Watching the World: PetroCaribe stirs critics

Jan. 16, 2006
Venezuelan President Hugo Chavez is beginning to encounter opposition to PetroCaribe, his plan to distribute cost-deferred oil to 13 nations in the Caribbean.

Venezuelan President Hugo Chavez is beginning to encounter opposition to PetroCaribe, his plan to distribute cost-deferred oil to 13 nations in the Caribbean.

Under the offer, Caribbean countries will be allowed to defer payments for 30% of their imports for 15 years at an interest rate of 2%/year. If oil goes above $50/bbl, the interest rate will fall to 1%/year, with payment for 40% of the imports being spread over 25 years.

Chavez has said that participating nations can also pay a portion of the cost in kind with goods such as rice, bananas, or sugar. For some politicians, the Chavez offer is tempting. Last month, during the election campaign in St. Vincent and the Grenadines, Prime Minister Ralph Gonsalves described it as being “almost a gift.”

Dependency = vulnerability

Last week, however, Trinidad and Tobago’s Prime Minister Patrick Manning issued a note of warning and advised neighboring nations not to depend on Venezuela’s Petrocaribe offer to solve their energy needs. He said the deal could leave them vulnerable.

Manning noted that the Venezuelan agreement requires oil storage facilities to come under the control of local state-owned companies or even Venezuelan state oil firms.“The implication is that the multinational corporations will then leave your countries,” Manning said, adding that Caribbean nations would then be dependent on a single provider: Venezuela.

“It is a question of cutting your own throat if you are not careful,” Manning said. His comments followed an earlier meeting with Edwin Carrington, secretary general of the 15-nation Caribbean Community (Caricom), also a critic of the plan.

No regional discussion

Indeed, back in December, Carrington said regional governments have come to realize that the offer from Chavez to sell oil cheaply has turned out not necessarily to be so.

He told a news conference that it would have helped governments if leaders had found the time to discuss a common regional position.

“The sad thing was that there was no regional discussion among us as to how we would respond to this initiative. That was really the weakness. The fact that we did not sit and discuss and work out a harmonized approach on how to deal with it was really the weakness,” Carrington said.

Examining the possible implications of the deal is also what the International Monetary Fund advised the Caricom nations. Indeed, Agustin Carstens, deputy managing director of the International Monetary Fund, warned the region about increasing foreign debt levels through PetroCaribe.

“We don’t know many of the details of this proposal,” Carstens said. “I think that the countries have to analyze it carefully. Basically they have to evaluate the convenience of this offer in terms of how it affects their overall macroeconomic picture. Because, yes, it would imply more debt.”

In short, Caricom nations need to contemplate the political implications of their potential indebtedness to the president of Venezuela.