World Economy
0

Venezuela Needs $30b a Year to Rescue Economy

Venezuela Needs $30b a Year to Rescue EconomyVenezuela Needs $30b a Year to Rescue Economy

The International Monetary Fund calculates a potential rescue of Venezuela could cost more than $30 billion per year. Huge sums will likely be required to increase imports, boost consumption and finance the fiscal debt.

Discussing a possible bailout, a senior IMF official told the Financial Times, “the market needs to be prepared for this”, Business Insider reported.

Douglas Rediker, a former US representative at the IMF, said, “This is going to be Argentina meets Greece in terms of complexity.”

Venezuela is experiencing a socioeconomic crisis. Imports to the country have fallen 80% in the last five years, and the IMF has estimated that inflation is set to jump to more than 2,300% in 2018. The country has $140 billion-worth of debt, and the worsening crisis led to a series of protests earlier this year, in opposition to President Nicolas Maduro, in which more than 125 people were killed.

Although the IMF has had no official relationship with Venezuela since the country broke ties with it in 2007, the fund has been following the crisis closely, and its impact on neighboring South American countries.

In a report last week, the IMF said Venezuela “remains in a full-blown economic, humanitarian and political crisis with no end in sight.” It said the country’s economy will have shrunk by 35% between 2014 and the end of this year, and is heading towards hyperinflation.

Although the IMF requires an official request for help from governments before intervening, this dialogue between the fund and the Venezuelan government is reportedly yet to take place.

Venezuela held elections for 23 state governorships on Sunday in which the opposition was expected to trounce the government amid a severe economic recession that has shrunk the economy by a third, and inflation that the IMF estimates at more than 1,000%. Shortages of foreign currency have slashed imports by 80% in five years, leaving the country teetering on the brink of default and suffering extreme shortages of food and medicine.

Venezuela is all but shut out of international capital markets, and a controversial debt placement earlier this year with Goldman Sachs had an estimated yield of 48%. By contrast, the IMF typically lends at 2%.

IMF programs depend on a request from a government for help and cooperation from national authorities. But “there has been no dialogue, so the timeline (of any program) would be more uncertain,” Rediker said.

Add new comment

Read our comment policy before posting your viewpoints

Financialtribune.com