Oil price more bad news for Venezuela

Drop comes as experts warn country close to defaulting on foreign bonds

CARACAS, Venezuela — Since becoming Venezuela’s president 18 months ago, Nicolas Maduro has contended with chronic shortages of everything from toothpaste to medicine, the world’s fastest inflation and sinking foreign reserves.

His predicament is about to get worse. Prices for Venezuela’s oil, which accounts for 95 percent of the nation’s exports, are tumbling to a four-year low and threatening to choke off the export dollars the country needs to pay its debts.

“It’s a direct hit on tax revenues,” Lars Christensen, chief emerging-markets economist at Danske Bank, said by telephone from Copenhagen. “There is nothing good to say about the state of Venezuela’s economy, and this isn’t helping.”

The slump in oil prices comes as Harvard University economists Carmen Reinhart and Kenneth Rogoff warned this week that Venezuela is almost certain to default on its foreign-currency bonds. Deepening concern the South American country will renege on its debt payments triggered a sell-off in its $4 billion benchmark bonds due 2027.

Venezuela’s Information Ministry didn’t respond to an email seeking comment, and a media official for the state oil producer Petroleos de Venezuela declined to comment on the potential effect of falling oil prices.

Venezuela has enough resources in bolivars and foreign currency to meet all of its obligations, Maduro said on state television Oct. 9.

A day later, he gave instructions to ask for an emergency meeting of the Organization of Petroleum Exporting Countries, Venezuela’s foreign ministry said on its Twitter account.

The price of Venezuela’s oil basket — an average price for several grades of crude — has declined 18 percent from a nine-month high in June to $82.72 per barrel, the lowest since December 2010. The decline is in line with the drop in benchmark Brent crude prices sparked by a combination of a slowing global economy and rising world output.

“This is a huge shock for Venezuela more than for any other country,” said Alberto Ramos, chief Latin American economist at Goldman Sachs Group. “They have to either adjust spending or print more money, and if they print more money, that means their hyperinflation gets even more hyper. Inflation is already running at a very high level and completely unanchored, so this is like a wildfire.”

Consumer prices rose 63 percent in the 12 months through August, the most among 85 countries tracked by Bloomberg. Venezuela had a budget deficit worth 16.9 percent of gross domestic product last year.

The drop in crude prices will reduce government revenue in Venezuela by about $10 billion a year, according to Francisco Rodriguez, an economist at Bank of America

Oil taxes accounted for about 30 percent of central government revenue last year, below the 41 percent five-year average. Petroleos de Venezuela’s operating surplus accounted for 17 percent of revenue from governmentowned companies, compared with an average of 26 percent over the last five years, according to a regulatory filing.

The country’s dwindling cash and billions of dollars in arrears prompted Reinhart and Rogoff to suggest Venezuela is better off defaulting.