Money Stuff: Who Can Pay Venezuela’s Debts?

Venezuela, and its state-owned oil company Petróleos de Venezuela SA, have stopped making payments on a lot of their debts. Many of these debts are in the form of bonds governed by New York law, and so bondholders have sued Venezuela in U.S. courts asking for their money back. This is not, in sovereign debt cases, a foolproof approach: The court can tell Venezuela to give them their money back, but it can’t make Venezuela do it; Venezuela is its own country and doesn’t have to listen to U.S. courts. Still it might be good for bondholders, or at least bad for Venezuela, if the bondholders sue and get U.S. court judgments against Venezuela and PdVSA. Venezuela and PdVSA get a lot of their money by exporting oil abroad, and they own lots of assets in the U.S. in the form of PdVSA’s refining subsidiary Citgo Petroleum Corp.; defaulted bondholders might be able to find ways to seize some of that oil or those Citgo assets to pay off their claims.

So Venezuela would like to defeat those lawsuits. It is not particularly easy to do that, given that Venezuela really hasn’t paid the money; on the facts, this is a pretty straightforward case of default. But there is one weird complication, which is: Who is “Venezuela,” anyway? Actual power in Venezuela seems to mostly be in the hand of President Nicolás Maduro’s government, but Maduro is isolated internationally and not recognized by the U.S. Call this government Venezuela-1. Meanwhile the dissident interim government of Juan Guaidó has international recognition but very little in the way of effective control of the Venezuelan state. Call it Venezuela-2.