Venezuela to elude default, defying oil price routOREANDA-NEWS. February 02, 2016. Venezuela will avert a debt default by paying more than \\$4.56bn of dollar-denominated bond maturities due in the first half of this year, but its ability to meet greater total obligations later this year is less certain.

President Nicolas Maduro has vowed that the government, including state-owned oil firm PdV, will not miss any debt payments this year. Finance ministry and central bank officials dismiss widespread concerns that low oil prices have raised the odds that Venezuela could default on its foreign debt as soon as next month. But they acknowledge a bleak outlook for the second half of this year, when a further \\$6bn of bond maturities come due, if weaker oil prices persist.

PdV's average crude export price is currently at barely half the government's 2016 budget assumption of \\$40/bl. Caracas has sufficient cash reserves to cover this year's first large debt payment totalling over \\$2bn of bond principal and interest due next month, the finance ministry says. Maduro is under growing pressure from radical elements of the ruling PSUV party to declare a foreign debt moratorium and redirect the money to social and infrastructure programmes to bolster flagging popular support. New economy minister Luis Salas is among those advocating measures such as nationalising banks and importers, and halting foreign debt payments until the oil price rebounds.

But not paying foreign debt would risk disruption to PdV's oil exports, alienation of PdV's foreign upstream partners and key lenders such as China, and a rise in domestic social and political turmoil that could force Maduro's resignation.

All that glisters is gold

The government is instead taking steps to boost its cash holdings by negotiating more central bank gold swaps with potential investors in Switzerland. Hard currency reserves at the end of November totalled \\$14.75bn, of which gold bullion assets were valued at \\$10.97bn. In an apparent reflection of reduced imports of food and other goods in chronic short supply, hard currency reserves were bumped up to \\$15.5bn as of 22 January. The central bank has not updated the valuation of its gold bullion holdings since November. The bank confirms that about 27t of gold were flown from Caracas to Switzerland earlier this month, but declines to comment further. Venezuela's government swapped about 43t of gold reserves for \\$1.5bn in cash in April 2015.

The government is looking at other cash-raising options, including restructuring debts linked to preferential oil supply agreements, selling non-financial assets and securing at least \\$4bn in fresh oil-backed loans from China. Separately PdV is seeking to refinance over \\$13bn of bond debt that matures in 2016-17 and slash its operating costs this year to under \\$10/bl from \\$13.50/bl, PdV chief executive Eulogio del Pino says. Sales of some PdV assets, such as US downstream unit Citgo, which was put on the block in 2014, have been ruled out for now because of legal implications related to Venezuela's international arbitration obligations.

PdV has asked at least three foreign oil companies holding minority stakes in the firm's Orinoco extra-heavy oil ventures to cover the cost of its naphtha imports this year. An official with the Venezuelan oil industry association AVHI, which represents foreign oil companies, says PdV's partners are likely to baulk at this unless the government cuts taxes and royalties, and starts to release over \\$5bn of profits and dividends trapped in Venezuela.

Del Pino is pressing to raise gasoline and diesel prices, subsidised at an estimated cost of \\$9bn/yr to PdV, while glossing over potential job cuts and non-oil divestitures by the firm. PdV recently approved a new collective labour contract raising average wages for over 85,000 unionised workers by 143pc over two years.