Crucial Loans to Venezuela Are Held Up by Dispute With CongressBy and
CAF said to have suspended about $440 million in fresh loans
Opposition warns that new lending must be considered illegal
The bitter political standoff between Venezuela’s government and opposition may have cost the crisis-torn country nearly half a billion dollars in loans from one of its last active multilateral lenders as a fourth year of recession grips the economy.
The Development Bank of Latin America, or CAF, is said to be reconsidering whether to issue fresh loans to Venezuela -- a principal member and home to its headquarters -- due to a legal dispute between the National Assembly and the Supreme Court, according to three people with direct knowledge of the matter. As the government struggles to stock store shelves and make good on billions of dollars in bond payments, the opposition-controlled legislature has refused to approve a debt financing law for 2017.
Insisting that the National Assembly is in contempt, President Nicolas Maduro has sought budgetary approval from the Supreme Court, which he’s packed with his supporters. In response, Maduro’s opponents in the legislature have sent a stern warning: Any new debt approved without the Congress would be considered illegal and future governments would not be obligated to honor it.
With the world’s highest sovereign risk of default, Venezuela, which has depended on loans from China in recent years for liquidity, is finding it harder and harder to obtain financing as reserves tumble and debt service becomes more burdensome.
“By trying to bypass the National Assembly, the government now doesn’t have the means to obtain financing,” said Jose Guerra, the head of the legislature’s Finance Committee and former director of economic research at the central bank.
Leery of providing any new financing that has not been approved by Venezuela’s legislature, CAF has put a $40 million credit for water infrastructure as well a $400 million loan request on hold as it evaluates Venezuela’s uncertain political and economic outlook.
Bond yields and country risk have effectively priced the government out of the market so any additional financing could be considered a respite. Next month alone, Venezuela’s state oil giant, PDVSA, has $2 billion of payments coming due.
Given the country’s finances and investor anxieties, the half billion dollars in play is “a massive amount of money for this government,” says Alejandro Grisanti, director of the Caracas-based consultancy Ecoanalitica. “Every moment that passes, the government loses options to escape from the crisis.”
Calls placed to Venezuela’s Finance Ministry were not immediately returned. Nicolas Abreu, a spokesperson for CAF, said the bank is in the process of reviewing the situation, so the funding “has not been neither approved nor denied,” and the institution “respects the autonomy of public authorities in each member country.”
CAF provides Venezuela funding for everything from hydroelectric dams, water ways, sanitation and major transportation projects. In recent years, however, many of the initiatives have stalled as the country’s economic crisis has deepened. This week is the first board meeting of the year, where financing to Venezuela is likely to be discussed.
Venezuela’s dueling political factions have been at loggerheads since the opposition won control of the National Assembly in December 2015 elections, riding a wave of anger over triple-digit inflation and chronic shortages of basic staples. The optimism engendered by a landslide victory after nearly two decades of socialist rule gave way to a hard political reality: The opposition could do little more than watch as the Supreme Court and Maduro government blocked their legislation and stymied their initiatives.
Yet, beyond the political divide, an equally serious issue remains. After years of spendthrift policies coupled with the global collapse in the price of oil, Venezuela’s only significant export, the government’s coffers are nearly depleted. Reserves stand near a 15-year-low of $10.4 billion.
“The government has hung itself,” said Guerra, who says he has met with representatives of CAF and the Inter-American Development Bank, another major multilateral lender to Venezuela.
Founded in 1970, as Venezuela’s oil bonanza began to take off, CAF is comprised of 19 countries and over a dozen private banks. According to CAF’s financial statements, Venezuela accounts for over 15 percent of the bank’s portfolio -- more than any other country -- with more than $3.3 billion in outstanding loans.
Far beyond questions over budgetary authority in Venezuela, reasons abound for CAF to deny the country additional funding due to economic mismanagement, says Ramiro Molina, a professor of international finance at Andres Bello Catholic University, in Caracas.
Pointing to examples of countries racked by conflict -- such as Nigeria and Mozambique -- Molina says additional multilateral loans may still be possible with improved management. “It’s not impossible,” he said, “but it’s by no means easy."