REGIONAL COMMITTEES: LATIN AMERICA
Venezuela Debt Restructuring Prospects Post-Maduro: An Interview with Steven T. Kargman
For this edition of The DIIIGEST, Diana Rivera Andrade, co-chair of the III Latin America Regional Committee, interviews Steven T. Kargman, a founding member of the III and this year’ s recipient of the III Founder’ s Award. Steven has published extensively and spoken widely on Venezuelan debt restructuring issues in recent years.
The removal of former Venezuelan leader Nicolás Maduro from power earlier this year by US military forces has raised expectations in some quarters that a debt restructuring for Venezuela may finally be on the horizon. But as Steven T. Kargman discusses in this interview by Diana Rivera conducted in July, a future Venezuelan debt restructuring will hardly be a straightforward or easy process.
Q: You have argued that Venezuela’ s sovereign debt restructuring cannot be viewed in isolation. Why is that?
A: In my view, Venezuela’ s debt restructuring cannot be treated as a narrow standalone financial exercise. The country is confronting four 18 interlocking crises: a humanitarian crisis, a profound economic collapse, an unsustainable external debt burden estimated at more than $ 150 billion( and possibly approaching $ 240 billion, according to a recent Financial Times report), and a crisis of political legitimacy. These crises reinforce one another, and none can be resolved on its own.
Debt restructuring must therefore be understood as one part of a broader national recovery strategy in which debt sustainability and economic reconstruction are inextricably linked. Venezuela cannot rebuild its economy while carrying a debt burden that, given Venezuela’ s heavy ongoing debt‐service obligations, severely constrains the fiscal space available to the government. Moreover, Venezuela’ s long-standing debt defaults block the country’ s access to capital markets at a time when foreign capital will be important to the country’ s economic reconstruction. At the same time, no restructuring will remain viable over time unless the Venezuelan economy can generate the resources needed to service restructured debt obligations.
Addressing Venezuela’ s profound humanitarian challenges is equally important as part of a national recovery strategy. A country cannot restore its productive capacity if, as is the case in Venezuela today, there exists widespread poverty, a dysfunctional healthcare system, severe shortages of medicines, and chronic malnutrition. This challenge is compounded by the loss of an estimated eight million Venezuelans who have sought refuge abroad. Without confronting these problems, Venezuela will lack the human capital needed for long‐term growth. Restoring the political legitimacy of Venezuela’ s government is also an indispensable element of a national recovery strategy. It’ s fair to say that Venezuela does not currently have a government that is broadly regarded as legitimate and credible, but such a government will be essential for earning the confidence of both the Venezuelan people and the international community. Public support will be needed for the sacrifices that may be required in any restructuring and economic transition, and international support will be necessary to mobilize the financial, technical, and humanitarian assistance required for national recovery. In short, a legitimate and credible Venezuelan government is crucial to both a debt restructuring and the broader recovery effort.
Q: Why will a Venezuelan debt restructuring be so difficult and so challenging?
A: A Venezuelan restructuring will be exceptionally difficult because it combines a massive debt burden with a fragmented creditor body, a
18