Chavez exploits oil to lend in
Latin America, pushing IMF aside
by Christopher Swann, Bloomberg
www.zmag.org, March 1, 2007
Venezuelan President Hugo Chavez is squeezing
the International Monetary Fund out of Latin America, the region
that once accounted for most of its business.
IMF lending in the area has fallen to $50 million, or less than
1 percent of its global portfolio, compared with 80 percent in
2005. Meanwhile, Chavez has used his oil wealth to lend $2.5 billion
to Argentina, offer $1.5 billion to Bolivia and hold $500 million
out to Ecuador.
Chavez, 52, is promoting what he calls a "socialist"
alternative to the Washington-based IMF and its biggest shareholder,
the U.S. Treasury. The timing couldn't be worse for the IMF, whose
global clout is diminishing as countries from Uruguay to the Philippines
pay their debts.
"Chavez is the No. 1 enemy of the IMF in the region,"
said Jose Guerra, a former head of economic research at Venezuela's
central bank and now a professor at Universidad Central de Venezuela
in Caracas. "He views the IMF as an agent in the service
of the U.S."
The international lender's worldwide portfolio has shriveled to
$11.8 billion from a peak of $81 billion in 2004, and a single
nation, Turkey, now accounts for about 75 percent. As its lending
wanes, so does the fund's ability to influence government policies.
The IMF and its sister institution, the World Bank, have used
aid to promote free trade, unfettered investment flows and limited
"We don't accept the kind of development the World Bank and
International Monetary Fund want to push on us to change our hopes,
our souls, our pain," Chavez told a summit of the Non-Aligned
Movement in Havana last September.
Chavez has proposed creating Banco del Sur, or Bank of the South,
to supplant international lenders. Such a bank would allow Latin
American nations to avoid the policy conditions that generally
come with IMF loans.
"Chavez's effort to undermine the IMF is also an effort to
undermine the Washington consensus on privatization and liberal
economics," said Francisco Rodriguez, a professor of Latin
American studies at Wesleyan University in Middletown, Connecticut.
Chavez's presidential press office said he was unavailable for
comment. IMF spokesman Bill Murray declined to comment.
Chavez has used the wealth of Latin America's largest oil exporter
to extend his financial influence. Oil exports last year rose
21 percent to $58.4 billion, according to Venezuela's central
Oil revenue has helped Venezuela amass reserves of more than $34
billion. Chavez also controls an $18 billion pool of cash, known
as the Fonden, transferred from the central bank and the state
oil company Petroleos de Venezuela SA.
The bounty can't last, said Ted Truman, a former assistant U.S.
Treasury secretary for international affairs.
"Chavez is at grave risk of running out of money," said
Truman, who is now a senior fellow at the Peterson Institute for
International Economics in Washington.
Venezuela's budget deficit soared to 8.2 trillion bolivars ($3.8
billion) in the first 11 months of last year from 447 billion
bolivars a year earlier. The bolivar has plunged 16 percent against
the dollar on the black market this year, making it the world's
For now, Chavez shows no sign of slowing down.
Venezuela is offering to help Ecuador as its newly elected leader,
Rafael Correa, threatens to default on $10 billion of overseas
debt. On Feb. 22, Venezuela offered Ecuador as much as $500 million
of "financial cooperation."
Such offers allow Venezuela to take over the IMF's role as "lender
of last resort" to governments, said Mark Weisbrot, an analyst
at the Center for Economic and Policy Research in Washington.
Venezuela is also backing bonds sold jointly with Argentina, Rodriguez
said. Venezuela's Finance Ministry on Feb. 26 said it plans to
sell $1.5 billion of the so-called "Bond of the South"
this week following a $1 billion sale last November.
Venezuelan purchases of $2.5 billion of Argentine government bonds
helped Latin America's third-largest economy replenish its reserves
after it repaid $9.5 billion of debt to the IMF in late 2005.
Chavez said he wanted to "help Argentina end its dependence
on the IMF."
Argentine President Nestor Kirchner, elected in May 2003, said
IMF policies had "devastated" his country, which defaulted
on $95 billion of debt in 2001. "There is life after the
IMF, and it's a good life," Kirchner said in Munich in April
IMF Managing Director Rodrigo de Rato defended the fund's record
in Latin America in a speech in New York on Feb. 16, saying that
the region's economy grew 5 percent last year, and "countries
that liberalized trade and reformed the role of the state in the
private sector have performed particularly well."
Prosperity in Latin America means hard times for the IMF, which
depends on income from loans. The fund projects a loss of $103
million this fiscal year and is considering selling and investing
some of its estimated $6.6 billion gold hoard to cover losses.
"They're having problems, while here in Venezuela we're opening
the Banco del Sur," Chavez gloated during a news conference
in Caracas on Feb. 24.
To contact the reporter on this story: Christopher Swann at email@example.com
International Monetary Fund