Now more than ever, investors in the high-stakes poker game that is Venezuela’s bond market are focused on one question only: for how much longer can the country put off what many are convinced is an inevitable default?

In the broad sense of the word, Caracas is already a serial defaulter. It has defaulted on its people by denying them access to the dollars they need for essential imports. It has defaulted on its commercial partners, first by seizing their assets through nationalisation, more recently by not paying their bills, so that the oil service companies it depends on to keep the petrodollars flowing have cut their operations to a bare minimum.

It has even defaulted, in a partial and negotiated way, on China, its one significant source of help in an increasingly exasperated outside world. Beijing has lent the government in Caracas an estimated $65bn, of which about $25bn has yet to be repaid. In May, China agreed to accept only interest payments on the amount outstanding, putting off principal payments to a later date.

Only one of Venezuela’s four groups of creditors is being paid without fail, on the button, every time: its international bondholders.

To anyone left wondering why the leaders of the Bolivarian Revolution and 21st Century Socialism would make it their top priority to hand over their vanishingly scarce dollars to the running dogs of western capitalism — even as their people riot for lack of food and die for lack of medicines — the answer is simple. In a bond default, any assets outside Venezuela belonging to the government or to PDVSA, the national oil company, would become “attachable”, or liable to be seized by creditors. Not only would PDVSA’s overseas refineries disappear in a flash. Exports of crude, the government’s vital and only lifeblood, would be catastrophically disrupted.

It would be the end of the world as adherents of chavismo, the political movement founded by Hugo Chávez, know it, and the apocalypse would not be orderly. Those in power still hoping to engineer a transition next year to a more acceptable form of chavismo-light — assuming they can fend off until then the opposition’s attempts to hold a recall referendum — would be cast into the void.

[Venezuela’s] people have shown a capacity for suffering beyond any reasonable limits, perhaps because many of them still believe chavismo has their interests at heart

Hence the government’s desperate grasping at any straw that might save it from the fall. The $7bn debt swap proposed last week has been largely written off before it has started, the fact that no lawyers or investment bankers were prepared to put their names to it being perhaps the least of its unappealing features. Kevin Daly of Aberdeen Asset Management, who holds some of the bonds covered by the offer, says he will stick with what he’s got. He will be one of many.

Yet even if the swap fails, it may not spell the immediate end — only that Caracas will have to come up with something better before it runs out of cash. While that moment is fast approaching, it is not here yet. Orlando Ochoa, an independent economist who knows more than most about the state’s finances, reckons the government will be able to muddle through until next year. By the logic of the chavistas, they would then be able to ditch the unpopular president, Nicolás Maduro, but still cling to power.

Such a “transition”, it is true, would solve very little. Yet many bondholders are still unfazed. A PDVSA bond maturing in 2017, on which a $2.3bn payment is due on November 2, is trading at about 80 per cent of par — hardly a sign of rising panic.

Even if Venezuela and PDVSA were to default, many bond investors are confident of a healthy recovery value. Venezuela, after all, has the world’s biggest proven oil reserves. It is far from insolvent, just acutely illiquid.

How things pan out from here depends on the behaviour of Venezuela’s other creditors. Its people have shown a capacity for suffering beyond any reasonable limits, perhaps because many of them still believe chavismo has their interests at heart.

Its commercial partners have their eyes on the long game. With Russian and Chinese oil companies still on the ground, western service companies and the few surviving oil majors have been reluctant to withdraw altogether.

That leaves China. Under the May agreement, it gave up about $5bn in annual revenues from Venezuela. Many believe it has reached the limits of its patience, is alarmed at the course of events and would support any government that can make things better — even if it is far from clear that it would welcome an opposition-led regime that might turn towards the west and away from the traditional backers of chavismo.



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