US$600m blow to balance of payments likely
The government has estimated that there would be a US$600-million annual impact on Jamaica's balance of payments if Venezuela discontinues its deferred financing arrangement of the PetroCaribe Energy Cooperation agreement at this time.
Venezuelans vote on October 7 to elect a president and there are conversations that the seven-year-old agreement could be reviewed or discontinued if the incumbent Hugo Chávez does not get a third term.
Some polls indicate a tight race.
The discontinuation of the PetroCaribe agreement "is an issue that we've been analysing and evaluating for the last two years," Financial Secretary Dr Wesley Hughes said at a Gleaner Editors' Forum last Friday.
He said proposals have been put forward to modify the arrangements "and we even look ahead to a day when it doesn't exist," cognisant that "this is not something that is granted in perpetuity.
"We have analysed that initially the impact would be about US$50 million per month (or US$600 million per annum) that we would have to find, as a balance of payment impact," said Hughes, who is also chairman of the PetroCaribe Development Fund.
"It tells you, on the other hand, how important this arrangement is to Jamaica at this point in time," he said.
Manager of the PetroCaribe Development Fund, Sharon Weber, said there is no permanence to the PetroCaribe agreement.
"Any side can discontinue with one month's notice. And that's the reason we have to manage it in the way we have," said Weber, who is soon to begin her tour in Caracas as Jamaica's newly named Ambassador to Venezuela.
But Hughes also pointed out that Jamaica's oil partnership with Venezuela pre-dates both Chávez and the PetroCaribe agreement, extending back to Carlos Andres Perez under the San Jose Accord. Such agreements, he suggests, serves the South American country's geopolitical interests.
"Venezuela has an interest in the Caribbean's own development and stability and I don't think this is unique to President Chávez. I think the Venezuelan establishment, broadly speaking, has this concern about its relationship with the region," Hughes said.
"We take the view that yes, it's a political arrangement that governments enter into and I'm absolutely sure that the Government of Jamaica and the government of Venezuela would seek to continue some form of relationship. It may take a different form, but we have no doubt that the mutual interest of both countries will see some arrangement of some form because this is not a gift in an absolute sense. It's not a grant to Jamaica. It's a facility that Jamaica benefits from but Venezuela will be paid over time."
Loans from the PetroCaribe Fund to public bodies represent a contingent liability on the Government of Jamaica, but it is not treated as part of the overall public debt, the financial secretary said.
Asked why it was counted as part of the public debt, the financial secretary said: "That's part of the debate we've been having ... where we do not necessarily include the PetroCaribe loans as part of the national debt because it's asset-backed."
He said the discussions continue as to whether it should be counted as part of the overall debt, saying the decision could affect Jamaica's credit rating.
"If, over a long period of time, we are seeing debt-to-GDP ratio of 130 per cent or 128 per cent and suddenly in the marketplace the number jumps to 140 per cent, it has implications as to how the marketplace sees it," the financial secretary said.
"And the truth is this loan is different from a loan from the IDB (Inter-American Development Bank) because there are assets backing it and we can pay. We have enough resources if the agreement were to end at this moment," he said.
Since 2005, approximately US$2.3 billion has accrued to Jamaica under the arrangement, which is repayable at one per cent interest.
Roughly two-thirds of the crude oil imported into Jamaica comes from Venezuela.