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NEW YORK, Jan 16 (IFR) - Market participants are increasingly turning their attention to the potential for a regime change in Venezuela, as shortages of basic goods and a prolonged slump in oil prices have turned up the heat on President Maduro.
As the authorities scramble to find additional resources to plug a widening external gap ahead of hefty debt redemptions this year, some have started to call into question Maduro's ability to remain in power.
"There has been so much focus on the cashflow analysis and default risk and perhaps insufficient focus on political risk," Siobhan Morden, head of Latin America strategy at Jefferies, wrote in a note to clients this week. "We cannot assume that the Maduro administration can politically survive through a protracted period of acute stagflation and widespread shortages."
With oil prices expected to remain near multi-year lows - Goldman Sachs lowered its three-month forecast for Brent crude to US$42 a barrel from US$80 on Monday - financial pressures on the recession-hit country are mounting.
Moody's, which this week downgraded the sovereign by two notches to Caa3, said it expected Venezuela's current account balance to swing to a deficit of 2% of GDP in 2015 - the country's first yearly deficit since 1998.
In the bear-case scenario of oil prices averaging US$53 a barrel in 2015, analysts at Morgan Stanley estimate Venezuela will face a funding gap of about US$36bn this year - a far cry from the US$20bn-$25bn range most analysts were discussing just a month ago.
Piecemeal attempts at tackling the country's economic crisis have so far done little to improve market confidence. Even Maduro's announcement earlier in January of US$20bn worth of new financing agreements with China was played down as ineffective by many observers.
"People expected Venezuela to implement economic reforms and policy changes, but what we have seen is a political vacuum," said Paolo Valle, a senior portfolio manager at Manulife Asset Management.
"Any deal (involving China) is going to have clauses and restrictions and the money is not likely to be paid up front," said Valle, whose firm is "severely underweight" Venezuelan debt.
Widespread discontent has already led to scattered confrontations between police and protesters, while Maduro's approval ratings declined to 22% in December - an historic low for so-called Chavismo.
Most analysts believe a default by the sovereign is not likely before at least the fourth quarter - when the country faces its largest debt payments this year. Yet many have highlighted the potential consequences of increased social unrest before then.
"A scenario of an exit of President Maduro because of the escalation of social conflict, voluntary resignation or a replacement due to a rebalancing of forces inside Chavismo cannot be discarded," Barclays analyst Alejandro Arreaza wrote in a note to clients this week.
Risk consultancy Stratfor, meanwhile, has gone so far as to suggest that military commanders and auxiliary security forces could prevent Maduro from returning to power once he concludes a series of state visits abroad.
While a regime change could potentially open the doors to a more market-friendly administration, hopes for a rebound in Venezuelan bond prices remain low.
"I think the Venezuela story is 100% about oil," said a New York-based portfolio manager. "If you don't think oil prices bottom here, no amount of better economic policy or hopes for regime change are going to support prices." (Reporting by Davide Scigliuzzo; Editing by Matthew Davies and Paul Kilby)