WASHINGTON/CARACAS--U.S. President Donald Trump signed an executive order that prohibits dealings in new debt from the Venezuelan government or its state oil company in an effort to halt financing that fuels President Nicolas Maduro's "dictatorship," the White House said on Friday.
The order is Washington's biggest sanctions blow to date against Maduro and is intended to punish his leftist government for what Trump has called an erosion of democracy in the oil-rich country, which is already reeling from an economic crisis.
"Maduro may no longer take advantage of the American financial system to facilitate the wholesale looting of the Venezuelan economy at the expense of the Venezuelan people," U.S. Treasury Secretary Steven Mnuchin said on Friday.
Maduro said his government would have a response. "We will be making some very important announcements to respond with dignity and firmness to the illegal sanctions that the government of the United States has taken against the people of Venezuela," the socialist leader said in a video posted on his Twitter account.
The new sanctions ban trade in any new issues of U.S.-dollar-denominated debt of the Venezuelan government and ailing state-run company PDVSA because the ban applies to use of the U.S. financial system. As a result, it will be it tricky for PDVSA to refinance its heavy debt burden. Investors had expected that PDVSA would seek to ease upcoming payments through such an operation, as it did last year, which usually requires that new bonds be issued.
Additional financial pressure on PDVSA could push the cash-strapped company closer to a possible default, or bolster its reliance on key allies China and Russia, which have already lent Caracas billions of dollars.
The decision also blocks Venezuela's U.S. refiner, Citgo Petroleum, from sending dividends back to the South American nation, a senior official said, in a further blow to PDVSA's coffers. However, the order stops short of a major ban on crude trading that could have disrupted Venezuela's all-important oil industry and worsened an economy plagued by recession, triple-digit inflation and acute shortages of food and medicine.
It also protects holders of most existing Venezuelan government and PDVSA bonds, who were relieved the sanctions did not go further. Venezuelan and PDVSA bonds were trading broadly higher on Friday afternoon.
