Venezuela: A Financing Center for Latin America

Reuters
Feb 6, 2007
by by Manuela Badawy

Venezuela has emerged as a ready source of financing in Latin America, displacing the International Monetary Fund and causing repercussions in bond prices and credit ratings, Fitch Ratings said on Tuesday.

The shift toward Venezuela's oil money -- which has become a ready source of financing without any stated conditions -- has been supported by the general sense of discontent with the progress of living standards under neo-liberal policies recommended by the IMF, Fitch analyst Morgan Harting told investors in New York.

Countries such as Brazil, Argentina and Uruguay have rushed to pay back their debt and "rid themselves of the stigma of IMF conditionality," while accepting substantial investments and grants from Venezuela, Harting said.

Early last year, Brazil paid its total debt of $15.5 billion to the IMF. Argentina followed a few days later with $9.5 billion of debt outstanding. Later in 2006, Uruguay paid $1.08 billion.

However, credit ratings and bond prices would be valued differently if Venezuela were not financing economies such as Argentina.

Argentina's bonds returned more than 50 percent in 2006, according to JP Morgan's Emerging Markets Bond Index Plus, supported by strong growth.

"Would you really be as bullish on Argentina today if Venezuela had not extended it almost $4 billion in financing over the last couple of years? That has been critical in keeping Argentina afloat," Harting said.

"With that in mind, there is something to (Venezuelan) President Hugo Chavez's assertion that Venezuela is becoming the financial center in the region," he said.

According to Fitch, oil-exporting Venezuela is likely to have accumulated $44.5 billion in assets in the past three years due to high oil prices which have boosted government coffers and international reserves.

This, however, has taken away some of the pressures to enact further reforms to improve living standards in a more sustainable way.

The oil windfall means that the Venezuelan government could easily pay all its debt obligations of $27 billion and be debt-free if it wanted.

Instead, Venezuela is keeping some of its cash for a rainy day or to lend to some of its friends, like Ecuador, which has vowed to restructure its external debt of $10.28 billion, Harting added.

In January, Ecuador held talks on receiving possible credits of up to $1 billion from Venezuela, which, like itself, has a leftist government.

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