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The Markets Are Predicting a Venezuelan Default

The oil price drop has compromised the country’s ability to pay
Maduro’s popularity is rapidly eroding amid an economic crisis marked by widespread shortages, runaway inflation, and a currency that’s quickly depreciating.
Maduro’s popularity is rapidly eroding amid an economic crisis marked by widespread shortages, runaway inflation, and a currency that’s quickly depreciating.Photographer: Diego Giudice/Bloomberg

President Nicolás Maduro says there’s a foreign conspiracy at work against Venezuela. In a Dec. 13 speech on state television, he lashed out at the international credit-rating companies that assigned junk ratings to his country’s foreign currency bonds, accusing them of orchestrating “a vulgar, immoral financial blockade.”

The reality is more mundane. A 40 percent plunge in oil prices this year is raising concerns that Venezuela is running out of dollars to pay its debts. The worries have pushed up yields for the country’s bonds to levels not seen since the 1998 Russian financial crisis spurred a selloff in emerging-market debt. Credit-default swaps—financial contracts that insure investors against nonpayment—peg the likelihood of a default at more than 90 percent.