The U.S. imposed its first economic penalties against Venezuela on Friday, hitting the South American country's financial sector in an attempt to starve President Nicolas Maduro's government of cash.
The Trump administration banned trades of Venezuelan debt, prohibiting Maduro's government and its state-run oil company, Petroleos de Venezuela SA, from selling new bonds to Americans or in U.S. financial institutions. President Donald Trump signed an executive order approving the sanctions Thursday.
"In an effort to preserve itself, the Maduro dictatorship rewards and enriches corrupt officials in the government's security apparatus by burdening future generations of Venezuelans with massively expensive debts," press secretary Sarah Huckabee Sanders said in a statement.
"These measures are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela's corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance."
Barring Venezuelan debt purchases could cripple Caracas' ability to raise money to pay off interest on its growing national debt, as the oil-producing country has been doing in the middle of an unprecedented economic collapse. The U.S. suspects PDVSA, the source of most of the government's funding, has become a corrupt, money-laundering enterprise.
Most existing Venezuelan debt traded in the U.S. was issued by PDVSA. The sanctions don't prohibit the resale of those bonds, only purchases and trades of new PDVSA debt.
But trades of existing bonds issued by the Venezuelan government _ which are different from PDVSA bonds _ will be barred, a move intended to harm and sow discontent among Maduro's inner circle. Much of that debt is held by high-level Venezuelan government leaders, who will now be forced to turn to other so-called secondary markets (say, in China or Russia) to sell.
There will be a 30-day "wind-down" period in which certain Venezuelan debt trades will be allowed. Exemptions will also be made for financing oil exports and imports and transactions involving PDVSA's U.S. affiliate, Citgo, or its subsidiaries. And financing will still be allowed for Venezuelan government securities with a maturity of less than 30 days and PDVSA securities with a maturity of less than 90 days, to avoid constraining credit for necessary oil shipments.
Among the vocal advocates for financial sanctions was Florida Sen. Marco Rubio, who argued targeting Venezuela's ability to borrow would hurt Maduro without alienating regional allies who fear an outright oil ban _ the harshest sanction possible _ would devastate the 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 to the Miami Herald. "This measure will go a long way toward preventing the Maduro regime from using Wall Street to finance its repression and tyranny."
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. Pence began making calls to congressional leaders about the upcoming penalties Thursday.
"The U.S. has already issued three rounds of targeted sanctions against Maduro and his inner circle," Pence said at Our Lady of Guadalupe Catholic Church on Wednesday. "And there's more to come."
Venezuelan bond prices initially fell Wednesday after the first reports emerged of a potential trade ban, but then appeared to rebound Thursday before the sanctions announcement.
Until now, the White House had only targeted individual Venezuelans with financial sanctions as punishment for undermining their country's democracy.
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.
Economic sanctions had been under consideration for weeks, including Russia-style sanctions against Venezuela's financial market. 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. went further than it did against Russia, taking the unusual step of prohibiting trades of existing Venezuelan government bonds. Had that restriction also been imposed on PDVSA bonds, it could have hurt U.S. investors who also hold that debt. A chief worry among some in the Trump administration involved in the sanctions debate was shielding the U.S. from any potential impact.
In May, Goldman Sachs bought $2.8 million of deeply discounted Venezuelan debt from a broker, unleashing harsh criticism against the bank for what was seen as a way of propping up Maduro's government amid widespread food and medicine shortages. To protect its reputation against similar backlash, Swiss giant Credit Suisse decided on Aug. 11 to voluntarily ban certain Venezuelan bond trades.
Also concerning to the U.S. is causing additional trouble for the already suffering Venezuelan people. But some pain appears inevitable, especially if Caracas is forced to default.
Despite the prospect of further misery, opposition leaders told Pence on Wednesday that nearly four months of violent street unrest that left more than 130 people dead failed to prevent the installation of the new assembly and showed more international involvement is needed.
"Keep increasing international pressure so that we can restore Venezuela's democracy and freedoms," implored Gustavo Marcano, the opposition mayor of the eastern city of Lecheria who fled to Miami in exile.
On Thursday, Maduro slammed Pence for meeting in Miami with corrupt "terrorists."
