The Economist has an article about the chances of a Venezuelan bond default. It manages to go the whole story without mentioning that news articles about the risks of Venezuelan debt are something of a self-fulfilling prophecy, as people get unduly scared of default, raise borrowing costs, and thereby increase the chance of default. The article neglects to mention the single biggest argument against Venezuela defaulting — it needs financing for $250 billion worth of oil projects. If there’s anybody who’s going to be a victim of default, it’s state employees, especially when it comes to many billions of dollars in promised retirement packages.
But one item in the Economist story really jumped out as a surprise. Venezuela’s long-running stabilization fund, an attempt to pull dollars out of circulation during good times so they’d be available in bad times, has all but disappeared. According to this Central Bank Excel sheet, the government took all but $3 million out of the account on Feb 1 — a withdrawal of $829 million. That money was sitting there for as long as I’ve followed Venezuela. Makes you wonder why PDVSA suddenly needed U.S. dollar liquidity.