Venezuela puts debt service before food imports as cash dries up: sources

By Reuters

Mar 16, 2015 08:24 PM EDT

Venezuela's government has told the country's food industry that it is limiting dollar disbursements for food imports so that it can pay down foreign debt amid low oil prices, according to two sources with direct knowledge of the situation.

The government of socialist President Nicolas Maduro administers most of the country's dollars through a currency ggcontrol system and must pay $8.4 billion in debt service on foreign bonds by the end of the year.

Restrictions on dollars for imports have already caused shortages of basic goods including meat and olive oil, and the scarcity is weighing on the government ahead of parliamentary elections.

At the same time, concerns Venezuela could default on foreign debt have pushed its yields to the second highest of any emerging market nation, despite government assurances it is committed to servicing the bonds.

"Some government spokesmen have said in meetings that there are not enough dollars and that they have to reduce allocations because they have to pay off foreign debt," said one of the sources, who asked not to be identified.

The government met with food industry groups as part of a round of meetings in recent weeks between state officials and business leaders to address the country's economic difficulties.

Planning Minister Ricardo Menendez disputed the sources' version the government was prioritizing debt over food, but acknowledged an overall decline in dollar disbursements as part of an effort to streamline use of hard currency.

"We are looking to clean up the distribution of currency," he said in an interview, adding this included seeking to limit corruption by firms that buy dollars on the cheap and resell them for a profit.

"If you maintain the same levels of public investment and in some cases expand it as you are receiving less oil revenue, what is the solution? To be more efficient (with dollars)."

Exchange controls created by late socialist leader Hugo Chavez sell dollars to food importers for 6.3 bolivars per dollar, the most favorable of a three-tiered system that also sells for 12 bolivars and for around 190 bolivars.


Companies say they have for years been unable to get the greenbacks at the preferential rate and cannot pay more for dollars because price controls on food prevent them from passing costs to consumers.

"No food company has received dollars this year," said Pablo Baraybar, head of food industry group Cavidea during a press conference this month, adding that private food company debts to suppliers abroad have risen to $805 million this year.

Without hard currency to import raw materials, production lines are at risk of shutting down, he said.

Dollar sales have steadily dried up over the last 18 months for industries including autos parts, pharmaceuticals and airlines.

The food industry was largely sheltered from that trend until 2014, when preferential dollar sales to food companies dropped 10 percent from year before amid a 32 percent decline in the sales of dollars at the favorable rate, according to finance ministry figures.

Activity at the country's biggest port, Puerto Cabello, fell nearly 25 percent in January 2015 with respect to a year earlier.

Imports from Brazil, which primarily comprise food items such as chicken and beef, tumbled 48 percent in January with respect to the year before, according to Brazilian export data.

That contributed to long-running shortages of basic goods ranging from detergent to milk, the principal challenge for Maduro. His popularity rating has tumbled to 23 percent, according to local pollster Datanalisis.

Concerns about a possible default have left the country's global bonds trading at distressed levels and driven yields to about 30 percentage points more than comparable U.S. Treasuries.

Maduro dismisses default talk as a right-wing smear campaign and insists Venezuela will meet all debt commitments.

Finance Minister Rodolfo Marco via Twitter said on Monday the country paid off the 1 billion euro Global 2015 bond that matured on Monday.

© 2024 VCPOST, All rights reserved. Do not reproduce without permission.

Join the Conversation

Real Time Analytics