By Libby George
WASHINGTON, April 20(Reuters) - Venezuela, a country subject to Western sanctions and saddled with billions in debt, was the biggest cause for optimism at last week's otherwise sombre IMF-World Bank meetings, investors and officials said.
Expectations for an economic revival for the formerly Socialist republic, whose ousted President Nicolas Maduro was placed in a New York prison in January, dominated conversations on the sidelines of the meetings, attendees told Reuters.
"The permafrost
is melting. And that is why investors are optimistic," said Rodrigo Olivares-Caminal, a professor at Queen Mary University, who advises governments on debt and attended the Spring Meetings.
Although Venezuela was not mentioned on any formal agenda in advance of the meetings, at least six banks and organisations held crowded investor briefings in Washington, including Bank of America, Barclays, JPMorgan and Morgan Stanley, according to three sources who attended them and agendas seen by Reuters.
Late on Thursday, the IMF and the World Bank said they had resumed dealings with Caracas for the first time since 2019 - a major step towards re-engagement with the international community that could allow access to roughly $5 billion worth of IMF special drawing rights, a reserve asset allocated by the Fund.
MIDDLE EASTERN CONFLICT OVERSHADOWED THE TALKS
Elsewhere during last week's Spring Meetings at the two institutions' headquarters just off Pennsylvania Avenue, falling economic forecasts dominated discussions, as global financial leaders reluctantly tallied the cost of the war in the Middle East on their economies.
Much of the cost is a result of a surge in international oil prices that will drive inflation across the globe.
For Venezuela, home to the largest proven oil reserves in the world, high oil prices imply extra revenue, which could help repair infrastructure after decades of underinvestment.
The greatest cause for excitement last week, however, was Venezuela's defaulted debt.
Six attendees who spoke to Reuters, including bondholders and lawyers, said they hoped warmer ties with the United States would enable the restructuring of Venezuela's sovereign debt to give investors at least some of their money back. If achieved, it would be one of the biggest restructurings in recent history.
Venezuela and its state oil firm PDVSA have roughly $60 billion of defaulted bonds outstanding, but total external debt expected to be in scope for restructuring stands at roughly $150-$170 billion once other obligations for the energy firm, bilateral loans and arbitration awards are included.
The defaulted bonds have rallied since U.S. President Donald Trump's return to office at the start of last year.
That had prompted bets on regime change even before the U.S. military operation in January in which Maduro was seized.
Since then, closer ties between Trump's White House and interim Venezuelan President Delcy Rodriguez have increased optimism on the market, lifting prices for some bonds to their highest in roughly a decade.
"I gave three different talks. All three were packed," said Juan S. Gonzalez, resident fellow at the Georgetown Americas Institute who served as Deputy Assistant Secretary of State for the Western Hemisphere in 2016 and 2017.
Gonzalez spoke at Bank of America, JPMorgan and Eurasia Group; another panel at Morgan Stanley discussing debt restructuring, covering Venezuela, was also crowded with eager investors, three sources told Reuters.
A Barclays roundtable plan seen by Reuters featured advisers to opposition leader Maria Corina Machado, who told Reuters that she expects to be back in her home country before the end of 2026 and is urging swift elections.
LAYING THE GROUNDWORK
Although markets expected the Fund's recognition, it added to the positive mood because it should facilitate technical assistance and Article IV surveillance, which is the Fund's detailed analysis of the state of a country's economy, its strengths and its vulnerabilities.
An eventual IMF economic assessment can also determine what level of debt is sustainable.
"Rejoining the IMF and getting access to the SDRs allows Delcy Rodriguez to lay the groundwork for debt restructuring," Gonzalez said.
IMF chief Kristalina Georgieva said on Friday that the Fund would likely provide Caracas with a financial support programme as part of its engagement, though she added it was "a very tough road" to restore macroeconomic and financial stability.
Some in the market are equally cautious. JPMorgan analysts said that while there was an argument for Caracas to pursue a swift restructuring of its international bonds, so far there had been little sign of this happening.
"While the bonded debt is the largest and most well-defined claim, we do not yet have any sense a narrow restructuring of bonded claims would move forward quickly and separately from a more comprehensive restructuring," JPMorgan analysts said.
(Reporting by Libby George; Editing by Karin Strohecker and Barbara Lewis)
