Publish in Perspectives - Wednesday, July 24, 2019
A woman walking through the rubble in downtown Port au Prince, Haiti . (Photo: Marco Dormino/UN)
Gustavo Rojas-Matute, Associate Professor of the Graduate School of Political Management, George Washington University.
Haiti and the end of Petropolitics in the Caribbean.
BY GUSTAVO ROJAS-MATUTE
Historically, Haiti’s economic situation has been particularly dramatic as compared to the rest of Latin America and the Caribbean. According to World Bank data, while the average Gross Domestic Product for Haitians averages $770 a year per person, the average in Latin America is $9,300 annually.
A particularly poor economy, frequently struck by forces of nature, such as earthquakes and hurricanes, hasn’t been able to settle down in the institutional sense, constantly submitting its citizens to political and social volatility.
In light of such a vulnerable situation, the emergence of Petrocaribe was a provisional life saver for the region’s poorest economy. The main objective of late Venezuelan president, Hugo Chavez’s Petropolitics was subsidizing fuel to Caribbean islands in exchange for votes in the OAS and UN.
Based on this agreement, Haiti received about 14 thousand barrels of products derived from petroleum (gasoline, diesel and kerosene) that, according to the Inter-American Development Bank, has served the electric energy generation in a fundamental way.
Petrocaribe’s favorable condition allowed the maintenance of a subsidy on energy. Speaking specifically of gasoline, while most Central American and Caribbean economies charge taxes on gasoline between $0.6 and $1.6 per gallon, Haiti has kept a fixed price, with a subsidy estimated at $0.8 per gallon.
Subsidies on gasoline and diesel tend to be quite negative for countries for several reasons, but fundamentally because they are inefficient: they affect the environment by increasing the production of CO2 emissions and usually benefit those with higher incomes. Resources that could be used for infrastructure, health, education, etc. end up being used to paid for the gasoline of a few. Additionally, in many occasions, these subsidies stimulate contraband and corruption. Haiti has not been immune to the latter.
As a result of Venezuela’s economic crisis and the fall of internal petroleum production, the Petrocaribe project begun to crumble and Haiti has seen the need of importing fuel without the financial benefits of the past.
In this sense, when the government of Haiti, for the sake of reducing fiscal (2.7 percent of GDP) and current account deficit (10.7 percent of GDP), announced increases in fuel prices, it was forced to reverse the measure in light of strong protests, all while strong protests broke in the midst of an unveiling case of possible embezzlement of resources from Petrocaribe.
Faced with the political cost and no longer able to afford fuel subsidies, the government of Haiti decided to transfer the subsidy to the private sector, which has put in risk the sustainability of the business and the availability of energy.
If the public sector cannot afford the subsidy, much less can the private sector. This brings the government to a social dilemma where it either must face new protests or continue strangulating the private sector, which will eventually lead to a collapse in the availability of fuel.
The Haitian government cannot transfer the political cost to private businesses. Eventually, they will have to face the increase to the price of fuels. It will not be a simple measure, but it is up to the political leadership to take on the historic responsibility to face it. The sooner, the better.
Gustavo Rojas-Matute is Associate Professor of the Graduate School of Political Management, George Washington University and a candidate for a Ph.D in Economics from American University.