Investors in Venezuelan bonds are welcoming steps by President Nicolas Maduro to bolster transparency in government accounts after concern mounted that the country is running out of cash to service its debt.
Venezuelan notes posted the biggest rally in three weeks yesterday after Maduro ordered that $4 billion from Chinese loans be added to foreign reserves, which had dwindled to an 11-year low. At $21.4 billion, including gold assets, the central bank’s holdings only cover about 60 percent of debt due by the end of 2017. Venezuela’s borrowing costs are the highest in emerging markets at 20.44 percent.
While the loans are intended to pay for specific projects and aren’t supposed to be used to pay debt, the transfer from off-budget funds to central bank accounts may allay concerns that the country is teetering toward default, according to Goldman Sachs Group Inc. The move is a departure from the opacity that often surrounds cash from Chinese loans, which mostly remains in off-budget funds excluded from parliamentary oversight, Caracas-based researcher ODH Grupo Consultor said.
“It’s a good first step only if it’s followed by others,” Anabella Abadi, a public policy analyst at ODH, said in a telephone interview. “They now have to prove that the money won’t be used as arbitrarily as before and will stay in reserves.”
While more than half of Venezuela’s reserves are tied up in gold, the nation has over $15 billion in off-budget funds, according to Credit Suisse Group AG. The funds, including those holding money from Chinese loans, have spent $112 billion since 2005, according to the Finance Ministry’s 2013 annual report.
Maduro, who also announced measures to raise taxes on goods ranging from yachts to rum, said he signed 28 laws using decree powers to restore growth and boost fiscal revenue.
The government’s benchmark dollar-denominated notes due in 2027 rose 2.15 cents yesterday to 55.63 cents on the dollar. They’re still trading near the lowest price since 2009.
“The announced measures will have a negligible impact on macroeconomic conditions,” Mauro Roca, an economist at Goldman Sachs, said in a note to clients. “Nevertheless, the increased transparency that may ensue from the centralization of hard currency funds under the orbit of the central bank could help to ease some fears regarding the capacity of the country to continue servicing its debt.”
Rafael Ramirez, Venezuela’s foreign minister and former Economy Vice President, said in June the country will unify the off-budget funds in the central bank. Before this week, Maduro has said only $750 million had been moved there from the funds.
Venezuela, which imports three-quarters of the goods it consumes, has seen export revenue slump as much as 30 percent in the past month as oil prices tumbled. At its current oil export price of about $70 a barrel, Venezuela’s shortage of dollars will more than double to $26.6 billion next year, HSBC Holdings Plc economist Ramiro Blazquez wrote in a Nov. 7 report.
Latin America’s largest crude producer needs the price of its oil export basket at $96.9 per barrel to continue paying its debts at the present rate of imports and oil production, Credit Suisse analysts Daniel Chodos and Casey Reckman wrote in a Nov. 19 report.
Ramirez told reporters today in Caracas that Venezuela is prepared to cut oil output as part of a broader international agreement to boost prices if needed.
Venezuela’s reserves rose $4.1 billion this week, after sinking to an 11-year low of $19.4 billion on Nov. 14.
“The measure seeks to assure investors that liquid reserves are now in a much more solid position,” Pedro Palma, an economics professor at the Institute of Advanced Administrative Studies, said by phone from Caracas.