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Argentina and Venezuela: A move too far

The idea that Venezuela might issue a bond on Argentina’s behalf poses more questions than answers.

Venezuela and Argentina have become rather cosy over the past two years. With Argentina unable to access the international capital markets during that time, Venezuela has proved to be a rather fruitful source of funding for Argentina. The Andean nation has invested nearly $3 billion in Argentine sovereign bonds. Venezuela has not invested for purely philanthropic reasons. The purchases have helped boost Venezuelan president Hugo Chávez’s image as a regional leader. Moreover, his government has made healthy returns by selling the debt on to local banks, which have found the bonds handy as a way to convert bolivares into dollars, so circumventing Venezuela’s currency controls.

But now the relationship between the two nations is about to take a new twist. It appears that Argentina is planning to raise funds by getting Venezuela to issue a 10-year global bond on its behalf. The Argentine government reckons (rightly) that this is a much cheaper way to borrow than if it went to the market directly. Details are still hazy, although Venezuela’s finance minister has said that more information will be forthcoming in the next three months and that the deal would entail both Argentine and Venezuelan risk.

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