Why Venezuela Struggles So Hard to Avoid Default

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Predicting when Venezuela will finally default has been a decade-long parlor game for bond buyers, but recent events add urgency to the exercise, Bloomberg News reported. After years of mismanagement, the country appears closer and closer to running out of money. Adding to investors’ concern is the increasingly anti-democratic turn of President Nicolas Maduro, whose move to rewrite the constitution and strip power from congress has been met with U.S. sanctions. Still, for all the turmoil, Venezuela has a track record of paying its debts, and investors who’ve held on through the worst of times have been rewarded with some of the world’s best bond returns. First, the economics look bad. Foreign reserves have dwindled to a 15-year low of about $10 billion, a grim figure considering Venezuela and the state oil company known as PDVSA are due to pay about $13 billion in debt before the end of 2018. Combine that with oil prices at half of what they were just three years ago, slumping crude output in a country that gets 95 percent of its export revenue from that one resource, triple-digit inflation and a rapidly shrinking economy, and it’s a tough road ahead. Read more.