Home Economy Venezuela claims oil debt it once exchanged for literal beans

Venezuela claims oil debt it once exchanged for literal beans

by SuperiorInvest

Impoverished and desperate for cash, Venezuela is trying to collect old debts from a program that sold oil to poor countries.

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At the height of Venezuela's oil boom days, oil tankers fanned out across the Caribbean, delivering 200,000 barrels a day to a constellation of small, mostly poor islands. The fact that those countries racked up huge debts and paid part of the bill with things like black beans and peanuts mattered little to Hugo Chávez as he turned the boom into world fame as the leader of what he called 21st-century socialism.

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Two decades later, impoverished and desperate for cash, Venezuela is trying to collect old debts from the Petrocaribe program. Last month, it received a $500 million payment from Haiti (the poorest country in the hemisphere) to pay off what had been a $2.3 billion debt, according to documents seen by Bloomberg and people familiar with the matter. It is working on similar transactions with other nations, the people said.

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The deal with Haiti was finalized after the U.S. Treasury granted the country a license to transfer the money from an escrow account through the international banking system. For Haiti, a country chronically devastated by crisis, paying off the debt helps it move forward with the International Monetary Fund on a possible loan package.

Venezuelan oil production

Representatives from Venezuela, Haiti and several agencies involved in the deal did not respond to messages seeking comment. A U.S. Treasury spokesman said the Office of Foreign Assets Control does not comment on individual licenses.

For Venezuela and its current leader, Nicolás Maduro, who took power after Chávez's death in 2013, the agreement marks another step in their effort to regain international recognition after years of economic collapse and international isolation. The government and its state oil company have been in default for years on global bonds and owe China billions in bilateral loans.

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'Energy Arc'

During the boom years of unbridled global crude oil prices, Petrocaribe was part of the broader largesse that Chávez leveraged to win an international following. He distributed heating oil to poor residents of the Bronx, New York, financed cash-strapped Argentina, and promised to finance mines and refineries for Niger and Mauritania.

“We want to create an arc of energy cooperation in the region,” Chavez said at the Petrocaribe 2005 launch summit, attended by Cuba's Fidel Castro and a dozen other heads of state.

Under the agreement, Venezuela sold oil to 18 countries, allowing them to finance most of the bill for 25 years at an interest rate of one to two percent.

They were allowed to pay part of the bill in kind: Guyana sent rice; Nicaragua sent cattle; Jamaica contributed cement materials; for Cuba it was the doctors. Sometimes it was peanuts or beans.

In turn, Venezuela gained political support, enough, at times, to block anti-government proposals at the Organization of American States, said David Goldwyn, chair of the Energy Advisory Group at the Atlantic Council Global Energy Center.

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“Venezuela did something for them that Western countries did not do: in fact, it helped them with financing at a time when the countries needed it,” he said.

However, all that aid helped fuel a historic economic collapse, marked by hyperinflation and the worst humanitarian crisis in Latin American history.

Even as global crude oil prices fell, Maduro continued to send oil to the Caribbean on generous terms.

“The cost to Venezuela was clear: When oil prices fell in 2014, the country had no way to address it,” said Francisco Rodríguez, an economics professor at the University of Denver.

When the program was abruptly stopped after the United States sanctioned Venezuela's oil industry in 2019, about $6 billion in accounts receivable from Petrocaribe and other bilateral debt deals had accumulated, according to EMFI Securities estimates. The calculations exclude Cuba, which has a separate oil supply agreement, the terms of which are not made public.

Venezuela has recently begun collecting those debts after the United States granted sanctions relief in exchange for Maduro's promise to work toward free and fair presidential elections, scheduled for later this year. However, those relations have become strained as the vote approaches. Washington has threatened to reinstate some of the sanctions if Maduro does not comply with a series of political agreements.

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Meanwhile, Venezuela is moving forward with debt collection efforts. This month, Vice President Delcy Rodríguez visited officials in Grenada, who she said were discussing a payment plan for her Petrocaribe debts. And officials are closing in on a deal with Belize to pay off its debt of between $129 million and $164 million, according to people familiar with the negotiations.

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Caribbean leaders have urged Venezuela to relaunch the program and Maduro has said it is a goal. At the end of 2022, Venezuela sent 23,000 barrels of diesel to Saint Vincent and the Grenadines, a political ally.

However, the country only produces about a quarter of what it used to, with output at around 840,000 barrels per day, according to OPEC data. And a portion of that production goes toward paying off the enormous debts that Venezuela itself accumulated while shipping oil to its neighbors.

Bloomberg.com

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