Venezuela shows new economic face

By Jane Monahan
In Caracas

Chavez at the wheel: Agriculture is also targeted for investment

For the first time since the fiery Hugo Chavez was elected as Venezuela's president, a multilateral institution, the Inter-American Development Bank (IADB), has approved a major loan deal for the country.

The biggest loan - $750m (£435m) out of a total of $768m - will fund construction and operation of a 2,160 megawatt hydroelectric power plant at Tocoma. It will be the fourth in a series of dams in the northeastern Lower Caroni River Valley.

A smaller $15m loan, approved on Wednesday, supports a programme for the comprehensive, sustainable management of the Caroni River watershed. This area already provides 72% of Venezuela's electricity supplies and will provide even more once the Tocoma plant starts operating, between 2012 and 2014.

There's a more pragmatic side to the government that is probably better known for controversial remarks from President Chavez

This will be opportune. Nelson Merentes, Venezuela's finance minister, has said increased electricity supplies are needed for a number of government projects, to extend the metro in Caracas, the capital, and build new railway lines.

There's also a need for investment in agribusiness, steel, food industries and tourism, to diversify Venezuela's economy away from dependence on its oil industry.

Venezuela made concessions to obtain the loans, indicating that there's a more pragmatic side to the government that is probably better known for controversial remarks from President Chavez.

For instance, under the terms of a $2.7m technical assistance loan, the government has agreed to gradually raise electricity tariffs until they match production costs.

This has been a long-standing demand of private electricity companies and especially of Electricidad de Caracas, owned by the US company, AES, which has a monopoly on generation, transmission and sales of electricity in Caracas.

Election manoeuvre

Furthermore, Venezuela took pains preparing the ground diplomatically to win support from its neighbours.

Take what occurred in July, when Venezuela withdrew its candidate to be president of the IADB just before elections for the bank's new president were held.

As a result, several Central American and Caribbean countries - which would have voted for the Venezuelan candidate because they receive oil from Venezuela at concessionary rates - were free to vote for the Colombian candidate, Luis Alberto Moreno, who duly won.

After this, an overwhelming majority of Latin American countries voted in favour of granting Venezuela the IADB loans, despite opposition from the US (the IADB's biggest shareholder), which now opposes all loans from multilateral banks for Venezuela automatically, as a matter of policy.

Meanwhile, the absence of big loans from multilateral banks, such as the World Bank and, until now, the IADB, has not necessarily meant that these institutions had closed their doors to the Chavez government.

It is also the case that with oil prices as high as they are Venezuela has rarely sought assistance from multilateral lenders.