Venezuela pays off Russian debts using rubles instead of dollars

Venezuela has made an interest payment on a $3.15 billion loan from Russia using Russian rubles. “We provide such a right and such an opportunity to all our debtors. It’s their choice,” Russian Deputy Finance Minister Sergey Storchak told RBC. The Russian Finance Ministry had already announced previously that Venezuela had made another tranche to service its debt, but without providing any specifics.

After the US imposed sanctions on the Venezuelan government, it became virtually impossible for it to make payments in cashless dollars. All of the country’s government structures have been placed under sanctions, including the central bank. Experts assumed that Caracas would be able to make payments in another currency or to settle its debts by bartering oil or gold.

According to Russian Finance Minister Anton Siluanov, the first payment was meant to be $200 million. Caracas made the previous $100 million payment in April 2019 half a month late, but was not penalized.

Converted to rubles, the interest payment made by Venezuela on September 30 should have amounted to 12.9 billion rubles according to the Bank of Russia’s exchange rate. The funds would be included in the budget under the item “Interest on government loans provided by the Russian Federation to the governments of foreign states” (on September 24, 51 billion rubles, around $779 million, was received under this item).

According to Venezuela’s central bank, the country’s international reserves dropped by $387 million during the last week of September and were $7.9 billion as of September 27, 2019. The investment bank Caracas Capital Markets announced in an explanatory note to clients that the drop in reserves could be linked to a $200 million payment to Russia.

Presumably the rubles used in the interest payment did not cross the Russian border, and Venezuela would have had to sell Russia some kind of liquid asset in order to get hold of these rubles. Gold or, more likely, oil, could have been used.

Kommersant wrote previously that in the three months leading up to July 1, 2019, Russia’s Promsvyazbank unexpectedly acquired more than 8 tons of gold, worth more than 23 billion rubles. This was confirmed in the bank’s IFRS report, which was published on August 20 but later deleted and republished without information about precious metals on the balance. Another government bank, VTB, acquired 52.9 billion rubles worth of gold in August, which the bank said was related to seasonal factors.

At the end of August, the Central Bank of Venezuela held $4.6 billion worth of gold reserves (there is not yet any data for September), according to Caracas Capital’s explanatory note, which concludes that the central bank did not sell gold between July and August.

In 2011, Russia gave Venezuela a $4 billion government loan to finance arms shipments. The loan has subsequently been restructured three times, and most recently the repayment of the principal amount was postponed until 2027. At present, Caracas is only paying the interest on this debt.

  Venezuela, Maduro, Russia

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