Venezuela-Colombia Relations Warm, Yet Problems at Home Remain for Chavez

| Apr. 13, 2011 |

Published by Minyanville

Relations between Venezuela and Colombia have become even warmer this week as President Juan Manuel Santos of Colombia has said that FARC rebel groups no longer hold territory in Venezuela. Santos said that Venezuela had provided his country with details which would help solve the murder of Colombian marines apparently by FARC rebels; this, Santos said, was “unprecedented” between the two nations.

The alleged support by President Hugo Chávez of Venezuela of FARC rebels has been a major source of antagonism between the two countries. "We are advancing each time on the different fronts,” Santos said early this week. Just last year, Santos accused Chávez of attempting to assassinate him, before calling him his “new best friend.”

“The burgeoning friendship between [Santos] and [Chávez], practically ideological opposites, just keeps on delivering surprises,” says Benedict Mander in the Financial Times.

Colombia has become closer and closer to the United States over the years, with both Santos in power and Alvaro Uribe before him. A Free Trade Agreement was finally signed in Washington by Santos last week. This long-overdue pact is expected to up US exports by more than $1 billion a year. However, there are worries that Colombian authorities will not be able to stamp down violence and human rights abuses in the country in time.

It was this relationship with Colombia that made Chávez so angry when Uribe was in power in 2009. Chávez froze all diplomatic and commercial relations with Colombia. Thankfully for the economies of both countries, this is beginning to not just thaw but warm significantly as bilateral trade resumes normality. Four years ago, in 2007, bilateral trade hit $7 billion, $6 billion of which was made up of Colombian exports.

However, Venezuela’s El Universal reported this week that the country has paid less than a quarter of its debt to Colombian businesses. The paper claims the Venezuela owes $1.19 billion, of which just $268 million has been repaid. The debt was incurred when Chávez froze relations with Uribe. Colombian authorities have played down the situation.

In another warming of relations between the countries, Santos has finally confirmed that Walid Makled, the alleged Venezuelan drug trafficker, is to be extradited to Venezuela rather than the United States. The case demonstrates relations between the three countries. Makled is wanted in the United States on drug trafficking charges while he is wanted in Venezuela for murder. Santos has said that the Venezuelan charges are greater and therefore Makled should head there.

However, there is much more to the case. Makled has implicated the Venezuelan government in extremely high-level drug trafficking and so sending him to Venezuela could put him at serious risk. However, Colombia has already extradited hundreds of alleged criminals to the US with little in return.

“Santos’s shift shouldn’t be so surprising, though. He is simply a pragmatist defending the interests of the nation he was elected to serve,” concludes Mander.

Ratings agency Fitch has affirmed Venezuela’s B+ rating, in a move that will comfort investors concerned about the instability of the country’s economy, with one of the highest default risks in the world. Many analysts have already predicted a default before next year’s presidential elections. However, with oil prices hitting $113 a barrel thanks to events in the Middle East, this is looking increasingly unlikely.

“Venezuela's credit strengths are balanced by a volatile macroeconomic performance and an exchange regime that leads to lower growth, higher inflation and the deterioration of external credit metrics,” Fitch said. State-owned oil company Petróleos de Venezuela has issued just under $14 billion in dollar-denominated bonds over the last year.

Venezuela was hit by severe power outages this week, its worst blackout since 2009. The El Palito oil refinery, which produces 146,000 barrels a day, had to be restarted while commuters on the city’s Metro were forced to the streets during the city’s notorious rush hour.

Ali Rodriguez, electricity minister, said power was restored quickly but warned that many regions—excluding capital city Caracas—would face further outages as electricity was rationed. The problem is a growing headache for many in Venezuela who attribute it to a lack of inefficiency in government, a problem for Chávez as he faces elections in 2012.

The outages may decrease April oil output, according to the International Energy Agency. Oil production was at 2.2m barrels per day in March, down from 2.7m in February.