Venezuela launches debt restructuring in bid to end decade of default

Venezuela's interim government has announced it will begin a formal restructuring of the country's external public debt, including obligations tied to state oil company Petróleos de Venezuela S.A. (PDVSA), in what could rank among the largest sovereign debt workouts in history.

The Sectoral Vice Presidency for the Economy on May 13 said the process would be conducted in a "comprehensive and orderly" manner, with the dual aim of easing Venezuela's financial burden and supporting an economic recovery still in its early stages. No figures for the total obligations involved were disclosed in the statement.

Independent estimates put the scale of the challenge in stark relief. Accumulated liabilities spanning defaulted bonds, PDVSA obligations, bilateral loans, and international arbitration awards stand at between $150bn and $170bn, according to estimates cited by Reuters. The Central Bank of Venezuela has not published updated external debt data since 2018.

Government bonds due in 2034 rose to their highest level since 2014 following the announcement, while PDVSA notes climbed two cents on the dollar, according to Bloomberg.

The administration of Acting President Delcy Rodríguez, who assumed office after the capture of Nicolás Maduro on January 3 and has since won US recognition and President Donald Trump's repeated backing, blamed financial sanctions imposed from 2017 onward for Venezuela's inability to service its debt, arguing the restrictions severed the country's access to conventional financing and starved public investment in healthcare, education, electricity and infrastructure. The announcement came eight days after the US Treasury's Office of Foreign Assets Control issued General License 58, which authorises the hiring of legal, financial and consulting services in preparation for a restructuring, though it stops short of permitting direct creditor negotiations or debt settlement, and explicitly bars the participation of entities from Russia, Iran, China, North Korea and Cuba.

The government has appointed Centerview Partners as financial adviser, Reuters reported. Authorities said they plan to publish a macroeconomic framework and debt sustainability analysis in June to underpin eventual negotiations with bondholders. Officials said repayment terms would be calibrated to Venezuela's payment capacity without undermining recovery, and would cover all major external public sector liabilities.

The announcement drew cautious words from legal experts. "Venezuela does not have the necessary capacity to formally begin the debt renegotiation process, not only because of the sanctions, but also because there is still no clarity regarding the total amount of the public debt," lawyer José Ignacio Hernández told AFP. He added, however, that the move could help lay the groundwork for "an orderly and consensual renegotiation process."

The International Monetary Fund struck a similarly guarded note. Speaking at a press briefing on May 14, IMF spokesperson Julie Kozack confirmed that the institution had resumed regular discussions with Venezuelan authorities following the membership's April 16 decision to resume formal engagement with Caracas after a seven-year rupture. Those talks have so far focused on the production and provision of economic data, which Kozack described as a requirement under the Fund's articles of agreement. Caracas has not requested financing from the Washington-based lender, she said, adding that any such request would need to come formally from the authorities.

On the restructuring specifically, Kozack said the Fund was "aware of yesterday's announcement" but was still working to understand the details, and had not been involved in either the announcement or the preparation of the debt sustainability analysis. "Restoring fiscal and debt sustainability is obviously a very important priority for Venezuela," she said. "We do stand ready to support the authorities in this important step."

Kozack also outlined the IMF's conventional role in sovereign debt workouts: while the Fund does not participate directly in negotiations between a government and its creditors, most restructurings take place under the umbrella of a Fund programme, which provides the macroeconomic framework, including an assessment of the debt relief needed to restore sustainability. Venezuela has access to its Special Drawing Rights (valued at approximately $4.9bn) now that dealings have resumed, she added, without elaborating further.

Among the main creditor groups are distressed-debt funds, companies holding outstanding arbitration awards linked to forced nationalisations — including ConocoPhillips and Crystallex — and bilateral lenders such as China and Russia, which extended loans under both Hugo Chávez and Nicolás Maduro. If completed, the restructuring process could rank as one of the largest in history, surpassing Russia in 1998 and Argentina in 2001.