David JessopIS THE PetroCaribe arrangement between Venezuela and much of the Caribbean an economic lifeline, an attempt by Caracas to exert influence and spread its Bolivarian vision across the Caribbean region, or simply a trade financing agreement?
The basic facts about PetroCaribe are straightforward. PetroCaribe is a framework within which each Caribbean signatory agrees on how much oil or petroleum it requires from Venezuela. Depending on the world price of oil, a fixed percentage is assigned to the recipient nation in the form of a soft loan.
HOW THE LOAN WORKS
Thus, if oil is at US$50 per barrel, the loan to the nation concerned will be set at 40 per cent of the value of the overall purchase; if it were to be at US$100 per barrel, a 50 per cent loan will be provided over the agreed period. Financing at present prices is at one per cent interest. There is a two-year grace period and an overall repayment period varying between 17 and 25 years. This structuring, it is suggested, enables nations to continue to operate within conditions imposed by multilateral agencies such as the IMF and World Bank.
The programme envisages that nations receiving refined products will see prices reduced by US$1.50 per barrel. Among recipient nations only the Bahamas, Jamaica, and Suriname have appropriate refineries. There are also separate agreements with Cuba, the Dominican Republic and Jamaica for the improvement and expansion of their refining capacity with the suggestion that the three become refining centres to supply fuel and fuel products to CARICOM states.
While there are some variations in the arrangement, Antigua, Barbados, Dominica, Grenada, Guyana, St. Kitts, St Lucia, St Vincent and Suriname will each receive between 27,000 and 34,000 barrels per day (bpd). Guyana will receive 10,000 bpd, Cuba 98,000 bpd, the Dominican Republic 50,000 bpd and Jamaica 14,000 bpd. Some reports indicate Jamaica may take more. No figures have been given for Belize and the Bahamas.
The programme will also try to address the problem of storage. Unused tanks located in Venezuela could be dismantled and shipped to CARICOM countries. As a part of the arrangement, a fund has been established for social and economic programmes. Caracas has made an initial contribution of US$50 million. Other possibilities relate to enhanced shipping links and two-way trade.
For heavily indebted nations struggling to develop social and economic transition programmes in the face of preference erosion and declining revenues, this financing initiative is attractive. It provides a lifeline at the precise moment at which many Caribbean nations feel there is no longer any interest among traditional partners in supporting their economic transition. They see the PetroCaribe arrangement helping to address the enormous budgetary strains caused by high world energy prices and offering the opportunity to develop otherwise unaffordable social programmes.
DEFERS DEBT REPAYMENTS
Less positively, PetroCaribe defers debt repayments, potentially challenges a number of existing or envisaged CARICOM arrangements and creates difficult questions about the Caribbean Single Market and Economy. Trinidad has declined to join, in part because the arrangement could undercut its own Caribbean oil facility, and Barbados has expressed reservations in relation to the financing structure of its own oil industry, and the implications of the arrangement for the common external tariff and the CSME. However, both nations and Jamaica are now trying to find a way forward with Venezuela to resolve these problems.
Beyond the region there is a very different view. There is a sense that PetroCaribe may create new alignments that respond to Caracas' longer-term political objectives. Concerns focus on PetroCaribe as a part of a much wider strategy that could see Venezuela becoming a dominant power in the Caribbean, able to exercise leverage through concessionary energy arrangements and influence over offshore exploration in areas subject to delimitation disputes. Concern is also expressed about the impact the arrangement might have on Caribbean voting intentions in multilateral institutions.
Behind this is a cold war paranoia that Venezuela is in some way going to influence thinking and change political norms. It ignores the fact that the western democratic model is entrenched and there is no demand for any government in the Caribbean outside of Cuba to embrace other than in the most general terms, the Bolivarian concept espoused by Venezuela.
In reality all that is happening is that the wider world is belatedly worrying about the effect of the regional policy vacuum that the US has done much to foster. Washington has had a Latin and Caribbean policy that has been ideologically fixated, inclined at higher policy levels to a dialogue of coercion and ignorance. By design in the context of Iraq and by default in the context of regional and bilateral relationships, Caribbean Government's have been marginalised by Washington. This is not the fault of the many able US diplomats, but a function of a dated and ideological view of the US relationship with the Caribbean and the hemisphere.
Europe, which should know better, has compounded the Caribbean's sense of being alone. In the Caribbean it has sought in the name of trade liberalisation to see an end to Caribbean preference without accepting that the region's command of world trade is so small as to be irrelevant. It has failed at both a policy and bureaucratic level to understand the social and political implications of not putting in place substantial transitional programmes in good time. It has proved unable to truly engage with the private sector or to encourage any new dynamism in government. As a consequence it has done virtually nothing to help develop significant alternative economic options that could take the region in new economic directions that might enable it to make the final leap to prosperity.
While Venezuela's financing arrangement as presently structured will undoubtedly cause problems for the CSME unless resolved, it is a real attempt at finding a regional solution to the problems the Caribbean faces.
As with all grand initiatives much will depend on the capacity of Caracas to deliver the PetroCaribe programme effectively through its state owned oil company.
But the bigger issue is whether Venezuela understands enough about CARICOM nations or the region and it sensitivities to develop a genuinely holistic regional policy. One immediate and practical example of this would be action to halt the extraordinary upsurge in the trafficking of drugs and weapons from Venezuela into the Eastern Caribbean. Another would be a sign of willingness in Caracas to help ameliorate what St Lucia's Prime Minister, Kenny Anthony, has described as Latin nations unrelenting concern over their own banana markets and lack of grasp of the enormous damage they have done between the Caribbean and Latin America.
Europe's concern about Venezuela's closer involvement in the region begs the question as to why Europe or the US should complain, when for the last decade, the policy has been one of withdrawal and a desire for there to be a closer Caribbean relationship with Latin America.
David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org.
