Investors jittery after Chávez remarks

<a href=news.ft.com>URL By Vincent Boland in New York Published: March 27 2003 1:11 | Last Updated: March 27 2003 1:11

President Hugo Chávez of Venezuela sent a ripple of uncertainty through capital markets on Wednesday with an announcement that he wanted to restructure the country's domestic and foreign debt.

The comment, which was broadcast on television but was not detailed, was initially interpreted by investors to mean that Venezuela could be about to pursue the forced debt swap imposed on investors by Argentina.

Mr Chávez's remark sent Venezuela's debt prices briefly into a slump in New York trading, mainly because of a lack of detail about what he had said. He told an audience of business people that the cost of servicing Venezuela's debt was too heavy for a country with its budgetary and fiscal problems and that the government would take steps to have it restructured.

Debt servicing costs, including repayments, on the debt are estimated at more than $5bn this year. Mr Chávez said this was "too much money for our beaten down budget and our beaten up situation".

Tobias Nobrega, finance minister, later told Reuters that a moratorium on repayments or a forced restructuring were not being considered, but that swap proposals would be put to investors in the next few months. Venezuela would also continue to comply with its debt obligations.

Analysts who watch Venezuela closely said the country's problem  and the chief difference with Argentina's situation  was not the size of its debt burden, which includes $22.4bn in foreign debt and more than $7bn of domestic debt, but a crisis of government revenue.

"The general perception is that Venezuela has a liquidity problem [rather than a debt burden problem]," said Benito Berber, a Venezuela specialist at IDEAglobal, an economics consultancy in New York. "That's where it differs from Argentina."  

Venezuela is struggling in the aftermath of a bitter and prolonged strike aimed at removing the country's populist president from office. The strike shut down oil production, Venezuela's chief export earner. Although production is now back to pre-strike levels, PDVSA, the state oil company, is unable to recover nearly $2bn in receivables.

This has deprived the government of badly needed revenues at a time when it should be able to take advantage of relatively high oil prices and worries over supplies because of the war in Iraq.

Venezuela's creditworthiness rating, while extremely low, is still several notches above default levels, at Caa1 from Moody's Investors Service and CCC+ from Standard & Poor's.