ARTICLE - PETROCARIBE FUNDS

HAITI USING FUNDS FROM PETROCARIBE TO FINANCE RECONSTRUCTION
(Venezuelanalysis) - By Center for Economic and Policy Research (CEPR)

"The cooperation with Venezuela is the most important in Haiti right now in terms of impact, direct impact," President Martelly told the Associated Press in December. The most important channel for this cooperation is the PetroCaribe agreement, which most Caribbean countries are currently a part of and which the government of René Préval joined in 2006. Through the agreement Venezuela finances part of Haiti’s fuel import bill, allowing for a portion to be paid up front and the remainder to be used as a loan with a long maturity and low rates. The funds made available through PetroCaribe are, as the International Monetary Fund (IMF) explains, “under the control of the central government”. This makes PetroCaribe assistance drastically different from aid provided by traditional donors, which by and large bypasses the government. In fact, traditional budget support to the Haitian state was lower last year than the year before the earthquake.

Over the duration of the agreement, which began in 2008, Venezuela has provided nearly $1.9 billion (PDF) in petroleum products, with over $800 million being paid up front. Following the earthquake, Venezuela cancelled some $400 million of PetroCaribe debt, yet with large disbursements since the earthquake Haiti still owes some $580 million. While significant resources have already been spent, Haiti maintains a balance of $350 million in PetroCaribe funds.

The government of Haiti has predictably turned to one of its only pools of un-restricted funds to finance reconstruction and development programs. The IMF notes that the GOH has “committed to only use PetroCaribe resources to finance growth-enhancing investment projects.” The spending with PetroCaribe funds represents a significant portion of capital spending undertaken by the central government. In the latest IMF review of Haiti’s economy, the IMF estimates that PetroCaribe funds will account for nearly half of domestically-financed capital spending in 2012, amounting to 4.7 percent of GDP. While foreign financed capital spending still overshadows this (it is projected to be 14.9 percent of GDP in 2012), the PetroCaribe funds are unique in that they are directly under the control of the government.

The reconstruction projects financed with PetroCaribe funds have come under scrutiny recently as allegations emerged that Martelly received some $2.5 million in kickbacks related to contracts awarded by the Haitian government. Yet it is also true that the PetroCaribe funds represent some of the largest infrastructure related investments in Haiti since the earthquake. Overall, $380 million has been awarded to firms for infrastructure-related work (PDF) and the most recent data shows that over 73 percent has already been spent. For comparison, the Government Accountability Office found in November that of $412 million in infrastructure projects approved by USAID, only 0.8 percent had been disbursed. It is no wonder then that Martelly told the AP that Venezuela aid stacked up favorably with US assistance, which often takes more time:

"Sometimes for a simple project, it might take too long for the project to happen," he said. "If you're asking me which one flows better, which one is easier, I'll tell you Venezuela."

Amazingly, despite the clear benefits of the PetroCaribe agreement for Haiti, a steady supply of oil, concessional financing, unrestricted funds, it almost never happened.

US, Oil Majors Tried to Block PetroCaribe

Soon after former President Preval was inaugurated, he signaled his intention to join the Venezuelan-led PetroCaribe alliance. Although it had clear benefits for Haitians, the decision set off a protracted battle with Washington, Wikileaks files revealed. As Kim Ives and Dan Coughlin write in The Nation:

According to the leaked US Embassy cables, Washington and its allies, including Big Oil majors like ExxonMobil and Chevron, maneuvered aggressively behind the scenes to scuttle the PetroCaribe deal.

For the Haitian government the oil support from Venezuela was key in providing basic needs and services to 10 million Haitians, securing a guaranteed supply of oil at stable prices, and laying the basis for Haitian energy independence from the United States.

Further, Haiti “would save USD 100 million per year from the delayed payments,” noted the Embassy in a July 7, 2006, cable. Préval earmarked these funds for hospitals, schools and emergency needs, such as disaster relief. But the US Embassy opposed the deal.

“Post [the Embassy] will continue to pressure Preval against joining PetroCaribe,” Ambassador Sanderson wrote in one April 19, 2006, cable. “Ambassador will see Preval’s senior advisor Bob Manuel today. In previous meetings, he has acknowledged our concerns and is aware that a deal with Chavez would cause problems with us.”

It took some two years before the first shipment of PetroCaribe fuel came to Haiti. Since then Haiti has received over 18.5 million barrels of oil, has direct control over significant resource flows, and has invested millions in infrastructure and social projects. Although the PetroCaribe funds have received attention lately due to the scandal involving kickbacks, perhaps the more important long-term story is the positive effect the agreement has had, allowing the government to quickly mobilize hundreds of millions of dollars to respond to the earthquake, while traditional donors faced delays and bypassed the government all together.