Daily Management Review

Venezuela is losing its last allies


03/23/2018


The debt crisis of Venezuela will almost certainly continue to deepen this year. At the same time, the Venezuelan government can lose one of its most important financial donors, which will further increase the probability of default of this Latin American country.



Eneas via flickr
Eneas via flickr
In recent years, China has provided Venezuela with loans for $ 50 billion, which, as a rule, returned as oil supplies. The Eastern country needed the resource, and Venezuelans - money, and such a relationship have been suitable for both sides for a long time.

However, as the economic situation in Venezuela worsened, China began to retreat slowly. Or rather, Beijing offered Caracas softer repayment terms, while closing the door for new loans.

According to Reuters, the Chinese are likely to extend only those financial items that relate to debt repayment upon the expiration of the current agreement this year. Beijing will allow Caracas, which has no money, to pay only interest on debt.

"Given the sharp drop in oil production in the country, Chinese banks, for natural reasons, will not resume lending," a source in the Chinese oil industry said.

Much of Venezuelan oil is still directed towards paying off debts, which means that Caracas does not receive income from this part of the export. To date, Venezuela owes the Middle Kingdom $ 19.3 billion, half of which was received under the 2010 deal. The problem of Caracas is that the body of debt does not decrease, because only interest is paid.

The probability of full repayment is almost zero. The Venezuelan government has less than $ 10 billion in its reserves, although mandatory payments only for this year exceed this amount. Moreover, against the backdrop of a steady decline in oil production and the fact that China claims a large part of this volume, a decrease in production means a reduction in the source of income. The Chinese are unlikely to return all their money, but they will continue to take as much oil as possible.

According to The Atlantic Council, Venezuela sends about 500-600 thousand barrels per day to China and Russia as repayment of old loans. Another 400-450 thousand barrels are sold domestically at artificially low prices, which brings the state oil company PDVSA some losses. As a result, there are about 850 thousand barrels a day, on which Venezuela can at least make some money, but this figure is steadily decreasing. China refuses to renew the financing of PDVSA, which negatively affects the company's oil production.

Beijing seems to begin to treat Venezuelan President Nicolas Maduro as Robert Mugabe, who led Zimbabwe for 40 years and brought the country to economic collapse.

Since Caracas does not have many allies, Russia has become its last source of support. Moscow, according to the American media, actively assisted Venezuelans in creating the state crypto currency Petro, which was supposed to help fight hyperinflation. However, most analysts do not consider all these efforts seriously.

In addition, the Trump administration recently announced sanctions against Petro, forbidding US citizens to participate in any transactions with this crypto currency.

It is not yet clear whether Russia will come to aid Maduro. According to The Atlantic Council, the Venezuelan government owes Russia about $ 3 billion, an additional $ 5 billion are owed to Russian Rosneft PDVSA.

It's hard to believe that China and Russia are benefiting greatly from the Venezuelan crisis. Most likely, their loans will never be fully repaid, and it is a significant risk for Venezuela. When the country is in deep crisis and the mountain of debts is crushed, Beijing and Moscow can hope to receive only the fragments that remained after the collapse, analysts believe.

source: reuters.com






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