(FinancialPress) — Venezuelan President Nicolás Maduro finally admitted, during a Thursday televised speech, that his government can no longer keep up with the payments of its piling debt. Venezuela is now officially working towards restructuring its debt payments, as is PDVSA – the state-run oil company.
Considering that the country has only $10 billion left in the bank, the $1.1 billion payment made by the oil company on Thursday is very substantial to the country‘s reserves. Maduro said in the speech that “After this payment, starting today, I decree a refinancing and a restructuring of the external debt.“
A deep humanitarian crisis is already whipping the embattled South American nation, as people experience deep shortages of food and medical supplies. Basic items are becoming less and less attainable for the population, as prices skyrocket and wages fail to rise at a rate that would paliate the inflation. The bolivar – Venezuela‘s currency – is now worth less than a tenth of a U.S. penny.
Should Maduro‘s government fail in its attempt to restructure debt owned by bondholders — a very real possibility, as often it means that they‘d agree to be paid less money —, the country will enter into default.
A potential default could trigger a series of very unfortunate events. Those same bondholders could choose to seize Venezuelan oil as collateral.
Seeing that oil is the only significant external revenue source the government has, this would cut the financial means it has to acquire medical supplies and food. While the country has vast farmlands, it was mismanaged by their office which forces the country to import almost the totality of its food products.
Even if it were a viable course of action, debt restructuring is a long and excruciating process. Venezuela‘s neighboring country Argentina battled in international courts for 15 years to get resolution over its unpaid debts.