GS-2, International Relations, Uncategorized

Oil-for-drugs deal likely with crisis-hit Venezuela

The Hindu

  • Some time back India came up with new system of payment to venezuela.
  • Now India is trying to make the trade smooth by using the system of barter.

News:

  • India has proposed an oil-for-drugs barter plan with cash-strapped Venezuela to recoup millions of dollars in payments owed to some of India’s largest pharmaceutical companies.

Reason:

  • Venezuela’s socialist economy amid a fall in oil prices has triggered triple-digit inflation and a full-blown political and financial crisis.
  • Unable to pay its bills, the country is facing severe shortages of even basic supplies such as food, water and medicines.

Current situation:

  • The situation in Venezuela is very precarious.
  • The government knows it needs to do something about the medicine shortage.
  • That’s why it is willing to discuss such a deal.
  • The officials said Venezuela had been receptive to the plan “in principle,” but not made any concrete commitments yet.
  • But it will take time

Big blow

  • Like pharmaceutical companies globally — which used to enjoy a preferential exchange rate in Venezuela — Indian producers have been left badly stung by the collapse of the bolivar currency.
  • Officials, on condition of anonymity, said the Trade Ministry had proposed a payment mechanism that would allow Venezuela to repay some of the amount owed with oil.
  • The proposal would use the State Bank of India to mediate the transfer. The plan is now awaiting approval on the Indian side from the Finance Ministry and the RBI.

Other Examples of barter:

  • India, one of the world’s biggest oil importers along with the U.S. and China, had similarly elaborate barter deals with Iran, swapping rice and wheat for oil.

Key oil supplier

  • India’s exports to Venezuela between April 2015 and February 2016 almost halved year-on-year to $125.5 million, compared with a year earlier.
  • Most of that were pharmaceutical products.
  • The amount owed to Indian companies is modest on a global scale.
  • But Venezuela is India’s largest trade partner in Latin America and one of its key suppliers of oil.
  • A deal could also revive sales, albeit at a reduced level, at a time when Venezuela is desperately short of medical supplies, lacking as much as 80 per cent of what it needs to treat its population, according to a Venezuelan industry body.

Vicious cycle:

  • Many other providers in the oil, food and trade sector are pressuring Venezuela to pay its debts, at a time when the cash-strapped government is facing growing social unrest.
  • The OPEC country’s oil production is also expected to fall this year due to a lack of resources, a power crunch and maintenance problems, likely leaving it with less crude for export.

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