Tuesday, February 27, 2007

Nicaragua Receives Venezuelan Assistance

Sources: Bloomberg News, Chavez Expands Energy Aid to Nicaragua, Strengthens Ties; Financial Times, Venezuelan Aid Cements Ties with Nicaragua; Guardian Unlimited, Half-Price Travel for London’s Poorest.

Nicaraguan President Daniel Ortega and Venezuelan President Hugo Chavez met in Caracas on February 23 to revise an aid agreement that the two nations entered in January. During the meeting, Venezuela reaffirmed its agreement to provide Nicaragua with an economic-assistance package that includes discount oil, energy infrastructure to help the nation deal with frequent power outages, and small-business loans provided through the Venezuelan national development bank. Additionally, Venezuela vowed to build a refinery in Nicaragua that is capable of processing 150,000 barrels of crude oil per day. Country officials have refused to put an exact price on the aid package, but believe it could be worth billions of dollars.

Venezuela’s generous offer is part of the country’s increasing trend to use its oil reserves (and the financial proceeds from those reserves) to increase its global influence and involvement. It has offered discount oil packages to other South American nations such as Bolivia, Argentina, and Ecuador. Chavez, however, is not just focusing on the developing world. For example, on February 21, the mayor of London and Venezuela’s Minister of the Popular Power for Foreign Affairs signed a so-called “oil for brooms” deal whereby Venezuela will provide a twenty-percent reduction in the price of fuel to the City of London in exchange for advice on developing a transportation system, waste-disposal mechanisms, and improving general municipal governance in Caracas.

(1) What are some of the benefits to Nicaragua of seeking development aid through neighboring countries as opposed to multinational development banks? What are some potential drawbacks? In what way should Venezuela be concerned about such offers?
(2) What particular political considerations should countries take into account when deciding whether to enter in these agreements?

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