Appendix I – Circumstances Surrounding Individual Sovereign Bond Defaults
Venezuela 1998
In the first week of July 1998, the government of Venezuela did not pay the coupon on local currency
bonds that were held by local residents. The payments were made a week later. Since these bonds had no
grace period, this delay in payment amounted to a default.
The government claimed that the person who was supposed to sign the checks was unavailable at the time
but that the checks were later issued from the appropriate office. It was the type of episode that seems to
have happened more than once in Venezuela, where the government did not pay the coupon on local
currency bonds on time. However, the government has always claimed that there was no "intentional"
delay.
After this default, Venezuela installed state-of-the-art payment machinery that reduced or eliminated the
need for human intervention in the payment processes.
In July 1998, Moody's changed Venezuela’s foreign currency issuer rating to B1 from Ba2 and assigned a
first-time local currency rating of B3. The B3 local currency rating reflected the recurrent temporary
delays in the payment of interest and principal on local-currency denominated instruments. In September
1998, the ratings were further lowered to B2 for foreign currency and Caa1 for local currency government
bonds due to the effects of the oil shock and deteriorating economic and fiscal conditions.
S 18 http://www.moodysanalytics.com/~/media/Microsites/CRRM/2012/Sovereign%20Research/2012-30-07-Sovereign-Default-and-Recovery-Rates.ashx
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