: They're starving - the people are starving because there's no food, and they're protesting because they want a change of government.
LANE: Russ Dallen is managing partner of the investment bank Caracas Capital Markets. He's also a foe of the Maduro government. Every day, he watches money flow out of the country's central bank as it tries to meet the basic needs of its people. But last week, something unusual happened. There were deposits.
DALLEN: There was one for $300 million on the 24; another one for $400-something million on the 25, and that's when we knew something was strange.
LANE: Goldman Sachs acknowledged on Monday that it paid $865 million for bonds worth nearly $3 billion. That's about 31 cents on the dollar. The Japanese bank Nomura spent $100 million in a similar deal. The banks say they didn't buy the bonds directly from the Venezuelan government. Therefore, they aren't directly funding it. But industry experts say this distinction is meaningless. These particular bonds were purchased through an intermediary, and the last known owner was Venezuela. Francisco Rodriguez, chief economist at Torino Capital, says the Maduro government has numerous intermediaries like this.
FRANCISCO RODRIGUEZ: They have brokerage accounts with many important U.S. banks, and they have the channels through which they can sell those bonds and convert them into cash. I mean, there's no impediment to them doing that in the U.S., neither practical nor regulatory impediment.
LANE: Rodriguez says Venezuela has access to roughly $18 billion in bonds like this, and there's lots of demand from investors.
RODRIGUEZ: There's a very high rate of return. If the bond actually gets paid, you're talking about a rate of return of higher than 40 percent a year.
LANE: The Venezuelan opposition calls the securities hunger bonds because instead of buying food and medicine for its people, the Maduro government has been paying Wall Street. But in a statement, Goldman says that its bond purchase will give the Venezuelan government cash so it can buy the supplies it needs. Risa Grais-Targow is a bond analyst for the Eurasia Group. She says the money is only a short-term fix.
RISA GRAIS-TARGOW: The imports maybe helps a bit, but it's not enough to dramatically change the scarcity levels, right? I mean, they need multiple billions of dollars in order to kind of work their way out of the current hole.
LANE: When the debt service does come up later this year, the Maduro government will have to make a choice - pay investors or buy food. Also, as a side effect, Grais-Targow says the more banks willing to buy these bonds, the longer the government can stay in power and the longer the violence continues. For NPR News, I'm Charles Lane. Transcript provided by NPR, Copyright NPR.
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