In July 2015, Jamaica dutifully repurchased a debt of $3bn from Venezuela. Jamaica borrowed $2bn on the international markets at interest rates of 6.75-7.875% (with a 10-year moratorium on payments, maturing in 2028 and 2045). Jamaica paid $1.5bn to Venezuela, who wrote-off the outstanding $1.5bn owed under a PetroCaribe accord, and boosted Jamaica’s reserves by $500m.
Venezuela’s PetroCaribe alliance, begun by Hugo Chavez in 2005, has supplied 18 neighbouring Caribbean and Central American countries with fuel and favourable terms for payment, such as low-interest rate loans, and invested in community projects for marginalised people including hospitals, schools, highways, and homeless shelters, as well as developing fuel supply and storage infrastructure. Unsurprisingly, it has been met with hostility from the US. Last January, Joe Biden referred to it as a ‘tool of coercion’, and Obama visited Jamaica in April to urge Jamaica and other members to leave the PetroCaribe Alliance in favour of his World Bank-funded investment plan, the Caribbean Energy Security Initiative.
Like many of the beneficiary countries, Jamaica can buy up to 23,000 barrels of oil a day from Venezuela. If the price is above $40 a barrel, Venezuela extends credit for between 30-70%, with a payment period of 25 years at 1% per year with a two-year moratorium on payments. When oil falls to $40 or below, the credit ranges between 5-25%, over 17 years at 2% interest.
Jamaica’s PetroCaribe Development Fund, established in 2006, has funded projects such as the expansion of the country’s rural and urban road networks, the upgrading of the Norman Manley International Airport, the Petrojam Refinery, the Falmouth Pier, and the Jamaica Urban Transit Company.
Nevertheless, the debt has piled up. However, Jamaica, under an IMF austerity agreement vice, may have just jumped from the frying pan into the fire. Jamaica is under pressure from the IMF to reduce its debt and maintain an annual primary budget surplus of 7.5%. Its growth is being stifled. Jamaica, like other Caribbean and Central American countries, is heavily energy-import dependent and needs secure and reliable energy sources. High energy costs have constrained Jamaica’s manufacturing and the diversification of its economy.
Comparatively, the PetroCaribe debt at 1% interest would have cost Jamaica $30m in interest payments annually, $300m in 10 years or $750 m in 25 years. The new imperialist loan of $2bn at ~7% would cost $140 m annually, $1.4bn in 10 years, or $3.5bn in 25 years. The 10-year moratorium on debt servicing does mean an initial saving of $300m in interest payments, but at the end of 25 years, the total interest payments would then be $2.1bn, almost three times the debt of the PetroCaribe arrangement ($750m). This has rightly been denounced as ‘cosmetic economics’. If Jamaica’s economy doesn’t grow at an appropriate rate, there won’t be enough funds to service the IMF loans when they mature (2028 and 2045), meaning Jamaica having to issue more bonds to repay the debt, and being trapped in an endless, unsustainable debt cycle.
Venezuela’s PetroCaribe counters the capitalist rules that govern the global energy market, and promotes, on the basis of solidarity, the recovery and strengthening of sovereignty. Venezuela is the threat of a good example, and Jamaica the expendable pawn in the middle.
