Latin American Central Bankers to Lend $482.5m to Venezuela

  • Colombia, Peru among lenders via Latin American Reserve Fund
  • CDS show Venezuela sovereign bonds have 50% chance of default

A fund financed by eight Latin American central banks agreed to lend money to Venezuela as it struggles with a balance of payments crisis that has forced the government to slash imports of even the most essential items.

The Latin American Reserve Fund, or FLAR, approved a three-year loan of $482.5 million on Friday, saying this will contribute to regional economic stability, according to a press release today. FLAR’s members include Bolivia, Colombia, Venezuela, Peru, Ecuador, Uruguay, Paraguay and Costa Rica. The decision to make the loan was unanimous.

The loan is too small to address Venezuela’s chronic shortage of dollars and widening balance of payments deficit, said Siobhan Morden, head of Latin America fixed-income strategy at Nomura Holdings Inc. Venezuela’s sovereign debt is the most expensive in the world to insure against non-payment using credit-default swaps. The probability of Venezuela defaulting on debt by June 20, 2017 is 50 percent, according to credit-default swaps traders, down from 55 percent a month ago.

“It just shows that Venezuela is desperate for cash and will get bits and pieces of creative financing where it can,” Morden said. FLAR “provided these funds under very precarious legal conditions.”

Venezuela’s central bank told the FLAR board that the country’s Supreme Court had approved its right to borrow funds from the organization, the statement said. Opposition lawmakers in Venezuela have challenged the ruling, saying the bank needs congressional approval.

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