Venezuela Spooks Swaps Traders as Indicted General Gets Top Post

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  • Country’s default swaps had tumbled in recent months
  • U.S. court revealed drug trafficking charges for Reverol

Derivatives traders are ratcheting up wagers that Venezuela will default after President Nicolas Maduro replaced a key member of his economic team and tapped a military general accused of drug trafficking by the U.S. to join his cabinet.

The cost of protecting Venezuela’s bonds from non-payment for one year has jumped 5.83 percentage points in the past week as of 10:22 a.m. in New York, the biggest five-day increase since April. 

The surge reverses a steady decline in recent months fueled by recovering crude prices, bets Maduro would be ousted or resign and speculation the state oil company may push back looming debt maturities. On Tuesday, Maduro removed Miguel Perez Abad, who had pushed for easing the nation’s complex currency controls, from his post as industry and commerce minister. General Nestor Reverol, who was charged with conspiracy to distribute narcotics according to documents unsealed in a U.S. federal court on Monday, was named the interior and justice minister. 

The moves come as Venezuela’s economic implosion deepens by the day, shortages of food and medicine worsen, inflation soars and political clashes intensify.

“When investors talked to Perez Abad, they felt that the person they were talking to understood the economic problems that had to be solved, and what the solution would be, even if he didn’t necessarily have the political power to change it,” said Francisco Rodriguez, chief economist at Torino Capital. “For me it’s hard to see someone better replacing him and it’s very possible that it will be someone worse, or even a lot worse.”

It wasn’t immediately clear if Perez Abad would remain in Maduro’s government as vice president of the economy. Carlos Faria, 53, will be replacing Perez Abad in his parallel post as industry and commerce minister.

“I’m going to designate the young professional Carlos Faria as the new industry and commerce minister so that he can come in with new energy and force,” Maduro said Tuesday night during his weekly television show. He thanked Perez Abad for the seven months he’d served.