Venezuela may pay dearly for leaving IMF

President Hugo Chávez strongly rejected the possibility that withdrawal from the International Monetary Fund may result in negative consequences for Venezuela.

Additionally, Chávez warned that "a spokesman for the White House threatened us by saying that Venezuela is going to suffer. But I say you (the United States) are going to suffer indeed! The peoples have suffered because of the policies of the International Monetary Fund (IMF) and the World Bank (WB), because of their genocidal policies!"

However, the forecasts made by investment banks show otherwise. Santander Investment prepared a report warning that withdrawal from IFM and WB could involve a technical default, i.e. a change in the terms of Venezuelan debt bonds.

Consequently, investors could demand immediate repayment of Venezuelan debt titles, at 100 percent of their face value.

Global Bonds expiring in 2010, 2016 and 2020 are currently traded below 100 percent. Therefore, immediate repayment could amount to USD 4.5 billion.

Alberto Bernal, an analyst with Bear Stearn, told Reuters that "in the Venezuelan case, all the debt titles we have been able to review include a very clear clause on acceleration of maturity upon debt default."

He explained that, for instance, under the Global Bond expiring in 2034, "should Venezuela stop being a member of IMF and being eligible to use IMF general funds, this would result into an event of default."

RBC Capital Markets advised customers to cut their exposure to Venezuelan bonds as a precautionary move, for "if the country pulls out of the Fund, it seems that all of the country's Global Bonds could be subject to accelerated maturity, as provided under default clauses."

In addition to the potential impact of Venezuela's withdrawal from IMF in terms of money, investment banks started to describe their customers, holders of Venezuelan bonds, highly uncertain picture.

Goldman Sachs, in a phone interview, warned that everything points to a downgrade of Venezuelan debt rating.

Red lights are on. International reserves plunged 39 percent in January 2- May 2, from USD 36.5 billion to USD 26.3 billion.

Simultaneously, the government has to disburse USD 1.6 billion and USD 900 million to take over telecoms firm Cantv and power utility La Electricidad de Caracas. Additionally, President Chávez has threatened to nationalize both steel industry Sincor and private banks.

According to Richard Francis, credit analyst of Standard & Poor's, the world's foremost provider of independent credit ratings, tightening control over the operations of the Orinoco oil belt shows that "future credit ratings of Venezuela will depend increasingly on the ability of (state-run oil holding Petróleos de Venezuela) Pdvsa to implement its ambitious investment plans. Failure to expand the output and widen up the refining area and other sectors, such as natural gas, could eventually press down Venezuela's sovereign rating."

Negative news has prevailed over shining oil prices, the basic indicator of the Venezuelan risk, and the national bonds show a downward trend.

The decline of Global Bonds expiring in 2027 accounted for 1.87 points; 2.37 points for the Pdvsa note expiring in 2037, and 1.75 points for the Global bonds expiring in 2016.

Minister of Finance Rodrigo Cabezas has tried unsuccessfully to contain the distress. He has assured investors that Venezuela's withdrawal from IMF and WB "will affect under no circumstances whatsoever the payment by the Republic of foreign liabilities."

Analysts fear that against a background of low oil prices, in the event of applying for lending, Venezuela will pay dearly for leaving the IMF.

vsalmeron@eluniversal.com

Translated by Conchita Delgado