Venezuela’s government has claimed that its PetroCaribe programme will stay in place, but doubts have been increasing recently over the credibility of that claim.
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.
Lisa Schineller, managing director of Latin American sovereign ratings department at Standard & Poor’s, said 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
Also hit hard would be 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 be met, especially if PetroCaribe were to end abruptly. The agreement gives Venezuela the option of stopping the programme with just a 30 day notice to participants.
“I do not anticipate that the end of PetroCaribe would have cataclysmic consequences for Guyana, but it is a beneficial arrangement and as far as we are concerned we would like to keep it in place,” said Singh.
Canada’s Scotiabank, which issued a report in September on PetroCaribe, stated that the 30 day scenario would be damaging.
“There are political and fundamental factors affecting the longevity of PetroCaribe, and both are trending toward an eventual dissolution of the energy union. When, how, or even if the PetroCaribe agreement will collapse is clouded by uncertainty but the outsized impact of such a scenario necessitates concern,” the bank stated in its report, PetroCaribe: More Noose than Lifeline.