China could play a role in World Bank reengagement with Venezuela

BOGOTÁ, Colombia — The World Bank doesn’t currently do business with Venezuela, but the institution is poised to reengage if and when the time is right. Under the rule of former authoritarian leader Hugo Chávez, Venezuela cut off active engagement with the World Bank in 2006. Since then, the country has remained a member of the International Bank for Reconstruction and Development and has participated in the bank’s spring and annual meetings. Venezuela is also represented on the World Bank board of executive directors in Washington, D.C., but repaid all of its outstanding obligations by the middle of 2007. “There is no financial or operational or dialogue engagement at this time,” said the World Bank’s Colombia and Venezuela country director, Ulrich Zachau. He took up the post in July 2018. He sits in Colombia, which is currently experiencing the impact of Venezuela’s economic and political collapse in the form of over 1 million asylum-seekers and migrants that have flowed across the border. Colombia used to share a country director with Mexico — who sat in Mexico City — but the bank decided to pair it with Venezuela instead. “The decision to establish, if you will, a country department for Colombia and Venezuela has to do with … looking at developments in Colombia as well as Venezuela, looking at the flow of migrants across the region, and coming to a decision that it makes sense to combine these geographically neighboring countries in one department with the perspective that at some point in the future we may reengage,” Zachau said. Venezuela’s economic nosedive is partially responsible for the mass exodus into Colombia and across the continent. Basic food and medical supplies — if available — are too expensive to buy, with IMF predicting inflation will top 10 million percent in 2019. Widespread blackouts have rolled through the country multiple times in recent weeks as an electrical grid denied years of basic maintenance fails. The U.S. has hit Venezuela with repeated rounds of sanctions on President Nicolás Maduro and his allies, and targeted the state-run oil company in January. While Venezuela is home to the world’s largest oil reserves, mismanagement of public funds has prevented citizens of what used to be the richest country in South America from reaping the economic benefit. Waiting to reengage The World Bank has a history of resuming a relationship with countries after they have elected to disengage. Zachau, who previously served as the bank’s country director for Southeast Asia, said several countries in the region resumed relations with the bank after suspending them for various reasons. Both Malaysia and Cambodia paused their involvement with the institution, but Zachau said Myanmar’s history with it provides interesting insight into how reengagement could be handled. “That case is a case where after many years a country returned to the World Bank and to the IMF and to the international community,” Zachau said. “We started up a completely new engagement from scratch, and within a few years we built up a very significant office, a very significant program there.” Myanmar returned to the bank in 2012 as the country worked to move toward democracy under new political leadership. Scott Morris, former deputy assistant secretary for development finance and debt at the U.S. Treasury Department, helped navigate how the multilateral development banks would reengage with Myanmar. He said that it was necessary to determine what sort of projects would be most productive to spur growth, ultimately deciding the best approach was to do community driven development rather than working with the national government on big infrastructure projects. “They just wanted to get money out quickly to local communities,” Morris said. “You could have a similar situation [in Venezuela] where the bank is struggling to figure out how to work with a client that is pretty constrained in terms of ability to implement so that’s going to inform the approach they take.” Venezuela must formally request World Bank assistance before money could start flowing, and the bank will have to decide whether it will provide direct budget support to help the government shore up its finances. This, Morris said, is the quickest way to spur growth, because the World Bank model of infrastructure investment can take years. Held back by debt Any future engagement will also be tied to the status of Venezuela’s debt relief. While the country has no outstanding loans with the World Bank, it has sizeable debt with foreign creditors including Russia and China that will have to decide if and how much of that to forgive to allow the economy to start growing again. “It’s going to matter a lot how China and Russia behave,” Morris said. “China may take a hard line and say ‘we’re not going to make any concessions here. We’re going to enforce the contracts that we have with the Venezuelan government’ and that could make it very hard to have a path forward.” On Wednesday, a bipartisan group of U.S. senators introduced a bill on Venezuela that includes provisions for supporting Venezuela’s reconstruction. It would require the president to engage with the multilateral development banks to create a framework for economic reconstruction, and mandates that efforts on debt restructuring should “include discussions with China, which is Venezuela’s biggest creditor” and “appropriately account for China’s and Russia’s high-risk lending to Venezuela,” according to the bill. Another example of bank reengagement that could provide lessons for Venezuela is Cote d’Ivoire, where a disputed election in November 2010 left the country with two parallel governments for months. Amid rising violence, incumbent President Laurent Gbagbo refused to step down despite recognition from the international community that his opponent Alassane Outtara was the legitimate winner and leader of the country. In Venezuela, the president of the National Assembly has declared himself interim president under authority of the country’s constitution after Maduro claimed to win a widely disputed election last year and began a second term in office. “If we think about the Venezuela situation, presumably what the bank is planning for is a point at which there is a democratically recognized government,” Morris said. “Once Outtara took power again as a result of a legitimate election, there were no constraints on getting the MDBs in there and they moved very aggressively to do that — so it wasn’t a worry about ‘is this government really on the up and up’ — and I think that’s what the aim would be for an outcome in Venezuela.”