Earlier this month news that Venezuela’s state oil company was behind on billions in payments to private oil contractors made bond investors squeamish, sending the average yield on Venezuelan bonds (which had fallen 7% since Jan. 9th), to an average yield of 17.4 percentage points more than U.S. Treasuries.

But have the markets overshot? President (for life?) Huge Chávez’s comment recently that Venezuela was well-equipped to weather the global economic storm, despite falling oil prices (oil accounts for 94% of Venezuela’s exports and funds nearly half the government’s budget), was based at least in part on the fact that the country saved at least some of its past oil revenues, and that the Central Bank still has reserves of some $29 billion.

However, a tidbit in this week’s Economist (“Chávez for ever?) suggests there may be more to the story, namely the voraciousness of the country’s private banks for government debt:

[Chávez’s] bravado is based partly on the hope that the oil price will rise next year, and the conviction that Venezuela’s private banks will be happy to finance this year’s deficit, albeit at a price. They may well do so. According to one banker, the banks have a “gigantic appetite” for government paper because other lending is even more unattractive. The government caps interest rates, but inflation is running at over 30%.

Credit Suisse seems to agree. The Swiss bank announced last week that Venezuelan bonds would “outperform” after Chavez won a referendum to scrap term limits that would have forced him from office in 2013, noting that the victory gave the government “more room to pursue a set of measures to ameliorate the impact of the decline in oil prices on the fiscal accounts.” Said measures are likely to include the devaluation of the currency to 3.1 bolivars per dollar and a move to keep spending increases below inflation, they said. Chavez pegs the bolivar at an official exchange rate of 2.15 per dollar under restrictions he imposed in 2003.

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