The 5th Petrocaribe Summit was held in Venezuela’s oil capital, Maracaibo, last weekend. The meeting was of course chaired by President Hugo Chávez. In attendance were the Presidents of the Dominican Republic, Guatemala, Haiti, Honduras and Nicaragua, the Vice President of Cuba, as well as various Caricom Prime Ministers including Bruce Golding of Jamaica and our own Samuel Hinds. The other Caricom members of the energy alliance are Antigua and Barbuda, The Bahamas, Belize, Dominica, Grenada, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, and Suriname.
With oil prices continuing to zoom upwards and countries’ balance of payments and foreign exchange reserves in jeopardy, the Petrocaribe pact has taken on increased economic importance in the region. What has previously been regarded as simply a ploy by the Venezuelan President to win friends and influence people is now seen as a vital lifeline for the oil-importing, energy dependent, developing economies of the Caribbean and Central America.
Politically, the most important developments at the summit were the incorporation of Guatemala and the attendance of Costa Rica as an observer, prior to an announcement on Tuesday that it would be making a formal application for full membership. These developments are unsurprisingly being hailed in Venezuela as personal triumphs for Mr Chávez.
Petrocaribe, although guaranteeing its members a secure supply of petroleum, does not, however, mean a reduction in price, since Venezuela is bound by the Organization of Petroleum Exporting Countries to sell at international market prices. What it does represent is significant concessionary financing, which is becoming more and more of a magnet as the global economic crisis deepens.
Indeed, the current economic scenario has presented the charismatic Venezuelan President with a golden opportunity to use his oil reserves and petro-dollars to burnish his image as the sugar daddy of the region, if the metaphorical confusion of commodities might be excused.
Mr Chávez thus announced at the summit that Venezuela would be making its payment scheme even more flexible than what has been obtaining since 2005. Under the new conditions agreed in Maracaibo, Petrocaribe members will have 90 days to pay 40% of the cost of crude oil imports from Venezuela, with loans being extended to cover the rest of the bill over a period of 25 years, at 1%, with a grace period for repayment of 2 years. Previously, Petrocaribe financed a portion of imports according to a sliding scale: above US$30 a barrel, 25%; above US$40, 30%; above US$50, 40%; above US$100, 50%, with this obviously being the effective rate up to now. The interest rate for repayment over the 25-year period was originally set at 2% at prices below US$40 a barrel and 1% over US$40 a barrel.
Now, with oil prices between US$130 and US$140 a barrel, having more than doubled in the last 10 months, Mr Chávez’s unilateral offer – made in the spirit of “Bolivarian” solidarity and with the obligatory swipe at capitalist speculation – is clearly too sweet to resist. And if the price of oil rises to US$200 per barrel, as predicted by Mr Chávez, then Venezuela will improve its repayment conditions even more, pegging the initial payment at 30%.
Another initiative arising from the summit was the decision by Mr Chávez to set up a fund to support Petrocaribe member countries in expanding agricultural production and improving food security. In this regard, Venezuela has promised to contribute 50 US cents for every barrel of oil exported, which is estimated to raise some US$760 million per year. A special meeting of Petrocaribe agriculture ministers is scheduled to be held in Honduras at the end of this month to work out the details of what to do with these funds.
Whilst opinions about Mr Chávez and Petrocaribe have varied greatly across the region, the distinguished development economist and former Secretary General of the Association of Caribbean States Norman Girvan, has stressed the value of the scheme in a recent paper:
“As the price of oil on world markets has grown, so has the value of Petrocaribe loans to importing countries. One consequence is that Petrocaribe has become the largest single source of concessional finance to the Caribbean region. Hence, Petrocaribe credits to importing countries from June 2005 to December 2007 amounted to $1.17 billion…”
Professor Girvan adds that credits “are expected to reach $4.5 billion by 2010” but also indicates that this figure may well be “a considerable underestimate, as it was given in December 2007… before the huge increase in oil prices in the first half of 2008.”
He further explains that Petrocaribe credits in 2005-2007 were US$468 million a year and could rise to around US$1.1 billion in 2008-2010. To put these figures in perspective, Professor Girvan points out that American foreign assistance to the Caribbean in 2005-2007 was estimated at US$340 million a year, with almost US$200 million of that sum going to Haiti alone, and that the Inter-American Development Bank disbursed some US$100 million to Petrocaribe beneficiaries in 2007-2008, which is “less than one-quarter of the Petrocaribe average lending for 2005-2008.”
These are obviously compelling economic figures and Professor Girvan argues strongly in favour of Petrocaribe as a major source of balance of payments relief in the face of rising oil prices. The news coming out of Maracaibo would suggest that Caribbean countries, including Guyana, should not look this particular gift horse in the mouth.
However, Professor Girvan also considers Petrocaribe a key element of “a Bolivarian vision” that includes ALBA and the Bank of the South. Space does not allow us here to address the geopolitical implications of this argument and we will return to it at a future date.
Suffice it to say that, in the context of our difficult bilateral relationship with Venezuela, the earlier decision of the government to source only 50% of our petroleum needs from Venezuela appears to be a commendably prudent one, but it will be interesting to hear what Prime Minister Hinds has to say about the summit and the opportunities arising, especially regarding the new agriculture fund.