CARACAS, Venezuela -- As Venezuela racks up billions of dollars of arrears with importers that are fueling the worst shortages on record, one of the nation's top economists is questioning the government's decision to keep servicing its foreign bonds.
A "massive default on the country's import chain" is part of what has allowed the nation to keep paying its foreign bonds, Ricardo Hausmann, a former Venezuelan planning minister who is now director of the Center for International Development at Harvard University in Cambridge, Mass., said by phone from Boston.
"I find the moral choice odd," he said. "Normally governments declare that they have an inability to pay way before this point."
While Hausmann declined to say whether he's specifically recommending a default, he said he found "no moral grounds" for the government and state-owned oil company Petroleos de Venezuela to make $5.3 billion of bond payments due in October. With foreign reserves at an 11-year low and arrears to importers growing, Venezuelans are struggling to find everything from basic medicines to toilet paper. And prices are surging on the goods that they can buy, saddling the country with the world's highest inflation rate.
The nation's bonds are sinking as President Nicolas Maduro fails to stem the crisis. The extra yield investors demand to own Venezuelan sovereign bonds instead of U.S. Treasuries has jumped 1.92 percentage point in the past month to 12.3 percentage points, the highest since March, according to data compiled by JPMorgan Chase & Co. The spread is the highest in emerging markets.
Bonds slumped last week after Maduro removed Rafael Ramirez, the country's main economic policymaker, fueling concern the government may delay or scrap measures to ease the hemorrhaging of dollars, including a currency devaluation and an increase in gasoline prices.
Marcos Torres, the head of economy and finance at the central bank, didn't reply to an email seeking comment on Hausmann's statements. An official at the Information Ministry declined to comment when reached over the weekend.
Hausmann has been a public figure in Venezuela for more than two decades, having served as planning minister in the government that the late Hugo Chavez, Maduro's predecessor and mentor. Hausmann then joined the Inter-American Development Bank, where he was chief economist, before leaving for Harvard in 2000.
In a piece published Friday on Project Syndicate that was titled "Should Venezuela Default?", Hausmann and Miguel Angel Santos, a Harvard research fellow, highlighted how the import arrears and shortages are imposing hardship on Venezuelans.
"The fact that his administration has chosen to default on 30 million Venezuelans, rather than on Wall Street, is not a sign of its moral rectitude," they wrote. "It is a signal of its moral bankruptcy."
Francisco Rodriguez, an economist at Bank of America, said that defaulting now would be a mistake. Distortions created by the government's price and foreign-exchange controls, rather than a lack of hard currency, are causing the shortages, he said.
"Venezuela has more than enough foreign currency earnings to both ensure an adequate supply of imports and meet its foreign obligations," Rodriguez said in a Friday note to clients. "Current scarcity levels are caused not by the need to service on the country's external debt but by the massive distortions to relative prices that have resulted from the country's tight price and exchange controls. Resolving these relative price distortions, rather than defaulting, is the key to restoring Venezuela's macroeconomic health."
Arrears to importers may be as much as $13 billion, Morgan Stanley said in June, an amount equal to more than half the country's foreign reserves.
Business on 09/09/2014