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Venezuela cash crunch means workers won’t see money for months

(FINANCE NEWS) Venezuela is currently in a cash crunch due to a weakening oil market which means that Venezuelans won’t see pay for at least 5 months.

venezuela

If you ever ran out of money as a broke 20-something, you know how nervewracking it can be to go without cash. Now, imagine you ran a country and ran out of money. Sweating yet?

Be glad you’re not Venezuela, who is extremely cash poor at the moment. According to coverage from Bloomberg, “more than $1.2 billion of the company’s debt is coming due in the next few days, and investors are showing less confidence that funds will be transferred.”

The country is already two weeks late to pay off several other bonds. Additionally, cargo ships full of crude oil have idled for months because Venezuela can’t pay for their supply of oil.

The biggest culprit for the cash shortage is the shrinking market for crude oil. PDVSA controls one of the large crude supplies in the world, and it’s been a lucrative export for the country. However, in three years, the price of oil has dropped by 50 percent.

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The biggest demand for crude used to come from America, who would pay cash for the barrels; however, shipments are down 35 percent since August.

Part of that demand shortage is due to political sanctions, imposed on the country by the United States. In response to Maduro’s aggressive political maneuvering, which sought to arrest opposition leaders, “rewrite the constitution and strip power from Congress,” President Trump punished this behavior through sanctions on imports from Venezuela.

Because oil was such a lucrative export, PDVSA was targeted heavily by the sanctions. Oil importers don’t want to run afoul of these sanctions by buying crude from the country. That problem will get even worse if the sanctions increase, which Bloomberg predicts is likely to happen within the year.

There is a risk that PDVSA could default on its debt, which could have a huge impact on the oil economy. According to Bloomberg, if oil could be seized as an asset to cover for debts, oil traders will expect a significant discount to cover for that risk. That discount will sink overall oil revenue. This same problem came up when Ecuador, another large exporter of oil, defaulted on its debt in 2008.

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Written By

Born in Boston and raised in California, Connor arrived in Texas for college and was (lovingly) ensnared by southern hospitality and copious helpings of queso. As an SEO professional, he lives and breathes online marketing and its impact on businesses. His loves include disc-related sports, a pint of a top-notch craft beer, historical non-fiction novels, and Austin's live music scene.

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