When Columbus first set eyes on what is now Venezuela from the Gulf of Paria he described it as ‘heaven on earth’ and gave it its enduring nickname of the ‘Land of Grace’. But 500 years on and the country’s debt problems are as deep, and its list of economic woes as long, as the Orinoco River. The only grace talked about is the grace period on its mountain of debt - and yesterday’s expiration of one on a coupon payment - putting the country once again in ‘default’ (although the International Swaps and Derivatives Association’s have yet to formally declare it).
As Venezuela experiences its worst economic and political crisis, and state-owned oil giant Petroleos de Venezuela (PDVSA), which is on the brink of collapse is to cover a substantial interest and coupon obligation tomorrow, the pressure on the country is mounting. Having failed to deliver relatively small coupon payments on sovereign paper over the weekend (due to ‘technical difficulties’- there is a 30-day grace period in place), Venezuela appears to be prioritising PDVSA obligations: Ecoanalitica (a consultancy firm based in Caracas) tweeted, ‘The funds regarding the PDVSA 20 (capital + interests) is already approved, so it should become effective by friday’ [sic]. At time of writing, we have yet to see an official statement substantiating this claim from either the government or PDVSA.
The ‘petrodollar’ economy, set up in the 1970’s is coming under increasing pressure due to the expansion of the Chinese renminbi (yuan) usage in settling crude trades. The ‘petroyuan’ dates back only as far as 2012 when China signed a USD5.5bn currency swap agreement with the UAE whereby oil imports from Abu Dhabi would be settled in renminbi. Then in 2015, as a result of western sanctions, Russia began accepting yuan payments for all its oil exports to China; also considered an incentive to attract Chinese business away from Saudi Arabian oil imports which are priced in dollars. This trade works in both economies’ favour as Russia would rather purchase goods and services from China than go to the market and exchange the yuan.
According to the 2017 World Happiness Report released yesterday Norway raced ahead three places to be declared the world’s happiest nation, while the Central African Republic is apparently the most unhappy: in a measure of 155 countries. One country rapidly becoming increasingly unhappy is Venezuela, jumping from 44th to 82nd in one year, despite President Nicolás Maduro’s creation of the ‘Vice Ministry of Supreme Social Happiness’ back in 2013. In fact, Venezuela has held the top spot on Bloomberg’s world misery index for three years running, and the country has also caught up with North Korea on the 2017 Index of Economic Freedom, taking its place just ahead of the Democratic People's Republic at 179th place.
Last week the International Monetary Fund (IMF) cut its forecast for global growth to 3.4% for 2016; from 3.6% it projected in October 2015. In the Fund’s quarterly World Economic Outlook, released on January 19, it also cut the forecast for growth in 2017 from 3.8% to 3.6%. Growth in 2015 was just 3.1%, the weakest since 2009, according to IMF data.