The socialist South American nation went into selective default after S&P Global Ratings confirmed it had missed two substantial bond payments.
Venezuela failed to make £152 million ($200 million) coupon payments for its global bonds due 2019 and 2024, which included a 30-day grace period.
President Nicolas Maduro summoned investors to Caracas on Monday to propose restructuring the massive debt, but failed to present a concrete plan of action.
Four more payments on multi-billion dollar loans are also overdue, but still fall within the 30-day-grace period. The payments total £320 million ($420 million).
S&P now gives Venezuela a 50 per cent chance of defaulting again in the next three months.
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The American financial company said in a statement: “On November 2, Venezuelan President Nicolas Maduro announced a government commission to restructure the sovereign’s and state-owned Petróleos de Venezuela S.A.’s (PDVSA) external debt obligations.
“The first meeting with bondholders was held on November 13, 2017, in Caracas.
“We would very likely consider any Venezuelan restructuring to be a distressed debt exchange and equivalent to default given the highly constrained external liquidity (see ‘Rating Implications Of Exchange Offers And Similar Restructurings, Update’).”
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Venezuela President Nicolas Maduro failed to draft a plant to restructure the massive debt
What does the default mean for Venezuela?
The biggest concern is the default will exacerbate Venezuela’s ongoing humanitarian crisis.
The country has been suffering from severe shortages of medicine, medical supplies and food since 2014, according to the Human Rights Watch.
More than 80 per cent of households in Venezuela live below the poverty line, and S&P reports a 11.7 per cent unemployment rate this year.
Because Venezuela has no money to pay its bond holders, investors across the country could begin to strip it of its assets such as oil exports.
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Venezuela is currently struggling with a severe humanitarian crisis
Crude oil exports are the country’s crucial lifeline, and seizing those could in turn have a disastrous effect on the Government’s efforts to ship food and medicine to its vulnerable citizens.
Then it’s pandemonium. The humanitarian crisis is already pretty dire
This in turn could result in chaos across the entire country, argued Fernando Freijedo, an analyst at the Economist Intelligence Unit.
He told CNN Money: “Then it’s pandemonium. The humanitarian crisis is already pretty dire… it boggles the mind what could happen next.”
If Venezuela manages to raise enough funds to solve its default before the restructuring operation is complete, S&P said it would raise its credit ratings to ‘CC’ or ‘high risk’.
Shocking images as violence flares in Venezuela
Tue, November 14, 2017
Venezuela’s political crisis intensified when the Supreme Court issued rulings curbing the powers of the opposition-controlled legislature. The court reversed the rulings, but the opposition intensified its protests from that moment
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Opposition demonstrators set an alleged thief on fire during a protest against the government of President Nicolas Maduro in Caracas on May 20, 2017
What does Venezuela’s default mean for the rest of the world?
The £45.7 billion ($60 billion debt) is in only the tip of the iceberg for President Maduro’s Government, because multiple foreign loans from countries such as Russia and China raise the total to as much as £106 billion ($140 billion).
Meanwhile a paper published by lawyers Mark Walker and Richard Cooper at the Harvard Law Roundtable, claims the figure is higher and in the £149 billion ($196 billion) region.
Venezuela’s debt restructuring is also complicated by heavy United States sanctions which limit American institutions from making business with the country.
The IMF have come up with a potential annual £22 billion ($30 billion) aid figure that could help, but it is unlikely that foreign investors will extend the lifeline.
This could result in a massive hilt on global oil reserves according to Bob Dudley, CEO of BP.
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Bond owners in Venezuela could begin to strip the country of its assets
The member of OPEC is one of the world’s leading oil producers, but the default threatens to halt its exports.
Mr Dudley told CNBC on Monday: “I think most people would say the Gulf region, I actually say Venezuela.
“I think Venezuela is just defying economic gravity and I think that’s a real wild card.”
The country’s crude oil exports have already plummeted to the lowest level in three years, of just two million barrels a day.
Venezuela’s Petroles de Venezueal S.A. (PDVSA) made a good-will gesture £839 million ($1.1 billion) payment last week, but concerns are that it could go bust.
The Centre for International Governance Innovation, published a report by Robert Khan in October 2017, arguing that solving Venezuela’s deepening crisis will require strong support from the IMF.
The report said: “Any debt restructuring will be extraordinarily difficult for legal, economic and geopolitical reasons, and efforts to ensure broad participation could set precedent on a number of grounds.
“Success would require coordination and cooperation among major powers — the United States, China and Russia, supported by the G20.
“If managed well, the possibility exists that a successful resolution could contribute to a strengthened relationship between the new US administration, which has expressed skepticism in multilateralism and the IMF.
“None of this will be easy, but getting it right could be consequential, both for Venezuela and the international community more broadly.”