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Monday, October 24, 2016

Russia is beneficial to agree to a deferred payment of debt by Venezuela

Russia is once again delayed for Venezuela the payment of the debt five years ago. Russia has repeatedly shown its generosity towards the friendly countries who have forgiven a lot more of those 2.8 billion dollars, which must now Caracas. Can Moscow not to write off the money obtained with Hugo Chavez?

In December 2011, Russia gave Venezuela a loan of $ 4 billion to Fund supplies of Russian industrial products. That is, the money has venules Russia back, stimulating industrial production. You know, on the part of the loan funds Caracas has purchased a considerable amount of Russian weapons. In exchange for the loan, Russia also received the opportunity to increase its presence in the oil sector of Venezuela.

“Just in the last 20 years, Russia forgave the borrowers of more than 140 billion dollars”

By April 2015, the debt of Venezuela to Russia amounted to 2.8 billion dollars, and this debt was not overdue. However, in 2014, financial and economic situation in Venezuela has deteriorated sharply and in the last year, Caracas had asked Moscow to delay payments on that debt. In the end, the President of Russia Vladimir Putin extended the use of this credit Venezuela until December 31, 2016. Start payments of the debt, was postponed to March 2017. It was expected that Caracas will repay it over five years in equal semi-annual installments.

However, since the economic situation in Venezuela due to the fall in oil prices proportions almost disaster. No wonder that Moscow once again went to meet the debtor and once again postponed the start of payments – now until March 2019. Under the new schedule, the debt is repaid in equal semiannual installments for three years.

By the way, for Ukraine, with whom relations over the past two years has sharply deteriorated, Russia was ready to go almost the same concessions in respect of her debt in 3 billion dollars. Moscow offered a deferred payment over three years in equal tranches of $ 1 billion per year. If Kiev did not take this issue to the political plane, and went on to a constructive dialogue with Russia, then perhaps he would have been able to achieve and the postponement of the start of payments for one to three years in advance. Then there would be no actual sovereign default of the country, and Ukraine would not need so listen carefully to the conditions set Kiev the IMF in exchange for loans.

As for Venezuela, she got a break and can forget about the threat of default on the debt to Russia for another three years. Especially because now she is not the only and even in some way not the worst problem (given the problems with nutrition in the country).

Moreover, given the current economic state of the country, demand from Caracas to pay the debt now is still useless. In the past year foreign exchange reserves in Venezuela decreased by approximately 30%, inflation reached 720%. Interestingly, China has refused to support Venezuela, and Maduro is now more actively looking for support in Moscow.

“China has stopped investing in the Venezuelan economy and refuses to give loans to Caracas. However, there is information that opposition politicians have already visited Beijing, negotiating with the leadership of the CPC about the formation of a transitional government in Venezuela. Against this background, the prospects of debt repayment are minimal,” – says the managing partner of Kirikov Group Daniil Kirikov.

If it were not for the threat of a coup in Venezuela and the change of power, Moscow is likely already would have forgiven the debt Maduro.

To save Venezuela can only high oil prices. If by 2019 the era of cheap oil is not over, then it is likely that Moscow will provide another postponement or even write off debts. It will depend on how will behave the Venezuelan authorities (it is possible that the presidency will not be the successor of the late Hugo Chavez – Maduro).

Russia has a long-standing lending practices of friendly countries, as well as the practice of “forgiveness” of previously issued debt. Only in the last 20 years, Russia forgave the borrowers of more than 140 billion dollars, considered Kirikov.

Russia has written off debts to the impressive list of countries starting from Uzbekistan, Kyrgyzstan and Mongolia, finishing far from it Cuba, Iraq, Algeria, Syria, Vietnam, Ethiopia, Tanzania, Laos, Mozambique and Yemen. The greatest amount of debt was written off Cuba (31 billion dollars), Iraq (21 billion dollars), Mongolia and Afghanistan ($11 billion), and Korea ($10 billion).

However, the majority of it was the credits granted by the USSR to maintain the development of socialism. However, there are quite recent examples, for example, the allocation of funds to Iran under the development of infrastructure projects.

Often, these foreign loans originally are irrevocable in nature, as are granted to poor countries. At the same time this is hardly a charity or a gift. “In exchange, the state-level recipient of informal agreements or formal contracts shall provide the creditor special conditions, for example, during development within its territory of mineral resources, implementation of major projects in the sphere of development of transport infrastructure or energy systems. Again, there are political credits for the loyal creditor governments to maintain their authority within the country”, – said Kirill Yakovenko from “ALOR Broker”.

Mansion built loans for the purchase of weapons and military equipment, as the main condition of granting of borrowed funds is the purchase of Russian products. In this case, the lender (Russia) transfers the money directly to the companies that these products will produce. Therefore, the lender acts primarily in its own interests: it removes some liquidity from the market, creates new jobs, loads the production capacity of enterprises, increase export volumes and receives long-term contracts for the maintenance of supplied equipment,” – says Yakovenko. Exactly the same mechanisms operate not only in weapons but also in respect of civil engineering LIPOSTABIL oil.

For example, after the write-off of debts of the USSR, Cuba, Russia managed to sign two agreements on the supply of Russian equipment to the island for 650 million dollars (in particular, An, Il and Tu). Plus, Russian companies have expanded their positions in the field of oil production. And in exchange for debt forgiveness for African countries Africa has opened its doors to cooperation with Russian companies in projects. In particular, Gazprom, LUKOIL, Russian Railways, Power machines.

After the cancellation of debt of 4.7 billion dollars Algeria failed to agree on large purchases of that country of Russian military equipment by the same amount.

This way of working is not a Russian invention. The US, EU and China are also actively engaged in such lending. Of course, such a generous gesture of the Kremlin does not always lead to goals, for example, change the foreign policy of the former debtors. For example, granting Ukraine a loan of 3 billion dollars in December 2014 from a total credit line of 15 billion dollars was also a kind of charge that Kiev has not made a serious mistake – the signing of the Association agreement with the EU. The past three years have proved the rightness of Moscow in this question. Suffice it to say that the level of Ukraine’s GDP has slipped to 90 years, destroying everything the country has built over the last 25 years of independence.

“I think the restructuring of Venezuela’s debt is a bet that the successors of the current government was more accommodating on political issues and felt a kind of gratitude to Russia. Forgiveness of debt (and loans) always pursues political goals, and in this sense, Venezuela is a very important Russian ally on the American continent,” said Sergei Zvenigorodsky of “solid Management”.

Most likely, the parties agreed that when the Venezuelan economy will begin to recover, the Russian companies can receive preferential treatment with the participation of major infrastructure and oil and gas projects in the country. In the same way it is planned, for example, a gas pipeline through North Korea, which in 2012 wrote off the debt, gives the example of Zvenigorod.

Of course, there is another political moment. Russia hopes that Venezuela, a major oil-rich region will open their doors to US and will remain an ally of Moscow in the ocean. Moreover, given that Venezuela is now on the brink of a humanitarian catastrophe and in dire need of funds, it is possible that Moscow may allocate new loans.


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