The 'D' Word Is Out – But Experts Say Venezuela Default Not Happening Yet

Nov 15, 2017

Venezuela is in economic ruin, which is why so many Venezuelans have fled to South Florida. Still, Venezuela keeps making payments on its massive foreign debt. But debt ratings agencies are suddenly using the “d” word. As in  default. But what does that really mean?

Thanks to reckless government mismanagement and falling oil prices, Venezuela is running out of money. It has less than $10 billion in foreign reserves left – yet it’s staring at almost $10 billion in foreign debt payments due over the next year.

Venezuela’s socialist regime says it won’t default on that debt. But credit ratings agencies say that may have already occurred. The Wall Street firm Standard & Poor’s this week declared Venezuela in “selective default” since the country just failed to make a $200 million bond payment on time.

Another firm, Moody’s, slapped the same label on Venezuela’s state oil company. Still, analysts say that doesn’t mean Venezuela is about to actually default on its $140 billion foreign debt.

“When the ratings agencies say you’re in default, that’s a bad thing," says Russ Dallen, who heads the Miami investment firm Caracas Capital Markets. "But ultimately it’s the bondholders who it has to matter to. And if Venezuela is telling them we’re going to pay you – and you believe them – then you’re going to sit on your hands and wait.”

Dallen says if Venezuela’s bondholders decide the regime can’t pay up anymore, they’ll start seizing the country’s only real asset: oil.

“Everything gets more aggressive at that point," he says. "They’re going to start trying to seize ships on the high seas and oil shipments and payments, because their job is to collect their debt.”

The Trump administration calls Venezuela a dictatorship and has blocked its access to new bond debt in U.S. markets. That could make it all but impossible for Venezuela to renegotiate its foreign debt, as it started trying to do this week.