The beleaguered socialist government of Venezuela, flirting with defaulting on its debt obligations as its economy flounders, intends to restructure its financial obligations to investors, estimated to range between $100 billion to $150 billion. The government of President Nicolas Maduro planned to make a $1.1 billion principal payment as the first week of November came to an end. “We will continue to meet our obligations,” said Maduro. After the payment, he said he would seek a voluntary restructuring of the outstanding amount owed investors.
The move might force a showdown with bondholders, who may have very little choice but to accept whatever scraps the government throws their way. Recent US sanctions could complicate Maduro’s plans, as they limit the ability of bondholders to interact with government officials and prevent US-regulated institutions from making new bond purchases from it. Not surprisingly, the Venezuelan dictator blames the sanctions for much of the problem, not the socialist policies ushered in by his predecessor, Hugo Chavez.
The fresh crisis comes at a critical time for the Maduro government. It’s one thing for the government to default on its obligations to its own citizens – the morality of that prospect aside. But it’s quite another for the Venezuelan state to shaft investors, who are, after all, the ones who help finance what flow of capital there is in the cash-strapped country.
However, Barron’s reports that some relief may come from Russia and India. Whether it’s enough and arrives in time remains to be seen. Meanwhile, Standard & Poor's has a negative outlook on Venezuela's long-term sovereign issuer credit rating due to the heightened risk of default. “Failure to introduce substantial corrective measures to stabilize the economy, alleviate shortages of basic goods, and reverse the recent increase in political polarization could lead to worsening external liquidity and debt default,” S&P said.