As Venezuela continues to spiral out of control, Caracas’s voracious borrowing to prop up the nation’s withering economy has economists anticipating an inevitable financial crash.
So far, President Nicolas Maduro has managed to meet payment deadlines on the $55 billion in oil-backed loans it has received from Russia and China. To accomplish that goal, he’s diverted all his foreign reserves to debt and slashed imports of food, medicine and other essentials, the Washington Post reported.
But it seems like Caracas’s days of living paycheck to paycheck are about to end.
Maduro recently missed a $1 billion payment to Russia for previous arms purchases, leaving investors fearing a default on billions in the near future.
Desperate for cash, Maduro’s regime has resorted to selling off $2.8 billion of bonds from the state oil company PDVSA for just 31 cents on the dollar to financial giant Goldman Sachs – a sharp divergence from Venezuela’s socialist ideology that’s led to universal condemnation.
At the same time, US lawmakers are deeply concerned over the results of a possible default, especially exposing US oil infrastructure to Russian control, according to the Wall Street Journal.
A Venezuela default “would give the Russians more control over oil and gas prices worldwide, inhibit US energy security and undermine broader U.S. geopolitical efforts,” Reps. Jeff Duncan (R., S.C.) and Albio Sires (D., N.J.) wrote in a letter to Treasury Secretary Steven Mnuchin earlier this year.
Meanwhile, social upheaval continues to paralyze Venezuelan society.
Large-scale protests and violent clashes with state security forces have become a daily occurrence in Venezuela, the Los Angeles Times reported.
Since the Maduro-controlled Supreme Court announced its annexation of the legislative branch in March, daily protests have resulted in more than 60 deaths, more than 1,200 arrests and millions of dollars in property damage.
The government has banned opposition leaders across the country from running for office – some for as long as 15 years – as dramatic food shortages and staggering rates of crime have exacerbated public cries for regime change. The two forces are in constant tension.
“The cumulative effect of increasingly severe and blatant authoritarian measures can be seen in the wave of street protests in Caracas and elsewhere,” said Michael Shifter, president of the Inter-American Dialogue think tank in Washington. “The opposition has pursued other avenues to press for change but has consistently hit a wall.”
Events at home have also enraged the Venezuelan diaspora, sparking public shaming of prominent Venezuelan politicians during foreign stints, the Associated Press reported.
Maduro continues to push for constitutional changes to create a new constituent assembly that would address the people’s needs. But critics say the idea is merely another power grab. Even formerly stalwart supporters of his regime have publicly lambasted his actions.
Maduro’s approval rating is bottoming out in the low 20s, underscoring the urgency for an international solution to the crisis before all-out anarchy takes hold, economist Francisco Rodriguez wrote in the Financial Times.
“Without such an agreement, the country’s future could prove to be even bleaker than its present.”