Venezuela May Have `Accidental' Default This Year, Nomura Says

  • Needs to cut 2016 imports to almost zero to keep paying debt
  • Apparent lack of debt policy may lead to disorderly default

The absence of decision-making capacity in Venezuela’s government is so acute that the country is likely to default by accident later this year, according to Nomura International Plc.

The country’s cash shortage means it would need to cut imports by $32 billion to almost zero this year in order to avoid running out of money, Siobhan Morden, the head of Latin American fixed-income strategy at Nomura, wrote in a note to clients.

Venezuela’s Sovereign Debt Yield Curve
Venezuela’s Sovereign Debt Yield Curve

The nation is dependent on imports for most consumer goods and it relies on oil exports to pay for those purchases. Should crude remain below $30 a barrel, Venezuela won’t have enough money to meet the $6.3 billion of bond payments the country and state-owned Petroleos de Venezuela SA have coming due in the second half of the year, according to Morden. She calculates that the minimum breakeven oil price for Venezuela is $65 a barrel.

“We have not seen any coherent approach to policy management that would suggest a thoughtful approach to debt default,” Morden wrote. “Instead, our base case remains an accidental default with cashflow stress that eventually forces non-payment later in the year on the bulkier debt maturities.”

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