Venezuela's ALBA in the face of the Global Economic Crisis

As neoliberalism reveals its fissures and weaknesses,
ALBA may be gaining ideological legitimacy as an alternative for poorer
Latin American states facing these failures of neoliberalism (past and
present). The question remains, however, of how ALBA will gain
institutional legitimacy in this economic storm.

By Jodie Neary - UpsideDownWorld
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In
response to the G20 Summit in Washington D.C. last month, Chavez
established an equivalent, the ALBA (Bolivarian Alternative of the
Americas) Summit in Caracas, Venezuela on November 26th. This 6-member
group consisting of Venezuela (2004), Cuba (2004), Bolivia (2006),
Nicaragua (2007), Dominica (2008), and its most recent member Honduras
(2008), represents an alternative vision to neoliberal economics, one
with a socialist agenda in trade relations attempting to re-embed 'the
social' back into economic and political relations in the region. This
ad hoc meeting was a response to the discontent expressed by many Latin
American nations to the lack of representation from poorer nations in
the G20 summit. It was also an attempt to confirm the notion that
neoliberalism is at its end, a remark expressed by Nicaragua's
President Daniel Ortega during the Summit, who called the crisis as the
'funeral of Capitalism', naming ALBA as 'an alternative model of
development'.[1] As neoliberalism reveals its fissures and weaknesses,
ALBA may be gaining ideological legitimacy as an alternative for poorer
Latin American states facing these failures of neoliberalism (past and
present). The question remains, however, of how ALBA will gain
institutional legitimacy in this economic storm. In the context of a
global financial crisis, ALBA's institutional consolidation will be
even more vital.

The
United Nations reported in response to Hugo Chavez's Bolivarian
Revolution in Venezuela, that 'the left wing theory of creating
parallel powers to break down and end the old order is here taken to
new breathtaking heights.' [2] This is certainly applicable on the
regional level, where the parallelization embraced by ALBA has created
a list of developments which attempt to replace its neoliberal
counterpart. For example, the implementation of an OPEC-style
enterprise called Petroamerica in Latin America now consists of
Petrosur, Petrocaribe, Petroandina in an effort to replace
multinational companies with state oil companies such as PDVSA,
Petrobras and Bolivia's YPFB (Yacimientos Petroliferos Fiscales
Bolivianos). These exist alongside numerous other incentives such as
the Latin American Parliament (to replace the Organization of American
States) the Food Security Fund, the ALBA Bank or Banco del Sur (in
place of the IMF and World Bank) and the latest development proposed in
the ALBA Summit; a Monetary Union with the 'Sucre' as its currency unit
in order to reduce the influence of the U.S. dollar. 

Although
emulation and replication is not the main issue here, the problem is
its multitude. There are numerous ongoing projects established during
Venezuela's oil boom when oil was hovering near the $150/ barrel mark.
However, oil as a commodity has become extremely volatile and is now
threatening to dip below the $50/ barrel mark. Because ALBA is almost
solely financed by Chavez's subsidized oil exports, the survival of
ALBA has now rested on that of Venezuela alone through this economic
crisis.

Chavez
had reportedly said that, thanks to the introduction of his 21st
century socialism, Venezuela will be insulated from upheaval elsewhere.
However, his domestic situation has not shown Venezuela's immunity from
the economic crisis and Chavez now admits that, as long as oil lingers
below $50/barrel, Venezuela will face 'serious difficulties'. [3]
Venezuela faces one of the highest inflation rates in the world,
alongside recurring food shortages, infrastructure problems, housing
shortages, increased crime and corruption although 6 million have been
lifted out of poverty. [4] Undoubtedly this will have large
consequences on Chavez's own regional Bolivarian Revolution expressed
through ALBA.  

Already
there have been some ramifications due to Venezuela's difficulty in
riding out the financial storm. For example, the Bank of the South has
already stalled as dedication to its fund is decreasing due to Latin
American economies reacting to the U.S. market slowdown.[5]  This
has also affected ALBA's future extension of its trade initiative. For
example, Ecuadorian President Rafael Correa is retaining his membership
by waiting for 'concrete actions' of ALBA's institutions.[6] At the
Mercosur Summit earlier this week, Correa spoke of the failure of the
Bank of the South to help buffer the negative effects of the global
economic crisis as a major issue, noting that, if it were more
consolidated, its funds would have 'coordinated savings' and generated
resources to compensate for the loss of foreign investments in the
region.[7] Chavez has also reportedly commented that Banco del Sur will
remain 'on ice' for the moment.[8]

Secondly,
the Petroamerica initiative has also slowed down in recent years, most
notably in areas of production and the development of energy accords.
This has caused other countries to find new sources. For example,
Brazil's Petrobras has continued with the joint North-Eastern Brazil
venture refinery project before negotiations with PDVSA, Venezuela's
state oil company, and Uruguay has reportedly started planning a
refinery project without the influence of PDVSA.[9]

Petroandina,
a joint venture promoted by Bolivia's YPFB state oil company and
Venezuela's PDVSA, has also been unsuccessful in its attempt to
integrate ALBA in the Andean region. 2008 witnessed an energy shortfall
on behalf of Bolivia to supply energy to Argentina for this coming
winter. Due to inadequate investment on the part of Venezuela in
Bolivian oil and gas incentives, a report has been published confirming
that Argentina will only receive 27.7 mmcm/d of gas from Bolivia in
2014 (four years later than originally planned) causing concern to
Argentineans about the risk of continued gas shortages over the next
years. Under a bilateral accord in 2006, Argentina is currently
entitled to 7.7 mmcm/d of gas from Bolivia gradually increasing to 27.7
mmcm/d to 2010, however Argentina at present is receiving only about
half of this stated amount.[10]

Most
alarmingly, ALBA's Petrocaribe incentives have been stalling. This is
one of ALBA's most active incentives, which has helped in buffering
poorer Caribbean nations from the oil crisis with subsidized oil, the
food crisis with ALBA's food security fund and consolidating political
support for nations such as Cuba. However, numerous issues have emerged
which threaten the sustainability of this initiative. For one,
Venezuela has reportedly not been keeping up with current quotas. The
Dominican Republic has expressed a desire to see its share of
Petrocaribe reach 55,000 barrels/day however it is only currently
receiving 33,000.[11] Furthermore, oil and gas infrastructure ventures
are also slowing down. For example, a ten-year delay was recently
announced (2018 instead of the original 2012 mark) regarding the
Petrocaribe funded Nicaraguan Refinery, a joint project between
Venezuela's state oil company PDVSA and Nicaragua's Petronic which
would have seen 150,000 barrels/day output and a US$4 billion
investment, an equal to 5% of PDVSA's exports.[12] Yet Chavez has
reassured other Petrocaribe countries that the terms still apply even
with the international drop in oil prices.[13] Plans to make PDVSA a
partner in a plant bought from Shell by the Dominican Republic
government has been quashed while an Ecuador refinery project, the
Manabi Refinery Project still seems to be under construction and in the
early research stage. Furthermore, the Cuban refinery in Cienfuegos
costing US$3 billion is still under way.[14]

All
in all, member countries of Petrocaribe are only receiving around
86,000 barrels/day, significantly less than their quota of 125,000
primarily due to storage and transportation problems.[15] This brings
this parallelization process back down to the role of Chavez's domestic
problem: declining oil production due to a lack of PDVSA investment and
rising oil consumption at home.[16] In the midst of a global economic
crisis, these countries, if unable to receive the subsidized oil from
Venezuela, will face an even harsher reality with the chance of a
re-emergence of the role of already existing neoliberal institutions
such as the IMF as bail-outs. This is counteractive to ALBA's desire to
reinstate a multi-polar world where the United States plays a less
dominant role.

However,
Chavez is attempting to preserve these measures, one way is through
OPEC which has already agreed to cutback production by 2 million a day,
the largest cutback since OPEC began its quota system.[17]  Saudi
Arabia's reinvigorated position as the 'central bank of oil' is
changing the oil industry in which ALBA is reliant on. The worry now is
how the global economy will fare during this transformation.  

Furthermore,
emerging from the ALBA summit came the idea of a regional monetary zone
with the 'Sucre' as its currency unit. This has already begun its
implementation and a follow up ministerial meeting was established on
December 9th, 2008. The monetary union is an attempt to strengthen the
regional economy against the declining dollar and replace it as its
foreign currency reserve.[18] ALBA aims to have this system implemented
by January 9th, 2009.[19] This is an attempt, according to Mr Mujica
Cantelar, Cuban Ambassador, at 'restructuring the continent's financial
architecture so that we are no longer dominated by the US'.[20]

Thus,
this parallelization process has proven to become very high maintenance
and not necessarily adaptable to changing economic situations. This
also takes up a lot of political resources when during this economic
instability, governments across Latin America are expected to engage in
initiatives such as the Rio Group Summit, the Mercosur Summit, the
Latin American Integration Association, UNASUR, and the Organization of
American States which adds to the list of integration measures which
ALBA parallelizes. Thus, this maintenance becomes an issue, where
prioritization may leave out the many ALBA initiatives aside during a
time of political and economic upheaval. 

This
parallelization process undertaken by ALBA is also a sign of its
reluctance to cooperate with existing multilateral institutions. This
is further emphasised by the region's cooperation with BRIC (Brazil,
Russia, India and China) countries on an economic and sometimes
diplomatic level. It is an attempt to strengthen economic ties with
semi-peripheral countries in order to bypass the developed world and
decrease dependence on the West as a market for its exports. The recent
tours by Russia's Medvedev and China's Hu Jintao, is recognition of the
United State's declining influence in the region and the world for that
matter. This suggests that Latin America is embracing a new mutlipolar
world while at the same time it represents an attempt, especially by
Chavez to divert dependency away from U.S. markets and instead send its
textile, electronics, minerals, and food goods to other economies of
scale. Medvedev on the other hand closed many contracts on military
technology and armament deals with Venezuela, and cooperation on a
nuclear power plant in Venezuela. But according to some, China's
investment in Latin America will only come to the benefit of South
American nations such as Chile, Argentina and Brazil, while in Central
America and Mexico, Chinese investment has been viewed as taking away
domestic industries from the U.S. market.[21] For Russia, the only
genuine economic opportunity rising from such a visit was between the
Russian Oil company Gazprom and Brazil's Petrobras to undertake marine
drilling to search for hydrocarbons.[22]

The
ALBA Summit was also a sign of distrust of Brazil, the only Latin
America nation attending the G20, as its regional representative. This
is recognition that Brazil is embracing its own agenda. According to
Rubens Barbosa, former Brazilian Ambassador, Brazil has already
increased its financial contribution to the IMF, waiting for its
increase in influence in the multilateral institution to come from
it.[23] Brazil also seems to be taking on the role as representative of
developing nations internationally. According to Maria Teresa Romero, a
Central University of Venezuela graduate studies professor, the
Brazilian Government is taking on a different project, a democratic
left-wing alliance, to stand in contrast to the radical left as
consolidated by Chavez in ALBA.[24] 

Conclusion 

As
neoliberalism shows its vulnerability through the global economic
crisis, alternatives such as ALBA are expressing their ideological
legitimacy however just as this article has assessed, numerous problems
remain in the survival of its institutional framework. After all, this
is a global economic crisis, one which will see most developments
affected financially one way or another. However, the issue here
involves ALBA's financial dependence on Venezuela putting pressure on
Venezuela to come out strong on the other side of this crisis.
Venezuela however is showing domestic problems such as inflation, low
oil prices, and a under achieving state oil company PDVSA. This
undoubtedly is affecting Chavez's role in ALBA and his support for its
institutions. The parallelization pattern of this regionalist project
makes it more difficult to handle during a crisis. Thus, ALBA will
eventually face a crossroad by which it will be forced to either drop
lingering projects or simply merge them with already functioning
incentives. Furthermore the parallelization processes of ALBA is also a
sign of its mistrust of Brazil as the regional representative and an
anxiety of its increasing status as semi-peripheral and largely
influential in the international scene. Chavez will have to ensure that
a competition of regional dominance does not ensue and threaten the
sustainability of ALBA as a genuine alternative to failing neoliberal
economic policies. Brazil's international role may also be vital to the
survival of Latin America's economy in the future. Furthermore, ALBA
must be careful of Chinese and Russian interests in the region as this
may hamper development as hunger for its primary resources could keep
Latin America in a state of underdevelopment. Lastly, ALBA must engage
in genuine, organic engagement with the developed world rather than
provide a parallel or emulate already existing institutions. This would
involve forming links with already existing multilateral institutions
and creating avenues of communication which seek to work in cooperation
with other nations rather than opposed to them. Despite the
institutional problems inherent within ALBA, it certainly retains its
ideological strength throughout this crisis and will be no stranger on
the list of solutions for poorer Latin American nations facing a giant
global economic crisis.

Notes:

[1] Tim Rogers, 'Central American Countries Look Beyond U.S.' The Miami Herald, Dec. 15th, 2008.

[2] United Nations Development Program Study on Latin American Democracies quoted by Collins, 2005, p.390.

[3] Benedict Mander. 'Bolivarian Bravado', Financial Times, Nov. 27th, 2008.

[4] Ibid.

[5] Marion Barbel. World Markets Research Centre, Nov. 27th, 2008.

[6] Ibid.

[7] Mario Osava. 'South America: Mercosur Melds Social Views', IPS: Inter Press Service, Dec. 16th, 2008.

[8] Ibid.

[9] Juliette Kerr. 'Venezuela and Ecuador to Build Joint Refinery', Global Insights, 16th July, 2008.  

[10] Ibid.

[11] El Universal, Dec. 2nd, 2008

[12] World Markets Research Centre, Global Insights, Oct 23rd, 2008)

[13] Ibid.

[14] 'PDVSA puts regional project refineries on back-burner', El Nacional, Venezuela: Oct. 22nd, 2008.

[15] ‘A Storm Brews,' The Economist, 5 April 2008.

[16] Ibid.

[17] Carola Hoyos. Financial Times, Dec. 16th, 2008.

[18] Xinhua News Agency, Dec. 10th, 2008.

[19] Global Insights, Nov. 27th, 2008.

[20] Paul Haste, Morning Star, Dec. 8th, 2008.  

[21] Antonio Albinana 'To Conquer America', BBC, Dec. 13th, 2008. 

[22] Ibid.

[23] Jonathan Wheathley. 'Brazil Pushes Emerging Nation's Role', Financial Times, Nov. 8th, 2008)

[24] Mario Osava. 'Latin America: Summit Seeks Full Regional Integration', Inter-press Service, Dec. 16th, 2008.