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Venezuela 'ripe' for default on foreign debt forecast Reinhart and Rogoff

Thursday, October 16th 2014 - 07:30 UTC
Full article 28 comments
The world-renowned economists wrote that the Venezuelan economy had been so badly mismanaged that GDP per capita was two per cent below 1970 levels The world-renowned economists wrote that the Venezuelan economy had been so badly mismanaged that GDP per capita was two per cent below 1970 levels

Venezuela will almost certainly default on its foreign debt, according to Harvard economists Carmen Reinhart and Kenneth Rogoff. They add that the beleaguered Latin American economy has already defaulted on “every conceivable kind of domestic debt”.

The world-renowned economists wrote that the Venezuelan economy had been so badly mismanaged by the populist government that GDP per capita was two per cent below 1970 levels despite a ten-fold increase oil prices.

Furthermore, Venezuela's debt is the riskiest on the world, yielding 15.42 percentage points, according to JPMorgan.

Writing in Project Syndicate, Reinhart and Rogoff said that given the president Nicolas Maduro administration is defaulting in numerous ways on its domestic residents already, “the historical cross-country probability of an external default is close to 100%”.

Venezuela has been running short of basic goods like toilet paper, soap and cooking oil for over a year. Strict currency controls, and a shortage of US dollars have hammered consumers' ability to get imported goods.

The warning comes after fellow Harvard economists Ricardo Hausmann and Miguel Angel Santos wrote that Venezuela should consider defaulting given its rapidly rising arrears to importers.

Venezuela's policies have fueled 63% annual inflation and crippled wages. Since President Maduro came to power 18 months ago, the poverty rate soared 32% at the end of last year from a record 25% in 2012, according to the National Statistics Institute.

In 2013, Venezuela recorded 25,000 murders, five times the amount seen in 1998. According to the Fraser Institute's Economic Freedom of the World Index, Venezuela now also ranks as the world's least economically free nation.
 

Top Comments

Disclaimer & comment rules
  • Troy Tempest

    What will happen when they Default?

    Will creditors just have to walk away?

    Oct 16th, 2014 - 08:03 am 0
  • The Chilean perspective

    1 Troy Tempest
    The debt is only about 80 billion, but the world banking system is in a weak state at the moment. The creditors may not cope so well. As for Venezuela it will be a nightmare for the people, looting, killings, hunger to name a few.

    Oct 16th, 2014 - 09:15 am 0
  • GALlamosa

    Might spell the end for PetroCarribe. Good news for us.

    Oct 16th, 2014 - 10:06 am 0
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