Venezuela's opposition plans a protest march tomorrow. The timing is not an accident. Venezuela celebrates its own Independence Day on 5 July, while the date also marks the country's National Armed Forces Day. The opposition's call to take to the streets has been supported by Leopoldo Lopez, mentor to interim leader Juan Guaido.
We suspect the planned protest is also an effort to maintain the opposition's momentum, which has faded a little since the failed uprising in April, and to keep Venezuela in the international spotlight, at a time when it is competing for world attention from events in Iran, North Korea, and the US-China trade war.
Yet it remains to be seen how many people will support the new protest, and what impact – if any – it will have on the Maduro leadership and prospects for a government transition. Internationally mediated talks between the government and opposition that began in Norway in May appear to have stalled, although recent media reports suggest they might resume soon. We expect the opposition will still demand a new free and fair presidential election (it remains to be seen whether this is with or without Maduro), and will not accept Maduro's proposal for early parliamentary elections (see here).
In the meantime, there were media reports yesterday that Peru has invited a number of countries to Lima on 6 August to hold talks on the Venezuelan political crisis. The invitation includes Guaido's allies, such as the US, and, on the other side, China, Russia, Cuba and Turkey (who all support Maduro), in order to get the broadest possible meeting.
A number of scenarios are still possible, as we have set out before. We think turning the military and granting amnesties, and even exile, to Maduro's ruling cadre, will be key to a smooth transition, in either a bloodless coup and/or negotiated exit. This could also include a transitional government and a path to holding new elections.
Separately, the Financial Times reported today on the opposition's plan for debt restructuring, in which it intended to treat its legitimate creditors equally. However, we suspect the devil will surely be in the detail.
Equal treatment may be intuitively appealing, and make a restructuring less complicated and more efficient, producing a more orderly restructuring on what is a big and complicated capital structure. However, its plans for equal treatment exempt bilateral debts with Russia and China, which will be negotiated separately. This is not an insignificant omission, and could be a stumbling block for bondholders. Bondholders will fear that bilateral creditors will get more favourable terms at their expense (although at the end of the day, bondholders themselves could come under international pressure, eg from the US, not to block a deal). Any bilateral agreements will need to be transparent and consistent with the IMF's DSA.
The opposition's plan also exempts collateralised lending (such as the PDVSA 2020 bonds which are backed by Citgo). Still, the plan may be welcomed by some bondholders who might otherwise feel that other claims, for example, those with arbitration awards and companies with legal judgements, will be ahead of them in the queue. Bondholders will however also want to be satisfied with the calculation of claim (PDI) and that it is recognised in full, without regard to holding period, or other arbitrary conditions. Indeed, we expect the debt reconciliation process to be a long and complex exercise itself.
For extensive detail on Venezuela's debt situation, read the Venezuela chapter of our Developing Markets Guide.