Venezuelan President Hugo Chavez presented a bolivar-denominated bond created to pay overdue debt to state workers on television today, “baptizing” one of the papers with crude oil.
The so-called Petro Orinoco bonds, which carry an 18 percent interest rate, are being issued to retirees from the public sector as Chavez prepares to contest elections in October.
“The opposition says that these are worthless, that this is a ploy, but they have a monetary value that pays 18 percent annually,” Chavez said from an oil field in Monagas state. “We need to speed up the pace to pay overdue debts and invent other mechanisms.”
This year, Chavez, 58, drafted a new labor law, created social programs to pay the elderly and children in extreme poverty and vowed to resolve a housing deficit of 3 million units in the next six years. The former paratrooper says that he’s overcome a battle with cancer to contend the Oct. 7 election that he will win by “knockout,” enabling him to continue installing socialism in South America’s largest oil producing country.
Chavez danced and sang songs with retired university professors during today’s nationwide broadcast before pouring a beaker of crude oil over one of the paper bonds. The government handed out the equivalent of 886 million bolivars ($206.3 million) worth of bonds today, he said.
Holders of the bonds must wait one year before they can sell the notes through the state-run securities exchange or hold them to maturity, Chavez said. Retirees can also cash them in at state-run Banco de Venezuela, he said later. The interest rate trails annual inflation, which was 19.4 percent in July. Chavez didn’t say when the local bonds will mature.
Petroleos de Venezuela SA, the state oil company, created a worker’s fund to pay the overdue debts. The fund is financed from a 4 percent stake that PDVSA Social, a unit of the Caracas-based oil company, took in 15 joint ventures, Chavez said. PDVSA Social also sends a 3.33 percent extraction tax to the fund instead of paying it to the National Treasury.
The worker’s fund will have about 4 billion bolivars by year-end, according to Rafael Ramirez, president of PDVSA. Chavez said that his government is still calculating the total amount of Petro Orinoco bonds to be issued.
“This is a good solution and a win-win situation for everyone using oil,” Chavez said. “The fund will continue to grow.”