Reports from Venezuela: The Petrocaribe Trap
The Petrocaribe Trap
A failing economy, where everything for sale in the shops is imported, with dwindling foreign reserves and on the brink devaluation.
Sound familiar? It does in Jamaica, a country that breaks records not just in the 100-meter dash (9.58 seconds) but also in debt-to-GDP ratio (139%) – and whose beaches, stunning though they may be, just can’t bring in enough money to keep the island’s economy afloat.
Venezuelans tend to have some vague notion that the government has basically bought up these struggling Caribbean island states through oil subsidies, but seldom do we really stop to understand just how dependent places like Jamaica are on our petro-largesse.
So let’s go there.
Jamaica is now rolling out austerity as it fights to achieve IMF targets. To dance with the IMF, the country is implementing a reform package, tightening the tax belt and cutting public spending, all in return for USD $345.8MM loan. That’s peanuts compared to its outstanding debt with Petrocaribe, which the Government of Jamaica estimated at USD $2.5B at the end of January.
For a bigger country US $2.5 billion is a mere rounding error. But for Jamaica, US $2.5 billion is 2.4 times the country’s international reserves. In fact, international reserves have only surpassed the billion dollar mark in three of the last 12 months.
Jamaica’s total exports are also peanuts next to what it owes to Petrocaribe. The nation’s exports were just $1.4 billion between January and November of last year. And exports are falling fast, with a 7% year-on-year drop during these eleven months.
Into this extremely fragile environment comes Moneybags Uncle Ramírez offering to finance up to 95% of their fuel tab for periods of up to 25 years, at a bargain basement 1% interest with a manguangua-del-siglo 2 year grace period.
Of course, as the debt under the Petrocaribe mechanism grows, so do the stakes for Jamaica. Never forget, the second-to-last article of the Petrocaribe Agreement explicitly states the deal be changed or terminated by the Bolivarian Republic of Venezuela unilaterally, with just 30 days’ notice after notification through standard diplomatic channels.
In effect, the Venezuelan government has a fiscal gun pointed at the side of the Jamaican government’s head at all times, with a 30-day trigger.
What happens if that trigger gets pulled? It’s simple, really: if Petrocaribe stops, the lights go out. Literally. Diesel-powered powerplants make up almost 95% of the country’s installed power generation capacity.
This is a country whose political economy just doesn’t work without Petrocaribe. Already the fiscal accounts barely work with the Venezuelan subsidy. Without it, it’d be just carnage.
You start to see why Jamaica backs Venezuela unconditionally in international fora?
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