Venezuela Needs Debt Restructuring: But it won't happen with the current regime in power.

Author:Kargman, Steven T.

Venezuela is currently facing truly monumental challenges as the grave humanitarian crisis confronting the country has been escalating in major and deeply worrisome ways. The crisis--which has manifested itself in severe shortages of food and medicine, a collapsing health care system, extremely high poverty rates, increasing crime rates, widespread malnutrition, and a rise in diseases such as malaria--requires the immediate, focused, and sustained attention of the international community.

Ultimately, though, Venezuela's economic and financial situation will also need to be addressed as part of a broader effort to reverse the downward spiral in Venezuela. The country will undoubtedly require a major debt restructuring in coming years in light of the huge, unmanageable debt burden (estimated to be $150 billion or greater) facing the Republic of Venezuela and its state-owned oil company, PDVSA, as well as the growing number of payment defaults and the associated build-up of significant payment arrearages (estimated now to exceed $6 billion).

Nonetheless, Venezuela and PDVSA face a two-sided conundrum when it comes to any potential restructuring of their outstanding debt. While a debt restructuring might be an eminently sensible course of action for Venezuela to pursue in the near term as part of any overall attempt to fix the Venezuelan economy, it is difficult to envisage for the reasons outlined here how such a restructuring could take place now or in the foreseeable future while the current regime remains in power.

The other side of the conundrum facing Venezuela, to be discussed in a future issue of TIE, is that the resulting delay in initiating a restructuring of Venezuela's debt is only likely to exacerbate the difficulties of achieving a successful debt restructuring, particularly in view of the continued deterioration of Venezuela's economy and the threat posed by creditor lawsuits against both the Republic and PDVSA.


Venezuela could well benefit from a debt restructuring at the earliest possible date in order to avoid further defaults and the associated arrearages, but also so that, subject to U.S. sanctions being lifted, Venezuela could regain access to the capital markets and borrow at less-than-exorbitant interest rates. As Venezuela's foreign exchange reserves continue to dwindle to historically low levels, Venezuela desperately needs new financing in order to fund, for example, much-needed imports on which it so heavily depends for the functioning of its economy as well as for basic societal needs such as food and medicine.

It is very unlikely that a Venezuelan debt restructuring can take place anytime soon under current circumstances, especially with the government in the hands of President Nicolas Maduro and his regime. The presence of U.S. sanctions...

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