Barclays Says Time May Have Run Out for Venezuela

  • Bank says `credit event' in 2016 hard to avoid as oil sinks
  • Venezuela bonds fall to record low of 33 cents on the dollar

With plummeting oil prices and soaring inflation ravaging Venezuela’s economy, President Nicolas Maduro is requesting emergency powers to make policy changes. It may be too late, Barclays Plc says.

The South American country will find it hard to come with the cash it needs to honor $4.5 billion of foreign bond payments this year after the price of its crude sank 75 percent since 2014 to a 13-year low, Barclays economist Alejandro Arreaza said in a note titled “Point of No Return” on Wednesday. 

Venezuela’s benchmark notes have plunged to a record low since the government reported economic statistics for the first time in a year Friday that laid bare the severity of the nation’s recession and inflation spiral. Maduro, who signed an emergency decree that grants him powers to dictate economic measures, told the opposition-controlled Congress on Jan. 15 that the time had come to raise gasoline prices and that he’d look at adjusting the country’s fixed currency rates in the coming days.

“The economic emergency decree and any measures that the government could
take at this point may be too late,” Arreaza wrote. “After two years of inaction and the recent decline in oil prices, a credit event in 2016 is becoming increasingly difficult to avoid.”

He estimates that at current oil prices, Venezuela would have to use more than 90 percent of its crude-export revenue to make debt payments. Brent crude rose 0.5 percent Thursday to $28.02 a barrel as of 10:01 a.m. in New York.

Officials with Venezuela’s Information Ministry didn’t reply to e-mails seeking comment about the country’s plan to diversify its revenue base or its ability to pay its international obligations later this year.

The South American economy shrank 7.1 percent in the third quarter from a year earlier while its inflation rate soared to 141.5 percent, the central bank said Friday.

The bank, which blamed Venezuela’s economic woes on falling oil prices, accused websites that track the street value of the dollar of “destroying prices” and installing a “savage” form of capitalism in the country. The bolivar has lost more than three quarters of its value in the black market in the past year.

“The figures are catastrophic,” Maduro told Congress. “The spirit of the emergency decree is to bring about a movement to protect the people.”

Venezuela’s $4 billion of bonds due in 2027 fell to 33.32 cents on the dollar on Wednesday, the lowest since they were first sold in 1997. Credit-default swaps traders are pricing in a 79 percent chance the country misses a payment in the next 12 months.

Maduro, the late Hugo Chavez’s handpicked successor, has been reluctant to raise gasoline prices at a time when shortages of everything from food to medicine have made him increasingly unpopular. Gasoline in Venezuela costs 0.097 bolivars a liter, making it the cheapest in the world. At the official Simadi exchange rate, 10 gallons cost 2 U.S. cents.

“Whatever he does now, is not enough,” said Siobhan Morden, head of Latin American fixed-income strategy at Nomura.

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