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Venezuela Goes Bust

Another lesson in the price of lending to a socialist regime.

By The WSJ Editorial Board

Updated Nov. 15, 2017 7:27 p.m. ET

Milton Friedman once joked that if you put the government in charge of the Sahara Desert in five years there would be a shortage of sand. He could have been talking about Venezuela and its oil wealth. But it is no joke.

On Monday Caracas missed interest payments due on two government bonds and one bond issued by the state-owned oil monopoly known by its Spanish initials PdVSA. Venezuela owed creditors $280 million, which it couldn’t manage even after a 30-day grace period.

Venezuela is broke, which takes some doing. For much of the second half of the 20th century, a gusher of oil exports made dollars abundant in Venezuela and the country imported the finest of everything. There were rough patches in the 1980s and 1990s, but by 2001 Venezuela was the richest country in South America.

Then in 2005 the socialist Hugo Chávez declared that the central bank had “excessive reserves.” He mandated that the executive take the excess from the bank without compensation. Today the central bank has at best $1 billion in reserves.

Falling oil prices are partly to blame, but the main problem is that chavismo has strangled entrepreneurship. Faced with expropriation, hyperinflation, price controls and rampant corruption, human and monetary capital has fled Venezuela.

As of Tuesday evening, the International Swaps and Derivatives Association still had not declared Venezuela in default. That matters because this will trigger the insurance obligations inherent in the credit default swaps. But S&P Global Ratings declared the country in default Monday. On Tuesday morning the Luxembourg Stock Exchange issued a suspension notice for the bonds with missed payments.

President Nicolás Maduro has formed a commission to restructure up to $150 billion of the debt and put Vice President Tareck El Aissami —who is under U.S. sanctions for drug trafficking—in charge. Mr. El Aissami called a meeting of creditors on Monday in Caracas, which most bondholders did not attend. Press reports said Mr. El Aissami delivered a monologue on Venezuela’s intention to pay and took no questions. He argued that Trump Administration sanctions make it difficult for the dictatorship to arrange refinancing.

The real problem is that restructuring assumes the country can grow again. That’s nearly impossible without a change in policy that will free the economy.

If Caracas doesn’t find a way to settle with bondholders, they will soon ask authorities to seize Venezuelan assets such as oil shipments at sea and Citgo facilities in the U.S. Such are the wages of socialism.

Correction: An earlier version misidentified the name of the International Swaps and Derivatives Association.

Appeared in the November 15, 2017, print edition.

Answer 1

Venzuela is one among the comtsies that fallows Socialism which have the pasinciptes to minimum the unemployment of its own country that makes sure that all its citizens will have a minimum standard living and distribution of wealth in the country far the sake of its citizens .Even though it has greater advantage ,impsopes maintaince and leading will tend to face a crisis which the country is suffering now

venezela facing hyperimflation by printing lot of its cussenay to pay for its spendings which increases the money supply prices in regular inflation and faced high debt which cannot be paid in given time and also extended time called grace period (30 days)

Venezuela highly dependent of oil services, a huge fall of a oil price has resulted the country to this economic crisis.

In addition to this these are lot of political imbalances, corruption, increase of crime reates due to unemployement. Distribution wealth among the citizens made them to far unemployement.

Finally, the government must and should create awareness among the people and adopt dollarizaton (banning their own currency and substitute with dollars) that abloish all the black money and regrowth their country's economy.