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Venezuela Foreign Debt
Venezuela's public and private sectors owed as much as
US$35
billion in debt in 1989, although data on debt varied
considerably because of ongoing debt negotiations and
reduction
plans (see
table 12, Appendix). The country ranked as
Latin
America's fourth leading debtor behind Brazil, Mexico, and
Argentina; it was also one of the world's top twenty
"highly
indebted nations," as defined by the World Bank. Unlike
many
developing countries, Venezuela could not ascribe its huge
indebtedness to the misfortunes of the oil price hikes of
the
1970s. On the contrary, Venezuela benefited handsomely
from the
oil crises of the 1970s. Like several other oil economies,
however, Venezuela squandered much of its newly found
revenues
through poor economic management, corruption, and
over-ambitious
development projects. Although oil financed economic
improvements, the resulting public-sector indebtedness,
which
skyrocketed from under US$350 million in 1970 to US$10
billion by
1980 to US$25 billion in 1990, in no way compensated for
the
return on oil-based investments.
The country was atypical of other major debtor nations
in
other ways as well. Most notably, Venezuela actually paid
both
the interest and the principal of its debt during the
1980s, and
its payments from 1983 to 1988 alone exceeded US$35
billion.
These debt payments were pivotal in creating the large
capital
outflows that the nation suffered during the decade.
Although the
government temporarily held back debt payments in 1983 and
again
in 1988 because of ongoing negotiations, many in the
international financial community still viewed Venezuela
as a
model debtor in many respects.
The structure of the country's debt was also distinct,
as it
was owed almost entirely to commercial banks rather than
to
multilateral institutions or bilateral agencies. In fact,
Venezuela owed a higher percentage of its debt to
commercial
banks (at least 85 percent) than did any of the highly
indebted
countries. Another distinction was the large amount of
private
foreign debt. This private debt, estimated at US$4.5
billion in
1989, was declining under a set of agreements established
in the
early and mid-1980s. Finally, unlike most other debtors,
Venezuela was also a major creditor to other developing
countries
(see Foreign Assistance
, this ch.).
After securing debt rescheduling agreements in 1983,
1986,
and 1987 to ease the terms of its repayments, Venezuela
concentrated its debt management efforts in 1989 and 1990
on
complex debt reduction plans with its more than 450
creditors. By
early 1990, the banks, the government, and the
government's Bank
Advisory Committee had agreed in principle on a series of
measures to reduce the country's debt. Although not all
provisions were resolved, the plan offered what was termed
a
"debt reduction menu." Because of the number of creditors
involved, the government provided a wide range of
reduction
options. Debt reduction, aimed at lowering total debt by
onefourth , offered creditors a range of short- and long-term
bonds,
some guaranteed by the United States Treasury. The various
bonds
offered highly favorable short-term relief, or conversions
into
discounted cash, equity, or other debt conversion
mechanisms. The
reduction plan fell under the auspices of the "Brady
Plan," named
after United States treasury secretary Nicolas Brady, who
devised
a worldwide debt reduction program.
As a consequence of the Brady Plan, United States
Treasury
officials encouraged United States commercial banks to
accept the
terms of the plan to mitigate the international debt
crisis and
to strengthen the United States hand in its resolution.
American
bankers, however, generally frowned upon the Venezuelan
plan
because of the country's relative prosperity and its track
record
of questionable economic management. The February 1989
riots,
apparently provoked by economic austerity measures,
strengthened
the Venezuelan government's hand in pressing for debt
negotiations. PDVSA's 1989 purchase of the Citgo oil
company in
the midst of the country's debt negotiations, however,
cast
doubts in the minds of many United States financiers about
the
country's genuine need for debt relief.
As early as 1987, Venezuela had initiated a
debt-for-equity
program to lower its debt, to privatize inefficient
semiautonomous government agencies, and to stimulate
foreign
investment. The plan proceeded slowly, because exchange
rate
provisions until 1988 offered currency transactions at
overvalued
official rates rather than market rates. After only three
debt
swaps in 1988, the Ministry of Finance instituted
debt-for-equity
auctions in November 1989, where projects previously
approved by
the state corporation Superintendency of Foreign
Investment
(Sistema de Inversiones Extranjeras--SIEX) could trade
paper debt
for discounted bolívares with a monthly limit of US$80
million.
Authorities imposed this US$80 million limit to restrain
possible
surges in the money supply created by bolívar conversions.
Such
limits, however, prevented debt-for-equity deals in many
largerscale projects in mining and petrochemicals. Debt swaps in
1989
and 1990 financed new investments in cement, paper, steel,
aluminum, and tourism. Scores of additional SIEX-approved
projects, valued at over US$2 billion, awaited further
bidding in
1990.
Data as of December 1990
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