WASHINGTON -- The International Monetary Fund Friday announced a $4.64 billion loan to support Venezuela's economic reform program, with one-fourth of the funds earmarked for reducing the OPEC nation's commercial bank debt.
The IMF board approved a 3,703.l million Special Drawing Rights loan, equivalent to $4.64 billion, for Venezuela over three years under a so-called'extended arrangement.'
The Fund said it had accepted a request by Venezuelan authorities that 25 percent of the loan, or about $1.16 billion, be set aside to reduce the country's debt to private banks.
Venezuela, a founding member or the Organization of Petroleum Exporting Countries, has external debt of $33 billion, of which about $22 billion is owed to private banks, financial sources said.
In addition, the IMF said it is prepared to consider increasing its lending by up to 40 percent of Venezuela's IMF quota -- its capital commitment to the multilateral organization -- in the event that financing arrangements are concluded with commercial bank creditors for debt service reduction.
The South American country's IMF quota is 1.37 billion SDRs, equivalent to $1.71 billion.
In case of an agreement with the banks, total IMF resources available for Venezuelan debt reduction operations could be close to $1.8 billion.
On June 15, the World Bank announced $755 million in quick disbursement loans to Venezuela, also with the provision that up to 25 percent -- or $187.5 million -- could be used to support debt reduction schemes.
The IMF and World Bank loans are part of the so-called Brady Plan, U.S. Treasury Secretary Nicholas Brady's initiative to pare down developing countries' debts to private banks.
Under the Brady Plan, countries will be allowed to use IMF and World Bank resources to repurchase debt at a discount or use them as collateral for debt conversion operations.
The IMF already has announced major loans with debt reduction provisions to the Philippines, Mexico and Costa Rica.
Mexico currently is negotiating a major debt reduction plan with its bank lenders, but so far the parties do not appear close to an agreement on the percentage of the cut.
It is expected that after Mexico reaches an agreement with the commercial banks, Venezuela willask for similar concessions from its own private bank creditors.
On March 29, the fund approved a first-ever loan to Venezuela for $430 million in support of its government's economic reform program.
Austerity measures taken at the time by the newly elected government of President Carlos Andres Perez sparked riots in which more than 300 people were killed.
The strategy supported by the IMF loan is designed to bring about a major restructuring of Venezuela's economy, reduce its dependence on oil exports and enable domestic producers to compete more effectively in the international marketplace.
According to the IMF, the Perez government already has undertaken actions to reduce the scope of public sector intervention in the economy, enhance the efficiency of resource use by giving greater play to international competitive forces, liberalize investment regulations and limit the scope of price controls.