Venezuela's Economic Crisis: Issues for Congress By Congressional Research Service Cover Image
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Venezuela is facing a political crisis under the authoritarian rule of President Nicol's Maduro, who appears to have continued to consolidate power over the political opposition in recent months. Underpinning Venezuela's political crisis is an economic crisis. Venezuela is a major oil producer and exporter, and the 2014 crash in oil prices, combined with years of economic mismanagement, hit Venezuela's economy hard. Venezuela's economy has contracted by 35% since 2013, a larger contraction than experienced by the United States during the Great Depression. Venezuela is struggling with inflation, shortages of food and medicine, substantial budget deficits, and deteriorating living conditions with significant humanitarian consequences. In response to the Maduro regime's increasingly undemocratic actions, the Trump Administration imposed sanctions restricting Venezuela's access to U.S. financial markets in August 2017, increasing fiscal pressure on the government. In November 2017, the Venezuelan government announced it would seek to restructure its debt. The government and state-oil company, Petr leos de Venezuela, S.A. (PdVSA), subsequently missed key bond payments, leading credit rating agencies to issue default notices. Debt restructuring is expected to be a long and complex process, and it is unclear whether Venezuela will make coming debt repayments. The outlook for the economy is bleak; the Economist Intelligence Unit forecasts the Venezuelan economy will contract by 11.9% in 2018. Implications for U.S. Economic Interests The political crisis in Venezuela and low oil prices have contributed to a contraction in U.S.-Venezuela trade. Venezuela is a relatively minor trading partner of the United States; the contraction in bilateral trade is more consequential for Venezuela, for which the United States is its largest trading partner. In response to the political and economic instability, several large U.S. companies have left Venezuela or curtailed operations there. U.S. investors holding Venezuelan and PdVSA bonds could face substantial losses if Venezuela suspends payment or seeks an aggressive restructuring of its debt. Bondholders are in the early stages of organizing to enter restructuring negotiations and/or pursue legal challenges against the Venezuelan government. Venezuelan dollar-denominated bonds were issued under New York law, and bondholder lawsuits seeking repayment would take place in U.S. courts. Legal challenges could result in the seizure of Venezuela's assets in the United States, such as CITGO (whose parent company is PdVSA), oil exports, and cash payments for oil exports. Venezuela's precarious fiscal position also raises concerns for U.S. energy security. In 2016, Venezuela's state oil company PdVSA secured a loan from the Russian state-oil company Rosneft. PdVSA used 49.9% of its shares in CITGO as collateral. If PdVSA defaults on its Rosneft loan, it is not clear whether Venezuela's portion of CITGO ownership would be transferred to Rosneft. Reportedly, Rosneft is negotiating to swap its collateral in CITGO for other PdVSA assets. Looking Ahead Congress is considering providing humanitarian aid to Venezuela through nongovernmental organizations. If the Maduro government or a new government in Venezuela engages in a significant reorientation of policy, U.S. policymakers may be interested in providing broader economic support to rebuild Venezuela's economy. Policymakers might explore how the international community, particularly the International Monetary Fund (IMF), could provide an international financial assistance package, and whether debt incurred by the National Constituent Assembly, widely viewed as an illegitimate legislature, should be enforced. If the Maduro regime stays in power and does not reorient its policies, the United States may revisit its policies and potentially pursue harsher sanctions.

Product Details
ISBN: 9781983825835
ISBN-10: 1983825832
Publisher: Createspace Independent Publishing Platform
Publication Date: January 13th, 2018
Pages: 24
Language: English