Is This The End of The Road For Venezuela?

Is This The End of The Road For Venezuela?
By Ridhi Khaitan -
15 Jun 2017

Rising default risk

Investors in Venezuelan debt (EMB) are undeterred by the rising
probability of a default by this embattled country. Emerging market fund
managers are increasingly attracted to the high yields associated with
Venezuela's high-risk bonds. Some experts, however, still believe that
Venezuela's default is coming soon. The nation recently defaulted on its
$2.5 billion loan from Russia's oil company Rosneft.

Recently, Kevin Daly, an emerging market debt specialist at Aberdeen
Asset Management, told the Financial Times that Venezuela's default is
inevitable. "But amid mounting expectation that future defaults are
inevitable as the crisis-ridden country's coffers run dry and protests
against the increasingly authoritarian government mount, some investors
now believe the strongest returns may come from longer-term paper." He
continued, "The backdrop suggests we are moving closer to a credit
event. The government is becoming more dysfunctional, the protests are
becoming more fevered and it does feel like there could be splits in the
government and military."

Falling oil prices since 2014 and mismanagement of the economy have led
to triple digit inflation in the troubled country and depleted its
foreign reserves.
Related Article 3 Reasons Why Venezuela May Not Default On Its Debt
Payments

Since 2013, the economy has decelerated by 27% and the IMF predicts
inflation to touch 720% this year. To further add to investor woes, the
country's central bank has stopped publishing economic indicators such
as GDP, balance of payments etc.

The country is now facing a shortage of basic necessities including food
and medicines. Venezuela's unpopular government led by Nicolas Maduro
has become even more dependent on financial deals and sale of assets to
boost its foreign exchange reserves. The Maduro government has slashed
imports of basic necessities for years to meet its bond commitments
which has spurred shortages.

Economic experts believe the only way out for Venezuela is to scrap its
price and currency control mechanisms that have crippled the private
sector. Venezuela's bonds are currently the highest-yielding among all
emerging market securities due to the high default risk attached to them.

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