Venezuela is in Default

Standard & Poor's has declared Venezuela in "selective default"* as it failed to pay $200 million that was due after a 30 day grace period. Bizarrely, the government had announced a big meeting of bondholders, then gave them an Honor Guard salute, chocolate, and no other news. The government claims it is in the process of restructuring debt but that is not actually happening (the parallel to Donald Trump is eery in this regard).

S&P says Venezuela is also overdue on four other bond payments worth a total of $420m but that the grace period has not yet expired on those payments. 

Venezuela's total external debt, which also includes loans from countries like Russia and China, is thought to be as much as $140bn.

So what now? Venezuela is low on reserves, oil output is down, inflation could get up to 2,300% by the end of the year, and raising cash is going to be hard even if Russia (and perhaps China, which has always seemed more reticent) remains generous. The government is literally running out of money. At some point bondholders are going to demand their money and take the government to court.

It may well be that as long as the hardcore Chavistas, including in the military, can generate enough oil revenue to keep themselves above water, they will simply ignore everything else, which will include immiseration. As we see with Zimbabwe, this strategy can actually work for a surprisingly long time.

* Selective default:

SD and D - An obligor rated ‘SD’ (Selective Default) or ‘D’ has failed to pay one or more of its financial obligations (rated or unrated) when it came due. A ‘D’ rating is assigned when Standard & Poor’s believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when Standard & Poor’s believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner.