Venezuela Risks Default If Chavez Wins

Venezuela could default on its debt as early as the second half of 2013 if President Hugo Chavez wins re-election next month and fails to shore up the oil- producing nation’s “increasingly fragile” balance sheet, Morgan Stanley said, Bloomberg reported. One “tipping point” could be the $4.3 billion in external debt payments that come due between August and November 2013, Morgan Stanley analyst Daniel Volberg wrote in a note to clients today. Chavez, who is seeking to extend almost 14 years in power with another six-year term, has damaged Venezuela’s balance sheet through the nationalization of key sectors of the economy, endemic inflation and a lack of fiscal discipline, Volberg said. The policies are an “unsustainable” mix that heighten the risk of default on Venezuela’s $110.6 billion stock of debt, especially if oil prices tumble, Volberg wrote. Government actions “may be taking Venezuela towards a crisis and potentially even a debt event that could come as early as the second half of 2013,” the report said. “Venezuela’s debt is no longer with large bank lenders as much as publicly traded bonds held by a dispersed group of creditors, which could make restructuring more challenging.” At 11.6 percent of gross domestic product, Venezuela has the largest fiscal deficit in Latin America, while its international reserves have fallen by $17 billion since 2008 to $25.6 billion, Volberg said. Output by state oil company Petroleos de Venezuela SA fell to 2.72 million barrels a day in 2011 from 3.48 million barrels in 1998, according to British Petroleum’s statistical review. Read more.