Venezuelan Relations With Colombia Warming

| Apr. 6, 2011 |

Published by Minyanville

The last stop on Venezuelan president Hugo Chávez’s tour of Venezuela was to be Colombia this week. However, damage to Chávez’s airplane has postponed the meeting to Saturday.  It is hoped that the meeting will boost Venezuela’s recession-bound economy, as well as slow record-breaking inflation.

Four years ago, in 2007, bilateral trade between the two nations hit $7 billion—most of which (some $6 billion) was made up of Colombian exports: food, clothing and cars. Last year, however, bilateral trade plummeted to just $1.2 billion. One problem, says the Financial Times, is Colombian exporters still waiting on old debts. Just $365m of the $700m owed by Venezuelan business is thought to have been paid, stifling Colombian trust.

An alliance between the two countries is looking more promising than ever, with Colombia’s president Juan Manuel Santos recently describing his counterpart as his “new best friend” in a New York Times interview. The relationship has warmed very quickly—it was only last year that Santos accused Chávez of plotting to assassinate him.

The recent arrest of Walid Makled, a Venezuelan drug lord, in Colombia has raised tensions yet again and his forthcoming extradition is being seen as a litmus test for relations between Colombia, Venezuela and the United States. Both countries have called for Makled’s extradition to their own territories so Santos must decide which.

He has repeatedly insisted that Makled will be sent to Venezuela, as he is wanted for murder there rather than the lesser crime of drug trafficking in the United States. However, Makled appeared in a Colombian television interview on Sunday claiming that he had “conclusive evidence” of drug corruption within the upper echelons of Venezuelan government. This has led to fears that he will simply be silenced if sent back to Venezuela.

However, for Santos, the problem is a deeper one. He must carefully balance Colombia’s relationship with the two countries and what he stands to gain from them. He appears to have more to gain from Venezuela in building up exports to the country as well as cooperation on crime in border regions. Colombia has already extradited hundreds of drug traffickers to the United States but with only aid cuts and delays in a free trade agreement in return.

Electricity shortages in Venezuela are forcing authorities to look immediately to Colombia, according to electricity minister Ali Rodriguez. He blamed a recent heat wave that forced more use of air conditioning, exacerbating problems with the electricity grid.

The Venezuelan economy has come under strong criticism in recent months, with some analysts predicting the nation would default on its debt obligations. President of the central bank Nelson Merentes assured investors that this would not be the case at a Reuters Latin America Investment Summit.

High oil prices will help the Chávez government at least fund debt obligations. However, a drop in crude output—as well as inefficiency in state oil company Petróleos de Venezuela – along with erosion of the country’s manufacturing sector are worrying some analysts.

Merentes insisted that even in 2002, when the economy was crippled by oil strikes, debts were still paid. “We are sending this message to the investors: There is not going to be any type of risk. Continue to trust Venezuela. It is good business to hold Venezuelan debt," said Merentes.

The country is set to export 12m barrels of oil a year to close ally Argentina beginning in May, including 9m barrels of fuel and another 3m of diesel.  The deal was made during Chávez’s recent time in Argentina. He also agreed to maintain Venezuela’s supply of 24,000 barrels of crude oil per day to Uruguay and 350,000 barrels per month of diesel to Bolivia.

Venezuela and Uruguay signed further deals including for the development of a satellite program, allowing both nations to share use of a Venezuelan satellite in order for Uruguay to develop space technology.

Chávez was keen to keep up anti-imperialist appearances on the trip, however. “The empire is going crazy and it's a real threat to world peace as the imperialism has entered its phase of extreme craziness," the president said in Bolivia.

After expropriating assets from both Exxon Mobil (XOM) and ConocoPhillips (COP) four years ago, the Venezuelan government has said it is aiming to pay out less than £2.5 billion to the companies. Both companies remain in international arbitration proceedings, like many others expropriated by Chávez between 2006 and 2007. Exxon Mobil had previously sought $10 billion.