Yet few nations are rushing in to offer financial assistance to the ailing country. Under the authoritarian regime of Nicolás Maduro, Venezuela is isolated in Latin America, and the United States, Canada and the European Union have all imposed sanctions against Venezuelan officials. Maduro has at times suggested he would not even accept humanitarian aid.
Still, no indebted nation is totally alone in this world. As a financial analyst, I know there are always international players who see opportunity in the problems of others. And for Venezuela, my home country, all hope of a bailout rests with China, Russia and the International Monetary Fund.
Will they do anything to help?
Venezuela’s debt: By the numbers
Before exploring a possible Venezuela rescue, it is useful to understand how the country’s debt became such a burden.
In 1998, the year before the late Hugo Chávez came into power, Venezuela was rich. It produced roughly 60 barrels of oil per inhabitant per year.
Even as output steadily shrank, Chávez benefitted from relatively high oil prices, which allowed him to boost revenue from petroleum exports. And as oil sales rose, so did government expenditures, as well as imports of food and other goods.
Then, in late 2014, international oil prices began to plunge. Today, estimates indicate that Venezuela’s public sector debt tops $184.5 billion, including $60 billion in foreign debt, though the Venezuelan Central Bank claims it’s much lower.
To ensure its citizens’ basic well-being, Venezuela must be able to import, on average, $1,000 a year per inhabitant – or roughly $33 billion a year. My data show it’s currently bringing in about half that.
No Chinese largess
As an oil producer, Venezuela’s desperation rouses geopolitical interests.
China, at least publicly, has remained decidedly mum on Venezuela’s political crisis. According to a spokesperson from the Chinese Ministry of Foreign Affairs in October, Beijing “believe[s] that the government of this country is able to appropriately handle its domestic affairs within the law, maintaining stability and prosperity.”
China has also allowed Venezuela to use shipments of crude to pay off some of its debt, revealing China’s main interest in Venezuela: its oil.
But, in my view, Venezuela shouldn’t count on Beijing for significant additional financial help. For China to issue new loans, insiders have told me, Maduro’s government would have to show clear signs of fiscal discipline. Nothing indicates it is capable of that.
Indeed, Russia and its state-funded oil venture, Rosneft, have already helped the country avoid default at least twice, providing Caracas with $10 billion in financial assistance. In an Oct. 29 New York Times article, oil expert Francisco Monaldi said Russia is “the only country that can toss Venezuela a lifeline.”
In my opinion, even its public declarations defending Venezuela’s politics are more incisive than China’s. Russia’s Foreign Ministry has called international sanctions against Venezuela “unacceptable.”
This could lead Venezuela to its last resort: the International Monetary Fund. In my opinion, this global lender would be the most appropriate source of a bailout.
Neither China nor Russia is willing or able to offer the huge sum Venezuela needs to stay afloat, at least $30 billion. Nor is any country likely to match the super-low 2 percent interest rate that the IMF offers to emerging economies in crisis.
Bondholders typically look askance at this type of financial assistance. Countries receiving support from the IMF and other multilateral lenders are generally “advised to renegotiate foreign debt,” which can leave investors with empty pockets.
And today, Venezuela has no official relationship with the organization. The Chávez administration loved to disparage the IMF, saying it should “close down” or “vanish.”
Even so, there are signs that the IMF is sketching out a possible rescue plan for the country. Bank officials have expressed concern with both Venezuela’s humanitarian crisis and the possible spinoff effects of its economic collapse on other Latin American economies.
Since the multilateral organization is unlikely to bail out the current regime – which has previously rebuked its possible intervention – the IMF probably hopes to work with some future transition government that’s more democratic and open to international aid. If so, help may be a long time coming.
Es Instructor y Analista Financiero. García Uzcátegui es Magíster en Administración (MBA), Mención Finanzas, de la Universidad Metropolitana (UNIMET), egresado del Instituto de Estudios Superiores de Administración (IESA) del 73° Programa de Gerencia para Ingenieros. García Uzcátegui es originalmente Ingeniero Químico de la Universidad Simón Bolívar (USB) y ha sido instructor en el Área de Finanzas en la Bolsa de Valores de Caracas, y en el CIAP-UCAB. Participa frecuentemente en programas de temas económicos y financieros en la radio, TV, y la prensa nacional y extranjera; y es el creador del Blog de Economía y Finanzas. Fundador de Visión de Inversión, empresa dedicada a la difusión de la Cultura y Educación Financiera.