Tuesday, 26 September 2023 12:20 GMT

Nobody is going to bail out Venezuela

(MENAFN- The Conversation) Venezuela, the South American country convulsed by and humanitarian catastrophe, has on some of its debt after missing an interest payment due in October.

Even as investors meet in Caracas to discuss restructuring , the country is in urgent need of .

Yet few nations are rushing in to aid the ailing country. Under the authoritarian regime of Nicolás Maduro, Venezuela is in Latin America, and the , and the have all imposed sanctions against Venezuelan officials. Maduro has at times suggested he would not even accept .

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 default will deepen the country's humanitarian crisis. Here, protesters sit in front of a mural decrying widespread hunger (hambre). Ariana Cubillos/AP Photo 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 . It produced roughly 60 barrels of oil per inhabitant per year. By late 2017, my projections – based on data compiled from Venezuela's and BP's – show that production will have dropped to 20 barrels per capita. That's a 66 percent drop in 20 years.

Oil output per capita in Venezuela has dropped significantly in the past several decades. Henkel Garcia/BP Statistical Review of World Energy 2017/National Statistics Institute,

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 , as well as imports of food and other goods.

Eventually, excess spending took a toll on Venezuela's . Rather than cut expenditures and imports, the Chávez regime .

As exports (US$ per capita) rose, so too did government spending and imports. Banco Central de Venezuela, FRED (Federal Reserve Bank of St. Louis), National Statistics Institute and Econométrica IE, C.A.,

Then, in late 2014, international oil prices began to plunge. Today, Venezuela's public sector debt tops $184.5 billion, including $60 billion in foreign debt, though the claims it's much lower.

Venezuela's foreign public debt, in US$ million, is at an all-time high. Venezuelan Central Bank,

To service this debt, the government must pay $16 billion to $20 billion a year through at least 2022. Shouldering that huge expense has meant slashing imports, causing and medicine shortages. As a result, almost .

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.

Venezuela owes , its main creditors. In recent years, both countries have been eager to prop up the Maduro regime, with little concern for its authoritarian tendencies.

China, at least publicly, has remained decidedly mum on . 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.'

So far, though, Chinese financial institutions have not further opened their coffers. They have, however, granted it owes them. This modest concession gives the government a bit of breathing room.

China has also allowed Venezuela to use shipments of crude , 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 .

I believe a more likely next step is that Venezuela will bring in much-needed cash by selling off existing .

Putin to the rescue?

Russia has been somewhat more generous with Venezuela, and its geopolitical interests here are clear.

The Kremlin benefits from having – especially one that is avowedly anti-U.S. and ranked as the .

Plus, Russia already has many oil interests in the country, including , the state-owned oil company.

Russia's geopolitical interests in having Venezuela as an ally in the Americas are pretty clear. Yuri Kadobnov/AP Photo

Indeed, Russia and its state-funded oil venture, Rosneft, have already helped the country , providing Caracas with $10 billion in financial assistance. In an Oct. 29 New York Times article, oil expert Russia is 'the only country that can toss Venezuela a lifeline.'

In my opinion, even its public declarations defending Venezuela's politics are than China's. Russia's Foreign Ministry has called international sanctions against Venezuela 'unacceptable.'

Still, thus far, Russia has . While the terms weren't disclosed, I don't believe anything like a real bailout is on offer.

Last resource

This could lead Venezuela to its last resort: the . 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 .

Bondholders typically look askance at this type of financial assistance. Countries receiving support from the IMF and other multilateral lenders are generally ',' which can leave investors with empty pockets.

And today, Venezuela has no official relationship with the organization. The Chávez administration , saying it should 'close down' or 'vanish.'

Even so, there are signs that the IMF is for the country. Bank officials have 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 – 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.

Leer .

This article was originally published in

The Conversation


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