The socialist country of Venezuela is likely to default on its debt in the coming days as two critical debt repayments rapidly approach their deadlines.
According to The Financial Times, Venezuela’s state-run oil company PDSVA must make an $842 million payment on a four-year bond on Friday, while a further $1.12 billion is due on November 2nd.
Although analysts expect Venezuela to meet Friday’s payment, PDSVA has already missed repayments of nearly $600 million and has fallen into grace periods on both of them.
“I don’t see how any person who’s involved in Venezuelan debt can be anything except concerned, except for those who have credit default swaps,” Russ Dallen, managing partner at Caracas Capital Markets told CNBC. “This weekend, there’s either going to be a lot of bondholders and traders drinking champagne, or there’s going to be a lot of stressed fund managers.”
However, the Venezuelan think tank Econanalítica tried to reassure investors on Tuesday, claiming that the government had reserved funds to make the payment.
#BreakingNews Venezuela's government recently paid the interests corresponding to PDVSA 27 and 37 bonds due to oct 12
— Ecoanalítica (@ecoanalitica) October 24, 2017
Investors should see these funds between today or tomorrow
— Ecoanalítica (@ecoanalitica) October 24, 2017
#BreakingNews The funds regarding the PDVSA 20 (capital + interests) is already approved, so it should become efective by friday
— Ecoanalítica (@ecoanalitica) October 24, 2017
The state-run PDSVA remains the main financial arm of the Venezuelan government, given that it has the largest oil reserves in the world, although recent reports suggest the crisis-stricken nation is close to running out of gasoline.
As the Maduro regime continues to consolidate its authority through the creation of an illegal lawmaking super body and rigged regional elections, the country faces further international isolation and economic sanctions from the United States.
In August, the Trump administration signed off on sanctions against the regime, prohibiting Americans from buying any further Venezuelan government debt or that of the PDSVA, as well as personal sanctions against Maduro and other government officials.
Levels of inflation in Venezuela are also at unprecedented levels, with the country’s monthly minimum wage of 97500 Bolivares now equivalent to just under $2.50 a month, making it already one of the poorest countries in the world. The country is also experiencing a chronic lack of basic resources from everything such as food and power to medicine and sanitary products.
“We fear that the Venezuelans are not completely understanding their predicament or the dire financing situation they find themselves in, and they always believe they will make it work because somehow they have managed to in the past,” said Luisa Palacios, an analyst at Medley Global Advisors. “But the next two months will be a reality check, pay or not, and the consequences for the domestic economy will be dire.”
Follow Ben Kew on Facebook, Twitter at @ben_kew, or email him at bkew@breitbart.com.
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