Venezuela buying time with claimants, IMF

Venezuela has so far succeeded in shaking off pressure from arbitration claimants and the International Monetary Fund ahead of president Nicolas Maduro´s controversial inauguration for another six-year term on 10 January 2019.

The Opec country´s central bank and finance ministries submitted partial macroeconomic data to the IMF around 20 November, according to financial sector executives who said the move sidesteps possible suspension following a May 2018 censure for failing to submit data. But the official information sent to the IMF is considered piecemeal and lacking in rigor.

The IMF declined to comment, but chief spokesman Gerry Rice confirmed in a 15 November press briefing that "there has been dialogue on this issue and it is ongoing. We're hopeful it can lead to a productive outcome."

Venezuela´s preliminary contacts with the IMF, the first interaction since a comprehensive analysis in 2004, are part of a wider campaign by Caracas to tamp down on external financial pressures. But with oil production tumbling toward 1mn b/d, economists say the country remains on a ruinous economic path.

The Venezuelan government has not commented on the politically sensitive talks with the IMF.

In the meantime, it has settled two arbitration claims worth a total of close to $3.5bn.

In a court-approved amended settlement agreement, Venezuela made an initial payment of $425mn on a $1.4bn arbitration award to former Canadian mining company Crystallex, which is controlled by Tenor Capital Management. The deal spared Caracas from the loss of state-owned PdV´s US refining subsidiary Citgo, considered Venezuela´s most valuable asset.

But most of the payment was in the form of "liquid securities", widely interpreted as bonds previously issued by the government or PdV, because of US financial sanctions prevent Venezuela from issuing new debt. There is also an outside chance that they are bonds from another South American country, such as Argentina, Bolivia or Ecuador, that the Venezuelan government had purchased years ago to help its political allies.

The market value of the bonds is not specified in the Crystallex settlement, raising doubts about the value of the agreement, various financial sector executives told Argus.

A representative for Crystallex declined to comment.

The Crystallex settlement was reached shortly after PdV struck a separate deal with US oil company ConocoPhillips. Like Crystallex, ConocoPhillips was seeking to enforce an international arbitration award dating back to the late 2000s expropriation of its Venezuelan assets. The August settlement reopened PdV´s Caribbean logistical corridor for its oil exports, which had been effectively blocked by ConocoPhillips.

In the wings are various groups of bondholders. All PdV and Republic of Venezuela bonds are currently in default except for a PdV 2020 issuance that is securitized by PdV Holding, the indirect parent of Citgo. At least one group of bondholders is currently weighing litigation, departing from a wait-and-see approach that has reigned since Venezuela started defaulting on its bond debt around September 2017. The bondholders are unlikely to accelerate on the bonds, because this would leave them with a judgment governed by a lower interest rate than the bonds themselves. Rather, they are considering an action akin to the seizures in the Dutch Caribbean that led to the ConocoPhillips settlement.

The 10 January inauguration date is considered a watershed for Venezuela. Several countries denounced Maduro´s May 2018 re-election as illegitimate. The Lima Group, which represents numerous Latin American and Caribbean countries concerned over Venezuela's political and economic decay and the mass migration it has generated, has said it is considering various actions.

The US, the EU and Canada already have targeted sanctions on individual Venezuelan officials and the US has had financial sanctions in place since August 2017.

But Maduro has clung to power in part by exploiting cracks in the international community. He is scheduled to attend the inauguration of Mexico´s new leftist president Andres Manuel Lopez Obrador in Mexico City tomorrow.