Nearshore Americas

China Lends $5 Billion to Cash-Strapped Venezuela

China has agreed to lend Venezuela US$5 billion, with the crisis-hit South American country in desperate need of funds to balance its budgets. The loan was announced by President Nicolas Maduro, although China has neither confirmed or denied the news.

Maduro did not elaborate on the conditions of the loan or reveal how he intends to use this cash.

China has lent Venezuela $50 billion since 2005, according to a study conducted by the Inter-American Dialogue. Much of this money was provided through so-called oil-for-loan deals. Therefore, analysts say, this latest aid could also be the part of a similar agreement.

The sudden drop in global oil prices has left Venezuela in a catastrophic economic crisis, with people across the country making beelines for government-run shops for basic goods and food grains.

The socialist country is heavily reliant on oil to fund its everyday expenses. Figures from the country’s oil ministry suggest the price of Venezuelan oil has almost halved from $97 in April 2014 to $50 this month.

As oil exports dropped while the country’s social welfare programs expanded, the government now needs oil to trade at around $120 a barrel to break even.

In recent months there have been a string of protest marches and strikes across the country. Shortages in basic staples such a flour, cooking oil and milk are also worsening the situation.

Moody’s recently downgraded Venezuela’s government bond ratings to Caa3, one step above default. This came after President Nicolas Maduro toured the OPEC countries, calling on member states to cut back on production.

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Some analysts estimate that government revenue will fall by $30 billion and that the economy will contract by 7% in 2015.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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