September 11, 2014 / 5:26 PM / 5 years ago

UPDATE 1-Maduro says Venezuela can pay debt, decries default fears

(Adds bond rally and analysts views)

By Eyanir Chinea and Alexandra Ulmer

CARACAS, Sept 11 (Reuters) - President Nicolas Maduro said Venezuela could meet all its obligations to bondholders, as he sought to quell market fears that the Socialist-run country may opt to default when $5 billion of its foreign debt falls due for repayment next month.

Fears of a possible default had heightened, with bond yields spiking, after the publication of an article by two pro-opposition economists that suggested an orderly default could ultimately help the slumping economy of a member of the Organization of the Petroleum Exporting Countries.

“We’re prepared to meet our international obligations in their entirety,” Maduro declared on Wednesday night. “Down to the last dollar.”

Speaking at an event attended by industrialists, Maduro criticized what he deemed an international campaign to sully Venezuela. Like his predecessor, the late Hugo Chavez, Maduro often accuses the United States or financial speculators of trying to ruin the self-styled socialist experiment.

Investors have been alarmed by the apparent hesitancy of Maduro’s government to make reforms needed to rehabilitate an economy that saw annual inflation hit a fresh six-year high of over 63 percent in August.

But bonds rallied on Thursday, soothed by Maduro’s comments the night before. The benchmark 2027 bond was trading up 2.33 percent to 73.913 in midday trade, according to Thomson Reuters data.

“I think the recovery reflects the fact that markets and investors are realizing that at this stage Venezuelan authorities have the will and capacity to pay and honour its international commitments and that there is no intention to default,” said political risk analyst Diego Moya-Ocampos at IHS.


Venezuela is struggling to shore up its coffers and deal with rampant inflation and shortages of goods ranging from medicines to milk due to strict currency controls.

In an article published in Project Syndicate, a web portal that carries opinion pieces on global affairs, Harvard Professor Ricardo Hausmann, a former planning minister in the 1990s, and Miguel Angel Santos, a Harvard researcher, argued that the economic crisis was tantamount to Maduro’s government “defaulting” on its people.

“The fact that his administration has chosen to default on 30 million Venezuelans, rather than on Wall Street, is not a sign of its moral rectitude,” the article said. “It is a signal of its moral bankruptcy.”

Though titled “Should Venezuela Default?”, the article said such a dramatic move was improbable. Some private analysts agreed, and reiterated that view on Thursday, including Alejandro Grisanti with Barclays. He said Maduro’s speech “supports our constructive view on Venezuela’s credit, despite the maintenance of large distortions and imbalances.” (Additional reporting by Diego Ore; Writing by Alexandra Ulmer; Editing by Simon Cameron-Moore and Grant McCool)

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