Does Venezuelan instability threaten C’bean?

Across the Caribbean concern is being expressed about the implications of civil unrest in Venezuela and what this might mean for the long-term future of PetroCaribe; the concessionary agreement which underpins most Caribbean economies through the supply of oil at concessionary prices on deferred terms.

The recent demonstrations are the biggest political challenge Venezuela’s ruling PSUV has had to face since President Maduro took office in April 2013. However, support for what is happening has largely not crossed over from the middle class to the working class and the poor, and appears unlikely to do so. Confrontations with the security forces are mainly taking place in wealthier districts and most commonly involve students. That said, some of the views expressed by the protestors reflect common concerns among the majority of Venezuelans about the chaotic state of the domestic economy and the collapsing standard of living in a country that is sitting on vast reserves of oil.

Inflation stood at 56.2 per cent in 2013; there are shortages of basic necessities from foodstuffs to soap and toilet tissue; there has been a collapse in the value of the Bolivar with reports suggesting that last year the Bolivar lost 73 per cent of its Dollar value on the local black market; levels of crime are spiralling upwards; and the ratings agencies have downgraded Venezuelan bonds to junk status. Beyond this there are continuing internal divisions within the governing party and indications of dissent about how to respond to demonstrations that have spread to up to 30 other cities.

President Maduro has repeatedly called his opponents fascists and right-wing extremists, alleging that far right groups want to “turn the people against each other”. He has also blamed international news networks such as CNN in Spanish for inflaming divisions. In an attempt to bring a halt to the street protests and deaths, President Maduro has called for a national peace conference to try to bring together all sectors of society, including political opponents, businessmen, trade unionists but this has so far found limited support.

The opposition is split between those who want direct action and those who are seeking change through dialogue. One controversial and polarising opposition figure, Leopoldo Lopez, is in jail and Henrique Capriles Radonski, the opposition leader, has called for President Maduro to rein in government-backed paramilitary groups.

As a consequence, the challenge for government, it seems, as with civil conflicts everywhere, is how best to withdraw from confrontation; to manage the security forces in a way that the state does not fuel wider revolutionary or counter-revolutionary sentiment; and to determine how best to introduce change that starts to address some of the fundamental economic concerns underlying the protests.

This is not to take sides, to downplay the social achievements of Venezuela’s government with the country’s poor, or to set aside the strong and increasingly irreconcilable political antagonism that exists between all parties. Rather, it is to provide background to the inevitable change that the Caribbean is going to see in the PetroCaribe arrangement.

For the last few years, Venezuela’s oil exports to the USA, its major market, have been in a steep decline as the US has become a net exporter of oil sands and gas from shale; local oil consumption of around 700 000 barrels per day is charged for at rates far below the cost price; up to 400 000 barrels per day of oil are exported on concessionary terms to meet the requirements of all PetroCaribe and ALBA members; around 130 000 bpd go to Cuba in exchange for services valued at around US$10 billion a year, and the country is having difficulty servicing a US$49.5 billion loan agreement between China and Petroleos de Venezuela, SA (PDVSA) that ended in 2013 but of which only around US$20 billion has been repaid in oil.

This means whatever happens on the streets, Venezuela is faced with a domestic economic scenario that will be hard to resolve unless mechanisms are put in place to increase revenues from its oil, and decisions are taken to move the industry onto an efficient, sound and more orthodox long-term footing.

The probability is that if actions by all parties in Venezuela moderate and the state does not over react, the present unrest may abate. If this is the case then President Maduro will need to demonstrate statesmanship, pragmatism and focus on making his nation’s oil of greater benefit to all of the Venezuelan people. This will almost certainly mean changing the terms of the PetroCaribe arrangement.

Unsurprisingly, the programme has become the subject of domestic criticism. Support for it has been less than enthusiastic among members of the governing PSUV, the National Assembly, the state-owned oil company PDVSA, and crucially the armed forces, with some pressing for change.

So much so that last October senior figures within PDVSA, were reported by the London-based specialist energy publisher Argus Media, as saying that it was likely that the interest rate payable by all PetroCaribe members will have to double by the end of 2014.

This is the most likely short-term scenario that will face much of the Caribbean.

Although there may be some exceptions such as Cuba, where there is a long-term oil and investment for services agreement, and Jamaica which has an assurance at least until the country’s four-year loan deal with the IMF expires in 2017, most Caribbean nations will need to prepare for what this will mean.

In the US and in Europe thought is now being given to the ways in which energy in the form of natural gas together with longer-term programmes related to renewable energy might form a part of a new economic initiative in the region. Their approach is as much development driven as political and may represent a long-term alternative.

What it will not do is remove the likelihood of an increase in Caribbean indebtedness or the need, as my friend and fellow columnist Sir Ronald Sanders noted last week, for those Caribbean nations most at risk to seek technical advice on how to avoid calamity.

Some of what has been written and said in the Caribbean about PetroCaribe has been thoughtful, but other comment, particularly in the US, appears to be politically driven by those who wish to see political change in Caracas and a setback for Cuba.

As this column has noted before, those beyond the Caribbean should be careful what they wish for.

(David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org. Previous columns can be found at www.caribbean-council.org)