By Charlie Devereux
September 26, 2012
Edelmina Flores thanks God and Hugo Chavez for her apartment in a new housing complex in the Venezuelan president’s home state of Barinas. She might also want to thank the Chinese government.
Since 2007, the China Development Bank has lent Venezuela $42.5 billion collateralized by revenue from the world’s largest oil reserves, according to data compiled by Bloomberg from announcements of deals by the Chavez government. That’s around 23 percent of all overseas loans by the state-run lender and more than the $29 billion the U.S. spent rebuilding Iraq between 2003 and 2006. At least $12 billion was promised in the past 15 months, when stagnant oil output and the highest borrowing costs among major emerging markets would’ve made raising capital more expensive.
The loans are fueling a surge in spending as Chavez hands out homes to the poor, stocks “socialist” supermarkets with appliances and builds a cross-country railroad — all aimed at winning votes next month in his toughest election battle ever.
“If we didn’t have a president like the one we have, lots of families would be on the street,” said Flores, who used to live in a two-bedroom shack before being given a new home in December by Chavez’s brother, Governor Adan Chavez.
“Now I have a decent home for my three children,” Flores, 46, said in an Aug. 21 interview. “My president is the best.” …
“The Chinese have done their homework,” said Kevin Gallagher, an economist at Boston University and author of “Dragon in the Room: China & the Future of Latin American Industrialization.” “The Venezuelan economy can tank but part of the loans are linked to commodities that aren’t going to disappear anytime soon.”
The oil-for-loans program in Venezuela stands out for its size, though the same model is used by China to benefit its economy and companies throughout the world, from Russia to Ghana. In Latin America, Ecuadorean President Rafael Correa, an ally of Chavez, has secured oil-backed loans from China since 2009 worth $7.3 billion, about a third of the government’s budget, according to the country’s Finance Ministry…
Read the full article at Bloomberg.com.