The Venezuela Debt Dilemmas

To hold or not to hold? That is the dilemma facing holders of debt issued by the Venezuelan government and its sovereign and quasi-sovereign entities, including the national oil company PDVSA. The issue has been labeled a "moral quandary" by the Wall Street Journal, put Goldman Sachs in the headlines and prompted a Harvard professor to call on index providers to exclude Venezuela from benchmarks used widely by investors. Defined very narrowly, the question is whether to hold a bond that trades at a very high yield, has been the best performer this year in emerging markets, but whose default risk is considerable given that Venezuela is increasingly a failing state that already faces huge shortages, runaway inflation, growing poverty, hunger and socio-political unrest. More…