In a further step towards becoming Latin America's lender of last resort, Venezuela's government agreed to buy $300 million worth of Ecuadorian debt last Friday. Ecuador's finance minister Rafael Correa announced that the purchase would be part of a $500million international bond, which Ecuador hopes to place in the next months.
The Venezuelan loan would pull Ecuador, which faces a major funding shortfall this year, back from the brink of default. Relations between Ecuador's government and multilateral lenders are souring, as the government's fiscal policy falls short of IMF expectations. "The IMF is not happy with Ecuador," said Kasper Bartholdy, chief economist for emerging markets at CSFB.
According to CSFB research, a previously agreed $100million loan from the World Bank is now unlikely to be disbursed.
Earlier this year, Venezuela bought $300 million of Argentinean dollar-denominated debt, in order to "extend a fig leaf to the Kirchner administration", according to a Lehman Brothers report. Last week, Venezuela again extended a helping hand to Argentina and bought $200 million of the country's debt.
Analysts agree that such developments are driven by Venezuelan president Chavez' interest to extend his influence in Latin America. Economically, it does not make sense for the Venezuelan central bank to include high risk Ecuadorian and Argentinean debt into its portfolio.
Chavez has publicly talked of the need to create a Latin-American monetary fund, capitalized by the continent's richer nations. Such a fund would reduce the region's dependency on the Washington based multilaterals and the conditionality attached to these institutions loans. "Chavez wants Latin America to be less dependent on Washington," added Bartholdy.