Hannah Dreier

The Associated Press

CARACAS, Venezuela (AP) — President Nicolas Maduro is reassuring foreign creditors that Venezuela's government will make good on a $4.5 billion foreign debt payment due next month.

But economists are uttering the D-word for the first time, noting the inflation-ravaged economy is stumbling with basic goods in short supply and the currency eroding in value.

Maduro has repeatedly said default is not an option. On Wednesday, he reiterated his administration's commitment to pay "down to the last dollar."

The subject gained traction in recent days, and even got its own Twitter hashtag, after an article by former Venezuelan planning minister Ricardo Hausmann and Harvard economist Miguel Angel Santos argued that a managed default could help Maduro resuscitate the economy and help his people.

"The fact that his administration has chosen to default on 30 million Venezuelans, rather than on Wall Street, is not a sign of its moral rectitude. It is a signal of its moral bankruptcy," they wrote.

The article was followed by a swing in the trading of Venezuela's debt. On Thursday, investors appeared to take comfort in Maduro's words and prices for its bonds rebounded. Venezuelan bonds pay out more to investors than the debt of any other developing country.

Government opponents have stopped short of endorsing the notion of a default.

Venezuela's 15-year-old socialist administration has always paid its bondholders, though it hasn't been as consistent about repatriating corporate profits. This year has seen an exodus of airlines that complain they haven't been allowed to turn their local earnings into dollars.

Alejandro Grisanti of Barclays this week dismissed the notion of a default, noting that Venezuela could easily find the money it needs to pay off foreign creditors by halting the oil subsidies it distributes to allies around the region. The county boasts the world's largest proven oil reserves, providing a constant flow of income for the government.

Last week, Maduro authorized the consolidation of off-budget funds into a single transparent reserve. Analysts were skeptical that the fund would actually reflect the government's finances, though, especially after it was revealed to have a balance of $750 million, a number dramatically lower than expected.

Analysts agree that more painful adjustments, including a currency devaluation, are needed to right the economy, default or no. But no one expects to see those changes soon.

Hannah Dreier on Twitter: https://twitter.com/hannahdreier

