A Painful External Adjustment

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Venezuela's Q109 current account deficit came in at US$3.5bn, down from a surplus of US$9.5bn in Q108, thanks to the continued contraction in oil and non-oil related revenues and a still-high import reliance. We expect to see a current account deficit of US$1.5bn (0.5% of GDP) this year before recovering to a US$7.6bn (3.2% of GDP) surplus in 2010. The rebalancing will take place through reduced imports and economic growth, suggesting that food shortages are likely to intensify. As such we are staying bearish Venezuelan debt.