How are the Americas Faring in an Era of Lower Oil Prices?

By Thomas Andrew O’Keefe*

Gas Station Guatemala

Photo Credit: Josué Goge / Flickr / Creative Commons

The sharp drop in global oil prices – caused by a combination of a slowing Chinese economy hurting commodities sales and efforts by Saudi Arabia to retain market share – has both downsides and advantages for Latin America and the Caribbean.  By keeping production levels steady, despite decreased demand, so that a barrel of crude remains below US$40, the Saudis’ hope is to put U.S. shale oil producers and Canadian tar sands producers out of business.  The drop in oil prices has had a varied impact elsewhere in the Americas:

  • The effect in Venezuela, already reeling from over a decade of economic mismanagement, has been catastrophic. The ripple effect is being felt in those Caribbean and Central American countries that grew to depend on PetroCaribe’s generous repayment terms for oil imports that allowed savings to be used for other needs.  In 2015, for example, this alternative funding mechanism in Belize was slashed in half from the previous year.  The threat of interest rate hikes on money that must eventually be repaid for oil imports also pushed the Dominican Republic and Jamaica to use funds raised on international capital markets to reduce their debt overhang with Venezuela.  (For those weening themselves off PetroCaribe dependency, however, the lower prices are a silver lining.)
  • Low oil prices have also knocked the wind out of Mexico’s heady plans to overhaul its petroleum sector by encouraging more domestic and foreign private-sector investment.
  • In South America, the decline has undermined Rafael Correa’s popularity in Ecuador because the government has been forced to implement austerity measures. The Colombian state petroleum company, Ecopetrol, will likely have to declare a loss for 2015, the first time since the public trading of its shares began nine years ago.  In Brazil, heavily indebted Petrobras has seen share prices plummet 90 percent since 2008, although that is as much the result of the company being at the center of a massive corruption scandal that has discredited the country’s political class.
  • On the other hand, lower petroleum prices have benefitted net energy importers such as Chile, Costa Rica, Paraguay, and Uruguay.

The one major oil producer in the Americas that has not cut back on production and new investment is Argentina – in part because consumers are subsidizing production and investment by the state petroleum firm YPF, which was renationalized in 2012 and now dominates domestic end sales of petroleum products.  Prices at the pump remain well above real market values.  While successive Argentine governments froze energy prices following the 2001-02 implosion of the Argentine economy, this time policy is keeping some energy prices high.  This encourages conservation and efficiency and spurs greater use of renewable alternatives, but it becomes unsustainable during a prolonged dip because it will, among other things, make the country’s manufacturers uncompetitive.  The Argentine example underscores that predictions of a pendulum shift in Latin America in favor of private-sector investment in the hydrocarbons sector over state oil production are still premature.

The lower prices do not appear likely to harm the region’s continuing substitution of natural gas for coal and oil as a transitional fossil fuel to greener sources of energy.  Natural gas prices remain at their lowest levels in over a decade, and the expansion of liquefied natural gas plants allows for easier transport of natural gas to markets around the world.  They are also unlikely to dent the global shift to greater reliance on renewable energy resources driven by the international consensus that climate change can no longer be ignored and something must be done to address it.  At the UN climate change talks in Paris last December, for example, countries agreed to keep temperature increases “well below” 2 degrees centigrade above pre-industrial levels and made a specific commitment “to pursue efforts” to achieve the much more ambitious target of limiting warming to no more than 1.5 degrees centigrade.  The year 2015 was the second consecutive year in which energy-related carbon emissions remained flat in spite of 3 percent economic growth in both years. 

March 24, 2016

*The author is the President of San Francisco-based Mercosur Consulting Group, Ltd.  He chaired the Western Hemisphere Area Studies program at the U.S. State Department’s Foreign Service Institute between July 2011 and November 2015.

Belize: The UDP Wins Again

By Victor Bulmer-Thomas*

Dean Barrow, now elected for his third term as Prime Minister of Belize. Photo Credit: The Commonwealth / Flickr / Creative Commons

Dean Barrow, now elected for his third term as Prime Minister of Belize. Photo Credit: The Commonwealth / Flickr / Creative Commons

Belize’s national elections on November 4 gave the ruling United Democratic Party (UDP) an unprecedented third term in office.  The opposition People’s United Party (PUP) had expected to return to power, for the first time since 2008, in view of the country’s lackluster economic performance (except for a tourist boom), a wave of corruption scandals, and falling prices for Belize’s leading commodity exports.  A new third party, the Belize Progressive Party, also participated, representing a coalition of smaller parties.  The UDP won an increased majority (19 out of 31 seats, the rest going to the PUP).  Dean Barrow has therefore started his third, and last, term as Prime Minister.

Public spending on infrastructure, education, and health funded by borrowing from Petrocaribe was a key factor in the election.

  • The concessional loans from Venezuela had a major impact on the government’s popularity. The possibility that they may be cut in future was one reason why the Prime Minister called the elections 18 months earlier than necessary.  (This privilege, known as the “Westminster convention,” is no longer available in the United Kingdom, where elections are now subject to fixed terms.)
  • Many voters in Belize have also become accustomed to receiving party support in cash or kind in the last 20 years in return for their votes. The PUP, reliant in the past on cash from Michael Ashcroft (a British billionaire with Belizean citizenship), was strapped for cash this time because Ashcroft reached an agreement on most of his outstanding disputes with the government and no longer had much incentive to support the opposition.
  • The PUP also suffered from a weak – albeit honest – leader in Francis Fonseca, who had performed badly in municipal elections earlier in the year and who had failed to impose discipline on the party. He has now resigned, although he will stay as leader until a new one is elected.  The PUP, the dominant force in Belizean politics since its formation in 1950 and the party that took the country to independence in 1981, is now in danger of disintegrating.

The UDP government faces a number of challenges.  The sugar market in the European Union is being opened to unrestricted competition, which could lower prices further.  Concessional funding from Petrocaribe could be reduced or even ended as the economic situation in Venezuela deteriorates.  And Belize continues to face considerable pressure from the U.S. government both with regard to its offshore financial center and as a result of sanctions against various individuals under the “kingpin” anti-drug legislation.  Last but not least, Belize will have to pay compensation to Michael Ashcroft for nationalization of the telecommunications company at a rate to be determined by arbitration over which the government will have no control.  The biggest threat to Belize, however, comes from Guatemala.  The disputed western frontier is porous and Guatemalan poachers have become bolder in recent years, even panning for gold in the mountains.  Both governments had previously agreed to take their territorial dispute to the International Court of Justice, but they must first put it to voters in a referendum – a prospect in which Guatemalan President-elect Jimmy Morales has so far shown no interest.  With a population of only 350,000 (compared with 16 million in Guatemala), the new government of Belize may face an uphill struggle.

November 16, 2015

*Dr. Bulmer-Thomas is a professor at the University College London Institute of the Americas, fellow (and former director) at Chatham House, and author of numerous books, including The Economic History of the Caribbean Since the Napoleonic Wars (2012).

A New Line of Defense: Trends at Mexico’s Southern Border

By Dennis Stinchcomb

The boat to Mexico.  Photo Credit: einalem / Flickr / Creative Commons

The boat to Mexico. Photo Credit: einalem / Flickr / Creative Commons

Statistics show that the United States is relying on Mexico to do what U.S. immigration law and the Northern Triangle countries can’t: keep Central American children out of the U.S.  In 2014, the same year in which Mexico announced tightened security measures along its southern border with Guatemala and Belize, Mexican authorities deported over 18,000 children, up 117 percent from just over 8,000 the previous year, according to Mexican government figures.  A similar increase is already being registered in 2015.  During January and February of this year, deportations of minors from Mexican soil tallied over 3,200 – a 105 percent jump from the same period in 2014.  Since launching what U.S. officials have dubbed a “layered approach” to immigration enforcement, data reveal several noteworthy trends:

  • Mexico’s get-tough approach has prevented a significant number of migrants from reaching the U.S.-Mexico border. According to U.S. Customs and Border Patrol, the first seven months of Fiscal Year (FY) 2015 witnessed a 48-percent decrease in unaccompanied child apprehensions and a 35-percent decrease in family unit apprehensions along the U.S. border.  However, considered in light of the unprecedented number of deportations from Mexico, these figures suggest that child and family migration from Central America remain at historic highs. 
  • Central American children detained in Mexico are unlikely to be offered forms of humanitarian protection mandated by international law. Despite increases in child detention and deportation, a report by Georgetown University Law School’s Human Rights Institute points to inadequate screening and arbitrary detention as among the obstacles preventing tens of thousands of children from seeking and receiving relief from removal.
  • Both Mexican and U.S. data show that a growing share of child and family migrants are Guatemalan. According to analysis by the Pew Research Center, the number of Guatemalan children deported from Mexico during the first five months of FY15 doubled since the same period last year and now accounts for 60 percent of all child deportations from the country.  Meanwhile, the share of child deportees from Honduras dropped from roughly one-third to less than one-quarter, and those from El Salvador fell off slightly to just above 15 percent.  An analogous shift is also evident at the U.S.-Mexico border where Guatemalans now comprise 35 percent of unaccompanied child apprehensions compared to 25 percent during FY14.  Similarly, the proportion of Salvadoran and Honduran children has declined from roughly 25 percent each to 18 and 9 percent, respectively.
  • Smugglers and migrants are already adapting to heightened enforcement in Mexico and charting new, more dangerous routes north. Local media reports have covered migrants’ attempts to bypass border checkpoints by sea and traverse Mexico undetected on foot or in third-class buses.  Data show that successful migrants are crossing into the U.S. at less traditional and harder-to-access points.  At the height of last year’s crisis, the majority of migrants were surrendering themselves to border officials in the Rio Grande Valley along Texas’ southern-most border.  While apprehension in the Rio Grande control sector have decreased significantly this year, three sectors – Big Bend (Texas), El Paso (Texas and New Mexico), and Yuma (California) – have registered at least double-digit percent increases in both child and family apprehensions.

During Mexican President Peña Nieto’s recent visit to Washington, President Obama stated that he “very much appreciate[d] Mexico’s efforts in addressing the unaccompanied children [crisis].”  Despite applause from the White House, Mexico’s aggressive border enforcement – driven at least in part by U.S. encouragement and funding – has implications for Mexico’s already problematic human rights record.  While it is true that Mexico’s actions have largely staved off a repeat of last year’s crisis, it has yet to translate into the sort of political bargaining chip the Obama administration has hoped might sway the immigration policy debate in the U.S.  With comprehensive immigration reform legislation long dead and recent executive actions on indefinite hold, the administration apparently hopes that ramped-up enforcement will improve prospects for congressional approval of $1 billion in development assistance to the Northern Triangle.  But with Mexico’s clampdown blocking another surge of migrants into the U.S., many legislators are likely to question the prudence of pouring more money into corrupt, dysfunctional regional governments.  By backing the militarization of Mexico’s southern border, moreover, the administration is privileging political goals at the expense of humanitarian objectives and is indirectly complicit in blocking thousands of Central American children from accessing lawful forms of relief for which most are likely eligible.  Meanwhile, Mexico’s migrant extortion market continues to boom as vulnerable children and families seek new routes north at the mercy of increasingly brutal transnational networks.

June 4, 2015

Belize: An Outlier in the Middle of the Mess

Belize - Boy carrying water. Photo credit: Blue Skyz Media / Foter.com / CC BY-NC-ND

Belize – Boy carrying water. Photo credit: Blue Skyz Media / Foter.com / CC BY-NC-ND

Though off the radar of most analysts, Belize appears to be the latest casualty of the drug trade and criminal violence.  It debuted on the Obama Administration’s annual blacklist of major drug-transit and -producing countries back in September 2011, alongside El Salvador, filling out the roster of Central American countries.  That U.S. government spotlight, however, has done little to halt the Mexican drug cartels’ expansion into Belize.  The U.S. State Department now estimates that about 10 metric tons of cocaine are smuggled each year along Belize’s Caribbean coast – partly the work of local contacts established by the Zetas and the Sinaloa cartel.

Like its neighbors’ security challenges, Belize’s problems are not limited to drug trafficking.  Urban gangs and the rivalries among them are the main driver of the escalating violence, which is rooted in the same causes as in neighboring countries – institutional weakness, rampant corruption, impunity, and unemployment.  The government-sponsored gang truce negotiated in 2011, which featured “salary” payments to members who ceased violent activities, collapsed last December when funds dried up.  (Click here for details documented by our colleagues at InSight Crime.)  Belizean authorities tallied a record number of homicides last year, edging out neighboring Guatemala for the sixth place slot in global per capita homicide rankings.  Porous borders make Belize attractive to transnational gangs, particularly El Salvador’s MS-13 and Barrio 18, both of which have established a significant presence in the capital city, Belmopan, and elsewhere.  About one-fifth of the country’s 325,000 people are Salvadoran citizens, making it difficult to track criminal elements.

The deteriorating conditions in Belize raise questions about the effectiveness of U.S. counternarcotics and “citizen security” programs in the region.  The patchwork of U.S. initiatives under the umbrella of the Central American Regional Security Initiative (CARSI) has not reversed regional trends even in tiny Belize.  While the country’s law enforcement agencies welcomed the heavy equipment, training, and technical assistance that make up the bulk of CARSI funding, the tactical gains have been obscured by a worsening strategic outlook.  The U.S. Government Accountability Office has voiced its concern that the State Department is confusing efforts with results.  Moreover, neither the Belizean nor U.S. government has mapped out a preventative strategy.  The most recent data show that less than half of the funds allocated to Belize from CARSI’s Economic Support Fund, used for programs to help at-risk youth, has been spent, and after handing out 1 million Belizean taxpayer dollars to gang members during the truce, for example, there is little to show for it.  In the run-up to President Obama’s summit with Central American presidents next week, Belizean Prime Minister Dean Barrow’s statement that “Obama hasn’t done anything for Belize” was subsequently qualified, but the fact remains that U.S. partnership with Belize, like with its neighbors, has not begun to work yet.

**An earlier version of this post inadvertently omitted the word “Belizean” before “taxpayer dollars” in the concluding paragraph, giving the false impression that State Department funds had been used to subsidize Belize’s gang truce.