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Following Brazil and Argentina’s announcements of an early cancellation of their debts to the International Monetary Fund (IMF), Venezuela – the country with the most favourable macroeconomic indicators in the region and ideologically akin to South American governments – is also analizing an early cancellation of its debt to the Inter-American Development Bank (IDB), the World Bank and the Andean Development Corporation (CAF).

The Venezuelan economy is undergoing a moment of great splendour as a result of oil prices and economic diversification projects. According to reports by the National Assembly, 2005 comes to an end with a GDP growth set to be close to 10 per cent, while a higher than 8 per cent growth rate is expected for 2006; the highest rate in Latin America.

According to declarations from deputy Rodrigo Cabezas – head of the National Assembly’s Finance Committee – to the state-run Bolivarian News Agency (ABN), a process aimed at the cancellation of debts owed to the Inter-American Development Bank (IDB), the World Bank and the Andean Development Corporation (CAF) could be launched in 2006; taking into account that Venezuela has no current agreements with the International Monetary Fund (IMF).

These declarations were indirectly supported by a press release issued by the Finance Ministry stating that during 2006 Venezuela will start a quest for alternatives aiming at “extending the average life of the profile of internal debt maturities” and also at “offering a negotiation programme for the early cancellation of the bilateral and multilateral bank debt”.

According to the official communiqué, the Finance Ministry is calling for face to face interviews “with each one of the institutions within the local and international financial market” in order to renegotiate maturities and agree on a strategy.

In this sense, since the government launched a restructuring of debt maturities in 2002, several swap, repurchase and rearrangement operations of both its internal and external debt have been carried out, exceeding the amount of 10 billion dollars.

At the present time, Venezuela’s remaining external debt stands at 27.6 billion dollars, while its internal debt amounts to 15.3 billion dollars, according to Central Bank data. Out of the total external debt, the amount indebted to multilateral institutions stands at 2.8 billion dollars. This figure accounts for ten per cent of the current level of monetary reserves – approximately 30 billion dollars – and is inferior to the balance of payments, which according to Cabezas will reach this year a 3 billion dollar surplus and will increase to about 4 billion dollars in 2006.

Venezuela produces 3.3 million barrels of crude oil per day and expects to increase this volume to 3.4 million next year, which places the country as the world’s fifth largest producer and exporter. The government estimates an export price of 26 dollars per barrel of oil in 2006, according to next year’s budget; way below the current price which stands at approximately 48 dollars per barrel.

According to these figures, deputy Cabezas stresses that Venezuela is capable of reducing its external debt by 25 per cent within a three-year term.

This proposal will have to be first supported by the Central Bank, and although President Hugo Chávez has not specifically made comments to this respect, Cabezas believes that “he is happy with the idea”. Chávez, systematic critic of multilateral institutions, applauded the decision made by Brazil and Argentina in the same direction, and his discourse lays special emphasis on international independence.

On the other hand, the Chávez administration intends to improve the distribution of oil revenues, which has been historically poor. Social indicators have increased thanks to social plans aimed at eradicating illiteracy and incorporating a large part of the population to health and education programmes. However, poverty in Venezuela exceeds 70 per cent of the population.

In view of this situation, economists interviewed by local media estimate that the importance of aiming at social programmes could be delaying the proposal to cancel the external debt. Others, in turn, state that financial independence will result in a short-term increased availability of resources for extending and strengthening those programmes, which will be joined next January by an initiative against extreme poverty.

Anyway, even though the proposal of an aggressive policy on external debt payment may not render successful, the idea of following the example of South American countries remains on the table and may possibly be an indicator of the strong ties among the three most important MERCOSUR partners: Argentina, Brazil and Venezuela.

Source: Reuters, El Universal (Venezuela), and Nicaraguita.org

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