Wilbur Ross Says Venezuela's Economy Needs to Change

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00:00You oversaw the Commerce Department at a time when economic policy was increasingly becoming

00:05a national security tool. With this latest action in Venezuela, what has changed? Does that become

00:12even more apparent as a tool for this administration? Well, I think it's clear that a lot can be done

00:21and should be done to change the economics of Venezuela. Let me give you a few data points.

00:30They probably have 300 billion barrels of oil of proven reserves. At $50 a barrel, that's $15

00:43trillion of reserves. So in terms of being able to handle the debts that they have, which are

00:53substantial, but are only $160 billion, to compare that to oil reserves well into the trillions,

01:05it should not be that big a problem. The bigger problem is that because of poor management,

01:14poor maintenance, and running out of parts, the oil production has gone down by more than 2 million

01:23barrels a day. At $50 a barrel, that works out to about $37 billion a year cost to the economy.

01:36Those are huge, huge numbers, especially when you consider the whole population is only around 27 million

01:47people because some 7 million people have fled the country under Maduro. And it's not just oil. There's a lot

01:58else that can be fixed. For example, agriculture is 25% of the land mass of Venezuela, but it's only 3%

02:11of the economy and only 10% of the labor force. And the reason for that is that they don't have fertilizer.

02:21Their equipment tractors and reapers and things are pretty well broken down. They need spare parts.

02:30So there's a lot of stuff that can be improved and improved pretty quickly. Agriculture, for example,

02:38could be brought back very, very fast. Venezuela had been one of the most verdant soils in all of Latin

02:48America. And it was one of the reasons why Venezuela was as popular and as prosperous as it had been.

02:59But Wilbur, what needs to happen? They were bringing Colombians in to help on the fields because they didn't

03:06have enough workers. Can I just break in, Wilbur, and ask, you know, this is your specialty. You made your name

03:13before you ran trade policy for commerce at the cabinet level, negotiating for creditors in the

03:21biggest names of bankruptcy, TWA and Texaco and Drexel Burnham-Lambert. Then you obviously became

03:29the biggest restructuring expert or one of them in the U.S. with turnarounds of massive businesses like

03:35U.S. deals. So this is what you do. What needs to happen for capital to go into Venezuela and do

03:43the very same? What kind of stability? What kind of rule of law? What kind of prerequisites need to be

03:50met? Well, there's a lot that needs to be done in terms of laws. Venezuela has the weakest property

03:59rights laws in the whole world. So that has to be fixed so that you have some assurance of private

04:07sector continuing ownership. But I think realistically, companies going in now in a relatively

04:15complex situation are probably going to want guarantees against expropriation. And that's not

04:24unusual. The U.S. and multinational entities often give expatriation and foreign exchange guarantees.

04:36Now, the debt structure is mind-bogglingly complicated. They have about $160 billion of debt altogether,

04:47counting expatriation claims, counting funded debt, counting debt for oil, counting everything.

04:56Those bonds have been trading in the high teens, low 20s. They could probably be restructured in the 30

05:05to 40 cents on the dollar. So in the overall context, that's not a very big number. And one of the few

05:14good things is that the IMF has no exposure to Venezuela. And IMF is entitled to lend up to $50

05:26billion. So they could very well be a source of some funding. If I can just jump in on that point

05:34before we continue, Wilbur, because some of the exposure we do understand comes from China and debt

05:40owed to Chinese banks, for example. If there is a restructuring of debt in the country, do you expect

05:46the U.S. to exert force of who gets priority in the capital stack? Does it change where back payments

05:53and different restructuring comes from, just given the geopolitics of the moment between the U.S. and

05:59China? Right. Well, both the Chinese and the Russians had made loans to Venezuela that are payable,

06:08at least partly in oil, but oil at very, very advantageous prices to them. So they are part

06:18of the problem in that they're getting oil very cheaply out of Venezuela in return for debts that

06:26otherwise are never going to be paid. Now, the oil that comes out of Venezuela is mostly what we call

06:34heavy oil. And that requires a slightly different refining process from the American shale oil,

06:44which is mostly light oil. Both China and India have very strong facilities for processing heavy oil,

06:55because a lot of the Iranian oil that they had been getting also is heavy. And in the U.S.,

07:03there are a number of refineries in the southern part of the country, particularly the old Sitco

07:11refineries that were established from the very beginning to handle this oil. So while it is a little bit

07:19different and it's a little more costly to refine, at anything like $50 a barrel, it's still going to be

07:30very, very cheap, because the extraction costs in Venezuela, once you've got it up and running

07:38and with proper equipment, are going to be very, very low. There are also other natural resources.

07:46But Venezuela has lots of gold, most of which is not being used for lawful purposes. I'm told that

07:57there have been transport planes every day flying to Iran with Venezuelan gold.

08:06Fair, fair. We've only got a minute left, and I just want to ask you about the precedent risk

08:10here. Does removing a sitting head of state on criminal grounds create a precedent that we have to

08:16live with later? Do other great powers now reserve that right for themselves as well?

08:23Well, the whole situation is very complicated. I'm not close enough to what's happening on the ground

08:32to figure out exactly how to resolve the political issues. But Secretary Rubio has indicated

08:42on other television shows over the weekend that perhaps the ultimate solution to the governance of

08:50Venezuela is new elections. And if they're properly supervised, that might well be an answer.

08:58It's unclear. It's unclear how cooperative the present regime will be.

09:04be

09:14you

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