By Matthew Walter

May 28 (Bloomberg) -- Brazil’s state-run development bank will loan Venezuela as much as $4 billion to finance projects, Venezuelan President Hugo Chavez said.

Brazil and Venezuela signed a letter of intent for the financing earlier this week, Chavez said in comments broadcast today on Venezuelan state television. A spokeswoman at BNDES, as the bank is known, said the loans would be provided for contracts won by Brazilian companies.

“BNDES has offered us a lot of financing,” Chavez said. “They know that Venezuela is a solid economy. They’ve offered us credits to continue a set of projects.”

Chavez has also secured loans from China and Japan this year to maintain spending on infrastructure and oil development and to increase state control of the economy after a plunge in oil export revenue. He said during a May 26 visit with Brazilian President Luiz Inacio Lula da Silva that he’ll “continue the rhythm” of nationalizing private companies.

“The drop in oil prices, the restrictive credit situation and the government’s practice of nationalizing companies means it’s currently very difficult for Venezuela to sell bonds,” said Abelardo Daza, an economics professor at the Instituto de Estudios Superiores de Administracion in Caracas. “Basically, Venezuela is having to cover its deficit with bi-lateral debt.”

There are $4.5 billion in projects in Venezuela that may be financed by the bank, the BNDES spokeswoman said when contacted by Bloomberg News. The bank has already provided $295 million in loans in the past for an expansion of the Caracas metro and for a hydro-electric power dam, she said.

Crude Prices

As crude prices began to fall from a record in July, eventually dropping as much as 77 percent, Chavez got a renewable $4 billion loan from China in exchange for future shipments of oil. He’s promised not to cut spending on popular social programs, which he says are “sacred.”

At the same time, the government has nationalized more companies, adding to its obligations. The government may owe as much as $9 billion for nationalizations, according to research firm Ecoanalitica.

Since winning a referendum that allows him to seek re- election indefinitely in February, Chavez has seized a rice mill from U.S.-based Cargill Inc., nationalized assets of at least 74 oilfield services companies and announced the takeover of the hot-briquette iron industry.

Chavez said today that the recent rally in oil prices will help the government meet its obligations and spur economic growth.

Crude oil rose 2.6 percent to $65.08 a barrel today on the New York Mercantile Exchange, the highest since Nov. 5.

To contact the reporters on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net