Venezuela's default could lead to conflict with world powers, says economist.

This is the opinion of Eduardo Crespo, PhD in Economics from the Federal University of Rio de Janeiro (UFRJ). In an exclusive interview with Sputnik Brasil, the expert stated that the amount of the Venezuelan default is small, but has the potential to inflame tensions both inside and outside South America.

"In economic terms, looking at the numbers and the fact that Brazil was, until recently, a partner in this regional integration, the value of the debt is a joke, it's a small amount and it's a matter of trade compensation. It's nothing. What is worrying is that there might be a larger dispute involving Venezuela," he commented. 

Currently, Venezuelan President Nicolás Maduro's two biggest partners are Russia and China. Both countries have been providing financial support to the Caracas government, which in turn is trying to renegotiate multi-billion dollar payments to both Moscow and Beijing.

Furthermore, the two nations vetoed a US initiative to designate Venezuela as a threat at a UN Security Council meeting this week.

According to Crespo, the interests of these three countries – the US, Russia, and China – in Venezuela could make the Brazilian demand a "spark" in an environment of high volatility that has formed around the Maduro government.

"I don't see how US$260 million could trigger a diplomatic conflict between two Latin American countries. We're talking about mere trade compensations here. What worries me is that this dispute could open the door to a larger conflict, with other, bigger actors [...]. In the long term, it could represent a shift in regional integration along other lines," he explained.

Possible worsening

According to information from Reuters, Venezuela's default of more than two months on US$262,5 million – within the so-called Reciprocal Credit Agreement (CCR) – has led the Brazilian government to take its case to the Paris Club against the neighboring country. This organization exists precisely to address debt issues involving its member countries.

Venezuela's debt would be even greater without multilateral compensation – a characteristic of the CCR. The original amount was US$334,50 million, but US$72 million was transferred by the other countries that are part of the club. According to the agency, Caracas' debt to Brazilian companies has already reached US$5 billion.

While economic factors may not be a major factor in worsening bilateral relations between Brazil and Venezuela, external interests could change that, according to an economist from UFRJ. He believes that Brasília and Buenos Aires seem to be playing into the hands of the US by requesting trade blockades, while Russia and China may have other plans for Caracas. 

"It is a risk that, for example, Russia or China were to establish a military base in Venezuela. It would be a difficult alternative, turning Venezuela into one of the battlegrounds for conflicts like those we see in Africa, the Middle East, Central Asia, and the South China Sea. In several of these conflicts, the potential gravity of the situation becomes clear," he emphasized.

Crespo indicated that a "peaceful regional integration" in South America requires a recomposition of relations between the countries of the region, shaken by the rise to power of Mauricio Macri (Argentina) and Michel Temer (Brazil), and by the political measures taken by Maduro this year, with the National Constituent Assembly and the early regional elections – measures that strengthened presidential power.