By Steven T. Kargman (Kargman Associates)
Editor’s Note: This post is the second in a mini-series on Venezuela’s sovereign debt restructuring. Last week’s post on this topic can be read here.
There has been a certain ebullience in market sentiment toward Venezuela since the capture in early January of former Venezuelan president Nicolás Maduro by U.S. military forces. Venezuelan sovereign and PDVSA bonds rallied as investors anticipated that a political transition might finally pave the way for long-delayed debt restructuring negotiations.
Yet there seems to be a major disconnect between that bullish market sentiment and the major structural challenges that continue to confront Venezuela post-Maduro. Venezuela still faces a collapsed economy and an enormous sovereign debt overhang of $150 billion or more (and possibly as high as $240 billion, according to a recent report). It also continues to face a severe humanitarian crisis and a political system widely seen as lacking legitimacy given the sidelining of the democratic opposition despite its overwhelming victory in the August 2024 presidential election.
In order to tackle these challenges, Venezuela will need a comprehensive recovery strategy that simultaneously addresses sovereign debt restructuring, economic reconstruction, humanitarian relief, and the restoration of a legitimate and credible government. In my article, I discuss the key elements of such a strategy and set forth a blueprint for restructuring Venezuela’s sovereign debt and rebuilding its economy.
The first major pillar of such a strategy would be a comprehensive sovereign debt restructuring. Given the scale of Venezuela’s debt burden and the depth of its economic collapse, traditional restructuring tools such as principal reductions, maturity extensions, coupon reductions, and grace periods will almost certainly be required. Yet Venezuela’s circumstances may also call for more innovative instruments that contribute to debt relief as well as broader recovery and development objectives.
One promising tool would be both modernized as well as expanded forms of debt-for-equity swaps. Venezuela could introduce a modernized version of the Brady Plan-era debt-for-equity swaps from the late 1980s and early 1990s under which creditors exchanged debt claims for equity stakes in privatized enterprises. Brady-era debt-for-equity swaps relied on local currency conversion arrangements, but that model would need to be updated given the severe devaluation of Venezuela’s currency.
In an expanded form of debt-for-equity swaps, creditors could also swap their debt for development rights tied to oil and gas as well as Venezuela’s rich supply of minerals, subject to independent valuation so that the government could avoid criticism that such rights were being transferred too cheaply. Venezuela could also explore debt-for-nature/climate swaps. Such swaps could help reduce the country’s debt burden while supporting environmental conservation and sustainable development of Venezuela’s precious ecological assets such as its vast rainforests and rich biodiversity.
The second major pillar of any recovery strategy centers on economic reconstruction. A debt restructuring may create fiscal space and allow Venezuela to regain access to the capital markets, but it cannot by itself generate economic growth or rebuild productive capacity. Venezuela therefore requires a broader reconstruction effort, and the centerpiece of such an effort should be diversification of the Venezuelan economy.
For decades, Venezuela has relied overwhelmingly on hydrocarbons, leaving it vulnerable to commodity price volatility and the ills associated with the so-called “resource curse.” A more resilient economy would be based on diversification into non-hydrocarbon sectors such as ecotourism, alternative energy, logistics, agro-processing, specialty steel, and critical minerals.
Beyond economic diversification, Venezuela will also need to take other important steps to rebuild its economy, including rationalizing its state-owned enterprise (SOE) sector and repairing and upgrading critical infrastructure (e.g., the electricity grid, roads, water systems, telecom networks, etc.) that has fallen into disrepair. In sum, Venezuela’s overall national recovery will depend on advancing sovereign debt restructuring, economic reconstruction, humanitarian stabilization, and political renewal in parallel. Only such an integrated strategy can lay the foundation for a sustainable national recovery.
Click here to read the full article (reprinted with permission of The International Economy). A condensed version of a post that previously appeared in Columbia Law School’s CLS Blue Sky Blog on June 5, 2026 and which was then cross-posted on the Oxford Business Law Blog on June 16, 2026.