GUYANA’s debt accrued under the Petrocaribe arrangement with Venezuela is sustainable and the reported impending increase in interest rates being charged under that credit facility is no cause for serious concern, according to a top Bank of Guyana official.

On Monday, Platts, an energy and petrochemicals information provider, quoted an unnamed source with Venezuela’s state owned oil company PDVSA as saying that from October, the Venezuelan government would be increasing the interest rate it charges to finance oil purchases by Central American and Caribbean countries.  According to Platts’ source, as a result of higher administrative and maintenance costs related to the loans, the annual rates are set to rise from the 1 – 2 percent range to 2 – 4 percent.

Reduced debt
“Our Petrocaribe debt is constantly being reduced as we make payments in the form of paddy and rice,” the official, speaking on condition of anonymity, told Guyana Chronicle, adding: “We don’t have much in terms of debt [to] Petrocaribe.”
In his budget presentation earlier this year, Minister of Finance, Dr. Ashni Singh had indicated that towards the end of 2012, Guyana had signed its “first debt compensation agreement with Venezuela which reduced the Petrocaribe debt owed to that country by US$100.8 million, [a sum] equivalent to the value of rice and paddy shipped from December 2009 to July 2011.”
Dr. Singh had added that the government expects to soon conclude a second debt compensation agreement which will reduce the Petrocaribe debt to Venezuela by a further US$186M, a sum equivalent to the value of rice and paddy shipped from July 2011 to January 2013. Guyana’s debt to Petrocaribe, as at December 2012, is reported to be US$ 364 million.
Pointing out that Guyana has “a preferential arrangement” with the OPEC nation, the Bank of Guyana official noted that the Guyana government is going to negotiate for a stay on the interest rate increase.
The Platts report had cited its source as indicating that the increase will not be uniform across all countries and could be lower for poorer nations.

Rice
Under Petrocaribe, 17 beneficiary nations buy oil from Venezuela, paying a percentage of the purchase’s value upfront, with the remainder being paid off in installments over a period of 25 years.
Guyana’s debt payment to Venezuela is first made into an account managed by this country’s Ministry of Finance. This payment is then used to buy rice and paddy from local farmers and millers. The rice and paddy are in turn forwarded to Venezuela in settlement of Guyana’s oil debt to the Spanish-speaking country.
Venezuela, the world’s fifth largest oil exporter, pays as much as 33 percent more per ton of rice than Europe, one of Guyana’s traditional destinations for rice. However, observers have warned that Venezuela’s seemingly precarious political and economic situation should prompt Guyana to seek out other marketplaces for its produce.
Petrocaribe was initiated by the late Venezuelan President Hugo Chávez in June 2005. Antigua and Barbuda, Honduras, Bahamas, Jamaica, Belize, Nicaragua, Cuba, Dominican Republic, Dominica, St. Kitts and Nevis, Granada, St. Vincent and the Grenadines, Guatemala, Saint Lucia, Guyana, Suriname, and Haiti all receive oil under this arrangement. Total debtor obligation to Petrocaribe is pegged at US$ 5.7 billion.