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Venezuela's crunch debt talks leave creditors without answers

© Venezuelan Presidency, AFP | Venezuela's Vice President Tareck El Aissami, who headed the talks, used much of his time to rail against US President Donald Trump.

Text by FRANCE 24

Latest update : 2017-11-14

Venezuela's government gifted chocolates to creditors on Monday but offered no firm proposals at a meeting in Caracas that left investors without a clear understanding of the government's strategy to renegotiate $60 billion (€51 billion) in debt.

President Nicolas Maduro confused investors this month with a vow to continue paying Venezuela's crippling debt, while also seeking to restructure and refinance it.

Both restructuring and refinancing appear out of the question, however, due to US sanctions against the crisis-stricken nation. A default would compound Venezuela's dire economic crisis.

Monday's short and confused meeting, attended by senior Venezuelan officials blacklisted by the United States, gave no clarity on how Maduro would carry out his plan, said bondholders and their representatives who participated in the meeting.

Venezuela remains saddled with the dilemma of whether to continue paying off its debts, at the expense of an increasingly hungry and sick population, or defaulting on creditors and burning its bridges with the global financial system.

>> Read more: On brink of bankruptcy, Venezuela faces day of reckoning

"There was no offer, no terms, no strategy, nothing," said one bondholder, leaving the meeting at the White Palace that lasted a little more than 30 minutes with a colourful gift bag containing Venezuelan chocolates and coffee.

Shortly after the meeting, Standard & Poor's became the first major ratings agency to declare Venezuela in "selective default" after it failed to make $200 million (€171 million) in payments on its global bonds.

The agency said it acted after a 30-day grace period had passed on payments on two bonds.

"We have lowered two issue ratings to 'D' (default), and we lowered the long-term foreign currency sovereign credit rating to 'SD' (selective default)," the agency said.

Sanctions overshadow talks

Chief debt negotiators Vice President Tareck El Aissami and Economy Minister Simon Zerpa – on US sanctions lists for drug and corruption charges, respectively – attended Monday's meeting.

They met with some bondholders while others stayed out of the room on concerns about penalties for dealing with officials sanctioned by Washington.

El Aissami told creditors that Deutsche Bank may soon cut off some financial services to Venezuela, participants said. Deutsche declined to comment.

The Venezuelan vice president read a statement protesting unfair treatment by global financial institutions, including US President Donald Trump's sanctions aimed at preventing Venezuela from issuing new debt.

"Now Maduro can say: 'I showed goodwill, the bondholders showed goodwill ... but unfortunately, because Uncle Sam is not playing ball we can't [refinance]'," said Dehn, who did not attend the meeting.

"I'm not hugely surprised nothing's come out of that meeting."

FRANCE 24 talks to Delcy Rodriguez, head of Venezuela's Constituent Assembly

Separately, the European Union approved economic sanctions and an arms embargo on Venezuela on Monday, although it has yet to name who will be subject to the sanctions.

Markets continue to remain optimistic that Venezuela will service its debts, noting it has made close to $2 billion (€1.7 billion) in payments in the past two weeks, albeit delayed.

Bond prices were up across the board on Monday, with the benchmark 2022 notes issued by state oil firm PDVSA rising 3.3 percentage points.

The economic implosion has already taken a brutal toll on Venezuelans. Citizens are suffering from malnutrition and preventable diseases because they cannot find food and medicine or cannot afford them because of triple-digit inflation.

The sight of poor Venezuelans eating from garbage bags has become a powerful symbol of social decay. It contrasts sharply with the era of Chavez, when high oil prices helped fuel state spending.

Halting debt service would free up an additional $1.6 billion (€1.4 billion) in hard currency by the end of the year. Those resources could be used to improve supplies of staple goods as Maduro heads into a presidential election expected for 2018.

But the strategy could backfire if met with aggressive lawsuits. A default by Petróleos de Venezuela SA (PDVSA), which has issued about half of the country's outstanding bonds, could ensnare the company's foreign assets such as refineries in legal battles – potentially crippling export revenue. 

(FRANCE 24 with REUTERS)

Date created : 2017-11-14

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