Venezuela may be on the verge of social and economic
implosion and default, a veteran Latin American
commentator warned yesterday.
The Andean economy is expected to remain in recession this
year and is entering its third consecutive year of contraction
in private investment, former Colombian planning minister
Mauricio Cardenas said.
After losing legislative elections last month, president
Hugo Chavez may now take the largest Latin American oil
producer up a one way street that would take the economy
to implosion, as he now faces stronger opposition ahead
of the 2012 presidential elections.
I see a high chance of radicalization in Venezuela.
That radicalization could involve greater state intervention in
the economy, more nationalization, more confiscations and at
the same time greater risks of severing the ties with the
international financial community, which could imply a
That is an extreme scenario, but it cannot be ruled
out. It is a real risk, because I do not see this is going to
have a happy ending, Cardenas, director of the Latin
America initiative at the Washington-based Brookings
Last month, the Venezuelan minister of planning and finance
Jorge Giordani denied any intention to default. Venezuela
has always honoured its commitments and will continue to do so.
There is no possibility of a default. Keep this in mind,
he told a local TV audience.
Cardenas said if default were to happen, there will be a
signal. If we see more attacks on the private sector,
more controls on the economy, then thats a bad signal. If
we see moderation, the risk of default is low.
Venezuelan GDP is expected to decline this year by a further
1.3% this year after a 3.3% contraction last year.
What is happening is structural, it is not only a
recession, Cardenas said. It is causing an almost
three year contraction in private investment, and a two year
contraction in private consumption.
Daniel Volberg, economist at Morgan Stanley, said
Venezuelas willingness to repay its foreign debt may not
be in question. But its ability [to repay] is much more
tricky. Venezuelas foreign debt has shot up to $61
billion at the beginning of 2009 to $70 billion in the second
quarter of this year to an estimated $78 billion to $82
billion, according to Morgan Stanley.
Volberg said he doubted market willingness to finance new
Venezuelan debt in the long term. While debt default was
unlikely in the short term, the risk is pretty much
there before next years elections. This is a
deterioration story, he said.
Economists main current concerns lie on the
reliability of official statistics. Volberg reckons there may
be a $25 billion mismatch in the oil exports reported by PDVSA,
the state-owned oil company.