(Bloomberg) -- Brazil avoided a possible default as Congress approved funds for the payment of a loan guarantee made to Venezuela and Mozambique.
In a 216-to-41 vote, a joint session of Congress authorized late Wednesday the release of 1.16 billion reais ($281 million) to boost a fund that guarantees exports and that will make the payments, according to the government’s news agency. Brazilian taxpayers are on the hook because Caracas looks set to miss a May 8 deadline for a $275 million debt installment. Non-payment by Brazil would constitute a sovereign default, government officials and Moody’s Investors Service had warned.
The imbroglio was the result of a series of missteps by Brazilian policy makers, from a cumbersome arrangement for export loan guarantees to a gross underestimation of the credit risk. Only days before Venezuela missed a previous loan payment to Brazil last August, top budget ministry officials in Brasilia flatly dismissed the chance that their Caribbean neighbor could default, thereby failing to account for the risk in this year’s budget.
The loans guaranteed by the government were made by the state development bank BNDES and Credit Suisse, which has declined to comment. The credits were granted during the left-wing administrations of Luiz Inacio Lula da Silva and Dilma Rousseff and used to finance major construction works executed by Brazilian companies in Venezuela. Brazil’s government has guaranteed almost $1.5 billion in loans to Venezuela.
©2018 Bloomberg L.P.