Caracas Chronicles

One of the most difficult aspects of the Venezuelan crisis is the fatuousness of analyzing the country’s plight through traditional ideological lenses. This is patently evident when talking about Venezuela’s massive and defaulted external debt. It’s no secret that some of the largest bondholders of Venezuelan debt are actively lobbying to get sanctions relief for the Maduro regime. But, why isn’t Wall Street siding with the pro-market, firmly western-aligned opposition led by María Corina Machado after Maduro defaulted on the bonds almost a decade ago?

During the oil boom years, chavismo cozied up with big investment banks to issue billions worth of bonds—both from the Republic and state oil giant PDVSA—to finance lavish, unaccountable unsustainable social programs. It dutifully paid them off until it defaulted in 2017—several times through brutal import cuts of food and medicine that severely affected Venezuelans. During the peak of the Venezuelan economic crunch, Maduro maintained a communication channel with bondholders. Even exchanged some of the outstanding bonds for a new one with a later maturity and the additional carrot of a lien on Citgo holding company shares, then valued at billions. The infamous 2020 Citgo bond. 

Juan Guiadó’s caretaker government, also known as the interinato, questioned the validity of the 2020 Citgo bond as it had not been approved by the then opposition-controlled National Assembly, even suing over the illegality of the Citgo bond in a US Court. This strong position scared off bondholders of Venezuelan debt, who feared that in an upcoming transition the opposition would disown Venezuelan debt and that they were better off betting on sanction relief and a debt restructuring under Maduro. A skepticism that remains until today.

For the bondholders, it means abandoning the fantasy that they will ever see a single penny with Maduro in power, so it would be best for them to stop retweeting Laura Loomer and Indira Urbaneja

A lot of things have changed since 2020. Back then, there was a big interest in protecting Citgo from bondholders. However, the loss of Citgo is now a fait accompli, as a US judge authorized the sale to pay off outstanding Venezuelan debt, and the 2020 Citgo bond was declared as valid and enforceable. We can now say that Venezuela has lost Citgo. On the other hand, the possibility that Maduro can raise any money for a restructuring is as likely as Maduro recognizing the results of the 2024 presidential elections. 

Venezuela’s defaulted bond payments total around $60 billion, the possibility of chavismo raising any amount realistically close to that, even with an easing of sanctions, is nil. The country remains isolated from international markets, an aid package from the International Monetary Fund is unlikely, the last time a major investment bank participated in a debt operation involving Venezuela, it suffered a major PR snafu.  The regime’s only allies with any economic muscle are Russia—bleeding financially as a result of the Ukraine war—and China, who has made clear that it will not finance chavismo again. In order for Venezuela to be able to raise enough money to begin an earnest restructuring requires assistance from multilateral bodies such as the World Bank and the International Monetary Fund—and implementing the macroeconomic strings attached to their bailouts—, a democratic government that does not scare off Wall Street.

The truth of the matter is that this state of affairs is utter nonsense. Despite the opposition’s posturing—which was justified during the interinato era to prevent the regime from further pawning the country’s finances—any transition government will desperately need access to international markets to finance the gargantuan spending needed to recover the country. You can also bet that most of the international community and the people holding the purse strings —i.e. the IMF—will pressure a future administration to recognize its outstanding bonds and will push for a negotiated restructuring. Pursuing a quixotic strategy of disowning existing debt will send the worst possible signal to international markets about any change in the country’s disastrous economic management.

We elected chavismo 27 years ago under populist and score-settling promises. They proceeded to pawn the country to win elections while destroying it. Venezuelans are not off the hook for this. As a country, we have to come to grips with our mistakes. International actors will not spare us from the chavista economic mess just because they were evil, the world doesn’t work like that. This means leveling with bondholders and actually developing a sensible and thorough strategy to deal with the external debt issue in a transition, while re-introducing the country in what’s left of the international world order. 

For the bondholders, it means abandoning the fantasy that they will ever see a single penny with Maduro in power, so it would be best for them to stop retweeting Laura Loomer and Indira Urbaneja, learn their lesson about the most likely outcome of believing in the promises of chavismo, and engage sincerely with the opposition to actually pursue their best interest.