Venezuela Refuses to Default. Few People Seem to Understand Why.

It’s been almost two years now since the renowned Harvard economist Ricardo Hausmann caused a stir in his native Venezuela by posing an uncomfortable question.

Why does a country that’s so starved for cash keep honoring its foreign debts? In other words, how does it justify shelling out precious hard currency to wealthy bondholders in New York when it can’t pay for basic food and medicine imports desperately needed by millions of impoverished citizens? “I find the moral choice odd,” Hausmann concluded.

Nicolas Maduro
Nicolas Maduro
Photographer: Carlos Becerra/Bloomberg

He was, predictably, skewered by the administration back in Caracas — President Nicolas Maduro labeled him a “financial hitman” and an “outlaw” on national television — but today the question feels more urgent than ever. Prices for oil, Venezuela’s lifeblood, have fallen almost by half since Hausmann first spoke out and the country’s cash squeeze has deepened dramatically. The chaos has reached unprecedented levels — food rationing, looting, mob lynchings, collapsing medical care — yet through it all, bond traders have received every dime they were owed, billions and billions of dollars in all.

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