Venezuelan sovereign debt markets were rattled today by a speech by Hugo Chavez in which he suggested that the country’s debt needed to be restructured. Arguing that Venezuela has made all debt payments in the last four years and will continue to do so, Chavez indicated that the debt load is too heavy and needs to be restructured. Blaming the strike for all of the Government’s woes, Chavez said that the Government had to scrape bottom in order to be able to pay salaries and that some institutions are still owed funds for salaries.
While the statements were typical Chavez, financial markets initially took them as a sign that Venezuela was ready to suspend payment, causing sharp losses in the prices of Venezuela’s debt prices. The Ministry of Finance had to “interpret” the President’s statements saying that the country had no plans at this time to stop external debt payments and the President’s remarks were simply a statement of fact that the country has steep payments to make in 2003 and 2004. The truth of this whole matter is that Venezuela has been trying in the last two years to either restructure its debt or issue new debt in foreign currency, but has been unable to do it, is because of the steep premium it would have to pay for issuing any new instrument. Thus, Chavez’ words probably simply reflect a recurrent discussion at the Cabinet level which simply reflects the “Chavez premium” present in international markets at this time. The truth is that Venezuela can not afford at this time to stop debt payments due to the fact that it ahs significant property in the US, through PDVSA America, which owns Citgo and a number of refineries in the US. Moreover, confidence in Venezuela as a stable supplier of oil has been severely impacted by the events of the last few months, thus declaring any form of moratorium on the country’s debt would simply hurt the country’s image further. Thus, the Government is essentially trapped by any announcement of the possibility of delaying debt payments in its own contradictions.
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