Print this page

PetroCaribe concerns

There is a new suggestion that the Petrocaribe deal, of  which Jamaica is a beneficiary, could come under further pressure with the ongiong fall in the price of oil.

According to Bank of America Merrill Lynch, if  the decline in oil price continues, Venezuela might require additional funding, amounting to US$12 billion, which would require further adjustments.

Last week the Venezuelan oil basket ended at US$77.65 cents per barrel, the lowest price recorded since November 2010.

Venezuelan authorities have scoffed at the oil price decline and have predicted that there will shortly be a rebound. 

Bank of  America says, however, that falling oil prices, in the context of an electoral year, could push the country to consider the sale of  some of its international assets, or to access international markets at high costs. It says another alternative is to reduce shipments to Petrocaribe allies, which hit US$8 billion this year. 

PetroCaribe was designed to allow members to take advantage of a deferred payment system, technically paying full price for oil but receiving credit for up to 50% of the market prices. The deferred amount is payable up to 25 years with an interest rate of 1%-2%.

The programme includes 17 countries, with El Salvador joining in June. Of the participating nations, 13 are receiving oil shipments. Two of the three countries in Latin America and the Caribbean with the highest debt to GDP ratios, Belize and Jamaica, participate in PetroCaribe. El Salvador has the fifth highest debt to GDP ratio in the region, according to the World Bank.

 The PetroCaribe arrangement is a lifeline to Jamaica, which is working through an IMF extended fund facility to get down its debt ratio, which was 147% of GDP.

It has dropped to 139% with the goal of reaching 96% by 2020. The targets of the IMF programme would not if PetroCaribe were to end abruptly. The agreement gives Venezuela the option of stopping the programme with just a 30-day notice to participants.

Managing director of Latin American sovereign ratings department at Standard & Poor’s, Lisa Schineller, cautions that maintaining PetroCaribe might not be sustainable for Venezuela. “When we talk about Venezuela, the key question is if they have space for PetroCaribe and what it implies. Its end certainly would add more strain for participating countries in an already challenging external environment.”

Haitian prime minister Laurent Lamothe told Emerging Markets that an end of PetroCaribe would be a heavy blow. “It would be catastrophic, because nine out of 10 projects that the Haitian government can finance are funding by PetroCaribe. It has been a great asset for the Haitian government and all governments in the region to finance investment projects,” he said.

The Haitian government uses PetroCaribe to fund infrastructure projects from roads to reforestation, food security programmes and even sports development.

Jamaica vulnerable

Design © by Studio6683 International Ltd.. All Rights Reserved.