U.S. Weighs Restricting Trades in Venezuelan Debt to Punish Maduro

By Anatoly Kurmanaev and Ian Talley Features Dow Jones Newswires

The U.S. government is considering restricting trades in Venezuelan debt as it seeks to punish President Nicolás Maduro for undermining the country's democracy, according to people familiar with the matter.

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The unprecedented move would temporarily ban U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by the Republic of Venezuela and state oil company Petróleos de Venezuela SA, according to a person who was briefed on the proposal.

Another person familiar with the matter cautioned that the measure was one of several steps under consideration regarding Venezuela. The person said the final decision would rest with President Donald Trump.

One option being considered is banning the trading in just some papers issued by the state oil company to limit its access to external funds, said a third person.

The ban would be the first step against the Venezuelan financial system since President Trump promised "swift economic action" against Mr. Maduro for installing a parallel parliament staffed with loyalists earlier this month.

Up to now, the progressive waves of U.S. sanctions have targeted dozens of Venezuelan officials, banning them from traveling to the U.S. and freezing any assets in the country for alleged human rights abuses and corruption.

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On Wednesday, Vice President Michael Pence is scheduled to speak to Venezuelan expatriates in Miami.

The ban is designed to damage Mr. Maduro's support among military officers and government contractors who hold Venezuelan bonds, without immediately hurting the wider population, said the person briefed on the matter.

Mr. Maduro's government has continued making bond payments despite undergoing the world's deepest recession, rewarding risk-tolerant investors with the world's highest yields. Many major U.S. fund managers rely on Venezuelan debt for growth at a time when most rich countries offer negative interest rates on their bonds.

The Venezuelan government has about $65 billion of outstanding debt, which is among the most frequently traded in the emerging markets.

Mr. Maduro has prioritized international debt payments at all costs, even as the country sank deeper into an economic crisis and his government cut back on imports of food and medicine.

Venezuelan bond trading attracted public scrutiny earlier this year after the asset-management business of Goldman Sachs Group Inc. bought $2.8 billion-worth of the country's debt at about 30 cents on the dollar.

Venezuelan opposition accused the investment bank of financing the Mr. Maduro's repression of peaceful protesters. Goldman Sachs had said the bonds were bought on the secondary markets and did not add any fresh funds to the government.

Earlier this month, Goldman Sachs's rival Credit Suisse Group said it prohibited its traders from buying and selling certain Venezuelan bonds because of the risk the trades would finance human rights abuses.

The policy forbids employees from trading or using as collateral two specific bonds, one issued by the Venezuelan government due in 2036, and one by state oil PDVSA due in 2022, as well as bonds from government entities issued after June 1.

Write to Anatoly Kurmanaev at Anatoly.kurmanaev@wsj.com and Ian Talley at ian.talley@wsj.com

(END) Dow Jones Newswires

August 22, 2017 23:35 ET (03:35 GMT)