22/09/2014 02:39 pm
Venezuela Will Make October Bond Payments, Bank of America Says
Bank of America Corp said there’s little chance Venezuela will default on $4,5 billion of payments due next month.

Bloomberg - Bank of America Corp. said there’s little chance Venezuela will default on $4.5 billion of payments due next month as pressure mounts on the government to adopt policies that would preserve hard currency.

The government has no incentive to stop servicing its debt, and state-owned Petroleos de Venezuela SA has more than enough cash on hand to cover next month’s obligations, Bank of America Senior Andean Economist Francisco Rodriguez wrote in a research report to clients.

“The idea that a country in which a state-owned corporation exports $85 billion a year could have trouble making a $4.5 billion amortization payment seems stretched,” Rodriguez wrote. “These facts make a default on the October amortizations a near-zero probability event.”

The South American nation’s benchmark dollar bonds have plunged 16.9 cents in the past two months to about 70 cents on the dollar over concern that President Nicolas Maduro lacks a plan to curb the world’s fastest inflation and alleviate shortages of consumer goods from birth control pills to personal hygiene products. Clorox Co., the consumer-products company, said today it’s pulling out of Venezuela after inflation and government-mandated price freezes sapped profit.

Venezuelan assets have sold off since the economist Ricardo Hausmann published an opinion piece Sept. 5 arguing that the government should consider defaulting amid a lack of dollars to pay for imports. Rodriguez wrote that while opposition politicians have said they won’t default if they come to power, there’s a risk that the idea may gain support.

“The more traction this argument gets in public discussion, the greater the incentive for opposition politicians to embrace it,” Rodriguez wrote. “Discussion of the government’s priorities may step up pressure on it to resolve the price distortions that are at the root of the appearance of a trade-off between paying bondholders and satisfying Venezuelans’ needs.” 

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