Sun | Dec 11, 2016

Jamaica, IMF and Petrocaribe

Published:Friday | October 31, 2014 | 12:00 AM
Norman Grindley / Chief Photographer The Petrojam oil refinery in Kingston, Jamaica's offtaker of PetroCaribe oil.

Ja, IMF and PetroCaribe

MANY JAMAICANS tend to listen to important matters that affect their lives only when they are spoken by a foreigner ? usually from a multilateral or large overseas institution.

That is true on economic and financial matters as is evidenced by the fact that we now follow dutifully and obediently the International Monetary Fund (IMF)-directed fiscal consolidation programme. We actually have no choice.

It is popularly believed that our leaders are meekly compliant with the terms of the Extended Fund Facility because it is ordained by the IMF.

We did not have the political will, leadership and managerial skills to devise our own cut-the-navel-string-to-borrowing-addiction plan, create and swallow our own bitter medicine, and put our economic house in order.

Barbados? political and economic leaders devised and implemented their own non-IMF financial and economic fix.

If we had devised clear growth plans, and given the potential in the Jamaican economy, we could have front-loaded our streamlining of the government to make it more efficient and drive productivity with a minimum loss of jobs.

The resulting stimulation of the economy would have encouraged the private sector to employ able persons from the public sector. Instead, we postponed the restructuring and streamlining of the government sector to 2016.

Lately, IMF bosses have been making public noises about making the Government more efficient so we can expect a couple more new laws, even if real action to change is delayed.

We all can recall that although there were loud objections to Minister Phillip Paulwell parachuting in Energy World International as a bidder after the LNG bidding process was closed ? the fact that those objections emanated from institutions like the Office of the Contractor General (OCG) ?that nothing moved Mr Paulwell from his misguided intervention, or his Cabinet colleagues, or his prime minister, until the foreign voice and force of the Inter-American Development Bank (IDB) out of Washington weighed in on yet another of the minister?s follies.

The influence of the weighty foreign voice continued this past week in Montego Bay, this time on our PetroCaribe arrangement with Venezuela.

PETROCARIBE UNAFFORDABLE

Before crude oil prices slipped from north of US$100 a barrel a short while ago to south of US$80 in intra-day trading earlier this week, Venezuela could not afford the PetroCaribe oil largesse it kept handing out to its Caribbean neighbours.

When crude oil prices were at the US$100 level, the Nicolás Maduro administration in Caracas was spending US$50 billion more than it earned in revenues annually, according to Tom Blackwell writing in the Financial Post. Nearly all of Venezuela?s income is derived from petroleum oil sales.

Cuba has a special oil supply quota of 98,000 barrels per day (bpd) and while the other 18 members have a combined quota of 122,000 bpd, the actual amount that has been supplied for some time now is only 105,000 bpd.

Jamaica has the third-largest quota of 23,500 bpd. For the first time since the implementation of the agreement in 2005, Jamaica has not been receiving its full quota since last year.

Jamaica has received a huge financial benefit from this concessionary arrangement. Total oil supplied to Jamaica since 2005 to the first quarter of 2014 is 74.6 million barrels. In addition to the money we owe over a long payback period at a very low interest rate, we also owe Venezuela a large debt of gratitude.

To a country which produces 2.5 million to 3.0 million barrels of crude oil per day, the PetroCaribe figure of about 203,000 bpd would be relatively small potatoes for Venezuela.

However, when money is as tight as it is in the country with the estimated largest reserves, the approximately US$7.5 billion annual cost of the PetroCaribe ? according to Barclay?s Capital in New York ? has become a hot political issue.

The Chávez-Maduro administra-tions have been accused of giving away Venezuela?s wealth for quixotic foreign adventurism.

JAMAICA MUST ACT FAST

We in Jamaica have a reputation for being unable to take wise decisions quickly and are even less able to implement, never mind implementing them well. We need to be driven by some stark facts about Venezuela?s reality.

While the 203,000 bpd to PetroCaribe is a small fraction of the three million barrels per day that Venezuela produces, US$7.5 billion is a substantial per cent of the US$50 billion excess spend over revenues.

The 25 per cent drop in oil prices will increase Venezuela?s already excruciating economic and social pain. The bolivar fuerte currency at an official rate of roughly 6.3 to the US dollar is hopelessly overvalued and trades on the black in the vicinity of 15 times the official rate.

It is reported that a great deal of the subsidised consumer goods escape across the border to Venezuela?s adjoining neighbours where they are sold at better prices. The Maduro alternative to alleged hoarding is not to move to a set of freer market practices, but to introduce fingerprint machines in supermarkets.

Social instability could increase with a continuing depreciating bolivar currency, shortages of ordinary consumer goods, and a significant drop in foreign-currency earnings.

Jamaica has to find ways to reduce its total annual oil import bill of well over US$2 billion by US$500 million to US$600 million, and fast. The PetroCaribe annual benefit is in the range of the required reduction.

The entire spectrum of renewable energy, fossil and nuclear energy sources will have to be considered. And we cannot wait for overseas speakers to tell us to act.

• Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the opposition leader?s Economic Advisory Council.

Email: writerhill@gmail.com

Twitter: @HillAubyn

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