Venezuela’s economic position is highly at risk lately, due to a $60 billion debt.

On November 14th, Standard and Poor’s announced that Venezuela defaulted on its bond payments. The rating agency communicated that the nation failed to meet $200 million in coupon payments of bonds maturing in 2019 and 2024 within the allowed 30-day grace period following their expiration in October. Beyond bond payments, Venezuela owes money to China, Russia, oil service providers, U.S. airlines and many other entities. On a further note, the country’s sovereign debt grade was lowered to "selective default", meaning a specific bond payment was skipped but commitment to paying off international debts remains. S&P says there is a one in two chance that Venezuela could default again within the next three months, leaving investors unsure about the future.

A meeting with bondholders was held in Caracas but it was reportedly brief and offered no clarity on how the government plans to restructure its debt. Argentina went through a similar default and its bondholders battled with the government for about 15 years before settling in 2016, but hopefully this is not the case for Venezuela.
Although European foreign ministers are imposing economic sanctions to the country, its instability is very likely to cause a domino effect on economies around the world, leading to consequent chaos in financial markets worldwide. As a response, the Caracas government claims: “The European institutions show their lamentable and shameful subordination to the US government.” Despite this fact, US sanctions imposed by President Donald Trump have seemingly had little impact on president Maduro’s policies.
 
The lack of liquidity required to pay off debts brings about the entitlement of investors to seize the country’s assets, in particular oil. The fossil fuel is the most significant source of income for the country, and for this reason it is likely that its international trade will undergo a severe downfall following the investors’ claim.
 
Unfortunately, the direct consequences of investors’ oil seizing are going to weigh on the local community. In recent years, the government has already failed for years to ship enough food and medicine for the citizens, making them wait long hours in line to buy food and depriving them of basic resources in hospitals. These conditions are probably going to worsen quickly as the country loses possess of its most precious assets like oil.
 
Nevertheless, previous happenings should be taken into account while discussing this point. The socialist regime that took power in 1999 has ever since frozen prices on every good, in order to make them more affordable for the masses. These moves caused local farmers to sell at unbearable prices and prevented importers from trading in the country. When food shortages became worse, an illegal black market soared, where basic foods were sold at much higher prices than the ones imposed by the government. As a consequence, inflation grew and made the local currency, the bolivar, almost worthless.
One U.S. dollar currently buys more than 55,200 bolivars. At the beginning of the year, a dollar was worth about 3,200 bolivars, according to dolartoday.com. The International Monetary Fund predicts that inflation in Venezuela will hit 650% this year and 2,300% in 2018.
 
Isabella Costa