Casey Breznick posts,
A CNBC report on the prospect of a Venezuelan default cited a Capital Economics report stating that a default could be expected by next September or October when $5 billion in debt payments come due. Only an upswing of oil prices to somewhere around $121/barrel would allow Venezuela to balance its budget, according to some estimates. But with OPEC recently slashing its 2015 production levels to a 12-year low in response to decreasing estimated global oil demand and increasing supply via U.S. shale production, a significant oil price increase in the short-term seems highly unlikely. Bloomberg reports that the implied probability of default—derived from complex financial formulas—in the next five years stands at 93%, the highest in the world.
The Devil’s Excrement looks at Maduro’s New Script,
You may laugh all you want at what he says, but I don’t. He is making a very specific narrative out of all this and I am not sure where it is heading. It may be that he just wants to blame the US for the intensification of the crisis in the next few months or simply, that he is preparing the ground in case there is no money to pay international investors. There is a one billion Euro payment in March, which looks doable, but there are much larger maturities in October 2015. But investors have so far believed that Venezuela had a “willingness” to pay, and the action in the markets today indicated some people were losing faith.
It did not help that Bloomberg reported today on a meeting with investors at a New York law firm, which actually took place like ten days ago. This meeting actually ended in a somewhat positive note, as many suggested that Venezuela and PDVSA could not get away with a restructuring below current prices for most bonds, as the oil cash flow would not justify it.
It’s not the gobs of debt monetization, the billions of make-believe-bolivars the Central Bank loans PDVSA leading to an uncontrolled monetary expansion and the collapse of demand for real money balances.
It’s not the opacity in public accounts, the drop in reserves, the commercial default, the implosion in the goods markets, or the fact that you need your kid’s birth certificate to buy her diapers.
It’s not the fiscal deficit at 17% of GDP, or oil at $58 per barrel, or the tapped-out Fonden “sovereign wealth fund,” or the fact that the Finance Minister gives every possible public sign that he’s an idiot.
It’s not that the one regime official who announced a semi-reasonable reform that might have stanched the flow got shifted sideways to a non-economic job.
It’s not the Central Bank’s scandalous subservience to the Executive branch, or the fact that it won’t even dare publish basic inflation statistics.
It’s not that PDVSA has missed every production increase target it’s set for itself since 2003, it’s not that its refineries are badly maintained and barely functional, much less profitable.
It’s not that labour laws make it insane for a worker to waste his time working, and unreasonable as well as that is time he needs to spend queueing for basic consumption goods.
It’s not that the investment climate has been so shitty for so long, and the profit repatriation picture so bleak, no one sane even considers putting money into Venezuela.
Nope. It’s none of that. According to Maduro, it’s all a conspiracy, led by some flunkie sitting at a cubicle at Moody’s, someone who for some weird reason has decided to mess with his revolution. That’s why it’s expensive for Venezuela to borrow.
Via European oil trader friend, PDVSA has been selling crude oil for $25 per barrel for some time now, on annual contracts with monthly allotments of a few million barrels. Problem is that since Chavez fired all the decent employees and replaced them with his supporters, PDVSA’s infrastructure has crumbled due poor maintenance personified by it’s refineries running at well below capacity due fires and explosions.