Venezuela Refuses to Default on Debts

Venezuela has been ravaged by severe food shortages, tremendous protests and a sky-high inflation rate, but it’s avoided one problem: the country refuses to default on its debt.

The country’s ability to keep making payments on its debt may be “in doubt”, but its willingness is “strong”, said Diego Moya-Ocampos, a senior analyst at IHS Markit. “The government is cutting imports of food and basic goods at the expense of social unrest to pay its debt,” CNBC reported.

The country’s 20-year government bond pays 20.23% to lenders, according to Investing.com.

There are several reasons Venezuela hasn’t defaulted. First, it would hurt a government that is already in trouble.

“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.”

President Nicolas Maduro’s regime has been shaken by nationwide protests and dissent among a handful of high-profile officials. Video of the Venezuelan National Guard running over protesters with armored vehicles went viral earlier this month. Attorney General Luisa Ortega condemned the state’s violence against protesters.

“Words can barely articulate the situation in Venezuela,” Marczak said. “This is a country that has become deeply divided, deeply polarized.”

Defaulting on its debts also would present more problems for Venezuela’s biggest industry.

The country’s economy is almost completely at the mercy of the oil industry—its economic and social tailspin notwithstanding, Venezuela holds the largest proven oil reserves on earth. As of last year, they stood at the equivalent of 300 billion barrels—approximately 33 billion more than Saudi Arabia—according to data from the US Energy Information Administration.

But its oil production has cratered to its lowest levels in about 20 years since a crash in prices that started in late 2014.

Oil Minister Nelson Martinez said Thursday that Venezuela is seeking alternatives to pay key lenders, namely China and Russia. “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.”

Venezuela has struck oil-for-loans deals with China and Russia, and those countries together have lent Venezuela at least $50 billion in exchange for promised oil and fuel deliveries.