ASSESSMENTS

As Venezuela's Opposition Stumbles, the Country's Creditors Circle

Jun 28, 2019 | 05:45 GMT

People relax on the bank of the Tagus River where Venezuelan PDVSA oil tanker Rio Arauca lies at anchor, having been impounded by Portuguese authorities for nearly two years due to unpaid debt, March 9. The ship is one of 18 vessels declared in emergency by the Venezuelan state-owned oil company after Bernhard Schulte Shipmanagement (BSM) decided to cancel operating PDV Marina (the maritime arm of PDVSA) tankers due to an unpaid debt of some 12 million euros.

Highlights

With Venezuela in default on about $175 billion in foreign debt, the political opposition intends to begin restructuring debt payments to prevent creditors from seizing assets, but negotiations with creditors could fall apart as regime change efforts falter.
The diminishing likelihood that opposition leader Juan Guaido will soon become Venezuela's president will drive the country's opposition to fragment. Other opposition leaders will maneuver to replace him, making it more likely that he'll lose the National Assembly presidency in a vote in January 2020.
If Guaido is replaced, the immediate prospect of successful negotiations to restructure debt will decline as creditors will race to seize Venezuelan energy assets, such as crude oil cargoes, to force Caracas to partially repay some loans and arbitration awards.
And even if the Venezuelan opposition succeeds in ousting President Nicolas Maduro within several years, ongoing legal battles between creditors and the new government will likely deter all but the most risk-tolerant of investors.

Beyond Venezuela's day-to-day grind through economic and political chaos, legal chaos is looming. Over nearly 20 years of leftist rule, Venezuela has defaulted on nearly $175 billion in foreign debt and expropriated assets from dozens of foreign companies -- most of which took Venezuela's government to arbitration. With yearly oil export revenue sitting at less than $30 billion, Venezuela can't immediately meet most of its obligations to companies seeking debt and expropriation payments. And with the opposition faltering in its bid to unseat President Nicolas Maduro, credible attempts to lay the groundwork for a future economic recovery are receding. Given that, the economic task facing the opposition -- should it ever grab power -- will become larger than ever as the issue of unresolved payments clouds the prospects of sustainable growth....

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