October - December 2014 - Volumn 2, Issue 3



by Marian Ross

Venezuela has dominated emerging market news for the past 9 months. According to Bloomberg data, USD denominated Venezuelan bonds lost an average of 31% in 2014. This melodrama was prompted by a widely publicized report from two Harvard economists that predicted an almost inevitable sovereign default. Prices of bonds issued by the sovereign and the State oil producer Petroleos de Venezuela (PDVSA) fell sharply as a result. Their report cited a shortage of foreign exchange (as a result of decade long currency controls) and poor economic growth as the primary factors eroding the Government’s ability to repay its debt.

The significant decline in oil prices further compounded the negative market sentiment. Oil accounts for over 95% of Venezuela’s exports; the price of Venezuelan oil fell by more than 50% in 2014. In early September 2014 S&P downgraded Venezuela’s credit rating from B- to CCC+. Their analysis cited a deteriorating economy and rampant inflation. In fact, it is projected that the

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