Sunday, March 22, 2015

Are lower oil prices causing chaos? A Latin-American and Caribbean perspective.

As most of us already know, oil prices have fallen from their triple digit highs to now just about $50 a barrel. Of course, this is great news for most of us. But for other people that depend on high oil prices for profit, not so good news.

It's not just that oil prices slowly fell over the course of 2 or 3 years, but they fell so sharply and suddenly within the last year, oil producing countries were hit with a blind-sided shot that they were not prepared for.

As you can imagine, governments were in a scramble. Not just a scramble to make up the short fall, but as oil prices fell, budgets were slashed and that would spell panic for many oil exporting countries.

Nothing spelled panic as it did with the recent protests in Brazil over the last week.

Scores of persons in Brazil gathered in major cities in protest of the government. Over 1.5 million people gathered in the national stadium in protest and the numbers are expected to grow.

The protestors have asked for President Dilma Rousseff to resign immediately amidst a corruption scandal coming out of the state run oil company, Petrobras. This isn't the first major protest Brazil had experienced, and most recently was the protests prior to the World Cup 2014- cries of wasteful spending, lack of spending on the poor and wide spread theft were the most serious allegations about the process.

This Petrobras scandal, however, has rocked the country, leaving people wondering about the state of the country's finances and the fragility of the political peace as the scandal from Petrobras has hit a nerve amidst lower oil prices.

Of course, this author knew that social instability in oil producing and oil export dependent countries would happen as a result of lower oil prices. For the mere fact for what we mentioned earlier that budgets were slashed and spending programmes cut or just simply cut out.

When countries budgeted for a certain price for oil, in the case of Brazil, over $100 dollars a barrel for oil, and then oil prices plummeted to under $50 dollars, you can imagine the public accounting nightmare and the financial collapse that would ensue- money would not be spent on social projects, capital infrastructure projects, people start to watch the pennies a little more closely and then issues such as wastage- which would have been moderately acceptable at $100 per barrel- simply would not be tolerated and excesses, regardless of how long it's been going on, will be scrutinized and blames will be bandied about.

Thus is the case in Brazil, every penny is now being watched very, very closely and people have little to no tolerance for wastage.

Venezuela is going through similar challenges as well. In fact, there were thwarted attempts to oust the current Venezuelan president, Nicolás Maduro Moros. Thwarted attempts for the time being. Venezuela in particular had a break-even point of $115 dollars per barrel.

Since the plummet of oil prices and calls for his resignation for his inability to handle the oil crisis, president Maduro has accused several key people of plotting to overthrow his government, including a former general in the army and several key opposition supporters.

President Maduro has, for the moment, staved off the coups and has tried to do things to inject pure hard cash into the Venezuelan economy, most importantly of which is securing a $5 billion loan from China, to heap on top of the already $50 billion loaned to Venezuela from China since, 2007.

Of course, borrowing money and being more in debt to China comes with it's own problems. The most of which is the neighbour to the North, the USA. While they too have been in debt to China to the tune of trillions of dollars, it doesn't mean that they want Chinese involvement in Latin America and the Caribbean to the point where those nations are no longer counted on as American allies in America's own backyard.

What's also more important to note is that during the Cold War, a period of time and instability where most developing nations have not fully recuperated from its ravages, particularly if the public tide leaned heavily to the left of centre of the political landscape, president Maduro is not fully out of the clear yet. Particularly where, to be totally honest with you, all eventualities should have been covered, and especially scenarios planned for in the event of a collapse in the oil market. As a side note, it is as if we have not learned from the financial and economic crisis of 2008 in that any and every thing can and will happen. Any and every thing!

Take on the other hand what Trinidad has done as a result of falling oil prices. Trinidad has set out to cut its $10.2 billion budget for this year. Trinidad is reportedly the sixth largest exporter for oil in the world.

What also happened after oil prices started to fall, and probably not correlated but worth mentioning in any event, is that president of Trinidad and Tobago, Kamla Persad Bissessar, dealt very harshly and resolutely with a scandal that rocked the core of her government.

Within the space of a month, president Bissessar sacked 6 of her cabinet ministers amidst a witness tampering scandal. Ministers as high up as the Attorney General and her Minister of National security were all given pink slips. It was so bad that I often joke that president Bissessar fired herself, as she gave up her own ministerial post as Minister of the Ministry of the People and Social Development.

Of course elections in Trinidad are in 2015, this year. Of course. President Bissessar did the right thing, and that was try to make the best out of a very bad situation. What comes out of this is how the people read into it, which if you are a good political strategist you can play it both ways.

Whatever comes as a result, with less money to play around with, with a scandal that has rocked Trinidad, for president Bissessar dealing with it resolutely, which may mean fracturing her own party, in addition to the optics of her stepping down as a cabinet minister herself, particularly the ministry of the people, election time in Trinidad is shaping up to be a very, very curious one indeed.

This oil price issue has hit hard, and the ripples are still being felt. No doubt this is not the end of it. But, lucky for us, we are on this side of the world. The Western Hemisphere. If this were Africa and the Middle East, things would not be so cool, to put it mildly.
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