Venezuela Set to Default International Debt

The Venezuelan government last week announced that it had invited bondholders to a negotiation that would be held later this month with the agenda being the structure of the country’s foreign debt. For starters, the South American country owes foreign debtors over $120 billion. This debt, on the other hand, has put the oil-rich country to near bankruptcy. Analysts and bondholders responded to the invitation by the government arguing that the meeting will not resolve any issue. This is a clear indication that Venezuela is on the brink of defaulting a foreign debt. The current Vice President Tareck El Aissami made the announcement on national TV. He suggested that the talks were supposed to resume on 13 November. The announcement came a day after the current president, Nicola Maduro announced the debt strategy that would be used by his government to get out of the current situation. The vice president was appointed by the president to head the negotiations. On the other hand, Mr. Aissami has been a longtime target of the United States government for allegations that he is involved in drug trafficking. The message was delivered in defiant terms where the creditors were supposed to agree to the restructuring terms of the government.

He also had some tough words for the United States. He used the terms financial persecution and economic asphyxia to describe the sanctions that had been implemented by the US. The US asked its banks to refrain from buying new bonds from the country. At the same time, the US government demanded that its banks should not negotiate any new loan deals with the South American nation. Late on Thursday, the Venezuelan government agreed to make a $1.2 billion payment. The payment would go to the state oil company bond. However, the latest calls to restructure the country debts as well as to refinance it is an indication that the country is not willing to make future payments. Once global investors raised the issue of an inevitable default by Venezuela, the country’s bond prices sank. Head of fixed-income and sovereign research at Exotic Capital Stuart Culverhouse said that the way that the situation had been handled does raise confidence that restructuring and refinancing is the way forward. He further lamented that it’s not clear what the Venezuelan government wants to achieve. At the same time, it’s not clear whether Venezuela can make progress with US sanctions still in effect.