"Venezuela's Default: Steps, Probability, and Ability"

José M. Barrionuevo Barclays Capital Director of Emerging Markets Strategy New York, April 10, 2003

Summary: Venezuela's DCBs implied market default probability is 57%, in our view, compared with the 24% implied by current market spreads. We recommend investors to further reduce exposure to Venezuela and to consider a trade that sells Venezuela DCBs and buys '27s. The key implication of Mr. Chávez's comments regarding the need to restructure external debt this year is that Venezuela's debt default probability is rising rapidly now. Despite a probable further 31% devaluation this year, dollar reserves should decline by a total of USD 3bn in 2003. With dollar reserves falling below USD 12bn this year, default is now a strong possibility in September, when reserves will hit this threshold. Default could happen as early as June if oil prices drop more rapidly. With domestic debt issuance nearing a limit as inflationary pressures from the equivalence of debt and money financing emerge, for the first time external debt default is a serious choice in Venezuela.

Read complete report..Venezuela's_Default_Story (application/pdf, 355 KB)

from Barclays Capital Research-Ve03Apr10