Crucial Loans to Venezuela Are Held Up by Dispute With Congress

The bitter political standoff between Venezuela’s government and opposition may have cost the crisis-torn country nearly half a billion dollars in loans from one of its last active multilateral lenders as a fourth year of recession grips the economy.

The Development Bank of Latin America, or CAF, is said to be reconsidering whether to issue fresh loans to Venezuela — a principal member and home to its headquarters — due to a legal dispute between the National Assembly and the Supreme Court, according to three people with direct knowledge of the matter. As the government struggles to stock store shelves and make good on billions of dollars in bond payments, the opposition-controlled legislature has refused to approve a debt financing law for 2017.

Insisting that the National Assembly is in contempt, President Nicolas Maduro has sought budgetary approval from the Supreme Court, which he’s packed with his supporters. In response, Maduro’s opponents in the legislature have sent a stern warning: Any new debt approved without the Congress would be considered illegal and future governments would not be obligated to honor it.

With the world’s highest sovereign risk of default, Venezuela, which has depended on loans from China in recent years for liquidity, is finding it harder and harder to obtain financing as reserves tumble and debt service becomes more burdensome.

“By trying to bypass the National Assembly, the government now doesn’t have the means to obtain financing,” said Jose Guerra, the head of the legislature’s Finance Committee and former director of economic research at the central bank.

Loan Requests

Leery of providing any new financing that has not been approved by Venezuela’s legislature, CAF has put a $40 million credit for water infrastructure as well a $400 million loan request on hold as it evaluates Venezuela’s uncertain political and economic outlook.

Bond yields and country risk have effectively…