SUNS 4352 Wednesday 13 January 1999

Caracas, Jan 11 (IPS) - Venezuela's president elect, Hugo Chavez, began a tour of Europe and Canada Monday, seeking immediate aid to alleviate the internal economic strife facing him when he takes office on February 2.

Chavez told the press he would be launching a two-pronged campaign: firstly, to obtain immediate soft loans coupled with dialogue on revising foreign debt repayment terms, and, secondly, "to eliminate the remnants of (my) negative image" amongst investors.

The president elect was in Spain Monday, moving on to France, Tuesday, Germany on Wednesday, Italy on Thursday and Canada on Friday, planning to be in Havana, Cuba on Saturday for talks with Cuban President Fidel Castro, and their Colombian peer, seeking ways to support the peace process in the latter nation.

All stops will include both audiences with heads of State and government, and meetings with entrepreneurs and investors already working with Venezuela or interested in doing so. In Germany he will also visit installations of the Veba Oel company, owned by the Venezuelan state petroleum company.

The debacle on petrol prices since early 1998 means Chavez will come to power expecting a nine billion dollar deficit for this year - equivalent to nine points of gross domestic product.

Analyses by the Chavez team show "in the first quarter there will be a deficit of nearly a billion bolivars," or more than 1.7 billion dollars at present exchange rates, stated Chavez.

Chavez, a 44 year-old retired lieutenant colonel, won the December 6 elections outpolling an alliance of left-wing forces and former military personnel who participated in two armed uprisings in 1992. Chavez himself led the first of these coup attempts.

His new government will be of a civil-military nature, including figures new to public life with whom he promises to bring about a "peaceful and democratic revolution," whilst declaring himself party to
"the third way," rejecting both communism and "savage neoliberalism."

Chavez stated his government will tell its industrialised friends the country needs urgent investment in some economic and social sectors, to palliate both the financial crisis and to launch plans to alleviate the poverty currently affecting 80 percent of the population.

The new leader assured data produced by the so-called link commissions - responsible for the transition from the outgoing Rafael Caldera administration - prove "there is chaos in public administration."
That the establishment has proven incapable of managing the situation, with some sectors plunged into anarchy, is characteristic of a country which has "lost its way," with State powers taken over by interested forces and corruption running through the system.

Chavez explained his objectives included the speedy acquisition of immediate government to government soft loans, in small amounts of several millions of dollars, but which will serve for specific development or social relief projects. He stated the governments he will be visiting were already willing to activate credit lines already open but as yet unused by Venezuela.

At the same time, Chavez and the ministers designate accompanying him will meet with public and private representatives to discuss the renegotiation of foreign debt repayment terms. Venezuela's debt is running at about $22 billion, a great deal of which expires in 1999 and the following years.

According to Chavez, his government "is fully disposed to pay," with the proviso that the internal situation prevents him from using 40% of the budget for debt settlement - as will happen in 1999 if current commitments are not renegotiated. He will be proposing "probable negotiation schemes" to various creditors, including the governmental funders in the Paris Club, who hold 12 percent of local debt. "We hope to convince the creditors of the viability and value of these proposals," he stated.

The menu of options Chavez will present for negotiation includes debt swaps for investment and refinancing through the issue of long-term bonds to replace short expiry instruments. He has also a proposal to deal with the restructured debt through Brady and Global type bonds, despite these being spread amongst a multitude of private holders, which theoretically makes any renegotiation more complex.

Chavez explained his economic team had already placed significant amounts of Venezuelan bonds with investment houses and other groups which have accumulated significant percentages of Venezuelan bonds, and these will be called on to discuss how to refinance payments and lengthen the expiry profiles.

The president-to-be is explaining to his European and Canadian audiences that his government will maintain the current shadow- type agreement with the International Monetary Fund (IMF), which includes its supervision with no disbursal of funds.

But he emphasised the extension of this or the renegotiation of another type of agreement with the IMF will depend on the development of the economic situation.

He also issued a guarantee that he would not fall back on either devaluation for fiscal ends nor exchange controls, and that he will maintain the current system of bands of floatation of the bolivar
against the dollar. But what he will do is set a margin of descent for the year, allowing economic agents to plan better.

"What the international community can be clear on, and what we are going to show in the event, is that my government will be serious and responsible," he explained, but in return "this international community must understand our first responsibility is to the Venezuelan people."