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Cash-strapped Caribbean faces Chavez rethink on oil payments

KINGSTON, Jamaica, Aug. 7 (UPI) -- Caribbean countries hard hit by the global economic crisis are urging main oil supplier Venezuela to delay implementing tougher payment terms and are also seeking urgent relief from international lenders on debt servicing and repayments.

Seventeen Caribbean and Central American countries are grouped together with Venezuela in the Petrocaribe oil alliance, which enables them to buy Venezuelan oil on preferential terms. Most of the states are also members of CARICOM Caribbean Community, the group behind the diplomatic drive for easier payments for Venezuelan oil.

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At the last Petrocaribe summit in Basseterre, the capital of St. Christopher and Nevis, in June, Venezuelan President Hugo Chavez said he would continue with Petrocaribe's preferential payments system for the Caribbean and Central American importers of Venezuelan oil no matter what happened in the market.

"Many things are said, but Petrocaribe will be sounder every day. It is our commitment, regardless of the international situation and oil prices," he declared at the summit.

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In more recent weeks, however, Petrocaribe countries learned that Venezuela asked for more cash upfront and a lesser percentage of the oil bill on deferred terms.

Petrocaribe member countries are Antigua and Barbuda, the Bahamas, Belize, Cuba, Dominica, the Dominican Republic, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, St. Kitts and Nevis, Saint Vincent and the Grenadines, Saint Lucia, Suriname and Venezuela.

Chavez said he would welcome into Petrocaribe "whoever is willing to join" and called the financial facility "a vital issue for our countries." Barbados and Trinidad & Tobago are the only two Caribbean countries that are not part of Petrocaribe.

Since those pronouncements by Chavez, however, Caribbean leaders have expressed alarm at Caracas' proposals to change the terms upon which Venezuela sells oil to Petrocaribe members.

Guyana President Bharrat Jagdeo warned this week "the impending changes in the agreement will present grave difficulties for some of our member states." Jagdeo is the current head of a CARICOM task force dealing with the impact of the global economic crisis on the region's countries. He is also responsible for negotiating with Venezuela on Petrocaribe. CARICOM has headquarters in Georgetown, Guyana.

Citing Petrocaribe's existing payment arrangements, Jagdeo said CARICOM countries until now did not have to pay upfront the full price of oil they bought from Venezuela. Instead, they paid up to 60 percent of the market price and deferred payment of the remainder under a long-term financing facility with low interest.

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The arrangement helped the importers with their balance of payments and gave them budgetary support, Jagdeo said. "This change now will jeopardize that arrangement and, therefore, put some of our countries at a disadvantage when we most need this support," he added.

Exact details of the payment review being pushed by Venezuela are not clear, but officials said Caracas now sought up to 80 percent of the oil bills in cash and the rest as loans that it wanted to negotiate on a case-by-case basis.

Jagdeo said he intended to approach Venezuela "to say that we would like the impending changes altered or delayed." Caribbean analysts have said the region's national budgets are predicated on Petrocaribe's payment terms, major changes to which may spell disaster for those economies.

Jamaican Prime Minister Bruce Golding said he understood some of the difficulties that prompted Chavez to seek revised payment terms. Analysts estimate that Venezuela has lost billions in the oil price doldrums this year.

Golding said, "We have already indicated to the Venezuelans that, while we understand some of the difficulties that may warrant a change in the Petrocaribe arrangement, not only our current budget, our medium-term economic program was predicated on the Petrocaribe arrangement as it now exists and, therefore, any sudden change would have a significant effect on our external and fiscal accounts."

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Golding said he acknowledged Venezuela's friendship toward the Caribbean and the Petrocaribe payment facility was unmatched.

"To be allowing deferment for 20 years at 2 percent of as much as 60 percent of the cost of the product, is a significant amount of generosity and, given the difficulty that Venezuela is now facing, it is not difficult to understand why they may need to make some adjustments in those arrangements," Golding said.

"We want to work with them. I believe we will be able to work out a resolution to this issue," he said.

The two leaders spoke Monday at a news briefing on the financial crisis facing the Caribbean countries.

Jagdeo also announced CARICOM would approach multilateral lending agencies with proposals for debt relief and loan refinancing.

He warned the Caribbean region faced stagnation if the proposals were not heeded by lenders. "A group of heads will go collectively to meet the heads of the multilateral financial institutions to argue that middle-income countries, with the peculiar vulnerability that we have in this region, must be eligible for multilateral debt relief," he said.

"We will be arguing that we get multilateral debt relief and, second, that we get resources to refinance some of the debts that we have already contracted on financial terms or on high-interest rates," he added.

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There were no plans to seek "a write-off at this point in time for a specific amount of debt," but the region had been unable to react effectively to the economic crisis because of the huge debt carried by many countries, Jagdeo said.

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