Stylistic Facts about Venezuela’s Sovereign Debt Restructuring

Abstract

This article highlights the macroeconomic setting and social considerations that make a Venezuela sovereign debt restructuring unavoidable. It contends that the deepening economic crisis, rising social unrest, and conflicting political pressures increase the risk of a full-fledged disorderly default, as these developments will likely preclude Venezuela from having the financial resources or the funding capacity to meet its external long-term obligations. The recently launched cryptocurrency (the petro) does not offer a respite or a solution to Venezuela’s financial and social challenges. Credible policy reforms to address the growing economic imbalances are improbable, as they remain dependent on a highly uncertain political outlook. Further, any sovereign debt workout would be extremely complex and difficult to implement given the conflicting interests of the large number of participants and the uncertainties under imposed U.S. financial sanctions. Finally, the article stresses the point that additional complications from the differentiation between sovereign and PDVSA debt necessitate the full involvement of multilateral institutions in any sustainable sovereign debt workout.

TOPICS: Fixed income and structured finance, legal/regulatory/public policy, credit risk management