2 Reasons Venezuela Won’t Default
By Dimitra DeFotis
Venezuela is not insolvent because it has immense oil reserves, according to the premise of aBank of America/Merrill Lynch report today that says the country can avoid a debt restructuring.
The International Monetary Fund, in its economic growth outlook for 2016, said that “projecting the economic outlook in Venezuela is complicated by the lack of any Article IV consultation since 2004 and delays in the publication of key economic data.”
Venezuela is cashing in gold reserves, and the lack of data has fueled much speculation that Venezuela will default. But could it avoid default? That would require that Venezuelan authorities implement comprehensive economic reforms to stabilize the economy and jump-start long-term growth. Otherwise, a forced restructuring would put the country’s life blood — oil exports — at risk, write BofA debt strategists and economists David Hauner, Claudio Irigoyen, Claudio Piron, Helen Qiao andFrancisco Rodriguez. That said, reforms wouldn’t replace the dollar revenue desperately needed in the short term given the low price of oil.
The price of crude is up less than 1% today, with the international Brent benchmark hovering near $44 per barrel. BofA’s experts write, in light of weak oil prices, that:
The iShares Latin America 40 exchange-traded fund (ILF) was down 1.5% in recent trading. The Market Vectors Emerging Markets High Yield Bond ETF(HYEM) and iShares JPMorgan USD Emerging Markets Bond ETF (EMB) rose fractionally.