Sun | Aug 25, 2019

Densil Williams | Treat ally Venezuela with respect

Published:Sunday | January 13, 2019 | 12:00 AM
Densil Williams
Venezuela's President Nicolas Maduro holds up a small copy of the constitution as he speaks during his swearing-in ceremony at the Supreme Court in Caracas on Thursday, January 10. Maduro was sworn in to a second term amid international calls for him to step down.
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Venezuela is in the throes of economic and political turmoil. Almost all its economic indicators are pointing in the wrong direction, with inflation, a major measure of the health of the economy, standing above one million per cent in 2018. It means that a product that cost one peso in 2017 moved to one million pesos in 2018. This, by any stretch of the imagination, is bizarre.

Further, politically, there are still questions about the legitimacy of the government as external actors have labelled the elections less than free and fair. There are also reports from the Western press that basic food items are short, and people cannot enjoy a decent and reasonable standard of living.

Still, there are those in Venezuela who claim that this is all Western propaganda aimed at destabilising a government with an alternative model to the inhospitable global capitalist movement.

While on the surface, the imagery painted by the Western media is despicable and raises concerns about the basic tenets of human dignity, one must also be suspicious of one-sided stories and question why there is no other side carried by these same media. As the saying goes, there is always another side to the story.

For, indeed, it must not be forgotten that Venezuela, in its time of abundance, was overly generous to its struggling neighbours in the Caribbean, especially through the PetroCaribe oil deal. This deal, which saw the State selling oil on concessionary terms to struggling Caribbean economies post the global financial crisis, played a significant role in the fortunes that countries like Jamaica are enjoying today.

As such, despite the political and economic crisis facing the country today, we must treat with caution, dexterity, and great care the manner in which we deal with critical financial transactions with Caracas, despite the urgency of now. If we were to follow the urgency of argumentation more than three decades ago, Jamaica would not, today, be benefiting from the largesse of the Chinese. Thanks to Michael Norman Manley for his foresight in not following the shortsightedness of the day and signing on to the 'One China Policy' in 1972.

The recent announcement by the Government of Jamaica to use legislation to trigger a buy-back of PDSVA's 49 per cent ownership stake in Petrojam seems hasty and lacks the care with which friendly countries deal with each other. Without getting the details of the announcement, just the headline, in and of itself, sounds callous and hostile towards a friendly country. I must admit that the devil is always in the details.

I did hear the Jamaican minister of foreign affairs explaining on Nationwide Radio that the use of the term 'hostile' was unnecessary as the channels of communication have been going well with both countries. However, it begs the question: Why would the GOJ then move to such drastic action to use its legislative power to force the buy-back of the shares?

 

HOW DID THIS ARISE?

 

Without delving into great details, the Venezuelans, more than a decade ago when it had surplus financial resources resulting from the massive windfall from extraordinarily high oil prices, decided to invest in the oil refinery in Jamaica in order to upgrade the refinery and increase its efficiency and productivity. Unfortunately, 12 years on, the upgrade has not happened. Venezuela's economic fortunes have deteriorated, and the geopolitical landscape in which it operates has also become less tolerant of those governance arrangements, leading to serious economic sanctions.

With these changes of events, the investment has posed significant financial risks to Jamaica and the day-to-day operations of Petrojam. The GOJ, therefore, decided to pull the plug and retake Venezuela's portion of the ownership of the refinery, thus reverting to full Jamaican ownership.

While on the surface, the GOJ decision seems financially prudent, it must be understood that when one is dealing with matters of interstate relations, it is not as simplistic as bottom line. Critically, this investment by Venezuela in Petrojam is not only guarded by the rules of the international capital market, but is also enshrined in the bilateral investment treaties that guide interstate financial transactions. So, care has to be taken when hopping out of these treaties.

Bilateral investment treaties speak to a number of items that govern how investment from foreign countries should be treated by host nations. Central to this particular issue is the treatment on expropriation and arbitration. The treaties speak specifically of the need for no expropriation, which means that host governments should not unilaterally take over the assets or ownership of foreign investors. It is specifically noted that where expropriation is done, it should be done for all foreign companies in the same industry.

While Venezuela owns only 49 per cent of Petrojam, this unilateral buy-back of the shares by the GOJ could easily be classified as expropriation. This action does not send the right signal to foreign investors. Today, it might be Venezuela, tomorrow it might be another country that has fallen out with the major neo-liberal powers in the West.

The treaties also speak to arbitration. They note that there should be third-party arbitration to settle disputes and come to a common ground. It is clear that in this case, this would have been a much more palatable and pleasant treatment of our sister country, Venezuela.

 

EXPROPRIATION CLAIM

 

While we acknowledge the urgency of now, we should explore the route of arbitration as a more respectful solution to a country that has been so generous to us when we were facing the grim economic fortunes of going over the precipice.

Prime Minister Bruce Golding was spot on in his analysis when he observed that even if the GOJ succeeds in using legislative powers to buy back the shares, nothing prevents Venezuela from going to the courts to seek redress. It is almost certain that the courts will rule in the interest of Venezuela. One just needs to study the outcomes of these types of arbitration matters. So, in the long run, it might cost Jamaica much more than the multiples, which the Venezuelans are purported to be asking for at the moment.

While ace newsman Cliff Hughes is of the view that Jamaica must act now and do the right thing as time is not on our side, I caution that haste may lead to waste and bad future relationships. Using the arbitration route should always be pursued before the extreme tool of expropriation is chosen.

Jamaica still operates a liberal democracy where the principles of free enterprise are critical. Actions by the State that send signals that this can be trampled on are regrettable. Despite the uniqueness of the Venezuelan situation, we should never send those signals to the investor community.

Be careful, Jamaica!

- Densil A. Williams is a professor of international business at the UWI. Email feedback to columns@gleanerjm.com and densilw@yahoo.com.