Commentary: The Chavez effect: A life belt for the Caribbean

 

Commentary: The Chavez effect: A life belt for the Caribbean

Published on Wednesday, July 23, 2008

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By Sir Ronald Sanders

There is no question that the two oil-related initiatives launched by Venezuelan President Hugo Chavez – Petro Caribe and ALBA – are life belts to many Caribbean countries, notably Cuba and Jamaica.

However, Chavez’s continuation in government is not guaranteed and when he goes it is very likely that the Venezuelan largesse will go with him leaving many Caribbean economies in grave difficulty.

Already opposition groups in Venezuela have indicated that they regard Petro Caribe as “bribe diplomacy” – an attempt by Chavez to win the support of Central American and Caribbean countries against the United States which he calls “the evil empire”. They have also argued that the money Chavez is lending to the Petro Caribe countries on very concessionary terms could be spent on projects in Venezuela and invested for the country’s future.

Sir Ronald Sanders is a business
executive and former Caribbean
diplomat who publishes widely
on small states in the global
community. Reponses to:
ronaldsanders29@hotmail.com

Since 2005 when the Petro Caribe arrangement was launched, Venezuela is reported to have financed $2 billion or 43% of the 59 million barrels of oil it has sent to Caribbean and Central American countries.

Cuba is the biggest beneficiary, followed by Jamaica, the Dominican Republic and Nicaragua, but smaller Caribbean countries such as Antigua and Barbuda and Dominica have been recipients too. St Lucia, which had joined Barbados, Trinidad and Tobago and the Bahamas, in standing aloof from Petro Caribe, is now negotiating terms in light of unprecedented oil prices.

Under the Petro Caribe Agreement, 86,000 barrels of oil per day has been shipped to the signatory states other than Cuba. Cuba gets a separate lion’s share of some 90,000 barrels a day.

With oil prices at US$139 per barrel, the initiative is a life line to governments that would otherwise be drowning. Up to two weeks ago, they paid for half of the oil imported from Venezuela in 90 days while the payment for the other half was converted to a 25 year loan at a low interest rate – 1 or 2 percent.

Professor Norman Girvan points out that Petro Caribe funding to the Caribbean now exceeds both EU and USAID funding by a wide margin. Petro Caribe credits to importing countries from June 2005 to December 2007 amounted to $1.17 billion and are expected to reach $4.5 billion by 2010.

Only remittances from their Diaspora now exceed Petro Caribe funding to the signatory states. In 2007, Latin America and the Caribbean countries received $66.5 billion in remittances from the US, Europe and Japan – more than they received from Foreign Direct Investment and Official Development Assistance combined.

Chavez announced two weeks ago that once the price for a barrel of oil exceeds $100 (which it has for some time now), only 40 percent will require immediate payment and 60 percent will be converted to the 25 year loan. But, while the arrangement eases the strain on the foreign exchange earnings of Caribbean countries, it also increases their debt significantly to Venezuela.

Their capacity to repay that debt in the troubling economic circumstances in which they now find themselves is very doubtful.

Their terms of trade internationally have worsened as many of them have lost preferential access to the European Union (EU) market for their traditional exports, bananas and sugar. The recent Economic Partnership Agreement (EPA) which the Caribbean countries (except Cuba) have signed with the EU will also deprive them of revenues from tariffs on EU imports that they are required to forego.

So, the Petro Caribe agreement, in so far as it provides Caribbean countries with the opportunity to defer payments for at least half of the oil they are consuming, is vital to the foreign exchange position, if not survival, of governments.

At the same time, it is increasing their debt. And, 14 Caribbean countries were already among the 30 most indebted nations per capita in the world, before Petro Caribe.

An indication of the difficulty these countries face in finding money to service debt and meet funding obligations, other than the provision of goods and services in their local communities is the fact that none of them has so far contributed to a Petro Caribe Fund for social development projects that Chavez initiated.

The deal was that Venezuela would start off the fund with $50 million, and all the Petro Caribe countries would contribute. Two weeks ago, the Jamaican Prime Minister, Bruce Golding, announced that his government would shortly contribute $5 million, having had 12 projects considered for financing by the Fund. There has been no indication from any other government that they will – or could – make any contribution.

In the meantime, conditions for Chavez within Venezuela are not advantageous. Constitutional reform proposals, that he tried to push through last December to give himself greater powers, failed. On November 23, Venezuela will hold regional and municipal elections to elect state governors in 22 of its 23 federal states, 219 members of regional parliaments, 332 mayors, 2 city mayors, and 13 city councillors. Keen Venezuelan observers say these elections will be the most decisive since Chávez came to power in 1999.

If these elections result in a further weakening of Chavez’s presidency, Caribbean and Central American countries that are now lining up to drink at the font of his unique oil policies would be well advised to start looking for alternatives to the Venezuelan dependency that now exists.

But the global community, too, particularly the United States, Canada and the EU should be worrying about the capacity of Central American and Caribbean countries to cope if the Chavez life belt is cut. They too should be devising means to help these vulnerable countries, or the consequences will arrive at their doorstep in refugees, illegal immigration, increased drug trafficking and the need for significant financial intervention to stabilise economies severely injured by the battering of high oil prices.

The foregoing is an abridged version of a speech at the Royal Commonwealth Society in London on July 21.

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