Edelmina Flores thanks God and Hugo Chavez for her apartment in a new housing complex in the Venezuelan president’s home state of Barinas. She might also want to thank the Chinese government.
Since 2007, the China Development Bank has lent Venezuela $42.5 billion collateralized by revenue from the world’s largest oil reserves, according to data compiled by Bloomberg from announcements of deals by the Chavez government. That’s around 23 percent of all overseas loans by the state-run lender and more than the $29 billion the U.S. spent rebuilding Iraqbetween 2003 and 2006. At least $12 billion was promised in the past 15 months, when stagnant oil output and the highest borrowing costs among major emerging markets would’ve made raising capital more expensive.
The loans are fueling a surge in spending as Chavez hands out homes to the poor, stocks “socialist” supermarkets with appliances and builds a cross-country railroad — all aimed at winning votes next month in his toughest election battle ever.
The loans give the Chinese influence over Chavez, who regularly speaks of recovering Venezuela’s sovereignty after decades of subjugation to the U.S. “empire.” In addition to securing large deliveries of oil, much of the money lent to Venezuela returns in the form of contracts to Chinese state-run companies whose global expansion is also being financed by the Beijing-based CDB, the world’s biggest policy lender.
Among the beneficiaries are China Petrochemical Corp and the country’s biggest oil and gas producer, China National Petroleum Corp. Both gained stakes in Venezuela’s oil industry after Exxon Mobil Corp. (XOM) and ConocoPhillips (COP)abandoned the country under the threat of nationalization.
“Venezuela’s oil is at the service of China,” Chavez, 58, said in February 2009 at a meeting in Caracas with a delegation of Chinese businessmen led by Vice President Xi Jinping.
“The Chinese have done their homework,” said Kevin Gallagher, an economist at Boston University and author of “Dragon in the Room: China & the Future of Latin American Industrialization.” “The Venezuelan economy can tank but part of the loans are linked to commodities that aren’t going to disappear anytime soon.”
The oil-for-loans program in Venezuela stands out for its size, though the same model is used by China to benefit its economy and companies throughout the world, from Russia to Ghana. InLatin America, Ecuadorean President Rafael Correa, an ally of Chavez, has secured oil-backed loans from China since 2009 worth $7.3 billion, about a third of the government’s budget, according to the country’s Finance Ministry.
Bloomberg has the full article
