Venezuela: One Upgrade, One Downgrade And One Improved Outlook

June 18, 2013

While President Maduro has done nothing on the most pressing problems of the economy, in the last two weeks, the country received an upgrade in its status with the US, a downgrade from Standard and Poor’s and the Catholic Church seemed to give its blessing to Maduro and the country when Pope Francis met with the Venezuelan President., essentially seeing an improved outlook in relations with the country.

While Maduro is probably happy about the total, unfortunately for the average Venezuelan the only one of these that will affect his or her pocket is the downgrade from B+ to B by Standard and Poor’s. Yesterday morning, before the downgrade, Venezuela’s bonds were trading about at a 1% lower yield than today, which means that any new debt that is sure to come will cost around US$ 10 million more per year for each billion dollars issued.

In fact, so far Maduro being elected has been quite costly for the country, as shown by the graph below:

cds-1

In the graph I show the value of the 5 year CDS, or the cost to insure against the country’s debt default, which is a measure of the so called “country risk” or “country premium”. As you can see, Maduro has been costly to the country since he came to power. Just by being elected the CDS jumped from about 673 basis points (6.73%) to about 830 bps (8.3%). Then, after the electoral noise went away, it was calm for a while, but then markets got impatient (and so did S&P) and started punishing Venezuelan bonds. A few days ago it got as high as 1065 (10.65%) basis points (which was also influenced by world jitters). Then it seemed to calm down dropping to 960 basis point, only to jump yesterday on the downgrade by S&P.

From the graph, it is hard to precisely separate world jitters from Maduro, but if we say the first jump was all Maduro and the recent downgrade was all Maduro, you have at least 250 basis point or about 2.5%due to him since assuming office, or roughly US$ 25 million more in interest payments per year for each billion dollar of bonds issued. In a US$ 3 billion issue, the likely amount of what this Government want to start its issuing would then cost (us Venezuelans) for ten years US$ 250 million.

But Maduro is probably relishing on the fact that the Pope met him, Kerry met Jaua and the FAO gave him the most stupid award possible given the current shortages and the level of inflation.

And when Maduro is gone, Venezuelans will be paying for his ignorance. Meanwhile Maduro is “celebrating” his tenth week as President without a single important economic measure being announced.

Which is precisely why S&P downgraded the country’s debt. Oh yeah! S&P did say that if economic policy became more “pragmatic” the outlook, which is negative, could improve.

Don’t hold your breath…

12 Responses to “Venezuela: One Upgrade, One Downgrade And One Improved Outlook”

  1. Glenn Says:

    I honestly believe that Maduro is completely ignorant. I’m certain he thinks things are going just great. With no broadcasted protests, and toilet paper in his bathroom, and these cheesy meet and greets, everthing must be just peachy . It will take hell-raising protest on the streets of Caracas covered by international media to clue him in. Nothing less.

  2. m_astera Says:

    Anything Maduro initiated would undoubtedly be misguided and make things worse. I think we should all be grateful that he is not doing anything.

  3. albionboy Says:

    Maduro is happy because as in the case of the Titanic, the sinking is slow, and the hope of a rescues is high, (higher oil prices) but there are not enough lifeboats (dollars) and as usual the poor will get screwed.

    • Noel Says:

      I am not so sure about higher oil prices and I don’t know how much time he really has. Longer term, should Brazilians get fed up with an intrusive but ineffective government and should they elect a center-left president a la FH Cardoso, Maduro would have a much narrower margin of maneuver.

  4. RattInnaCage Says:

    The question should not be when Venezuela regains it’s B+ status, but how long for it to “attain” CCC status.

  5. Jose Alberto Says:

    “Venny” as wall street gringos call Venezuelan paper is trading at its year ti date wides, meaning at its riskiest point in 2013, the question is whether we ve a small rebound and stabilization in bond prices after a 20 points drop in the 10-15 yr part of the sovereign curve OR how long it will take for the market to realize that a credit event will ocurr in the next. 18-24 months. Venny CDS should reprice to a new range of 1100 to 1500 basis points, Argentina sovereign risk is at 3000. With intl reserves stafnant at $27 bn and liquid reserves ( cash not gold) how long it ll take for the country to default on some of its obligations? If anyone has the answer it will be great to hear how and when this will happen.


    • That is the 64,000 “locha ” question. For now, Venezuela can pay, but increasing debt and a small drop in oil prices, which could be coming could really create problems. Of course, the Government still has room for maneuvering, cutting off Petrocaribe, Cuba, devaluing, gas prices, electricity prices. Default would be really bad for Venezuela, more so in a dropping oil price scenario.

      If I had to guess a when? I would say 2017…

      The Devil always has an opinion.

  6. Pedro Says:

    Mejor reirse.


  7. Man, that country going to the dogs!

  8. Trudy Says:

    Heya i’m for the first time here. I found this board and I to find It really helpful & it helped me out a lot. I’m hoping to offer one thing again and aid
    others such as you helped me.


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