OIL-VENEZUELA: Government to Stiffen Terms of Soft Credit Pact

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Nov 10 1994 (IPS) - Venezuela will stiffen requirements for the granting of credits as part of a Programme of Energy Cooperation with Central America and the Caribbean, officials told IPS.

In 1980, Mexico and Venezuela created the San Jose Pact which benefits ten oil-importing countries, but now Caracas has decided to toughen the system of loans on which it is based, setting new unilateral requirements.

By means of the accord, considered a successful South-South cooperation experiment, Mexico and Venezuela guarantee the supply of 160,000 barrels of crude oil a day to recipient nations, 20 percent of the price of which is returned to the countries by way of soft loans.

Government sources who talked to IPS – who preferred to remain anonymous – said the new conditions “will remain attractive” for the programme’s beneficiaries.

Participating in the programme are Barbados, Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Jamaica, Dominican Republic and Panama, with the latter country’s credit having been suspended due to a delay payments worth 100 million dollars.

Missions – made up of representatives of the Venezuelan Investment Fund (VIF) and the Foreign Ministry – will visit participating countries to explain the changes.

The first mission is set to visit Costa Rica and Guatemala on Nov. 15, while in the following week another group of officials will visit Honduras, El Salvador and Nicaragua and a third delegation will go to the Dominican Republic, Jamaica and Barbados.

According to the government officials, changes in the pact will include the elimination of deposits in participating country’s Central Banks, a shift to variable rates, and the freezing of loan installments when the countries are behind in their payments.

The sources told IPS that the system by which 20 percent of oil payments are returned in the form of soft credits was created “during an oil and financial boom” in Venezuela which has turned into a severe economic crisis.

They added that Venezuela seeks to adapt the programme to today’s reality: the opening of trade and markets, the private sector’s greater role in the economy and the privatisation of the energy sectors of several recipient countries.

Venezuela intends to eliminate the required deposits in the importing countries’ Central Banks, where until now half of the oil payments were deposited to stabilise the balance of payments.

The Central American and Caribbean nations no longer have problems in their balance of payments, while the formula has become a “corrupt” practice by means of which recipient countries have been using the portion deposited in the VIF as fresh funds, while freezing the sum deposited in their Central Banks.

The deposits and their reimbursements will be carried out from now on only in dollars, and Venezuela also intends to “dolarise” the debts generated in its national currency – the bolivar – a move not expected to be readily accepted by recipient countries.

Within the last year, the value of the bolivar plummeted nearly 100 percent, maintained steady now at 170 per dollar by rigid exchange rate controls, which according to experts has headed off further devaluation.

The VIF, which administers the loans of the San Jose Pact, aims to implement adjustable interest rates which are closer to international levels.

However, by law the VIF must grant credits at rates similar to those of the Inter-American Development Bank, set at that the current seven to nine percent.

Credit lines to stimulate purchases of Venezuelan products – which could be frozen in the case of delays in payment, as is the global practice – will also be promoted.

Another element which the Venezuelan missions will analyse with their Central American and Caribbean counterparts is the participation of those countries which have privatised their electric companies, such as Honduras, Guatemala and El Salvador.

Honduras, for example, stopped buying Venezuelan oil two years ago, and Guatemala did so more recently, although they still have programme funds.

The Venezualan officials said that unlike the multilateral organisations and northern countries such as the United States and Japan which provide soft credits, Venezuela does not apply criteria such as “risk-country” which charges higher financing costs to what are considered high risk countries.

According to the officials, both Venezuela and Mexico are attractive because of low freight costs, which makes their oil competitive in Central America and the Caribbean.

Furthermore, Caracas grants a 15 year guarantee of demonstrated supply, very valuable for small markets, and the area’s refineries are adapted for Venezuelan crude oil and derivatives, while the local state-run industry sells special mixes adapted to those plants.