Why is Venezuela so well paid with Wall Street?

Meanwhile, the US agency Standard & Poor’s lowered Venezuela’s credit rating to CCC+ on the grounds that “the economic recession, high inflation and growing liquidity pressures” will harm the government’s payment capacity.

As a consequence, Venezuelan bonds fell: on Wednesday, the Global 2027, which marks the sovereign debt, lost 3.2% and the paper of the state-owned Petróleos de Venezuela (PDVSA) maturing in 2022 fell 2.76%.

And on Thursday he maintained that negative trend.

So on Wall Street you hear comments that Venezuela may fall into defaultsomething that, beyond the arguments of the economists, would be surprising to the markets that have seen how Caracas always honors its commitments.

However, a good number of economists, both opposition and pro-government, came out to argue that the default It is, at this time, unlikely.

“Venezuela has not paid importers not because it does not have money but because its economy is full of distortions,” Alejandro Grisanti, director for Latin America at Barclays Capital, an investment bank, explains to BBC Mundo.

One of those distortions, says the Venezuelan economist, is the exchange control system, where the government sells each dollar at 6.3 bolivars, a figure today 15 times lower than the price of the free (or black) dollar.

That is why the economist Francisco Rodríguez wrote in another famous article in response to Hausmann that “the fact that people cannot buy all the dollars or all the imported products that they want at the current price tells us nothing about the number of dollars that the government owns”.

“It just tells us that the government is using these dollars at an artificially low price.”

And it is also that Venezuela, regardless of its problems, has been characterized by paying its debts on Wall Street punctually, especially during the government of the late Hugo Chávez.

Hence, Venezuelan bonds are among the most recommended by market operators to clients with a taste for risk.

Why has Venezuela been so well paid?

Venezuela is in a special condition: it is one of the largest oil producers in the world and 95% of its exports are barrels of crude.

The Venezuelan economy depends a lot on the international price of oil, which is volatile, and for this reason it is always facing the possibility of going from a bonanza to a situation of lean times. And vice versa.

“As soon as there is a problem, Venezuela can go to the market to look for credits,” economist Luis Oliveros tells BBC Mundo.

But if they declare defaultthe credit market closes and vulnerability increases,” he says.

With the increase in the price of oil in the last decade, Venezuela has reduced the production and imports of food, spare parts and medicines, among many other goods.

“Almost 75% of what Venezuela consumes is imported,” says Grisanti. “And a default It has a very high cost because it affects your letters of credit and with that imports”.

Being a major oil exporter, Venezuela has a significant presence in international markets and has different assets outside its territory that allow it to have such a presence.

One of those assets is Citgo, the largest fuel distribution network in the US with three refineries in that country (it is currently for sale, according to the government’s admission).

They also have three refineries in the Caribbean and there are just under 100 tankers carrying barrels of Venezuelan oil around the world every day.

“At an event defaultall these assets are subject to being taken,” says Grisanti.

And Oliveros adds: “We export some 700,000 barrels of oil a day to the US, so the ships can be shipped from any port in that country.”

The assets, therefore, are susceptible to being alienated by court actions promoted by creditors of Venezuelan bonds.

The price of bonds and credits on Wall Street depends on the confidence generated by the country that issues them.

“If you declare defaultthe market is going to remember you and is going to limit the loans that they will give you abroad”, explains Oliveros.

And he adds that a default it would harm the project to exploit the Venezuelan oil reserves, which are the largest in the world.

“For that, however, you are going to ask for loans and foreign investments.”

Although “falling into default“It may sound disconcerting or irrelevant to many Venezuelans, many analysts agree that the consequences harm society.

“As the default limits your loans in dollars in the future, people, who already have limited loans today, will have less access to foreign currency”, explains Oliveros.

“And that makes the price of the black dollar shoot up even more,” he adds.

In addition, “if you just declared yourself in defaultWhere are you going to go to get the dollars? The International Monetary Fund?” Oliveros wonders rhetorically about an organization that the Venezuelan socialist government criticizes daily.

And he concludes, citing studies on the matter: “The default they tend to lead to falls in governments”.