In addition to being a hyperinflating, socialist banana republic with a devastated economy Venezuela has another problem: debt, of which it has some $70 billion with $9.5 billion due this year. It also has $15.4 billion in foreign reserves, of which two-thirds or around $10 billion, are held in gold bars, which as we said last week, "limits President Nicolas Maduro's government's ability to quickly mobilize hard currency for imports or debt service."
Furthermore, with Venezuela oil prices in the low $20s, it is unclear if PDVSA can even cover its costs, let alone save up cash for debt repayment.
And while Venezuela recently enacted another gold swap this time with Deutsche Bank to allow it to monetize its gold, it remains to be seen if the local population which has so far taken all the punishments unleashed by the Maduro reign stoically, will stand idly by as the ruling regime quietly liquidates its last remaining assets.
But while Venezuela's upcoming default is not exactly news to anyone, the question remains "when" will it happen. Yes, the time is drawing close, but how close?
Today we show one attempt at an answer, coming morbidly enough, from the very bank which will be holding Venezuela's gold as part of the country's gold swap - Deutsche Bank.
This is what DB said:
Keep an eye on EM credit: Venezuela’s CDS spread has risen above 9,500bps, like Greece’s in 2011 and our EM economists worry that a “Venezuela bond default has moved closer”. Venezuela has only about $70bn of external debt, according to the BIS, but a default would increase pressure on other commodity exporters, further adding to the general market stress
The bottom line: "Venezuela’s CDS spread is now at the same level as Greece’s three months before its default" which is the strongest hint yet on how long the troubled socialist paradise has left.
Visually:
So is the reason why Deutsche Bank rushed to do Venezuela's gold swap, something which would lead to the German bank almost certainly ending up in possession of its physical gold in case of a sovereign bankruptcy, the result of this prediction for a T-minus 90 days before Venezuela's default? Find out some time in mid May.
As for another important tangent, if Venezuela indeed defaults, the question then becomes: what will happen to its oil production - will the successor (military) regime pump more or less. That is a question the oil bulls (and bears) better answer quick.