BOFIT Viikkokatsaus / BOFIT Weekly 2019/05

Amidst Venezuela’s catastrophic economic crisis and political impasse, opposition leader Juan Guaidó declared himself interim president on January 23. The move occurred just weeks after president Nicolas Maduro was inaugurated to his second term. The United States and several Latin American countries immediately recognised Guaidó, while China and Russia said they backed the Maduro administration. Venezuela offers both China and Russia a strategic foothold in the Western Hemisphere, an opportunity both countries have pursued through lavish financing to Venezuela.

Several sources report that since 2008 China has lent Venezuela roughly 60–70 billion dollars to fund infrastructure and oil projects. Repayment of these loans is tied largely to oil supply contracts. Just last September, China granted Venezuela a 5-billion-dollar loan. Venezuela is currently thought to owe China something the range of 20–25 billion dollars. Venezuela earlier was China’s seventh largest oil supplier, accounting for about 5 % of China’s oil imports. China’s imports from Venezuela declined by nearly a quarter last year, lowering Venezuela’s share of Chinese oil imports to just 3.6 %.

  While China’s financing to Venezuela dwarfs the Russian input, the Russian government and the state-owned oil company Rosneft have granted credit to Venezuela since 2006 amounting to at least 17 billion dollars in total. Most of this credit is likely tied to oil supplies. Last November, the government continued to provide financing to Venezuela by agreeing to reschedule a loan for more the 3 billion dollars. So, this is the minimum outstanding amount Venezuela currently owes to Russia. By its own reports last autumn, Rosneft’s claims on the Venezuelan government exceeded 3 billion dollars. Russia and China also hold stakes in the Venezuelan oil industry.

Figures from the Stockholm International Peace Research Institute (SIPRI) show Russia and China began exporting arms to Venezuela in 2006. During 2006–2016, Russia accounted for 74 % of arms sales to Venezuela. China, with an 11 % share, was the second largest supplier of arms to the country. Venezuela’s arms imports appear, however, to have collapsed around 2015.

Venezuela’s actual debt situation is very confused and the country no longer has the ability to service its debts. Reuters puts Venezuela’s foreign debt at about 140 billion dollars, of which 60 billion dollars are government sovereign bonds or bonds issued by the state-owned oil company PDVSA. The remainders are credits granted by foreign governments and international institutions. Even if the country has the largest oil reserves in the world, its situation has deteriorated with the decline of oil prices in dollars, decreased production and the collapse of the bolivar. The situation also complicates debt repayment to China and Russia. The US sanctions imposed on Venezuela’s oil industry and oil exports on Monday (Jan. 28) will only aggravate debt crisis of the Maduro administration.