World Economy

No Domino Effect

No Domino EffectNo Domino Effect

A looming Venezuelan debt default is unlikely to trigger any domino effect in neighboring economies as markets have long since priced in such an eventuality, economists say, AFP reported. All alarm bells started ringing in the troubled South American country when the three major rating agencies—Standard and Poor’s, Fitch and Moody’s—further downgraded Venezuela’s credit ratings. They see it as “highly probable” that the OPEC member will halt debt repayments, a week after President Nicolas Maduro called for a refinancing and restructuring of the country’s debt and Venezuela’s state oil company PDVSA missed payment on a $1.1 billion bond. Debt restructuring entails at the very least an extension of repayment deadlines, and frequently a partial write-off. A group of creditors could declare the missed PDVSA payment a “credit event”, thus triggering payment of credit default swaps that some investors buy to protect themselves, and would likely push the ratings agencies to further downgrade the nation.

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