Venezuelan President Nicholas Maduro admitted Venezuela can no longer pay its bills, but he’s promising to come up with a plan to restructure an estimated $105 billion in foreign debt. That’s roughly ten-times Venezuela’s foreign exchange reserves.
CGTN’s Stephen Gibbs reports from Caracas.
It has long been an awkward contradiction in Venezuela. In the middle of the steepest recession in the world, the country’s socialist government has continued to pay its commercial creditors.
And who are those creditors? Mainly Wall Street emerging market funds, making handsome returns by lending money to the Maduro government.
But now the president said it is time to rethink.
“Starting today, I decree a refinancing and a restructuring of all external debt and all of Venezuela’s payments,” the president said.
His pronouncement shocked markets, even though the Maduro did promise that a major debt that is due would be paid.
“Tomorrow, we have to pay the amount of $1.121 from the 2017 PDVSA bonus. I have the money.”
Venezuela receives substantial loans from China and Russia, but it is the commercial bondholders it’s focusing on now, inviting them to a meeting in Caracas to discuss a restructuring.
But there’s a catch: Washington has sanctioned many senior members of the Maduro administration, accusing them of undermining democracy and even drug trafficking. They deny these charges.
For U.S. fund holders, doing direct business with these officials is against U.S. law. American financial entities are also banned from trading in new Venezuelan debt.
So is Venezuela on the brink of default?
“This process is very complicated,” according to Henkel García of Econométrica. “The government can attempt a refinancing or a restructuring, but if neither work, we could be faced with a default for failing to pay, for failing to come to a friendly voluntary agreement with the bond owners.”
A Venezuelan default would be a momentous event in the region, but the situation is there just quite yet.
What Venezuela may be trying to do is buy itself a little more time, while trying to shift the blame for its financial woes onto the United States.