Editorial | PetroCaribe as basis for sovereign wealth fund
What didn't emerge in Dr Wesley Hughes' recent observations on the virtues, value and achievements of the PetroCaribe Fund is the policy decision to dismantle the scheme and transfer its resources to the Consolidated Fund. So, if Dr Hughes' reflections had the tone of a valedictory statement on behalf of an agency that he has run for several years, it may well have been.
Nor is it clear - either from anything Dr Hughes said, or in any signal from the Holness administration - what the Government has in mind as a successor arrangement to the existing scheme. We can, therefore, only assume that the plan is for the fund to operate like any other government department or agency - its inflows going to the central kitty and outflows managed by warrants.
Perchance that that is the sum of the idea, this newspaper does not agree. For a thoughtfully restructured PetroCaribe Fund provides an opportunity to rectify the mistakes of the past, when Jamaica got its hands on substantial amounts of capital, and for establishing a sustainable sovereign wealth fund. It is urgent, therefore, that Finance Minister Nigel Clarke declares what he has in mind as a post-PetroCaribe arrangement, as well as invite public debate on the issue. A White Paper would be in order.
For the uninitiated, the PetroCaribe Fund is the vehicle used by the Jamaican Government to manage the soft loans received from Venezuela as part of Caracas' PetroCaribe oil-purchasing arrangement. That deal calls for Jamaica, and other beneficiaries, to pay cash for 40 per cent of their crude purchases when the price of oil hits US$100 or higher. At between US$80 and US$100 a barrel, the cash payment is 50 per cent. Below US$80, down to US$50 per barrel, the beneficiaries' upfront payment is 60 per cent.
The deferred payments are converted to 25-year loans, at between one and two per cent. These backward flows have reached as high as US$3 billion. It is now under US$150 million since Jamaica's discounted repurchase, with money borrowed on the global financial market, of US$1.5 billion of the debt, and Venezuela's inability, in the face of its tumultuous political and economic circumstances, to make oil shipments under the scheme. The PetroCaribe Fund, with US$1.6 billion currently in its portfolio, manages this cash, including by lending money to government entities with the ability to repay. It is also responsible for servicing the outstanding debt to Venezuela.
Given the dramatic decline in the obligation to Caracas and the complicated business environment created by America's economic sanctions on Venezuela, there may be logic to the argument that the PetroCaribe Fund is beyond efficacy as currently structured and managed. In the circumstance, too, there is little need for consensus with Venezuela on the kinds of projects in which the fund's capital can be invested.
That, however, doesn't mean there isn't relevance in a mechanism of the kind, if not the same one. In which event, a sovereign wealth fund - of which there are many models - is a matter worth pursuing. Our preference would be one whose money is not intermingled or commingled with the Government's general finances, or on whose capital a finance minister has unrestrained access, which is a glaring fault of the Capital Development Fund (CDF) into which the bauxite production levy flows.
More than US$4 billion reached the CDF in its four decades of existence. That money has been used in only limited fashion for its intended purpose of investing in economically self-sustaining ventures. Instead, it is regularly raided to help fund the Budget.
We propose that in addition to the existing capital in the PetroCaribe Fund, all future levy earnings from the bauxite-alumina sector, as well as a portion of the taxes from the mining of non-renewable minerals and other extractive and polluting industries, be part of the investible capital of the successor scheme.