The International Monetary Fund has quickly rejected a surprise request Tuesday by Venezuela for an emergency US$5 billion loan to fight the new coronavirus, which threatens to push its already battered economy over the edge.
An IMF spokesperson said the request can’t be considered because there was no clarity among its 189 member states on who it recognizes as Venezuela’s rightful leader: Nicolas Maduro or Juan Guaido, the U.S.-backed head of congress.
“Unfortunately, the Fund is not in a position to consider this request. As we have mentioned before, IMF engagement with member countries is predicated on official government recognition by the international community, as reflected in the IMF’s membership,” the spokesperson said in a statement. “There is no clarity on recognition at this time.”‘
Maduro’s appeal to an institution he has long vilified for help coping with the fallout from the new coronavirus came as a shock to friends and foes alike. It also lays bare the precarious state of finances in socialist-run Venezuela as it struggles with collapsing oil production and the effect of U.S. sanctions.
“The Bolivarian government is taking different preventive measures and following thorough, strict and exhaustive controls to protect the Venezuelan people,” he said in a to the letter to IMF Managing Director Kristalina Georgieva.
“For this reason, we are turning to your honourable organization to request its evaluation about the possibility of authorizing Venezuela a financing line of $5 billion from the emergency fund of the Rapid Financing Instrument.”
While Venezuela’s exposure to the coronavirus has so far been limited — with just 33 cases confirmed — the potential economic damage from the disease has the entire country of around 30 million on edge.
Even before the virus’ outbreak, Venezuela’s oil industry was on its knees. Severe sanctions applied last year by the Trump administration nearly halved oil production and worsened a humanitarian crisis that has pushed nearly 5 million people to flee the country.
Now the country will have to contend with oil prices at a multi-year low amid a meltdown in oil markets that followed Saudi Arabia’s decision to flood the market to retaliate against Russia’s refusal to go along with a proposed OPEC production cut. Making matters worse, most of the added supply from Saudi Arabia is of the same heavy crude variety that Venezuela produces.
The request is an about-face for Maduro, who for years refused to share economic data with the Washington-based lender and just last month condemned it as a tool of U.S. imperialism. In the past he has called the IMF a blood-sucking “assassin” responsible for plunging millions of people into poverty across Latin America.
The IMF set up the rapid financing instrument in 2011 as a one-time, short-term loan aimed at helping low-income countries absorb shocks like natural disasters. The amount a country can requested is restricted to 100% of the country’s quota at the IMF–about $5 billion in Venezuela’s case–and is supposed to be less comprehensive than traditional loans.
However, countries with debt levels the IMF deems unsustainable are barred from taking out loans. Such could be the case of Venezuela, which has defaulted on more than $65 billion in bonds and owes billions more to Russia, China and dozens of foreign energy companies whose assets it expropriated over the past two decades.
The U.S. leads a group of more than 50 nations that recognized opposition leader Guaido last year after it accused Maduro of fraud in 2018 presidential elections. While the IMF hasn’t recognized Guaido, like the Inter-American Development Bank does, the Trump administration could lean heavily on the institution to prevent it from accessing fresh funds.
“What’s important isn’t whether they get the money or not,” said Asdrubal Oliveros, director of Caracas-based Ecoanalitica, an economic think-tank . “It’s what going to the IMF signifies and what it says about their cash flow.”
Venezuela is believed to be the first country to try to tap the $50 billion in financing the IMF has available to help developing nations deal with the virus.
The U.S., which is the biggest shareholder and has a veto over major decisions at the Washington-based lender, has balked at assisting a Maduro government it no longer recognizes and accuses of stealing billions from its own people.