By Isabella Mayer de Moura
Venezuela’s debt with Brazil has reached billions of dollars. According to the Ministry of Economy, as of November 29, 2022, the neighboring country’s debt repayment arrears to Brazil amounted to $1.225 billion, equivalent to R$6.3 billion, including interest.
Venezuela’s debt is the legacy of deals made between the Venezuelan dictatorship and Brazilian companies during the PT (progressive-globalist) governments to contract engineering services from Brazil and loans to buy aircraft, meat and dairy products.
Payment installments will end in 2024 if they are paid.
And if Venezuela defaults on its obligations, the amount owed will increase by $214.5 million by then.
The Ministry of Foreign Affairs periodically sends collection letters to Venezuelan diplomats, informing them of the amount they are owed.
But the one who received the communications is Ambassador Maria Teresa Belandria, representative of Juan Guaido’s government.
Without access to financial resources from the country, which dictator Nicolás Maduro de facto commands, the interim government cannot pay its debts.
According to the Ministry of Economy, the amounts of Venezuela’s debt are registered in the Agreement on Reciprocal Payments and Credits (CCR) of the Latin American Integration Association (Aladi), to which the Central Bank of Brazil is a signatory.
In this negotiation scheme, default means non-payment by the debtor’s central bank (in this case, the central bank of Venezuela) to the signatory to the agreement by the other central bank (in this case, the Brazilian central bank).
The updating of the amounts, including the arrears interest, is done by the Central Bank of Brazil.
The incoming government of President-elect Luiz Inácio Lula da Silva (PT) has already announced that it will restore diplomatic relations with the Maduro government. But it is not yet known whether the debt payment will resume.
Venezuela’s debt to Brazil comes from loans given by the Chavista dictatorship to buy Brazilian goods and services.
Through Guarantee Certificates of Coverage (CGC), the Brazilian government guarantees payment to the exporter and the foreign country is the one that owes Brazil.
Part of them are export debts for services through the National Bank for Sustainable Development (BNDES), another part are export debts for goods financed by BNDES, and there are also export debts for goods through other banks.
In the case of BNDES, since 1998, the bank has disbursed $2.22 billion for operations to support exports to Venezuela, of which $1.505 billion was related to engineering services exported by construction companies Odebrecht ($876) and Andrade Gutierrez (USA). 631 million dollars).
Venezuela has so far failed to pay $684 million of this amount and another $122 million is due. The following works were financed with this money:
- Construction of Estaleiro Del Alba (Astialba) for PDVSA, Venezuela’s state oil company, by Brazilian construction company Andrade Gutierrez (amount disbursed by BNDES: $240 million);
- The extension of the Caracas metro by the construction company Odebrecht (amount disbursed: 383 million USD);
- Los Teques metro extension by Odebrecht (amount disbursed: USD 492.9 million);
- Construction of Usina Siderúrgica Nacional, by Andrade Gutierrez (amount disbursed: 390 million USD).
Few of these works have been completed.
According to the Venezuelan investigative site Armando Info, of the constructions carried out by Odebrecht with the financing of BNDES in Venezuela, only lines 3 and 4 of the Caracas metro (the country’s capital) have been delivered.
Former heads of the contractors, such as Marcelo Odebrecht and Euzenando de Azevedo, said in plea deals in Brazilian court that they paid bribes to Venezuelan politicians to receive benefits in public works.
In 2015, BNDES loans to contractors involved in corruption were suspended and the bank established additional criteria for their resumption.
In addition, Venezuela’s debt also includes $220 million in merchandise exports, according to BNDES. Gazeta do Povo has requested further clarifications on the signed contracts but has not received an answer until the close of this report.
The Ministry of Economy, on the other hand, reported that four operations for the export of goods to Venezuela were secured under the Aladi Agreement on Reciprocal Payments and Credits.
One for aircraft export (credit value covered: USD 386.3 million in 2012); and three for the export of frozen foods (beef, chicken, pork) and dairy products (milk powder and margarine).
The amount of credit covered in these three operations, carried out in 2015 and 2016, is 525 million dollars.
The ministry said the export of the planes was made by Embraer, with the buyer Conviasa, the Venezuelan state airline. The financing, made possible by BNDES, was agreed in 2012.
JBS exported meat and milk to Corporación Venezolana de Comercio Exterior (Corpovex).
The funding was released in 2015 and 2016, under the government of Nicolás Maduro, when the country was already in crisis and had difficulty supplying food to the population.
In these cases, the financial institutions involved were Credit Suisse Brazil and Bank of China, not BNDES. All operations are included in the Agreement on Reciprocal Payments and Credits (CCR-Aladi).
Arrears to BNDES are covered by Export Credit Insurance (SCE), one of the mechanisms to guarantee and mitigate credit risk in financing foreign sales of Brazilian goods and services.
SCE is supported by the Export Guarantee Fund (FGE), an accounting fund linked to the Ministry of Economy, consisting of resources from sales, dividends and bonuses from share capital, cancellation of uninvested balances.
Results from financial investments, commissions resulting from the granting of the guarantee and a specific appropriation in the Federal Budget.
BNDES informed that it had regularly received all SCE indemnities (outstanding principal and interest installments) and, despite defaults, the amount already paid to the bank for work done in other countries exceeds the total disbursed in nominal terms.
In total, from the 10.5 billion dollars invested in 15 countries, 12.82 billion dollars have been received, taking into account interest and including FGE damages.
There is still $946 million to be paid over the next few years.
CUBA AND MOZAMBIQUE ARE ALSO DELAYED
In addition to Venezuela, Cuba and Mozambique are also behind in their payments to Brazil.
The Ministry of Economy informed Gazeta do Povo that, at the end of September, the outstanding debt of the Cuban dictatorship was 268.57 million dollars and 188.21 million dollars.
The outstanding debt is $568.73 million and €23.45 million, due in 2038.
Part of these arrears was contracted for the expansion and modernization works of Mariel Port in 5 phases, carried out by the Works and Infrastructure Company, a subsidiary of Odebrecht.
The latest update for Mozambique arrears is from October 2021.
At the time, the African country owed Brazil $136.28 million in arrears. According to the BNDES website, the amount refers to loans given to the country for the construction of an airport and a dam by Odebrecht and Andrade Gutierrez, respectively.
According to the Ministry of Economy, Mozambique and Brazil have already completed debt restructuring negotiations.
However, the bilateral agreement still needs to be approved by the Senate before it can be signed by Brazil.
COLLECTION OF DEBT AND SANCTIONS
Defaulting countries are not allowed to enter into new loans with Brazil, according to Resolution no. 50/1993 of the Senate. Article 6 of the rule states that the granting of foreign financing will depend on the fact that “the borrower and the guarantor are not in default with the Federative Republic of Brazil or any of its public or private controlled entities, except in cases where there is a renegotiation of debts directly from the Union or through international organizations.
Also, the Ministry of Economy informed that the delays are communicated to the competent multilateral forums, such as the Paris Club.
According to the filing, this makes it more difficult for these debtor countries to contract support programs from major multilateral financial institutions, such as the World Bank and the International Monetary Fund (IMF).
“An example of these impacts is the need for Brazilian prior approval that any debtor in arrears with Brazil must obtain in order to have a financial support program approved by the IMF,” the Ministry of Economy quoted in response to Gazeta do Povo.
The Executive Secretariat of the Chamber of Foreign Trade (SE-Camex) periodically sends collection letters to the failing countries using the notification issued by the Ministry of Foreign Affairs.
In addition, the arrears are reported by the Ministry of Economy to the competent multilateral institutions and negotiated with the Paris Club and the diplomatic missions of the debtors in Brazil for the adjustment of the loans.
With information from Gazeta do Povo
