One week ago, Uruguayan farmers held a nationwide protest, blocking multiple roads in anger over the enormous, overdue debts the Venezuelan Government has with them. The unpaid deal stems from a huge bilateral agreement made last year to buy large shipments of food that seems to have gone very wrong

Days later, it seemed the farmers had been successful: Venezuela announced that they had paid 50 million dollars, around half of a purchase of powdered milk. At the same time, Uruguay’s the government exhonerated some agricultural products of paying value-added tax to bring relief to dairy producers.

The Uruguayans should have known not to get too excited. The check never actually came, in spite of the earlier promise made by the Venezuelan Ambassador to Uruguay, Julio Chirino. So, what’s actually going on?

De todo.

Back in July 2015, a group of Venezuelan Ministers visited Montevideo and announced a series of bilateral agreements, which included a 300-million dollar deal to buy milk, cheese, rice and chicken. To give you a sense of scale, that was 72% of Uruguay’s exports to Venezuela in 2014. No wonder, Uruguayan President Tabare Vásquez called it “pure oxygen for the country.”

Back in Venezuela, the deal was sold as the fraternal Vásquez government’s way of pitching in against the“economic war”, accoding to then-Finance Minister Marco Torres (recently redeployed to the post of Food Minister, ironically enough).

But the ongoing fall of oil prices has hurt Venezuela’s ability to pay. That created some serious concern in Uruguay, as this deal is essential for some of the sectors involved – including non-food companies as well. The Uruguayan government even offered to take on part of the tab.

But this deal has a lot of peculiarities though.

For one, une, Uruguay is selling food to Venezuela at double the price it does for other nations – a fact that, the Uruguayan opposition wryly notes, “may favor Uruguay, but raises questions about how the resources are being handled. 

Second, the payment was supposed to go thorugh BANDES (the Venezuelan development bank which operates in Uruguay) but ended up being made to a Chinese bank account indicated by PDVSA. Third, the intermediary company involved in this deal is aligned with a sector of the governingFrente Amplio, linked to former President (and current Senator) Jose Mujica (who has been vocal in trying salvage the deal).

Funny that the company at the center of this deal is actually named Aire Fresco (Fresh Air). Alright, let’s continue.

The role of state oil company PDVSA goes beyond this agreement. Last year, the Uruguayan oil company ANCAP agreed with PDVSA to pay part of its debt thanks to a special loan approved by the Uruguayan Senate. Allegedly, part of the money is being used to pay for the food deal, but that detail has created a lot of confusion for many people involved in the operation.

The opposition National Party is already asking for a parliamentary inquiry in the Uruguayan Congress. We would sure hope Venezuela’s own recently installed National Assembly would follow suit, but it looks like the new president of the Foreign Affairs Commission, Luis Florido has his plate full with other investigations.

At a time when the Bolivarian Republic is facing a daunting cash crunch and severe food shortages, it looks like the government can’t afford to drop this deal. But is that because it needs the food to supply the neverending queques across the land or is it because it can’t afford lose an important regional ally?

They lost the big one across the river just three months ago. They can’t afford to lose another. The difference this time is Venezuela really is out of money, so the deal could crash even if both sides really don’t want to.

Let’s wait and see if the air clears out on this one.

(This post was written in collaboration with fellow CC contributor Ruben Rojas in Montevideo.)

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44 COMMENTS

      • But i can’t understand.

        The debt is venezuelan or is it the uruguayan government who is in debt with its farmers.

        I ask this because in the article you have linked here says Uruguay would send all that food to pay 300 millions dollars debt Uruguay has with Venezuela.

        Am i understanding this incorrectly?

        • The debt is that of the Venezuelan government which went to Uruguay to negotiate an import deal. In situations such as this, the government creates a “corporation” which is basically wholly operated by the government to import the goods from Uruguayan farmers, collectives, companies and other food production associations. In essence, in these sorts of trade deals, the business is state-owned, but guaranteed by the government; in practice with Venezuela, they tend to stiff the exporting businesses by making it seem as if it is the corporation’s fault, although this tends to fool no one.

          The problem with SOEs such as this is that they tend to be hideously inefficient and subject to all sorts of corruption and skimming (on both sides, by interested parties), which appears to be the case here given the double prices.

          The Uruguayan government’s involvement is usually involved with brokering the deal between a foreign government (VZLA) and their local producers. And when things go bad, as they did here, the trade associations/producers go back to their government to force some sort of action which is usually limited in available scope/capacity. It would appear that there was some concern, given the promise of a creation of an escrow account in the Uruguayan chapter of Bandes, but since that was still controlled by Venezuela, that should have raised all sorts of red flags; nominally an escrow account such as that for deferred payment should be through an fiduciary third-party and not one of the two sides involved.

          Once again, the Venezuelan government’s sticky fingers and inability to manage pretty much anything have created a train wreck for someone else to clean up. The surprising thing is that the Uruguayans were willing to buy into it.

  1. “To give you a sense of scale, that was 72% of all exports made by Uruguay in 2014. No wonder, Uruguayan President Tabare Vásquez called it “pure oxygen for the country.”

    What will be fun to watch in the coming months will be the downfall of countries believed to have got the “macroeconomics right”, I’m talking about Bolivia, Ecuador and Uruguay. Look at Bolivia, for example, where 41% of the exports go to an agonizing Brazil. What is the only possible outlook? Or of Ecuador’s, with its economy already in the intensive care unit? Uruguay’s only chance is to declare an anschluss and become an integral part of Argentina.

  2. Well-reported, Gustavo, and just another example of why it will be very, very difficult for Venezuela to ever dig itself out of its enormous economic/social decay, due in large part to the corruption/irresponsibility of its citizenry. Two recent examples from “Ultimas Noticias”: 1) A former TSJ judge was found dead/decomposing 14 days after being kidnapped leaving a restaurant in La Castellana by 3 24-year old Miranda Municipal police who stole his Toyota Fortuner; 2) 7 individuals were apprehended by the CIPC as they were extorting money from a (notoriously corrupt) IVSS former official, with some of the individuals’ backgrounds as follows: active CIPC member; bodyguard of General Salazar employed at Miraflores; security employee at the Justice Ministry; and worker at Govt. channel Avila TV.

  3. They couldn’t find a crummy 300 million in their accounts? For food? Are you kidding me? And, they are about to pay 2.2 billion in interest payments in February? Huh? Complete insanity. These people live in a cuckoo’ nest.

  4. Chavismo loves to import everything and pay double the price, from any country that “collaborates”. It’s an easy way to set up fake bank accounts, and get the juicy kick-backs, easier to launder the money. Argentina, Uruguay, China, Brazil, NIcaragua, even the USA. That’s how the Derwick kids stole over a Billion USD, triple mark-ups, used power plans instead of new ones. Happens everywhere and with all products, not just Uruguayan milk or rice.

  5. Evidently another sign that Venezuela is fast running out of money to pay both its debts and continue the basic imports it needs to stave off mass hunger .

    The confusion with the Chinese Bank is that Venezuela must pay the loans its received from China by mortgaging the income from ongoing and future oil supplies so that they instruct a large part of their international customers to deposit the money used to pay their oil purchases in Chinese banks which apply those deposits first to cancell pending loan payments , second to create a security buffer to ensure payment in case Venezuelas sales fall bellow whats needed to cancell future loan payments and thentransferring only the residue to Pdvsa (some 50% of the money recieved from the customers) which not enough to cover all of Venezuelas forex needs.

    Most likely the money to pay Uruguayan suppliers must come from the money Pdvsa recieves from the Chinese banks and then pays to the govt by way of taxes , and because Pdvsa hardly is able to cover its operating costs using that forex there are times when the money recieved by the govt isnt enough to cover all of their creditors and costs.

    • Question: The Chinese loans were tied to a certain number of barrels at a certain price, to be repaid in a given time. Now with oil prices at 1/3 or 1/4 of the oil price at that time… does that mean more time to repay more barrels. Or what?

      • If i recall correctly, the Chinese for the time being have allowed Venezuela to suspend payment. Not sure what is in store for the future.

  6. Now I have a better idea why Mr Salas thinks there are no free markets and everything is a cartel. I mean, signing a deal with ONE provider for DOUBLE the price of the market, to be paid by some convoluted series of bank accounts?

  7. One of the serious problems with all these Bolivarian deals is the lack of transparency. And this is only one of the deals made over the years. Trying to peal back the layers of the onion becomes an enormous task in forensic accounting. Of course all of this unnecessary complexity is designed to conceal all the bribes and kickbacks paid at every step along the way. When it comes time to undo all these deals, it is the people of Venezuela and all the other countries involved who will get screwed.

    Another serious problem with such mega-deals is that people and companies make substantial investments and changes in the configurations of their businesses that would not have been made in a rational market place. When the deals end, it leaves all parties poorly positioned in the world markets.

  8. If 95 million is what an international hiccup is worth for Venezuela (with an ally, no less), defaulting for 16 billion is a bargain…

  9. The solution is obvious. Have the PSUV start a Draft Trump for President of Venezuela campaign. He knows how to negotiate tthe way out of this mess, What’s good for the Republican base in gringoland has to be better for the land of grace?

  10. One thing to note here is that Venezuela may be THE most corrupt country, per capita, on the Planet, but not the only one.. Even somewhat “developed” countries like Uruguay play the sleazy game. They should be investigated too, as Argentinians, and of course the Chinese and Russians. But they won’t.

    We’ve all seen Brazil, Petrobras and all that, even Chile ain’t perfect. Fact is Latin America is a swamp of corruption. But some countries are way more corrupt than others. Haiti, Nigeria, Iraq.. The Arab countries are corrupt as hell too, but ask any Qatar or Saudi citizen if they can complain.

    The levels of corruption in Vzla are just Historic, no precedents. Even Carlos Andres Perez or Noruega or Fujimori or Putin must be astonished at the competence, expertise, and deep pockets of these Chavista thieves.

  11. The Uruguay Government having to bail out farmers selling food Venezuela sounds awfully close to the US Government having to bail out farmers selling food to Cuba.

    Both Cuba and Venezuela cannot be expected to pay their bills for foreign farm products. Governments have to step in to help the stupid farmers survive.

    For now Obama is hypnotized by Raoul’s evil eye, but he will awake one day with the truth.

  12. It’s obviously the fault of our government but no sympathy for Uruguay: “Uruguay is selling food to Venezuela at double the price it does for other nations “

    • Who is getting that extra money? Is it being kicked back to Chavistas, or to Chavista allies in Uruguay? Or what combination thereof? One thing for sure: that extra money was never intended for Uruguayan farmers.

      Re lack of sympathy for Uruguay: Chavista allies in Uruguay deserve no sympathy whatsoever. It has long been noted that Jose/Pepe Mujica is a Chavista sycophant who believes that there are no enemies on the left. The farmers who sent the goods but didn’t get paid for them- they deserve sympathy.

      Either CC or Venezuela News and Views used to have a front page link to a skit from a Uruguayan TV show which satirized Hugo Chavez as the great moneybags.

      That was a lot of investigative work on Gustavo’s part. I get dizzy just looking at the links.

    • Frankly, I dont know enough of the situation but this may also be a sign the Uruguayans were going to be screwed.

      I mean, it sounds like the standard pack of lies one would use to scam somebody. HEY BROTHER, SELL TO ME! I PAY TWICE THE MARKET PRICE! then pfff, si te he visto no me acuerdo

  13. Said Roy: “One of the serious problems with all these Bolivarian deals is the lack of transparency. And this is only one of the deals made over the years. Trying to peal back the layers of the onion becomes an enormous task in forensic accounting. Of course all of this unnecessary complexity is designed to conceal all the bribes and kickbacks paid at every step along the way. When it comes time to undo all these deals, it is the people of Venezuela and all the other countries involved who will get screwed.”

    And any attempt for a public accounting or at any rate, even a public airing of the issues before the new Assembly is impossible because the ministers simply will not attend, blaming MUD for attempting to put on a “show.” And despite the fact that the questions that MUD wanted to put to the finance ministers were published before their no-show, I haven’t heard of any official response to the questions to this point. So the problem of transparency is compounded by an across-the-board refusal of any accountability. Flatly stated, the Chavistas lack the will and capacity to do anything but to fashion a failed state, which is happening. If MUD can’t check this landslide, it’s looking like a military intervention is the only recourse, sad to say.

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