Venezuela to Tap Local Debt Market for First Time Since 2019
(Bloomberg) -- Venezuela approved the sale of government debt in the local market for the first time in five years, amid an effort to cover mounting spending and stabilize the exchange rate.
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President Nicolas Maduro authorized the issuance of as much as 20 billion bolivars (about $437 million at the official rate) of promissory notes and an undetermined amount of bonds, according to a decree published in the country’s official gazette dated Nov. 13 and made public this week. The instruments could be denominated in local or foreign currency.
Part of the issuance will be placed by local brokerages via the Caracas Stock Exchange, said the exchange’s President Horacio Velutini, adding that the sale is good news for the market. The rest could be issued through direct sales, auctions, or other mechanisms determined by the finance ministry, according to the decree.
Although authorities didn’t disclose the use of the funds, it comes as government spending is on the rise ahead of additional payments tied to the Christmas season. Expenses are expected to jump to $1.2 billion in December for a total of $17.5 billion this year, a 58% annual increase, according to a report Caracas-based financial analysis firm, Sintesis Financiera.
The Maduro administration also appears to be using the sale to absorb bolivars from the market, helping to bring down pressures on a widening exchange rate, said Wilhem Lopez, CEO of local brokerage Kairos Valores.
“It’s a decision to restrict liquidity so it doesn’t push the exchange market,” he said. “It could also work to pay year-end commitments.”
The gap between the official exchange rate and the black market rate has been widening since July’s presidential elections, which Maduro said he won despite evidence to the contrary from the opposition.
In the aftermath, Venezuelans have ditched bolivars for the safety of dollars, pushing the gap between the official and parallel rates wider. In response, the government let the official rate slide, a decision that contributes to inflation.
According to private estimates, the monthly inflation rate doubled between September and October. The central bank hasn’t published last month’s CPI data.
The government has been in default on overseas bonds since 2017 and owes more than $150 billion to foreign lenders, according to economist tallies.
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