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Latin American Economy & Business - October 2016 (ISSN 1741-7430)

Venezuela: Teetering on the brink

With much international and domestic attention focused on political developments – including the vanishing chance of a recall referendum being held against President Nicolás Maduro – these headlines are detracting from the equally serious question of whether or not the government will default on its external debt in the short term. Few bondholders appear to have taken up the government’s swap offer, which seeks to exchange bonds due in 2016-2017 for new 2020 instruments, with the state oil company, Petróleos de Venezuela (Pdvsa), threatening to default if most bondholders shun the offer. Even if this is an empty threat and Pdvsa makes the repayments falling due in late October and early November, prospects for 2017 are dismal. The shape of the supreme court-approved 2017 budget underlines the fact that macroeconomic distortions are worsening, as well as highlighting the opposition-controlled National Assembly’s complete inability to alter the policy line.

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