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LatAm in Focus: Moody's Jaime Reusche on a Venezuelan Default

March 02, 2016

$30 billion—Moody's estimate of Venezuela's financing gap ahead of October/November bond payments. #VZdefault
Oil prices need to rise to $55–60/barrel if Venezuela wants to break even in 2016.
Venezuela needs major depreciation of its exchange rates. Except if you do that, "People will hate you." —J Reusche

This is the first episode in our new podcast series, Latin America in Focus, covering Latin American politics, economics, and culture. Hear more of our podcasts.

While OPEC members debate production to halt a plunging oil price, few countries are feeling the pain like Venezuela, where oil makes up 96 percent of the country’s exports. With the average barrel price below $30 for the first month of the year, the country took in just $77 million in oil revenues in January of this year, a far cry from the $3 billion in January 2014.

That figure is hamstringing the country’s budget, creating an estimated $30 billion financing gap and making it more likely the country will default on the billions of bond payments Caracas and the state oil company, PDVSA, are due to make this year—80 percent likely, to be precise, says Jaime Reusche, a vice president at Moody’s, where he is responsible for analysis and ratings of Latin American sovereigns. In the event of a default or other credit event, such as a restructuring, the ratings agency projects investor losses to be in the 35 to 40 percent range. But righting the economy won’t be straightforward in Venezuela, where the term “business as usual” has little currency.

"China’s relationship with Venezuela is something that you’d probably see on Facebook: it’s complicated."

“The level of distortions there on the ground in Venezuela—it puts gray hair on your head,” said Reusche, in a February 25 panel on Venezuelan default. Following the event, he sat down with AS/COA Online’s Holly K. Sonneland to lay out the calendar for Venezuela’s upcoming payments, its complicated relationship with China, and what level of oil price will keep the budget in the black.