Venezuela Buys More Argentine Debt

Venezuela recently bought over $300 million in Argentine debt, apparently part of a strategy to help Argentina replenish its reserves after an IMF payoff and to increase regional integration.

Caracas, Venezuela, February 14, 2006—Last week, in a move that appears to reinforce Venezuela’s commitment to economic regional integration, the Ministry of Economy Argentina authorized the sale of over $308 million in bonds coming due in 2012 to Venezuela, reported Argentine daily El Clarin.

This is Venezuela’s third purchase of Argentine bonds since Argentine President Nestor Kirchner told the paper that Venezuela was to buy $2.4 billion of Argentine debt in the coming months to help the country pay back debt early to the International Monetary Fund. Since the announcement, Venezuela has bought almost $1.1 billion in Argentine debt. Later, according to Dow Jones, an unnamed high-ranking Argentine Economy Ministry official said that his government intended to sell $2 to $3 billion in new debt to Venezuela in 2006 if necessary.

Before Kirchner’s statement, in several other purchases, Venezuela had bought almost $1 billion in Argentine debt, bringing total purchases in the past year to almost $2.1 billion, of which Venezuela has sold $600,000 according to Bloomberg.

Venezuela has not announced the amount of Argentine debt it intends to buy, but the government has announced its commitment to buy significant debt. In late November, Venezuelan President Hugo Chavez, along with Kirchner signed the Orinoco Declaration, which stated, “Venezuela declares its firm decision to increase its financial investments in Argentine public debt.” Last month, the Minister of Finances of Venezuela, Nelson Merentes reiterated the commitment telling El Clarin in January, “We don’t have fixed limits [on Argentine debt purchases]. We will constantly assess the market, but we are disposed to buy every time the Argentine government asks us to.”

Argentina’s issuances of debt are tied to its decision for early debt payments to the International Monetary Fund (IMF). Venezuelan president Hugo Chávez Frías praised the decision, and pledged to “help Argentina end its dependence on the IMF.” According to a World Bank news service, paying back $9.8 billion in debt early will save the South American country about $1 billion. According to the January 9 IMF Survey, Argentina had paid its entire outstanding IMF obligation, though it stated the total debt at $9.6 rather than $9.8 billion.

Argentina’s decision to pay off its IMF debt is the latest in a series of Latin American moves rejecting Washington’s neoliberal economic policies. Brazil also recently announced its decision to pay off its almost $15.5 billion in outstanding obligations early, which the January 9 IMF Survey reported it had done. Also, presidents throughout the region, most notably Argentina’s Kirchner and Bolivia’s Evo Morales, are increasingly winning elections based on platforms rejecting the economic policies of the past 20 years.

Between 1980 and 2000, under the guidance of the IMF, the region saw an almost 8 fold decrease in economic growth over the previous 20 years, according to a study of the Washington-based Center for Economic and Policy Research. In late 2001 Argentina, once the poster-child of IMF success from good economic governance, suffered one of the region’s worst economic collapses. 

The decision to buy more Argentinean bonds is the latest in a series of moves the Chávez administration has made to increase economic ties between Venezuela and the rest of the region. In December, the government also bought $25 million, or about 4 percent, of the first Ecuadorian bonds issued since the country’s 1999 default. Also last month, Venezuela was put on track to become a full voting member of MERCOSUR, a regional trade and economic integration agreement.