How to Address Venezuela’s Crushing Debt Burden
The legacy of Chávismo includes a mountain of foreign-currency-denominated claims against the Venezuelan public sector, totaling $150 billion, almost all of which is now in default. When Nicolás Maduro finally leaves power, how can these claims be settled while meeting the country's desperate need for humanitarian relief and economic recovery?
CAMBRIDGE – When he finally leaves the political stage in Venezuela, Nicolás Maduro will leave behind a grim legacy of oppression, suffering, and economic devastation. He will also leave a mountain of foreign-currency-denominated claims against the Venezuelan public sector – almost all of which is now in default – totaling over $150 billion. It will fall to Venezuela’s interim government to move promptly to arrest the deep humanitarian crisis, restore the country’s shattered economy, and deal with these gargantuan legacy debts. All three efforts must be attempted simultaneously. None will be easy.
To provide guidance about what to expect when the debt-restructuring process begins, the National Assembly and the interim government released a white paper describing the broad policies that the interim government expects to follow as it tackles the debt. Of course, no restructuring of these claims can begin until the interim government assumes control of the state machinery in Venezuela and the international economic sanctions that have been imposed on the Maduro regime are lifted. When that day arrives, four main principles will guide the settlement of legacy commercial claims.
First, the settlement should be as comprehensive as possible. Maduro and his predecessor, Hugo Chávez, managed to incur liabilities to an astonishingly diverse group of creditors: banks, bondholders, unpaid suppliers, arbitration award holders, expropriated investors, and various others. Unlike most of the sovereign debt workouts over the last 40 years, this will not be a restructuring of exclusively bond indebtedness or commercial bank loans. All legacy commercial claims, whatever their origin, will need to be addressed as part of Venezuela’s economic recovery program.