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Even With Its People Going Hungry, Venezuela Is Staying On Top Of Its Debts

Even With Its People Going Hungry, Venezuela Is Staying On Top Of Its Debts
Venezuela has avoided the debt default problems even as the country has been ravaged by severe food shortages, tremendous protests and a sky-high inflation rate.
Diego Moya-Ocampos, a senior analyst at IHS Markit said that the country’s willingness is "strong," even though its ability to keep making payments on its debt may be "in doubt". "The government is cutting imports of food and basic goods at the expense of social unrest to pay its debt."
According to the country's 20-year government bond pays 20.23 percent to lenders.
Venezuela not defaulting on its debt can be accorded to a number of reasons. A government that is already in trouble, would be hit hard further is the first reason.  
"A default would be a blow to the regime," said Jason Marczak, Latin American Economic Growth Initiative director, Atlantic Council. "A default could lead to Venezuela being closed out of international markets."
Dissent among a handful of high-profile officials and nationwide protests has shaken the government of President Nicolas Maduro. Earlier this month, video of the Venezuelan National Guard running over protesters with armored vehicles went viral. the state’s violence against protestors was condemned by Attorney General Luisa Ortega.
"Words can barely articulate the situation in Venezuela," Marczak said. "This is a country that has become deeply divided, deeply polarized."
Also, more problems for Venezuela's biggest industry would mount of the country defaulted on its debts.

Its economic and social tailspin nothwithstanding, the country's economy is almost completely at the mercy of the oil industry. The largest proven oil reserves on earth are held by Venezuela. According to data from the U.S. Energy Information Administration, holding approximately 33 billion more than Saudi Arabia, the country’s reserves stood at the equivalent of 300 billion barrels as of last year.
But since a crash in prices that started in late 201, its oil production has cratered to its lowest levels in about 20 years.
Venezuela is seeking alternatives to pay key lenders, namely China and Russia, oil minister Nelson Martinez said last week.
"We are looking forward to solving the issue of the debt," Martinez said at a meeting OPEC, of which Venezuela is a member. "We are looking at all options, some financial support through bonds, and so on."
China and Russia together have lent Venezuela at least $50 billion in exchange for promised oil and fuel deliveries and Venezuela has struck oil-for-loans deals with those countries.
But Reggie Thompson, Latin America analyst at Stratfor said that either this fall — when it's scheduled to pay more than $3 billion in debt — or "in the coming years," Petroleos de Venezuela, the state-run oil company better known as PDVSA, could default on its debt.
"It's risky for PDVSA because, even though they made a similar payment earlier this year, their cash flow problems keep worsening by the day," Thompson said. "They also have other headwinds, like mechanical failures."
A desire to preserve its own assets is another reason for Venezuela's unwillingness to default, Thompson added.
"They'd have to deal with lengthy lawsuits against bondholders that could end with [the government] having some assets seized."
Moya-Ocampos of IHS, who noted it's "not too common" for high-ranking officials to own their country's debt, said that Venezuela won't default on its debt because "many high-ranking government officials and their associates are bondholders".

Christopher J. Mitchell

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