Venezuela, once the richest country in South America, faces a dangerous historical turning point that could shatter what remains of its economic and political stability. CNBC report revealed that the country's external financial obligations range between $150 billion and $170 billion, an astronomical figure compared to the size of its current economy.
It is estimated that Venezuela's GDP in 2025 will not exceed $82 billion, meaning that the debt represents approximately 200% of the country's total output. This enormous gap makes any conventional repayment plan virtually impossible and places Caracas before a "major reckoning.".
The roots of the crisis: From oil wealth to collapse
To understand the depth of this crisis, one must consider the historical context; Venezuela possesses the world's largest proven oil reserves. However, the Venezuelan economy has suffered for years from mismanagement, underinvestment in oil infrastructure, and over-reliance on crude oil revenues. Previous oil price drops, coupled with international sanctions, have eroded the value of the local currency and triggered hyperinflation that has decimated the purchasing power of Venezuelan citizens.
Oil as a weapon: US pressure and repayment scenarios
In a dramatic turn of events, with Washington seizing Venezuelan oil exports and holding strategic resources, "black gold" has transformed from a lifeline for the country into a direct tool of pressure in the hands of the United States. This move aims to secure debt repayment or restructure the economy according to strict US conditions, especially given the reports of Maduro's arrest, which have left the political system in jeopardy.
Observers believe that this escalation strengthens the ability of American creditors and opportunistic investment funds to impose their harsh conditions, which could exacerbate the political and economic conflict both domestically and internationally.
Proposed solutions: Will the "haircut" process for debt succeed?
In an attempt to find a way out of this dark tunnel, analysts at Citigroup a technical vision for a solution, indicating that the only option to keep Venezuela afloat is to write off approximately 50% of its existing debt. The plan involves issuing new 20-year bonds with a 4.4% interest rate to compensate investors, a process known financially as a "haircut."
Geopolitical complexities: The Russian and Chinese roles
While the economic solution seems sound in theory, its implementation is hampered by international politics. Any debt restructuring agreement requires the approval of major international creditors, particularly China and Russia, which have provided Venezuela with billions of dollars in loans in exchange for oil shipments.
Reaching a consensus has become more complicated after the US took control of oil, as Beijing and Moscow view US moves with suspicion, turning Venezuela’s debt crisis from a purely financial issue into an arena of power struggles between the superpowers.
A ticking time bomb threatening regional stability
Venezuela's debt is no longer just a number on accounting books; it has become a ticking time bomb. The ongoing crisis threatens a complete collapse of the domestic financial system, the flight of remaining foreign investment, and the export of instability to neighboring Latin American countries. With the economic solution tied to global political shifts and the fate of the current leadership, Venezuela remains hostage to power struggles over which it has no independent say.
