Quake-hit Venezuela's push for a swift debt deal raises fears of future crisis
08/07/2026 18:49
* Restructuring key to unlocking new investment
* Venezuela has not published full debt, economic statistics
for years
* Estimates of total liabilities range from $150 billion to
$240 billion
* The IMF says it is not involved in Venezuela's debt
restructuring push
By Libby George and Karin Strohecker
LONDON, July 8 (Reuters) - Venezuela is seeking to push
through in record time one of the most complex debt
restructurings ever attempted, with claims approaching $200
billion, even as the country's recovery is set back by
devastating earthquakes killing thousands of people.
Bondholders say Caracas hopes to secure the early stages of
the overhaul of its sovereign debt and that of state oil firm
PDVSA launched in May as soon as November to unlock billions of
badly needed investment in sectors from oil to power.
But debt experts warn speeding a deal through could leave
the country — just emerging from years of financial isolation —
burdened with unsustainable debt for decades just as it needs
billions of dollars to rebuild after last month's earthquakes.
"This will surely be the most complex sovereign debt
restructuring of my lifetime," said Mitu Gulati, a sovereign
debt expert and University of Virginia professor.
"I've never seen anything done like this."
At issue is whether Venezuela can produce a credible Debt
Sustainability Analysis despite opaque and unwieldy debt, with
claims ranging from arbitration awards and oil-backed loans by
China to bonds and past-due interest. A DSA assesses a country's
debt against its economic outlook to determine recoveries
lenders can expect from a restructuring.
It has not published full debt or economic statistics for
years.
Veteran sovereign debt lawyer Lee Buchheit, who has
represented many countries in debt restructurings since the
1980s, said the timeline was far too short for a credible DSA,
though both sides may have incentives to strike a quick deal.
Authorities may be keen to signal a return to international
markets and bondholders to avoid a more rigorous International
Monetary Fund-led assessment that could reduce recoveries.
"What may be presented as a DSA will in fact just be a
manufactured set of numbers that appears to support some form of
bond restructuring." That could spell trouble down the line,
said Buchheit, who was hired in 2019 by then-opposition leader
Juan Guaido to advise on a debt restructuring.
DOUBTS OVER GOVERNMENT DATA
Analysts estimate Venezuela's total liabilities at nearly
$200 billion. Greece's restructure of its $200 billion debt took
roughly a year following its 2012 default.
Venezuelan government officials did not respond to Reuters
requests for comment.
The need to fully assess damage from the earthquakes, which
killed more than 3,000 people and damaged hospitals, schools and
other infrastructure, adds another layer of complexity.
Venezuela's backers have bet on a swift debt resolution
since the U.S. seized then-President Nicolas Maduro in
January.
Caracas announced in May it had hired Centerview Partners
and aimed to complete the DSA by end-June. Investors now expect
it this month.
The IMF, whose assessments typically take months to
complete, said it was not involved in Venezuela's restructuring.
That and the lack of an independent audit for the figures has
added to the concerns about credibility.
Centerview Partners, the financial advisers appointed by the
government for the restructure, declined to comment.
The Financial Times reported last month that Venezuela's
debt burden could reach $240 billion — $40 billion above
previous estimates — without explaining the additional amount.
This alarmed some creditors and spurred calls for IMF
involvement.
"If you don't have a process that can be verified by
independent observers, the IMF, then you run the risk of
cronyism and corruption," said Christopher Sabatini, Chatham
House's director of the Latin America Programme.
Caracas-based financial consultancy Sintesis Financiera said
the government should pause the process as using economic data
and assumptions made before the earthquakes would be a "costly
mistake" that risked underestimating the debt relief required.
THE CASE FOR A BIG HAIRCUT
Earthquake damage estimated at $7 billion is a "massive
blow" to an economy already facing a slow recovery, said Joan
Domene, Oxford Economics' chief economist for Latin America.
"It will make the case for the government to plead for an
even bigger haircut," Domene told Reuters, referring to the loss
creditors take when debt is restructured.
Some say Centerview and Venezuelan officials understand the
importance of what they are trying to do.
"It's right to have a healthy degree of skepticism," said
Elina Theodorakopoulou, of Manulife Investment Management, which
holds Venezuelan bonds. "But surely you would believe that the
people that are putting that together realize the significance
of doing that credibly."
SPEED COULD BRING BENEFITS
Venezuela's economy has contracted by an estimated 75% since
2013 under the weight of sanctions, corruption and years of
underinvestment. The earthquake damage to infrastructure has
added losses equivalent to as much as 6% of GDP.
Few expect major foreign investment until lenders can no
longer pursue Venezuelan assets.
Venezuela has "been in limbo for years," said Rodrigo
Olivares-Caminal, professor at Queen Mary University, who is
advising some private investors on Venezuela. "We want to unlock
funding...(but) publish a DSA that will not be contested."
Getting it wrong could leave Venezuela overburdened with
debt, crowding out infrastructure and healthcare spending.
"If you give away all of your goodies now... my worry is
that we're just pushing the real restructuring problem down the
road," said Gulati.
(Reporting by Libby George and Karin Strohecker; Additional
reporting by Mayela Armas; Editing by Emelia Sithole-Matarise)
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