NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, November 10, 2017

A lot of people who have made a lot of money investing in Venezuelan bonds in recent years may get badly hurt if Venezuela’s dictatorship defaults on its foreign debts, as many market analysts say may happen shortly. But I don’t feel sorry for Venezuelan bondholders.

If the default occurs, they’ll only be getting what they deserve. And as an added bonus, the spectacle of a Venezuelan default — the first by a major country since Argentina’s in 2001 — would help convince investors across the world that it’s not good business to invest in state-run companies of repressive regimes.

Venezuelan President Nicolás Maduro recently announced that he will restructure his country’s debts, including those of PDVSA, the state oil monopoly that is about the only source of the country’s income. People who bought PDVSA’s bonds got annual yields of above 14 percent, more than three times what you get from most corporate or municipal bonds.

But few major international creditors are likely to accept Maduro’s offer to restructure their payments in defiance of U.S. sanctions that largely prohibit them from doing so.