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Archive: Feb 2015


ALBA: an important but poorly understood regional project

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by Dr Asa Cusack, ILAS Stipendiary Fellow 2014-15

As the Institute of Latin American Studies prepares to host the conference Ten Years of ALBA: Progress, Problems, and Prospects on 26 February 2015, stipendiary fellow Dr Asa Cusack considers how economic and political problems in Venezuela currently threaten many of the real achievements of this alternative mode of regionalism in Latin America and the Caribbean.

ALBA_post_SMLVenezuela has an abundance of oil and a lack of doctors.  Cuba has an abundance of doctors and a lack of oil.  On 14 December 2004, the two countries launched the Bolivarian Alliance for the Peoples of Our America (ALBA) precisely to allow the simple, yet innovative, logic of mutually beneficial exchange to solve each other’s problems.  As it celebrated its tenth birthday last month, ALBA’s membership grew to eleven with the addition of Grenada and St Kitts & Nevis (alongside Bolivia, Ecuador, and Nicaragua amongst others).  However, intensifying political and economic risks in ALBA’s lynchpin, Venezuela, now threaten this important but poorly understood regional project.

I say ‘important’ because ALBA did not stop at ‘oil for doctors’, nor even with various other international social programmes offering free eye operations, a census of disabled citizens’ needs and literacy training.  Rather it went on to launch wide-ranging economic initiatives aimed at reducing the region’s dependency on the rich world: a virtual currency to remove the US dollar from intra-regional trade (SUCRE), an oil-backed soft-loan scheme to insulate small Caribbean economies from rocketing oil prices (Petrocaribe), a regional ALBA Bank to fund development projects, a new ‘People’s’ Trade Agreement putting people before profit, state multinationals to keep private counterparts honest (‘Grandnationals’), and even a Social Movements Council to give civil society direct input into regional governance.

Yet precisely how important all this has been remains hard to say, because of the ‘poorly understood’ part.  Neither individual ALBA governments nor the organisation’s secretariat provide clear information about the implementation or impact of these various initiatives.  And, since ALBA consciously allows its initiatives to expand beyond its formal borders and into other non-member countries of Latin America and the Caribbean, it’s often hard to define exactly which ALBA we are talking about.  These ambiguities allow commentators to fill in the blanks with the version of ALBA that best fits their particular ideas and interests.

ALBA_cumbre_cropMy own research into ALBA’s implementation within its formal membership suggests that, because ALBA is unevenly implemented, it has had, as one might expect, an uneven impact.  This makes it hard to sum up its nature and value in simple terms.  Key elements such as the People’s Trade Agreement, designed to reverse the neoliberal reforms of earlier decades, have not been institutionalised, and even within broadly successful initiatives, like the SUCRE and Petrocaribe, those elements designed to redress imbalances between member-states remain weak.  This doesn’t mean that ALBA’s role is insignificant, but it does indicate that its role is not as significant as its heads of state tend to claim.

The fact that trade via the SUCRE mechanism has hovered around US$1 billion in recent years (despite having launched only in 2010) and that Petrocaribe has saved the entire Caribbean billions in foreign exchange – averting numerous fiscal crises in the process – are clear signs of ALBA’s material significance.  Here too the macro often obscures the micro, such as the new export opportunities afforded to collectives of small farmers in Ecuador via the SUCRE or the new transfer benefits for the elderly and disabled funded by Petrocaribe savings in Antigua and Barbuda.  Being ‘poorly understood’, these real human benefits of ALBA – and every member-state has its own equivalents – are often overlooked despite being the organisation’s basic motivation.

Indeed, because ALBA cares little for its own formal limits and often strays unnoticed into the affairs of non-members – whether as subsidised petrol in El Salvador or fair-trade deals for Guyanese rice exporters – the geographical spread of its impact is likewise underestimated.  The political, negotiated nature of its inter-state interactions has also meant that it has been able to react with uncommon speed to stabilise regional neighbours hit by external shocks, such as those caused by the sudden suspension of US trade preferences or the collapse of financial institutions.  Since subsidised, ALBA-sourced imports into Venezuela can become part of massive contraband flows into Colombia and Brazil – which lower the cost of living for consumers there – even its role in illicit forms of integration is potentially significant.

In more abstract terms, ALBA has also served as a sandbox for new forms of regional cooperation, with initiatives like the SUCRE and international social ‘missions’ achieving maturity and real utility, even if others have floundered.  This degree of experimentation is the exception, not the rule in regional organisations.  Symbolically, it has served to demonstrate that, even if another world is not yet possible, another regionmay be.  For the same reason, it has served the political end of uniting and channelling disparate forces in their opposition to the US-backed Free Trade Area of the Americas and the North-South free-trade deals offered in its wake.

ALBA_marchaALBA’s importance to Latin America and the Caribbean is thus greater than often assumed, which makes any threat to its persistence all the more serious.  Unfortunately, the flipside to ALBA’s innovation and flexibility is a lack of prudence and stability.

Despite the (continuing) growth of its membership, ALBA remains fundamentally Venezuela-centric in terms of its governance and financing.  Indeed, because many ALBA programmes are funded off-budget by the Venezuelan state oil company PDVSA, in turn controlled by the Venezuelan presidency, they can be jeopardised as much by political as economic upheaval in that country.  Since massive public spending on domestic social programmes also originates with PDVSA, any further deterioration of these public services would eat into President Maduro’s slim electoral advantage, opening the door to an opposition that sees ALBA simply as ‘giving away the oil’.

So what to do?  While the Venezuelan government officially budgets for an oil price of around US$60, even that is above the current level and it does not cover off-budget spending.  In the past Venezuela has been able to paper over occasional cracks with Chinese credit, but the recent collapse of oil prices raises issues of a different magnitude.  International financial markets are backing away and Venezuela’s cost of borrowing has risen dramatically.  Maduro recently proposed a partial devaluation that could help improve cash flow, but there is no guarantee that this will suffice, and devaluation comes with a political cost at a time when the president’s popularity is already on the wane.  Though sensible for the same reasons, his moves to reduce state subsidisation of domestic petrol consumption are also likely to prove unpopular.

OPEC has shown little sign of lowering production, and the only possible divine intervention would be geopolitical instability involving major producers.  The main problem remains the earthly one of increased shale exploitation in the US, itself only threatened by the same low prices worrying Venezuela.  Maduro will find himself exposed to the possibility of a recall referendum in April 2016, and his ability to continue as president will depend to a great extent on how he deals with these key economic questions.

For ALBA, and for the prospects of alternative regionalism in Latin America and the Caribbean, the stakes could not be higher.

 

(An earlier version was published by SPERI, the Sheffield Political Economy Research Institute)