96% Probability of Default Next Year...

from Bloomberg Business

Harvard University Professor Ricardo Hausmann last year questioned Venezuela’s decision to keep paying bondholders as the country sank deeper into crisis and suggested it stop honoring the debt.

Now, he’s saying Venezuela will have no choice but to default next year.

Hausmann’s comments come as a deepening collapse in oil prices and a shortage of dollars stoke concern Venezuela is fast running out of money to stay current on debt. The country’s bonds plunged last year after Hausmann, who served as Venezuelan planning minister after Hugo Chavez’s failed 1992 coup, raised the specter of default, saying he found “no moral grounds” for the government to pay debt at a time when Venezuelans were facing shortages of everything from basic medicine to toilet paper.

“The markets have been right in saying this is a completely unsustainable situation,” Hausmann, director of Harvard’s Center for International Development, said by phone from Madrid. “It’s not that the government will plan to default. I think they will just stumble into one. They may get over the October payments but nobody’s thinking they’ll get over the 2016 payments.”

Venezuela and its state oil company have about $5.6 billion in bond payments due in the last three months of this year and about $10 billion in 2016, according to Bank of America Corp. estimates.

Trading in credit-default swaps show an implied probability of default of 96 percent over the next five years, the highest in the world, CMA data show.