CARACAS (Reuters) - Venezuela's Congress voted on Tuesday to double the amount the government can borrow from China under a deal that lets the OPEC nation repay loans with oil, potentially adding to the debt burden taken on under President Hugo Chavez.
China has become the single biggest foreign source of financing for Venezuela's socialist government, which is borrowing heavily to fund state spending on welfare and infrastructure projects ahead of an October 7 election.
Tuesday's vote amended a 2008 agreement to let Venezuela borrow as much as $8 billion from the China Development Bank at any given time, twice the original $4 billion.
Ruling party lawmakers say the funds are needed for investment in areas such as manufacturing to sustain economic growth that reached 5.6 percent in the first quarter - its fastest rate in almost four years.
"Venezuela is forging a strategy that allows us to guarantee the development of our manufacturing industry so that it's a motor of the economy," said socialist party lawmaker Christian Zerpa.
Chavez signed the measure into law soon after, meaning it will come into force on publication in the Official Gazette.
Opposition leaders, however, say such deals threaten to leave the country overly indebted.
"This has taken us back to the colonial era," said opposition lawmaker Americo De Grazia. "As a result of this fund, we're putting our future into debt - not just our future but that of our children and grandchildren."
Critics point out that state oil company PDVSA already has to send 430,000 barrels per day of crude oil and products to cover its debts with China, which have reached $32 billion.
The financing includes three $4 billion loans in addition to a separate $20 billion lending package agreed in 2010.
Seeking to finance an explosion in state spending on social programs including home construction and cash stipends to poor mothers, Venezuela and state oil company PDVSA also sold $17 billion in bonds in 2011 despite a surge in oil revenue.
Chavez is recovering from an undisclosed type of cancer that has left him unable to carry on his usually loquacious public appearances and televised speeches.
Without his usually dominant presence, his government will likely have to spend even greater amounts on social projects to shore up support among wavering sympathizers, analysts say.
The country's total debt including domestic issues has reached $79.3 billion, making it expensive to continue borrowing from international capital markets.
Venezuelan bonds are among the highest-yielding debt tracked by JPMorgan's main emerging market bond index, with spreads more than 1,000 basis points above comparable U.S. Treasury bills and some securities yielding more than 12 percent.
Venezuelan yields top even those of Pakistan, which is battling Taliban insurgents and struggling to maintain its public finances intact.
PDVSA this month confirmed a bond issue of $3 billion in a private offer for the central bank and other state banks, which is mainly intended to supply the Sitme foreign exchange system.
PDVSA has long been the financial motor of Chavez's self-styled "revolution" in the nation of 29 million people, financing everything from new houses and subsidized food to free healthcare and schools in slums.
But critics say Chavez has gone too far, squeezing his cash-cow too hard and jeopardizing its long-term stability at a time when PDVSA needs financing for major development projects in Venezuela's heavy-crude Orinoco Belt.
Editing by Helen Popper and Bill Trott