Venezuela prepares for `voluntary' debt restructuring via bond swap

<a href=www.latintrade.com>latintrade.com 04/04/2003 - Source: Latin American Newsletters Venezuela is about to become the third Latin American country to go for a restructuring of its external debt this year. President Hugo Chávez was quite blunt about it: the country, he said last week, is simply unable to pay the US$5bn of external debt falling due this year.

Finance minister Tobías Nóbrega, who says he has been working on restructuring plans since late last year, has said the government completely rules out a moratorium or an enforced restructuring: what will be proposed is a voluntary debt swap; 'a market operation.'

Presentation of the proposals to bondholders will begin in the second quarter.

Central bank director Armando León says the problem to be overcome is the immediate bunching of debt-service obligations. Already in the first quarter Venezuela had to pay out US$950m –under the pressure created by the opposition shutdown of the oil industry.

In the second quarter another US$1.2bn fall due (two- thirds of that in June). In the second half of the year, another US$2.2bn.

Oil-generated revenues are crucial to the country's payment capacity. In January, transfers from the state oil company PDVSA were negligible; much of what was earned had to be spent on importing petrol. In February, they only amounted to US$200m –about a sixth of what would be expected in a year with fairly high oil prices.

This situation is only now beginning to improve. In March, PDVSA has been transferring an average US$150m a week. The oil company projects an increase to somewhere between US$200m and US$400m a week in April-May.

[Planning minister Felipe Pérez has come up with his own set of figures. Oil receipts, he says, are now higher than pre-strike levels. Revenues for last week increased to around US$625m, compared to US$300m in November.]

After that, and assuming that oil prices do not fall too much, revenues could reach about US$1bn a month –enough, says León, to meet debt-servicing obligations and keep the country's international reserves at an acceptable level.

Without counting the Fiem 'rainy-day' fund (into which the government has had to dip heavily in the past few months), reserves stood at just under US$13bn in the last week of March. This is a little more than US$2bn more than at the end of January, and owes much to the exchange controls that have cut drainage to a trickle.

Venezuela's external debt totals US$22.4bn; its domestic debt, US$7.4bn.