Mon | Jun 24, 2019

Editorial | Rethink PetroCaribe Fund

Published:Tuesday | April 9, 2019 | 12:21 AM

Unless the Government silently reversed its policy, which, in this case, wouldn’t be a big deal since the initial plan was executed largely on the quiet, the PetroCaribe Development Fund (PCDF) no longer exists. Monies that used to flow to, and was managed by, the PCDF will now be deposited into the Consolidated Fund.

Given the magnitude and potential significance of this development, this newspaper is surprised at the relatively low-keyed manner with which it has been handled by Finance Minister Nigel Clarke and the quietude with which it has been greeted by other stakeholders, even after we raised the issue last July.

We, nonetheless, have concerns about the project. We don’t necessarily hold that the PetroCaribe Fund should have been maintained in its existing form but differ on what should have been done with its residual resources and any income earned thereof. It shouldn’t go to the Consolidated Fund, into which the Government can dip its hands at any time for any purpose it thinks fit.

The PCDF was established to manage the resources that flowed from ‘loans’ received from Venezuela under an oil-sale arrangement established by the late president, Hugo Chávez, and maintained by his successor, Nicolás Maduro, despite the opposition of some quarters of the Venezuelan polity.

In this arrangement, depending on the price of oil, Jamaica and other Caribbean and Central American countries that benefited from the scheme were allowed to defer payment for up to 50 per cent of the oil they bought from Caracas. At one point, the rebate was as much as 60 per cent.

The outstanding amounts were converted to loans for up to 25 years, at interest of between one and two per cent, once the ‘savings’ were invested in development projects, including renewable energy, such as financing, as we observed recently, the Wigton Windfarm.

At the peak of its operation, these flows reached as high as US$3 billion, most of which was paid down when, in the face of its fiscal crisis, Caracas sold the debt to Jamaica at less than half of the face value. That was a major contributor to Kingston’s lowering of its steepling debt-to-gross domestic product ratio.

Because of Venezuela’s inability to supply crude, the island’s obligation to Caracas is around US$150 million, and at the time of its closure, the PCDF had more than US$1.6 billion under management, including funds loaned to several Government agencies to finance their projects.

The fund has performed so well that, as Dr Clarke revealed in his Budget presentation last month, the Government, in the last fiscal year, tapped the PCDF for J$20 billion in dividends, which it used to finance infrastructure projects.

Even if the minister didn’t announce that, it would have been eventually revealed by the transparency ensured in the annual reports of such independent agencies, especially when they are well run, as Dr Clarke said the PCDF was.

A SOVEREIGN WEALTH FUND

It may be that the halt in supply of oil from Venezuela and Jamaica’s buy-back of the debt meant that the PCDF was no longer as efficacious in its current form. That, however, doesn’t mean that the concept, or something akin to it, is irrelevant.

As we suggested eight months ago, rather than having the PetroCaribe money commingling with the general revenue, the PCDF should have been transformed into a sovereign wealth fund, seeding the PCDF’s residual capital and interest inflows, with mechanisms to prevent a finance minister’s unrestrained access to the cash. Unfettered access was the bane of the Capital Development Fund and why there is little to show for the US$4 billion to it from the bauxite levy.

Future levy earnings, as well as a portion of taxes and royalties from other extractive and polluting industries, should go to this fund to invest in economically self-sustainable sectors to compensate for when these finite resources are no longer viable and to repair the environmental damage they leave.