Venezuela is one step closer to default

Venezuela is sinking further into the financial crisis. Yesterday evening, the special committee of the International Derivatives Association (ISDA), which held its fourth meeting on this subject in New York, announced that it had approved a payment default on three missed deadlines by the national oil group PDVSA. This decision is tantamount to opening a complex procedure that will allow holders of derivatives to be reimbursed. The details of this procedure will be specified at a further meeting to be held in New York on Monday.

Since last week, the ISDA committee, made up of representatives of 15 financial companies, has been examining late payments from PDVSA, the cumulative amounts of which have not been disclosed. His final choice to place the oil company in default follows that of two major financial rating agencies, S&P Global Ratings et Fitch, which have already found partial default by the Venezuelan state and PDVSA.

A respite thanks to Russia

The situation in Venezuela therefore worsens a little more. Strangled financially, the country must repay an external debt of around 150 billion dollars. It has only 9,7 billion dollars left in reserves and must reimburse by the end of the year from 1,47 to 1,7 billion, then 8 billion in 2018. Caracas obtained a slight respite on Wednesday in signing an agreement with Moscow restructuring some 3 billion dollars of debt out of the 9 billion that the country owes to Russia. Russia had already agreed in 2015 to reschedule this credit, showing flexibility vis-à-vis one of its main strategic partners in Latin America, with which it shares very conflicting relations with the United States. Moscow must still be reimbursed $ 6 billion by the Venezuelan oil company PDVSA, which had obtained advances from the semi-public Russian group Rosneft for oil and fuel delivery contracts scheduled for 2019.

After Russia, Venezuela hopes to reach an agreement with its other ally, China, to which it must repay 28 billion dollars. For the moment, the Chinese support is less frank than the Russian. Assuring that the financial “Sino-Venezuelan cooperation” was proceeding “normally”, a spokesman for the Chinese Ministry of Foreign Affairs passed the buck to Caracas: “the Venezuelan government and people have the capacity to solve the debt problem of their country," he said.

New meeting in sight with creditors

Alongside these negotiations, Venezuelan President Nicolas Maduro has summoned its international creditors to Caracas on Monday to try to renegotiate the country's debt. But this meeting, which lasted only 25 minutes behind closed doors in the White Palace, opposite the presidential palace of Miraflores, ended without an agreement. According to several participants, however, the parties have undertaken to meet again soon, but without setting a date. Nicolas Maduro is trying to convince US creditors to put pressure on Donald Trump's administration. Washington has banned its banks and citizens from buying new bonds or negotiating deals with the Venezuelan government. However, according to Caracas, 70% of Venezuelan voucher holders are based in the United States or Canada.

These sanctions prevent the normal course of negotiations on a restructuring of the debt. “I demanded from the opposition that for 2018, from now on, we reach an agreement so that there is a presidential election with economic guarantees, so that the sanctions of the United States, the financial persecution “Said Nicolas Maduro yesterday.

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International pressure

For its part, the international community is increasing the pressure on Nicolas Maduro. On Monday in Brussels, European Union foreign ministers adopted sanctions, including an arms embargo. Venezuela is the first country in Latin America to be targeted by such measures by the EU, which underlines “the concern that the situation inspires in it”.

The Venezuelan government, for its part, prefers to sweep aside the criticisms. “We are good payers despite what the rating agencies, the (US) Treasury Department, the European Union and Donald Trump say,” Communications Minister Jorge Rodriguez said earlier this week. Already on Sunday, Nicolas Maduro had virulently affirmed that “never” the South American country would declare itself in default of payment.

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But analysts as a whole are pessimistic about the chances of renegotiation with creditors. The time is therefore serious for this oil country, once the richest in Latin America. Bankruptcy, coupled with international sanctions, would deepen the recession that has plunged GDP by 36% in four years and cut the country and its state-owned oil group PDVSA from international markets, while exposing them to lawsuits and seizure of companies. assets and subsidiaries abroad. Ruined in particular by the fall in crude oil prices - the source of 96% of its foreign currency income - Venezuela is only a shadow of itself. The majority of food and medicine disappeared from the shelves due to lack of imports, leading to hyperinflation and fueling a political crisis and violent popular discontent, crystallized in the manifestations of spring, which killed 125 people.