Political Risk Latin America Blog @PolRiskLatam

Venezuela’s debt worth the risk?

Posted in News and Articles by politicalrisklatam on August 9, 2010

by Benedict Mander for Financial Times, August 9th, 2010.

Why would anyone in their right minds invest in Venezuelan debt, which is considered the riskiest sovereign debt on the planet? It’s a question quite a few people may be asking themselves right now, given the announcement on Sunday by finance minister Jorge Giordani that a $3bn issue is on its way after all (despite a number of recent denials).

Ok, so it’s considered to be mighty risky – but is that altogether fair? Venezuela may happen to be run by a rather temperamental president who assures us that he is trying to turn his country into a socialist paradise, but it’s also true that Hugo Chávez has never defaulted on any debt, or even threatened to do so; and for now at least there is no particular reason why Venezuela should need, or even want to.

There’s no question that this issue, which is denominated in dollars but payable in local currency, will be snapped up by locals, who have a near insatiable demand for dollars given the currency controls in Venezuela (mostly from companies wanting to import goods or repatriate profits, but individuals too). But when they turn around and sell on the secondary market, how should investors react? (continue reading… )

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