President Nicolás Maduro’s decision to restructure Venezuela’s $89bn of debt is likely to unleash a debt crisis of a size not suffered in Latin America since Argentina’s massive 2001 default, and a bond restructuring that lawyers say would be the world’s most complex yet. In a televised address on Thursday, Mr Maduro said state oil company PDVSA would make one more $1.1bn debt payment on a bond due in 2017 and then restructure its remaining obligations with banks and investors. “I decree a refinancing and restructuring of external debt and all Venezuelan payments,” Mr Maduro said, stressing that Venezuela had always honoured its obligations, had the funds to continue doing so, but was being hindered by US financial sanctions. “We’re going to a complete reformatting.
To find an equilibrium, and to cover the necessities of the country, the investments of the country,” he added. Economists have long-predicted Venezuela would eventually make such a move as funds drained from the socialist government’s vaults to pay bondholders, forcing an 80 per cent cutback in imports over the past five years. Indeed, Venezuelan bonds already trade at default prices, and foreign reserves of $10bn are near 20-year lows.
Yet despite a recession worse than the Great Depression, hyperinflation and falling oil production, debt restructuring was a move Mr Maduro long-rejected. In large part, that was because it could lead to default, and creditors would then seize Venezuelan oil shipments and foreign assets, including PDVSA’S US refinery, Citgo. As a result, the $7bn that Venezuela might save in 2018 from not servicing its debts would be offset by lost oil exports, and there would be no net gain.