Venezuelan oil diplomacy curbed by economic crisis
Venezuelan oil diplomacy curbed
by economic crisis
Monday, December 2, 2013 6:46 AM GMT
CARACAS, Venezuela (AP) — The late President Hugo Chavez's
dream of leveraging Venezuela's oil wealth to spread revolution
across Latin America is crumbling under the weight of an economic
crisis that is forcing his hand-picked successor to cut back on
generous foreign aid.
Signs of the country's waning influence are becoming more apparent.
In early November, Guatemala withdrew from the Petrocaribe oil
alliance launched by Chavez, saying it didn't receive the ultra-low
financing rates it had been promised by Venezuela when it first
sought to join the 18-nation pact in 2008. Also in recent weeks,
representatives of Brazil and Colombia have held meetings with their
Venezuelan counterparts to collect overdue payment for food,
manufactured goods and other imports.
While Venezuela has fallen behind on payments before, the latest
cash crunch is more severe, and the economic outlook more
uncertain, than any time in 15 years of socialist rule.
The reason is a dependence on oil, which accounts for 95 percent of
exports. Although Venezuela sits atop the world's largest reserves,
production has steadily declined in recent years. Global prices for
crude are also lower as hydraulic fracturing technology boosts
supplies in the U.S. at a time that Europe's economic woes and
weaker growth in China limit global demand.
The result is a hemorrhaging of Venezuela's foreign currency
reserves, which are down 27 percent this year, according to the
country's central bank.
To meet its obligations, the government is quietly scaling back the
subsidies, investments and aid programs that were the cornerstone of
Chavez's plan to curb the influence of the U.S. "empire" in Latin
America and that total an estimated $100 billion since 1999.
While President Nicolas Maduro's government has yet to
acknowledge the shift toward austerity, central bank data show that
foreign trade credits, consisting mainly of loans and subsidies under
Petrocaribe, fell to $1.7 billion in the first nine months of this year,
compared with more than triple that amount for the same period last
"It's a lot easier to reduce foreign aid than cut wages or fire workers,"
said Francisco Rodriguez, an economist in New York for Bank of
The country most hurt by the pullback is Nicaragua, which receives
$600 million in annual transfers from Caracas. Starting next year,
former guerrilla leader Daniel Ortega's government will begin funding
monthly $30 "socialist" cash transfers to poor Nicaraguans that until
now have been paid for by Venezuela. Construction of Central
America's largest oil refinery has also stalled as Venezuelan
investment has dried up.
Analysts said Venezuelans are now feeling the financial stresses that
worsened seven months ago, after Maduro defeated Gov. Henrique
Capriles by a razor-thin margin to succeed Chavez following his
death from cancer. Faced with growing spending demands spurred
by 54 percent inflation, the state agency that administers the nation's
dollars has been restricting access to hard currency to pay suppliers
overseas. That's pushed the value of the dollar in the black market to
10 times its official rate and led to record shortages of everything
from toilet paper to cooking oil.
Maduro blames it on his opponents in Venezuela and the U.S.,
saying they're conspiring to sabotage the economy.
Trading partners grew more concerned after the government
proposed paying for imports with bonds issued by state-run oil
company PDVSA. In October, Brazilian Trade Minister Fernando
Pimentel met with Maduro to discuss the unpaid bills, according to a
Brazilian official who insisted on speaking anonymously because the
talks were private.
The delays pose a much bigger risk for smaller Panama and
Colombia. Business in the Colon Free Zone adjacent to the Panama
Canal is down about 10 percent this year, due to declining
Venezuelan purchases, said Severo Sousa, who represents
exporters in talks with the Venezuelan government.
Sousa estimates Venezuela owes Panamanian companies about $1
billion, of which only 10 percent has been recovered.
"The results of talks have been very limited," said Sousa.
It's not just less economic muscle that is freezing Venezuela's
outreach, said Carlos Romero, an international relations expert at the
Central University of Venezuela. Maduro's inability to replicate
Chavez's charisma and a rapprochement with the West by Iran and
Syria, whose previous hard-line stance Chavez embraced, are
undermining the politics of confrontation that the late Venezuelan
leader relished, Romero said.
Interventionist policies, like Maduro's seizure of appliance stores last
month, are also on the decline in much of Latin America. Even
communist Cuba, its staunchest ally, is opening up to more private
"Maduro's conduct came as a big surprise to activists, academics and
many in the international media who had sympathized with Chavez
and were expecting moderation," Romero said. "There's greater
scrutiny of his human rights record and economic policies, and that
has repercussions on Venezuela's international reputation."
Venezuela's Foreign Ministry declined to comment when contacted
by The Associated Press.
To be sure, Venezuela isn't retreating into a hole. Maduro last month
ordered the creation of a medical university in Venezuela to turn out
doctors from around Latin America. He'll present the proposal at this
month's summit in Caracas of the Bolivarian Alliance of nine leftist
nations that includes Bolivia, Cuba and Ecuador.
And Maduro may have some reasons for hope. Oil production
declines may soon bottom out as the government gives foreign
companies a freer hand. Last week, the government secured a $1
billion loan from Russia's Gazprom, bringing to almost $10 billion the
amount it has raised this year from foreign partners. Economists also
expect Maduro to devalue the bolivar after Dec. 8 mayoral elections,
a move that would substantially reduce a deficit estimated by Bank of
America at 11.5 percent of GDP.
A debt crisis also seems unlikely with Wall Street banks lining up to
lend money. Even as Maduro accuses the U.S. of conspiring to
destabilize his government, the central bank is reportedly negotiating
with Goldman Sachs a credit line using its sizable gold reserves as
collateral. The government has an extra cash cushion in an offbudget fund known as well as a strong lender in China, which in
September wrote Maduro a check for $5 billion.
Still, the days of geopolitical chest thumping, best captured when
Chavez in 2006 laid out plans to build a pipeline stretching across
South America, are a fast-fading memory as Maduro tries to get his
house in order. A sign of the times: Brazil's state-owned Petrobras
last month officially pulled the plug on a joint oil refinery with PDVSA
after Venezuela failed to pay for its share of the project.
"It would be very difficult for Maduro to attempt anything as audacious
again," said Juan Gabriel Tokatlian, director of international relations
at the Universidad Torcuato Di Tella in Buenos Aires, Argentina.
"Latin America's strategic options are changing rapidly, and they no
longer pass through Caracas."