WASHINGTON (AFP) - The White House on Friday (Aug 25) unveiled tough financial sanctions against the Venezuelan regime, banning the trade in new bonds issued by the government and its cash-cow state-run oil company PDVSA.
In a move that leverages Washington's vast financial power against Nicolas Maduro's regime, President Donald Trump signed an executive order restricting Venezuela's access to vital bond and equity markets.
Wall Street banks will be allowed to trade existing debt, but "the President's new action prohibits dealings in new debt and equity issued by the government of Venezuela and its state oil company," a White House statement said.
"It also prohibits dealings in certain existing bonds owned by the Venezuelan public sector, as well as dividend payments to the government of Venezuela."
The measures would "deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule," the White house claimed.
Maduro's socialist government - facing months of deadly mass protests - has been accused of hijacking state institutions and moving ever-deeper into autocratic rule.
Friday's move may have little immediate financial impact, but could stymie cash-starved Venezuela's ability to tap the world's largest capital market in the future.
For now it is likely to have a chilling effect on lenders, who were already concerned that Caracas will default.
Venezuela's outstanding debt is estimated at over US$100 billion (S$135 billion), but oil revenues have been declining, and its currency reserves have shrunk to just US$10 billion.
October and November will be a crunch period. That's when a hefty US$3.8 billion in bond payments need to be paid by Venezuela and PDVSA.
In July, S&P Global Ratings lowered Venezuela's sovereign debt ratings, warning of the risk of default. S&P predicted a contraction in the country's gross domestic product of around 6 per cent this year and the need to finance around US$7 billion in debt in 2018.
US officials said the latest sanctions were also designed to stop the government from stripping state assets in order to pay the bills.
President Maduro's "officials are now resorting to opaque financing schemes and liquidating the country's assets at fire sale prices," one official said.
Earlier this week, Vice-President Mike Pence vowed the US would not allow "the collapse of Venezuela," saying such an event would "endanger" countries in the wider region.
Trump has even raised the spectre of military action, something Maduro has sought to use to unify the armed forces.
Clashes in Venezuela between anti-government protesters and police this year have left 125 people dead, according to prosecutors.