World Economy

Venezuela Gets $482m Loan to Buy Food

Venezuela Gets $482m Loan to Buy FoodVenezuela Gets $482m Loan to Buy Food

Venezuela is getting some financial relief as it burns through foreign reserves to pay for imports of badly needed food and medicine.

The Latin American Reserve Fund said late Monday that it approved a three-year-loan of $482 million for Venezuela’s central bank, AP reported.

The loan represents about 5% of the central bank’s reserves, which have plunged to a 13-year low as a collapse in oil prices forces the government to scramble for hard currency amid widespread shortages of basic goods.

Venezuela’s opposition has questioned the legality of the loan since it didn’t have the blessings of the congress. But the Colombia-based multilateral lender, which was created by regional governments in the 1970s to assist members in time of financial stress, said Venezuela’s Supreme Court signed off on the request.

The loan is too small to address Venezuela’s chronic shortage of dollars and widening balance of payments deficit, said Siobhan Morden, head of Latin America fixed-income strategy at Nomura Holdings Inc.

Venezuela’s sovereign debt is the most expensive in the world to insure against non-payment using credit-default swaps. The probability of Venezuela defaulting on debt by June 20, 2017 is 50%, according to credit-default swaps traders, down from 55% a month ago.

“It just shows that Venezuela is desperate for cash and will get bits and pieces of creative financing where it can,” Morden said. FLAR “provided these funds under very precarious legal conditions.”

 Gold Holdings Sink

As Venezuela’s crisis swells, its gold reserves are shrinking. The holdings fell again in May, sliding to 6.24 million ounces from 6.63 million ounces in April to post a fourth consecutive drop, according to data from the International Monetary Fund website. Over the past year, the country’s hoard has shrunk 36%, and since February 2015 it’s nearly halved, Bloomberg reported.

Venezuela’s embattled socialist government is striving to raise cash to pay for vital imports and service debt with its economy in near-freefall as output shrinks and consumers seek to survive the world’s worst inflation. The country is embroiled in a parallel constitutional crisis as opposition lawmakers step up moves to challenge the administration of President Nicolas Maduro.

The government may choose to deplete international reserves to meet debt payments through 2016, according to Goldman Sachs Group Inc. Still, the bank said in a note that regardless of the administration’s willingness to pay, “the moment of financial reckoning begins to loom larger.”

There are signs the country’s bullion holdings may go on declining. Switzerland imported 5.1 metric tons of gold from Venezuela in June, according to the Swiss Federal Customs Administration.