[News] Secret IDB Proposal Would Give $48 Billion Infusion to Boost Venezuela’s Economy — But Only After Regime Change

[Anti-Imperialist News]

https://theintercept.com/2019/04/18/venezuela-idb-maduro-guaido/


  Secret IDB Proposal Would Give $48 Billion Infusion to Boost
  Venezuela’s Economy — But Only After Regime Change

Rafael Moro Martins - April 17, 2019
------------------------------------------------------------------------

_The Inter-American_ Development Bank is quietly circulating an analysis 
that foresees an up to $48 billion infusion of capital into the 
Venezuelan economy should President Nicolás Maduro be removed from 
office. A pair of confidential documents, both called “Venezuela: 
Challenges and Opportunities,” outlines a four-year plan to open the 
country’s beleaguered economy to foreign corporations through 
privatization, structural reforms, and public-private partnerships.

The documents — slide decks that were obtained by The Intercept — are 
circulating in an 11-slide summarized version and a 27-slide full 
version, both classified as “confidential.” The author is marked in the 
first slides of both presentations as the bank’s secretary, who is 
responsible for organizing discussions between the bank, governments, 
and private companies. The presentations, which are dated March 15, are 
addressed to executive directors of the Inter-American Development Bank 
and IDB Invest, the bank’s investment arm aimed at lending to private 
companies.

Founded in 1959, the IDB offers financing and technical assistance for 
infrastructure, health, and education projects in Latin America and the 
Caribbean. The bank is owned by 48 countries: 26 borrowing member 
countries and 22 nonborrowing member countries. Currently, the five 
largest shareholders are the U.S., with 30 percent of voting shares; 
Argentina and Brazil, with 11.2 percent each; Mexico, with 7.2 percent; 
and Japan, which has 5 percent of voting shares.

The dominant position of the U.S. has raised questions about the bank’s 
independence. Indeed, U.S. President Donald Trump’s aggressive stance 
on regime change helped urge IDB officials into pushing the analysis of 
a post-Maduro Venezuela, a source told The Intercept.

The Maduro regime has long claimed that the country’s economic collapse 
is the result of a capital crunch driven by sanctions and a coordinated 
financial assault by the United States for the purposes of undermining 
and overthrowing the socialist government. The emergence of the IDB-led 
plan will only heighten those suspicions.

The proposal for international largesse could be a boon to an incoming 
administration. If all went according to plan, the improvements in 
Venezuelans’ daily lives would allow opposition leader and 
self-proclaimed interim president Juan Guaidó, or another incoming 
president, to claim a victory — by benefiting from international 
assistance that is being denied to the current leadership. Meanwhile, 
Venezuela would be stripped of its public assets.

_The IDB documents_ were supposed to have been presented at the IDB’s 
annual meeting from March 26 to 31 in Chengdu, China. Controversy 
erupted, however, because the IDB had invited Guiadó’s economic 
coordinator and IDB representative, Ricardo Hausmann. Beijing — the 
meeting’s host, a Maduro ally, and a minority 0.004 percent shareholder 
with the bank — has not recognized Guiadó’s rule and denied a visa to 
Hausmann, a Harvard University economist and Guiadó’s representative to 
the IDB. The turmoil caused the cancellation of the China meeting 
<https://www.reuters.com/article/us-venezuela-politics-china-iadb-exclusi/exclusive-iadb-cancels-china-meeting-after-beijing-bars-venezuela-representative-idUSKCN1R32NU> 
just days before it was set to occur.

Another source, an IDB insider, told The Intercept that inside the bank, 
regime change in Caracas is seen as a question of when, not if, and many 
believe that it will happen soon. Nonetheless, the urgency around the 
plan apparently faded after the highly publicized failure 
<https://www.nytimes.com/2019/03/10/world/americas/venezuela-aid-fire-video.html> 
of a plan by Guaidó and allies to bring truckloads of “humanitarian aid 
<https://theintercept.com/2019/02/20/regime-change-we-can-believe-in-the-u-s-agenda-in-venezuela-haiti-and-egypt/>” 
over the Colombian border. The bank leaders, the source said, had hoped 
that the convoy would help trigger Maduro’s downfall. Bank leaders have 
since become less optimistic that he will be removed from power in the 
near term.

The documents do not delve into specifics about where the full $48 
billion investment would come from. The Intercept arrived at the total 
number by adding up subtotals for the three “key recovery areas” listed 
in the presentation: “urgent needs of the population,” “basic 
infrastructure,” and “institutional reforms.” The presentation broke 
down these estimated investments into two columns: phase one on one 
side, and annual totals for phases two and three combined on the other. 
Because phases two and three are expected to last for three years, those 
annual totals were multiplied by three and added to the first phase 
investments, leading to the grand total of $48 billion. (The slides 
noted that the investment levels required for “basic infrastructure” 
exclude investments in the country’s “hydrocarbons and energy sector.”)

Though the slide decks do not state where the money would come from, $48 
billion in loans would likely be unprecedented in the IDB’s 60-year 
history. In response to an inquiry from The Intercept, a spokesperson 
for the IDB said, “While I have not seen the document you mention, by 
the size of the number, it probably refers to a much larger lending or 
assistance package involving many institutions, not just to IDB-financed 
operations. It is almost three times what the IDB approves in a single 
year.”

Two sources with direct knowledge of the proposal — one in the U.S. and 
one in Brazil — confirmed the authenticity of the documents, and a third 
source told The Intercept that the plan exists. All three sources 
requested anonymity to discuss the proposal because of fears of 
professional reprisal.

The Intercept is declining to publish the documents out of concerns over 
source protection.

A parallel business forum to the China summit — coordinated by IDB 
Invest, formerly known as the Inter-American Investment Corporation — 
was also canceled. CEOs of major companies had been invited to attend, 
including electrical giants such as the U.S.-based AES Corporation and 
Italy’s Terna; construction firms like South Korea’s DOHWA Engineering 
and Mexico’s ICA; and energy players like Colombia’s Terpel and Canadian 
Solar. (An IDB spokesperson told The Intercept that the 2019 annual 
meeting has not yet been rescheduled and that the business forum will no 
longer take place.)

In March, the IDB was the first multilateral international organization 
to recognize Guaidó 
<https://www.france24.com/en/20190316-idb-first-multilateral-lender-recognize-envoy-venezuelas-guaido> as 
interim president, less than two months after Trump did.

Hausmann, who served as the IDB’s first chief economist 
<http://apps.hks.harvard.edu/faculty/cv/RicardoHausmann.pdf> from 1994 
to 2000 and more recently consulted 
<https://www.hks.harvard.edu/faculty/ricardo-hausmann> for the bank, was 
instrumental in formulating the analysis circulated to the executive 
directors of the IDB and IDB Invest, according to one of The Intercept’s 
sources. (Hausmann did not respond to a request for comment.)

Over the past several months, Hausmann has been making public remarks 
about the need for international loans and investments in Venezuela to 
spur its economic recovery in the wake of Maduro’s fall. Speaking to The 
Economist 
<https://www.economist.com/briefing/2019/01/31/how-venezuelas-economy-can-recover-from-the-maduro-regime> 
last January, he said Venezuela would need a loan in excess of $60 
billion over three years. In another interview with the Harvard Gazette 
<https://news.harvard.edu/gazette/story/2019/02/harvard-expert-tries-to-make-sense-of-venezuelas-collapse/> a 
few days later, Hausmann said the reconstruction effort would “involve 
international financial assistance, probably a significant program led 
by the International Monetary Fund.”

Hausmann’s involvement with Guaidó’s purported interim government 
suggests that he is optimistic about the collapse of Maduro’s government 
— a view that at this time has not yet been borne out by events.

On April 11, Hausmann spoke before an assembled group of international 
finance ministers brought together by U.S. Treasury Secretary Steve 
Mnuchin. “Today, the Ministers reviewed steps taken since January to 
increase financial pressure on the Maduro regime and additional steps to 
support the democratically elected National Assembly and Interim 
President Guaidó,” Mnuchin said in a statement 
<https://home.treasury.gov/news/press-releases/sm651>. “The Ministers 
then discussed plans for future economic support of Venezuela. We 
welcomed to this discussion Dr. Ricardo Hausmann, whom Interim President 
Guaidó has designated as coordinator of his economic advisors.”

Mnuchin said after the meeting that $10 billion in international 
financing 
<https://www.reuters.com/article/us-imf-worldbank-venezuela-funds/venezuela-new-government-could-get-10-billion-in-trade-financing-mnuchin-idUSKCN1RP0PK> 
to spark trade would be made available to Venezuela once a new 
government came to power.

_The IDB documents_

provide an overview of Venezuela’s socioeconomic disaster under Maduro, 
describing a free fall in nearly every indicator from maternal mortality 
to soaring hyperinflation. The documents highlight that private 
investment represented a mere 0.7 percent of an already low gross 
domestic product in 2017 and that oil production fell by 60 percent over 
12 years, reaching the lowest levels since 1949.

The oil factor has been crucial. Venezuela is home to the largest proven 
crude oil reserves in the world, which accounts for 92 percent of the 
government’s revenue. In 2011, oil was trading at over $100 per barrel 
but crashed in recent years. “Faced with declining external liquidity, 
the government has applied measures to ration hard currency and cut 
imports since 2013,” the full slide deck reads, noting that Venezuela 
produces only 25 percent of the food it needs.

Through the tragedy, the IDB sees a business “environment with 
opportunities,” particularly “abundant natural resources (minerals and 
oil)”; “commitment of support from the international community”; and a 
“resilient private sector committed to recovery.” The bank estimates 
that, with an annual investment of $14 billion, oil production could 
surpass 3 million barrels per day by 2029. By last December, the country 
was extracting 1.1 million barrels per day, according to data from the 
Organization Petroleum Exporting Countries.

The focus on ramping up oil production runs counter to many 
international institutions’ warnings about climate change. The United 
Nations Intergovernmental Panel on Climate Change has said the world 
economy has 12 years 
<https://www.vox.com/2018/10/8/17948832/climate-change-global-warming-un-ipcc-report> to 
move rapidly in the opposite direction — cutting down its reliance on 
fossil fuels.

Under current law, the Venezuelan state oil company PDVSA must have a 
majority stake 
<https://oilprice.com/Latest-Energy-News/World-News/Guaido-Set-To-Open-Venezuelas-Oil-Sector-To-Private-Firms.html> 
in all oil projects, a hurdle to foreign investment.

The United States, for its part, has always been keenly interested in 
Venezuelan oil. “That’s the country we should be going to war with. They 
have all that oil and they’re right on our back door,” Trump reportedly 
said 
<https://www.vox.com/world/2019/2/20/18233394/mccabe-trump-venezuela-war-oil-lawrence> 
in a private conversation in 2017, according to a book by former Acting 
FBI Director Andrew McCabe. U.S. oil giants Exxon Mobil and 
ConocoPhillips filed billions in arbitration claims when Maduro’s 
predecessor Hugo Chávez expropriated their Venezuelan operations in 
2007. If Maduro were to fall, it would offer an opportunity for them and 
others to re-enter the Venezuelan market.

Notably, the IDB documents obtained by The Intercept lay out what the 
bank calls “priority actions”: eliminating obstacles for private 
companies, financing international trade, and establishing new 
legislation to re-privatize government-owned companies.

The proposed infusion of cash laid out in the IDB plan would serve as a 
carrot to induce foreign governments and business leaders to support the 
U.S.-led push to overthrow Maduro. The plan calls for $4.5 billion in 
the first year to repair basic infrastructure, such as electricity, 
water supply, and transportation. The figures, the bank stresses, do not 
include “private investments in the oil and energy sectors.”

The infusion of capital would have three specific goals, the documents 
say: “stability,” with the normalization of food stocks and health and 
education services; “execution” of basic infrastructure repairs; and 
institutional reforms aimed at “reversing the brain drain.” 
Professionals have been fleeing the country in droves and a recent 
nationwide blackout was likely exacerbated by the exodus of expertise 
needed to keep basic government services running.

Although it includes $11.5 billion for humanitarian aid, such as food 
distribution to 25 million people and unconditional cash transfers to 17 
million, the bulk of the plan is based on the well-known neoliberal 
prescription adopted throughout Latin America during the 1980s and 
1990s, with dubious results 
<https://www.researchgate.net/publication/5172959_The_Washington_consensus_A_Latin_American_perspective_fifteen_years_later>.

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