Venezuela has the world’s largest proven oil reserves, but that might not stop it from defaulting on its debt. The Financial Times reports that the Bolivarian Republic is in trouble with its creditors:
Until recently, bond investors drew comfort from Venezuela’s $85bn annual oil exports. But confidence was shaken this week as yields on short-dated bonds issued by PDVSA, the state owned oil company, shot above 25 per cent. Venezuelan credit default swaps also rose to levels comparable to Argentina, even though Buenos Aires is already in default after it refused to comply with a controversial US legal ruling ordering it to pay holdout creditors. [….]Venezuela’s public finances certainly look tight. Despite $21bn of reserves, less than $3bn of these are liquid. The government also has about $9bn in obscure off-budget funds, plus eventual proceeds from Citgo’s sale.
If Venezuela defaults, it will join Argentina in the most recent round of Latin American fiscal delinquency. These countries are, by natural endowments, two of the richest countries in the world. They have both tried to blaze a trail for “alternative models” and they have both denounced capitalism as a failed system.Somehow we don’t think that what Simon Bolivar had in mind for Latin American was a future of bankruptcy and toilet paper shortages, but that is what the so-called “Bolivarian Revolution” seems to be best at producing.