Venezuela upsets bankers with call to ease their terms
Venezuela has set itself on a collision course with foreign creditors by invoking a clause in its debt refinancing agreement that forces the banks to discuss eased repayment terms. Last week's decision, which came only two months after Venezuela signed the extensive, long-term debt rescheduling accord, had been expected, because falling oil prices have left the government strapped for cash.
But foreign banks in Venezuela, a leading producer in the Organization of Petroleum Exporting Countries, apparently have different ideas on what changes should be made when they begin talks next month.
The key point of contention is the $750 million down payment of principal scheduled to be paid this year. Some government officials have suggested that the $750 million be deferred, but bankers adamantly oppose this proposal.
``The banks recognize that Venezuela is being buffeted by falling oil prices and that the country needs help,'' says an American banker here. ``But many banks signed the debt agreement only because they were promised that the $750 million would be paid this year, so they'll fight tooth and nail against deferment.''
``The down payment is a measure of the government's good faith toward paying the debt,'' another banker adds. ``Besides, banks are anxious to get that money and reduce their exposure in Venezuela at least a little bit.''
If Venezuela makes the down payment, bankers say, they are willing to defer principal owed in 1987, and possibly later years, as well as provide new loans for exporting.
Venezuela's 450 creditors have already agreed to defer the principal due in 1986, which reduced the country's debt payments this year by $1 billion, to $4.2 billion.
That agreement, which was signed Feb. 26 in New York City, calls for Venezuela to pay $21.2 billion in public-sector foreign debt over the next 12 years. The country's overall foreign debt is $33.5 billion, the fourth largest in Latin America behind Brazil, Mexico, and Argentina.
Venezuela can afford to pay the $750 million, bankers say, since the country has $16 billion in foreign reserves, easily the highest figure in Latin America.
But the government says the sharp decline in oil prices since last December, from $28 a barrel on average to about $13 today, has left the oil-dependent nation unable to meet debt payments and domestic spending needs.
Venezuela will not pay the debt ``at the expense of the welfare of our people and the economic and social growth of our country,'' President Jaime Lusinchi said.
Oil income is expected to be $8.5 billion this year, compared with an original projection of $12.6 billion. Despite attempts to diversify the Venezuelan economy, oil still provides 90 percent of export earnings and 60 percent of domestic revenue.
``Because of oil, we were lent to; and because of oil, we will pay,'' Mr. Lusinchi said.
A team of International Monetary Fund economists visiting here last week has recommended that the government reduce the $1 billion budgeted for a three-year public-works program to cut unemployment.
But the government has refused, noting that Venezuela is expected to show negative growth this year for the eighth year in a row.