Will the next stop for the Latin American debt crisis be Venezuela?
Several bankers fear that it may be. Like Mexico, Brazil and Argentina, Venezuela has taken on a debt load it cannot handle under current economic conditions.
Financial rescue packages have been put together for Mexico and Argentina. Although Brazil's fell apart this spring, commercial bankers now are hopeful that a new agreement to ease Brazil's desperate financial squeeze is near.
"If we can put the Brazilian package together by the end of the year, then we are left with Venezuela," said a leading New York banker close to the debt negotiations.
But while bankers and international financiers worry about Venezuela's financial troubles, several believe that they are not as dangerous as those of Mexico and Brazil. For one thing, Venezuela owes much less money overseas than do any of the "Big Three" of Mexico, Brazil and Argentina. In contrast to the $80 billion to $90 billion dollars of foreign debt held by the first two, and the $40 billion or more owed by Argentina, Venezuela's debts are closer to $25 billion to $30 billion.
One top international banker said that oil-rich Venezuela, historically the richest nation in Latin America, is also in much better economic shape than Mexico and Brazil. Its problem, he said, is not the size of the debt load, but the fact that more than half of it--$16 billion--comes due in 1983 and 1984.
Although lower prices have reduced its oil revenues, they are still relatively large--Chase Manhattan Bank estimates them at about $13.2 billion this year, compared with $15.6 billion in 1982. A government damper on imports, however, has reduced Venezuela's need for dollars.
But the nation still cannot afford to pay off all the debts that come due this year and next. To the annoyance of bankers, it has unilaterally extended debts as they mature. To conserve foreign exchange, the country has also imposed controls that clamp down on imports and prevent citizens and companies from transferring dollars out of the country.
If Venezuela can convince its banks to convert many of the short-term debts to long-term loans, the nation should be in good shape with just a little belt-tightening, some sources say.
While Mexico, in order to reduce government spending, was forced to raise the price of tortillas for the nation's poor, the adjustments Venezuela will have to make are more likely to force a cab driver to "switch from Johnny Walker Black to Johnny Walker Red," one senior banker said.
But bankers say Venezuela is making it hard on itself. "They are their own worst enemies," said an official of another major international bank.
While Brazil, Mexico and Argentina went to the International Monetary Fund for financial assistance, Venezuela so far has resisted an IMF agreement, although it is having discussions with the international agency. The IMF prescribes strict economic measures in return for loans. The IMF sanction also is the imprimatur that multinational banks say they need to lend the troubled nations new money as well as to renegotiate the terms on maturing debts.
The Venezuelan government has asked its lenders to renegotiate the terms on its short-term debt and only the $2.8 billion the nation is automatically entitled to from the IMF without having to submit to a special "adjustment program." But without the assurance that Venezuela will take the relatively modest financial steps necessary to reduce its borrowing needs in the future, the bankers are reluctant to do much more than talk.
"There are ongoing discussions," said the chief of international lending at a major New York bank. "But they the talks are not going to do much."
Some bankers believe that if Venezuela can come up with a credible economic package of its own, it may be able to negotiate with commercial bankers without being simultaneously forced to go to the IMF. But several bankers said Venezuela has such a history of government mismanagement that it will be difficult for lenders to believe Venezuela will hold to any promises to the banks without the heavy hand of the IMF on its back.
In addition to the unilateral extension of its debts, Venezuela has recently fallen behind on interest payments owed by both the public sector and the private sector. Bankers earlier this month presented the nation with a list of overdue interest payments that it wanted paid. According to some, Venezuela has responded and rapidly is paying off the arrears on the public sector debt so that it may be current by the end of the month. Private sector debtors, without access to foreign exchange, continue to be in arrears on their interest payments, sources say.
Bankers and government officials say Venezuelan officials do not want to take any further steps that might be demanded by either the banks or the IMF at least until its national elections in December. The current government, headed by President Luis Herrera Campins, is in deep political trouble. Sources close to Venezuela say that even a mild economic austerity package would worsen his already slim chance for reelection--not so much because of the hardships it would impose on Venezuelans, but because it would be viewed as a blow to that nation's pride.
There often is much tension between the commercial banks and officials that negotiate on behalf of the borrowing nations. But there is a severe distrust of Venezuela among international financiers--in both the commercial banks and the international agencies--that has its genesis in more than the usual banker-debtor tensions.
Commercial bankers and others dealing with Venezuela complain of severe disorganization, a refusal to play straight, repeated broken promises and highhandedness on the part of Venezuelan officials.
Finance Minister Arturo Sosa also has earned distrust by suggesting that borrowing countries might consider a "debtors cartel" for Latin America. Next month Venezuela will host a Latin American conference designed to discuss whether those countries can develop a common posture in dealing with the IMF. Bankers worry that the conference might end up discussing how the debtors together might extract better terms from lenders by, for example, threatening a temporary halt to debt payments.
"They are difficult people to deal with. They have a monumental sense of pride and of their own importance," a New York banker said of the Venezuelans. He said the lenders have a history of bad relationships with Venezuela that long predate the current debt crisis.
He recounted the time Venezuela arbitrarily "killed" a sizeable multinational loan at the last minute--a loan package that the lead banks spent long hours putting together--because the interest rate on the loan "was an eighth of 1 percent or so" higher than Venezuela thought it should have to pay. Actions like that leave a bad taste in a lender's mouth, said the banker.
At one point during a recent New York meeting between the bankers and the Venezuelans, Finance Minister Sosa took the uncharacteristic step of apologizing for Venezuela's failure to meet earlier commitments and was "much more businesslike and down-to-earth" than usual, said a participant at the session.
But by then the bankers had been so irritated by Venezuela's behavior during the last year that their main reaction to what they knew was a "very un-Venezualan" gesture at conciliation was to wonder among themselves why the apology took so long in coming, this participant said.
Neverthless, said another, if Venezuela changes its tune and deals less haughtily with its lenders, it might use the "crisis atmosphere" to get a restructuring of its short-term debts in return for "getting the interest paid up on all its debts, getting the private sector debt paid and giving guarantees to lower-level government agencies" whose debts are not now secured by the government.
Several months ago bankers thought Venezuela was headed toward a repayment crisis similar to Mexico's or Brazil's. Its currency reserves were being depleted as residents took their money out of Venezuela for havens like the United States--a flight of capital similar to the one that plagued Mexico in the first six months of 1982.
But the imposition of controls to prevent Venezuelans from taking money out of the country and introduction of an exchange rate system that favors essential imports and public debt repayments stemmed the erosion in reserves. Venezuela's $10 billion in reserves (contrasted with almost zero in Brazil and less than $2 billion in Mexico) has stabilized in recent months and may even have grown.
Venezuela's problems probably are overstated, said one banker. He said it might be helpful to the world climate if a major Latin American debtor could renegotiate its debts without having to go to the IMF.
But the bankers' long-standing distrust of Latin America's wealthiest nation may force the IMF to play a central role in Venezuela's debt-restructuring too. At a session called for this Tuesday, bankers will consider once again whether Venezuela has done enough to please them to justify their beginning the long process of a formal debt renegotiation, one banker said.
He said that even if the green light is given at the meeting, it would take at least until Christmas to finish the technical work and sign an agreement. And if the talks are still stalled by Sept. 30-when the latest three-month extension of Venezuela's debts ends--bankers' nerves will be stretched to the danger point, he said.