Chinese officials are reportedly looking for guarantees from both Venezuelan and U.S. authorities to ensure that the substantial loans China has given to Venezuela will be safeguarded, even in the event of the fall of Nicolás Maduro, the despotic leader backed by China.
A spokesperson for the Chinese embassy in the U.S. stated in an email to the press, “Cooperation between China and Venezuela is based on the principles of international law and domestic laws of both nations. China will take necessary actions to uphold its legitimate rights and interests in Venezuela.”
bloomberg newsnoticed that the Maduro government has reportedly ceased publishing public debt statistics since the state oil company PDVSA defaulted on its debt obligations in 2017.
According to Bloomberg News, “Analysts estimate the outstanding debt to be between $10 billion and $20 billion. China is expected to seek a role in any future debt restructuring involving Venezuela.”
As reported by Reutersquotation, there have been indications of much larger figures, claiming around $60 billion in defaulted bonds, in addition to “external debt, including PDVSA debt, bilateral loans, and arbitration awards.”
The International Monetary Fund estimates that Venezuela’s nominal GDP will be approximately $82.8 billion by 2025, indicating a debt-to-GDP ratio between 180% and 200%, noted Reuters.
China previously supported President Maduro through an “oil loan” program that allowed him to borrow significant amounts from Chinese banks, repaying these loans with oil sold at deep discounts. However, as Maduro’s government struggles and Venezuela’s oil production capacity declines, the true extent of these loans remains uncertain.
Maduro, out of a sense of pride, neglected to offer any opportunities for renegotiation, opting not to dilute his autocratic grip by engaging with the National Assembly. Untangling the economic chaos he left behind will be a daunting task, particularly since many of his financial maneuvers were quite likely unconstitutional.
Economist last week pointed out that the perplexing disarray of debt left by Maduro might actually hold a silver lining for ambitious investors, as nearly ten years of defaults have rendered Venezuelan debt so inexpensive that the idea of recovering even a fraction of it is appealing.
Resolving this financial quagmire will necessitate negotiations with three primary creditor groups: private bondholders, foreign oil companies whose assets were seized by Hugo Chávez, and China, which may be anxious about U.S. priorities favoring its oil companies over its own interests.
Conversely, the Atlantic Councilexpressed concern that China might utilize its strong influence over Venezuela’s oil sector to obstruct debt restructuring efforts.
The Atlantic Council advised that the International Monetary Fund (IMF) should impose conditions that prevent preferential treatment for powerful creditors, especially China.
“Until recently, traditional IMF rules allowed Beijing to effectively veto Venezuela’s plan by refusing prior restructuring commitments and engaging in extended negotiations, which only worsened the economic situation,” the board noted.
The suggested approach is for the upcoming Venezuelan administration to invite China to partake in debt restructuring discussions alongside other creditors, which would equitably protect China’s legitimate interests.
If China declines, the United States might invoke the newly revised Loan for Official Arrears (LIOA) policy, compelling Venezuela to refrain from providing preferential treatment to official holdout creditors at the expense of corporate bondholders or other creditors, thereby diminishing China’s negotiating power.
