Venezuela Hits "Point of No Return" - 2016 Bankruptcy Is "Difficult To Avoid" According To Barclays

Tyler Durden's picture

In November 2014, just after OPEC officially died with the 2014 Thanksgiving massacre which was the first oil-crushing catalyst that has led to crude's relentless decline since Saudi Arabia officially broke off with the rest of the cartel, sending the black gold to a price of around $28 per barrel, we revealed who the first oil-exporting casualty of the crude carnage would be: the Latin American socialist paradise that is Venezuela.

Back then we said that the best way to bet on the OPEC cartel collapse, and the inevitable death of said socialist paradise as we know it, was to buy Venezuela CDS. Sure enough, anyone who has done so has generated massive returns since then.

More importantly, the wait for the long-overdue credit event is coming to an end.

As Barclays' Alejandro Arreaza notes, Venezuela has officially reached the "point of no return" and writes that "the economic emergency decree and any measures that the government could take at this point may be too late. After two years of inaction and the recent decline in oil prices, a credit event in 2016 is becoming increasingly difficult to avoid, in our view."

Here is why Barclays thinks that the first OPEC default is now just a matter of time:

Point of No Return

  • The economic emergency decree and any measures that the government could take at this point may be too late. After two years of inaction and the recent decline in oil prices, a credit event in 2016 is becoming increasingly difficult to avoid, in our view.
  • The figures released by the BCV show that foreign currency assets had reached USD35.5bn by the end of Q3 2015; however, we believe that they could have dropped further in Q4, to USD27.6bn, which is lower than our previous estimate of USD33bn.
  • Considering current oil prices, any reasonable additional import cuts may be insufficient to cover the financing gap, in our view. At the oil price that the futures curve is pricing in (USD/b32), the government would need to use more than 90% of oil exports to make debt payments if we include market, bilateral, commercial, and Chinese Fund obligations.
  • The authorities keep reiterating their willingness to pay. However, their position seems to indicate a lack of appreciation of the magnitude and roots of the critical situation that the Venezuelan economy is facing, which may increase the risk of a disorderly credit event.
  • The government could still make the February payment using its available assets; however, they are insufficient to finance the gap of nearly USD30bn that Venezuela could face in 2016, considering our commodities team’s estimate of Brent at USD/b37, which is above what the oil future curve is pricing in (USD/b 32).
  • Inaction has been costly for Venezuela. Although GDP growth figures were better than expected, they confirm that the country is in a severe recession, with an accumulated contraction of approximately 16% in the past two years, and considering the contraction that we expect in 2016, the country could lose almost one quarter of its GDP.
  • Inflation had reached 141.5% by the end of Q3 2015, but is likely to have continued to accelerate in Q4, possibly exceeding 200% as we expected, showing the effects of monetization of the fiscal deficit.

Some more details, first on the lack of disposable assets to face the oil price collapse

After more than a year without publishing official data for the main economic indicators, the Central Bank of Venezuela (BCV) finally released the figures. The results are mixed. While activity indicators suggest that the economy’s contraction could have been smaller than we and the consensus expected, the external sector posted worse-than-expected results. The combination of lower-than-expected exports and higher-than-expected imports led to a larger-than-expected current account deficit. To finance this deficit, the public sector has been forced to liquidate more assets, which, in our view, leaves it with less than it would need to finance the deficit that it faces for 2016.


There have been important methodological changes in the way the official data are presented. In the case of the balance of payments, there is a reclassification of transactions that had previously been reported as capital outflows and seem to have been moved to imports of either goods or services. As a result, previous years’ current account balances have changed significantly (as a reference, the 2012 current account declined from USD11bn to just USD2.6bn). We believe that was mainly due to public sector trade transactions such as the “services” provided by Cuba under the energy agreements or imports of military equipment and capital goods from Russia, which previously were not considered imports. In addition, the exports show a balance for 2014/15 that is lower than PDVSA oil export figures suggest (circa 6% lower). A possible explanation for this could be that BCV figures are showing net exports, discounting crude imports. In the prices figures, there are important changes in weights of the different CPI components, particularly those that have increased the most (food). On several occasions, we contrasted official Venezuelan figures with other sources of information, but we have not found large inconsistencies. The differences have been explained mainly by accounting methods – for example, in oil exports, the type of crudes and products that are considered. Nonetheless, in the past, the market has been skeptical about the credibility of the official information, and these changes without a clear explanation increase the concerns.



BCV figures suggest that the government’s FX allocations to the private sector through the different mechanism (CENCOEX, SICAD, SIMADI) covered around half of the total private sector imports of goods and services. This could be an important factor when oil prices recover because it could give the government additional room, cutting FX allocations with a less than proportional effect in terms of imports. However, considering current oil prices, any reasonable import cut seems likely to be insufficient to cover the financing gap. Public sector external assets would have to decline below what we consider minimum operational levels. At the oil price that the futures curve is pricing in (USD/b32), the government would need to use more than 90% of the oil exports to make debt payments if we include market, bilateral, commercial, and Chinese Fund obligations (Figure 3). After two years of inaction, with depleting external assets and the recent decline in oil prices, a credit event in 2016 may be becoming hard to avoid, in our view.

In other words, a default is coming in 2016, which may explain Maduro's increasingly more panicked pleas to OPEC to cut production, pleas which fall on deaf ears.

Who is to blame for the country's imminent bankruptcy? Well, the government of course, although in all honesty Maduro's regime has not dony anything different from every other "developed" regime in the past 6 years, which instead of undertaking difficult fiscal reform and structural changes, merely kicked the can hoping things would get better.

They didn't, and now Venezuela has to pay the piper.

Inaction has been costly

In addition to the weaker external position of the country, the rest of the economic indicators show a strong deterioration. The government has avoided an orthodox adjustment and has preferred to implement quantitative restrictions. The results indicate that the authorities’ inaction in tackling the large distortions in the economy has been costly for the country. Although GDP growth figures were better than expected, they confirmed that Venezuela is in a severe recession. GDP fell 4.5% in the first three-quarters of the year, but considering its trend and tightening of controls by the government, the whole-year contraction could have been 5.8%, with an accumulated contraction of approximately 16% in the past two years, and considering the contraction expected in 2016, it could lose almost one quarter of its GDP.



Inflation had reached 141.5% by the end of Q3 2015, but it is likely to have continued to accelerate in Q4, possibly exceeding 200% as we expect, showing the effects of monetization of the fiscal deficit.


Although these inflation figures are historical, we believe they underestimate real inflation. In fact, since June 2014, the central bank has modified the method used to calculate the inflation rate, changing the weights of different goods and services that make up the consumer price index. Curiously, the new weighting system reduced the effect on general inflation of some groups such as food, alcoholic beverages, restaurants, and hotels, characterized by a higher inflation rate than the average, and increased the weights of rents and telecommunications groups, characterized by lower inflation rates associated with strict price controls or a heavy market share by state companies.


As a consequence of these reforms, the official inflation rate was 68.5% in 2014, instead of 76% using the previous method. In 2015, the gap from using the different methods is even larger. Consider the inflation number on a year-on-year basis for all sectors, inflation would have been187.9% instead of 141.5%. For the first nine months of 2015, using the new weights, the BCV indicated that inflation reached 108.7%, but with the old weights, inflation would have been at 144.1%. Following this trend, we expect that the official inflation rate could close 2015 at 210.4%, more than double the highest rate in Venezuelan history, but using the previous weights, inflation could have been 290.7%. Such high inflation has a strong detrimental effect not only on real salaries, but also on income distribution, as the lowest income part of the population tends to have fewer alternatives to protect against inflation. This could  increase social and political risks, making the current equilibrium increasingly unstable.

Translation: first default, then revolution.

Which is good news for those who buy CDS. Our only hope for those who have held so far is that the counterparty you will have to novate with will still be around once the sparks fly, because once this first OPEC member goes bankrupt, things will start moving very fast.

Finally, for all those who are praying for an oil bounce, your day may be near, because nothing will send the price of crude soaring quite as fast as one entire OPEC nation suddenly entering a death spiral of chaos.

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Polymarkos's picture

But...but...but, soshalizm works! The Swedes say so! Obama says so! Bernie Sanders says so! How COULD This happen!!??

Soul Glow's picture

It's not just socialism - which I understand doesn't work - it is all government.  WHen any form of government begins to dictate the economic terms of the society the fabric of the society breaks down.

greenskeeper carl's picture

ya, the fascism thing isn't working too well in the US and europe. Funny though, they say venezuela has "passed the point of no return". Is there a single modern nation that hasn't? That implies there is a practical solution to the US's debt woes. There isn't. And this won't neccessarily be bullish for oil if one OPEC nation goes tits up. The government there knows where this leads, and will become increasingly authoritarian as the fiscal situation worsens. Whatever group manages to cling to power will be pumping and selling as much oil as they can for revenue. They have no other option, no matter what the price of oil is.

Money Counterfeiter's picture

Hookers and blow wholesale for the bankers.  Zionist celebrating.  More cheap shit, starvation, civil war, death.

Father Thyme's picture

Must have run out of other peoples' money.

Richard Chesler's picture

Ugly maduro,

one takes the mustache away,

looks like Hillary.


Freddie's picture

The problem is we call them this label or that label but usually they are all similiar thugs.

The non-Christian Bolsheviks were Red Sheild and other thugs like the Nazis.  Usually all these thugs are controlled by looting banksters.

They are elite thugs who want to be in control and treat the masses like shit.  Call it socialism, capitalism, facism, crony capitalism, marxism.

There has to be checks and balances.  The Constitution in the USA was designed for that but it is a big joke.  It went to bankster thug shit all the way back to Andrew Jackson 7th Presidnet who fought central banks.  It may have been even earlier with Alexander Hamilton.

rickowens's picture

check out Hamilton, in theatres now!

CheapBastard's picture

The wealthy [and smart] Venezuelans moved to Miami with their money a few years ago, buying up those 3 bedroom, $1.8 million condos and stuffing their usa bank accounts with lots of Loot. It's all the rage now that usa is #1 offshore money laundering destination for these as well as many Asian countries from what I read. The doj is too busy shipping guns to drug gangs south of the border, investigating police departments or indicting soccer officials.

wet_nurse's picture

Most Christians I know support the US Babylon system. Just sayin 

wet_nurse's picture

To the downvoters,

Don't kill the messenger. I'm a Christian too. Usury is banned in God's Word.

Atheist can down vote me, not fellow "Christians"

Spiritof42's picture

The government there knows where this leads, and will become increasingly authoritarian as the fiscal situation worsens. 

Tragically, that's why Trump is so popular. 

Soul Glow's picture

What's most upsetting is that the people of Venezuela, and for that matter the people all over the world, don't stand up against their governments that lead them down the path of total economic catastrophe.  Here in America the poor - all minorities and many poor whites - love Obama for reasons such as food stamps and wellfare, but they can't figure out Obama is merely giving them crumbs to give the banks the loaves of bread.

Nothing will change until people rise up, and that includes after the collapse of the financial markets.  Even if the markets break people will still need to stand up or once again the PTB will just put them in their place, feed them crumbs, and treat them as slaves.  Until then poor people are fucked.

centerline's picture

Poor people love shiney things.  Crumbs are ok.  They don't know the difference.  Just a matter of keeping the crumbs coming - and dreams of shiney things.  Just can't interrupt the flow of crumbs and shiney things.

Niall Of The Nine Hostages's picture

In the real world, the people never rise up. They're usually too busy trying to keep body and soul together to find the time. With very few exceptions, even the worst governments are usually overthrown by foreign armies or disgruntled elites, not the "people." You stay in power by keeping your army and your elites well fed and by not starting wars you aren't positive you can win. As long as the tax payments keep coming you can starve your people no problem.

The Khmer Rouge starved or murdered a quarter of Cambodia's people in four years. In the end it fell to the Vietnamese army to send the Khmer Rouge packing. Hungry people don't have the energy to revolt.

City_Of_Champyinz's picture

Good, fuck that 8th grade dropout former bus driver socialist douchebag and the horse he confiscated from an entrepreneur that he rode into town on.  Assholes.

pashley1411's picture

At least Venezula should be exporting better looking refugees than Syria.

BeansMcGreens's picture

And when they talk amoung themselves my roofing foreman can tell me what they are saying.

Niall Of The Nine Hostages's picture

Just steer clear of any called Matilda. They'll take your money and they'll run.

CheapBastard's picture

You can say that again. Those South American babes would be a very precious addition to American GDP and add alot to our own culture.

NoDebt's picture

<NoDebt stands in front of vacant office building, mouth hanging slack, a freknd sees him and engages him in conversation.>

"What's wrong ND?"  NoDebt hates when people call him by his initials, but he's obviously preoccupied with bigger issues.

"It's gone."  His skin takes on a blanched pallor.

"What?  What's gone?"  His friend notes this is odd behavior, even by ND standards.

"The insurance company.  I mean... the CDS company."

"Insurance?  CDS?  What are you talking about."

"The company that promised to pay me if my Venezuelan bonds defaulted.  It's gone."


"Yes, GONE.  It's fucking GONE.  It was right fucking here."  NoDebt motions towards the now-vacant lobby of the building.  "I was here just last week and there were more than 200 people in this building.  This is where they were.  This is where the company was that sold me my Venezuela CDSs used to be.  AND THEY'RE FUCKING GONE!"

"Right here?  This building?"

"Yes, goddamit!  Right fucking here.  In this building.  They were RIGHT. FUCKING. HERE!"

"Where do you think they went?"

"How the fuck should I know?  Away.  Somewhere.  Who the fuck knows, but they're sure as shit not here any more."


centerline's picture

Priceless ND (I mean NoDebt - my bad - short attention span thing - sorry).


edit:  noticed I stumbled onto a joke.  "Priceless".  lol.  Guess I used my luck for the day.

greenskeeper carl's picture

Thats pretty good, ND... a lot of what you describe will probably happen. I think a lot of people just think they are really nimble, and will somehow be able to get their profits out quick, before "it" really happens. Most fo them will be wrong.


Betting on collapse/disaster is a funny thing. Even if you are right, you won't neccessarily get your money because the entity that is supposed to pay you doesn't have the money, either. Or just plain ceases to exist.

Jstanley011's picture

Well a socialist paradise wouldn't be much of a paradise if it didn't suck a few capitalist pigs down with it after it quit circling the drain, now would it.

Niall Of The Nine Hostages's picture

Maduro, you have outlived your usefulness to your masters, just as Allende did before you.

Allende was a much smarter man than you. Nobody's expecting you to re-do his homework. Just remember what he did in a similar situation, and go do the same. You'll do all concerned a favour.

Do it in the bathroom. New carpets cost money.


Ms No's picture

Last time I saw comments from Maduro he was groveling under the big ugly pecker of Goldman banking power.  He said something to the effect that he would pay back outside interests at all costs, his people and country be damned.  He swallowed that thing shamelessly, the guy obviously has no gag reflex. 

Niall Of The Nine Hostages's picture

Oh, they'll get paid. They'll get Venezuela's oil at a fraction of fair value and make a killing. If Maduro thinks this will save him, he's even dumber than I thought.

Give Allende this, he died with a lot more dignity.

Arthur Two Sheds Jackson's picture

Dog shit wrapped in cat shit.

Bwana's picture

Well, since the time of Sparta socialism has always worked right up to the point where the government has taken everything the people have and still needs more. The number of years socialism lasts depends on the wealth of the country before socialism. Everybody knows it is much easier to spend money than to save it and socialistic governments spend money with total abandon.

Secret Weapon's picture

I truly feel sorry for the people of Venezuela.  Their families are in for some hard times. 

Stormtrooper's picture

ditto for families in the US.

Ms No's picture

Word.  They were in deep shit when oil hit 80 a barrel and were in desperate need of medical supplies, which they may obtained through barter.  They have entered the fifth stage of hell by now. 

Bankers and the socialist governments that feed them are awesome.

InnVestuhrr's picture

I sold my Venezuela government bonds at 140% of par.

Thank you socialist parasite scum for the delicious capitalist profits.

Now you can die.

tarabel's picture



The thing that bothers me most about Venezuela is that their national soccer team obviously sucks.

Ergo, we're stuck looking at pictures of Ralph Kramdenez all the time.


Ms No's picture

There is a very interesting chess match being waged over Venezuela and I haven't been keeping up on it as much as I would like.  Last I saw the banks seemed to have Venezuela right where they wanted them but then China got in the way. 

This situation is interesting in the context of oil price wars, if that is in fact what is happening.  At this time last year Venezuela already owed China 50 billion accrued by their attempts to fight off the vultures.  Venezuela's resources are the big prize of course, China needs them and the banks want control of them. 

The collapse of oil seems to have been the result of both the misallocation of funds and China's collapse.  I am not sure where things stand as far as who will get the prize and who will benefit off of the oil price collapse.  Benefit may indicate a motive and thus evidence supporting the theory of a strategic oil price war.  It still seems like the collapse was intended.  It's not like TPTB couldn't see what was coming down the pipe as a result of their actions.  They also knew that China couldn't keep growing at 10% a year.     

Socialism and debt are a weapon as we have seen in our own country.  When governments loan themselves into the point of no return it is a crime against their people and there is some serious suffering going on in Venezuela right now.  They were also under siege.  We probably shouldn't judge too much because we will get our chance. 

am87's picture

THE goal of socialism under kirchner was famine. 

am87's picture

PlEase lets talk about the contagion! Brazil under the PT is just as wrecked.  It's a modern soviet union.  ROUSSEFF,  Levy,  Kiciloff,  Topolansky,  Timerman.  All hate capitalism,  all hate catholicism... Thats why uruguay argentina and brazil were tied to this sinking ship. LONG: UFPIX

Pool Shark's picture



You can short Brazil directly; with leverage:


(Even better performance than UFPIX...)

am87's picture

You are double llong bzq?  Brazils central bank fked bzq in september.. It still hasnt recovered whereas ewz is 3$ below where it was at that bottom.  It was the week of that downgrade.   Ewz at 52 week lows.. Bzq at 52week high?  No,  thats what i hate.  But dilma is a mad terrorist bitch.  She gives speeches inciting violence now and is basically no longer leading,  hasnt been for a while.   0 support of educated brazilians... Since basically her entire term. By the way chile is screwed,  macri too and colombian shares will be toilwt paper when chaos can finally be used to describe brazil venezuela and argentina... Msm loves macri but look at. The apocalyptic chavista opposution and him with no dictator powers to shut them up

am87's picture

Dilmas father was exiled for being marxist and jewish... Pepe mujicas wife was tortured for being communist and jewish.  Cristina fernandez foreign minister timerman was too... Dont ig ore the sovietism and revenge with these collapsing models. 

Boraboy's picture

They just need to find the hidden nazi gold and platinum.

theusername's picture

Venezuela is not socialist. It's social democratic. So-called socialists today have no balls. The rich remain rich. But socialism gets the blame like always. Martin "Nostradamus" Armstrong even called Obama a socialist, I had to laugh loud, Obama, the far-right neoliberal, really?? And Corbyn is apparently a communist. Social democracy doesn't work. Socialism cannot co-exist with capitalism.

onmail1's picture

Why oil rich, resource rich nations are failing

u ppl have short sight

leave ur fixation to dollar

becuz cabal dollar lords will always beat u up

rather join BRICS regime

sell in BRICS currencies

buy fron BRICS

BRICS have everything

resources, ppl, tech etc etc

why run after western regime

am87's picture

Brics no work because putin and dilma rob all the money.   Mucho dinero! 

Atomizer's picture

Someone needs to fetch me two sheets of toilet paper to wipe my eyes of laughter. 

Venezuela Reaches the Final Stage of Socialism: No Toilet Paper ...

Al Tinfoil's picture

Venezuelans, Brazilians, Chileans, and Argentinians will soon be learning how to speak Chinese, while some Chinese will be learning Portugese and Spanish.

By the way, didn't banks in Portugal and Spain have big investments in South America, which they are being forced to write down?  Bullish!

More Awesomeness!