Venezuela Threatens Harvard Professor for Default Comment

Harvard Professor Ricardo Hausmann
Harvard Professor Ricardo Hausmann wrote, “Normally governments declare that they have an inability to pay way before this point.” Photographer: Scott Eells/Bloomberg

Venezuelan President Nicolas Maduro instructed the attorney general and public prosecutor to take “actions” against Harvard Professor Ricardo Hausmann, saying the economist sought to destabilize the country by suggesting the government default on its debt.

Maduro lashed out at Hausmann during a televised address last night, calling him a “financial hitman” and “outlaw” who forms part of a campaign “that has been initiated around the world against Venezuela.” He didn’t specify what actions he had asked the attorney general and prosecutor to take.

Venezuelan bonds tumbled earlier this week after Hausmann co-wrote an opinion piece Sept. 5 with a Harvard colleague arguing the country should consider defaulting because it had already imposed hardship on its people by racking up billions of dollars in import arrears that caused widespread shortages and fueled the world’s highest inflation rate.

Maduro’s speech was “the despotic diatribe of a tropical thug,” Hausmann said by phone today. “He uses his position as head of state to intimidate people who think differently.”

The president’s office, the attorney general and the information ministry didn’t reply to e-mails seeking comment on what actions were planned against Hausmann. Born in Venezuela, Hausmann had served as planning minister in the 1990s under the president that Maduro’s mentor and predecessor, the late Hugo Chavez, tried to topple in a coup attempt. He has lived in the U.S. since 1994.

Previous Crackdowns

Maduro and Chavez have a history of jailing opponents.

In one high-profile case, National Guard troops arrested opposition leader Leopoldo Lopez in February following protests that left five people dead, accusing him of inciting violence. Former Defense Minister Raul Baduel, who served as a paratrooper with Chavez before being jailed after breaking with the government, is among a group of political opponents serving an eight-year sentence.

In the interview today, Hausmann reiterated his comments that Venezuela has already defaulted on importers and suppliers, while noting that the country’s constitution guarantees freedom of speech.

“The question is not will Venezuela default or not,” he said today. “Venezuela already has defaulted. The question is who gets paid. Venezuela is only paying Wall Street.”

The country’s benchmark bonds due 2027 sank 3.6 cents to 70.08 on the dollar on Sept. 8, driving their yield up to a six-month high of 14.4 percent, as Hausmann’s comments added to investor concern about a nation that saw its foreign reserves sink to an 11-year low last month.

Bonds Recover

Venezuela’s debt has rebounded the past four sessions, with the benchmark securities climbing above 74 cents as of 4:29 p.m. in New York, after Maduro sought to reassure creditors. On Sept. 10, he told a television audience that the government would meet its “international obligations completely, down to the last dollar.”

While the bonds are rebounding, they remain the most expensive sovereign debt to insure against default in the world, according to data compiled by Bloomberg. Investors pay 14.23 percent annually for protection against non-payment over five years, a rate that implies a greater than 60 percent chance of default during that period.

In his speech last night, Maduro made reference to Hausmann’s role in the government of then-President Carlos Andres Perez. It was Perez’s fiscal austerity and free-market measures that triggered rioting and street protests and led to the coup attempt in February 1992 that made Chavez a public figure in Venezuela. Hausmann was appointed minister in a cabinet reshuffle after the coup.

Economic Damage

“You’re the top adviser, Ricardo Hausmann, of all these groups that want to inflict economic damage” on Venezuela, Maduro said. “Of course, because you live in your mansions over there” in the U.S., he said.

Hausmann said he received no payment for his comments and said he has no links with investors interested in driving down Venezuelan bond prices. Maduro’s threats are “evidence of an outlaw government, a rogue state,” he said.

After leaving Venezuela following his stint in government, Hausmann became the first chief economist of the Inter-American Development Bank. While there, he and Barry Eichengreen developed the concept of “original sin” to describe how emerging-market borrowers with weak domestic capital markets are forced to borrow in hard currency. They warned about how currency depreciation then makes it harder for them to pay debt back should they run into trouble.

‘Under Threat’

“Ricardo Hausmann is without a question one of Latin America’s most distinguished thinkers,” former Chilean finance minister Andres Velasco said today by phone from Santiago. “Maduro’s threats are more confirmation that freedom and democracy are under threat in Venezuela. Some of the country’s best and brightest have been bullied and mistreated. This is bad news for Venezuela.”

Velasco worked with Hausmann at Harvard from 2000 until he became minister in 2006.

Hausmann discloses his consultancy work on Harvard’s website. Last year he spoke at conferences organized by Banco Bilbao Vizcaya Argentaria SA, JPMorgan Chase & Co. and UBS AG.

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