Last week’s death of the Venezuelan president, Hugo Chávez, happened as the Jamaican Government was advertising its appointment of Dr Wesley Hughes, the former financial secretary, as manager of its PetroCaribe Development Fund.
This, for Dr Hughes, must have been an unwelcome coincidence that would likely have concentrated his mind not only on the substance of the job, but the importance that he does well at it. More broadly, though, the events should serve as a signal to Jamaican policymakers that they need to act with urgency to fix Jamaica’s energy crisis.
It is not widely appreciated just how important a lifeline PetroCaribe - the energy initiative President Chávez established for
Latin American and the Caribbean countries - has become to Jamaica, over 90 per cent of whose energy needs are imported.
Under the arrangement, Jamaica can import up to seven million barrels of oil a year from Venezuela, and, depending on the price of the commodity, gets credit for up to 70 per cent of the bill. The outstanding amounts, upwards of J$27 billion a year, are converted to longterm, low-interest loans, used to support domestic development programmes.
From his previous vantage point as the chief civil servant in the finance ministry, Dr Hughes would have had a clear understanding of how important this support has been to the Jamaican economy. Indeed, in its absence, the adjustments now being demanding by the International Monetary Fund (IMF) for an economic support agreement would be far more severe. Yet, the deferred payments under Petro- Caribe are just that — loans that have to be repaid. They are part of the country’s debt stock.
Importantly, unlike most other government debt obligations, these loans are managed not with a level of rigid accountability, but in manner that provides some comfort that they can be repaid. The fund that Dr Hughes manages invests and lends cash it receives, earning a return from which to service the debt to Venezuela.
The recent restructuring by the Government of its domestic debt — lowering interest rates and lengthening maturities — will affect the PetroCaribe Fund. In that regard, Dr Hughes has come to the job at a challenging time, which will test his skills in an area where his experience is limited.
However, there are broader and more fundamental concerns for Jamaica. Despite the cushion provided to the Government by PetroCaribe, which is a state-to-state initiative, firms, ultimately, have to
pay real market price for the oil they purchase.
Indeed, the expensive oil firing mostly old, inefficient power plants is a major cause for meteoric electricity rates in Jamaica. That, in turn, undermines the efficiency of Jamaican firms and the competitiveness of the island’s economy.
There has been much talk about cheap fuels, but we have failed, or been afraid, to act. If we fail to do something quickly, the consequences of expensive oil may soon be deeper and broader than they are now.
In the absence of President Chávez, who was driven by an unswerving solidarity with Latin America, there is no certainty that PetroCaribe will survive — at least in its current form. If that happens, Jamaica should neither be caught by surprise nor with all its fuel in a single barrel.
Courtesy Jamaica Gleaner