Hugo Chávez Dies in Caracas, North Korea Tests a Nuclear Device, France Intervenes in Mali and Cyprus Faces a Banking Collapse

Jamaica Homes Global Conflict & Caribbean Impact Review | Published 3 April 2013 | Reporting Period: 3 January – 2 April 2013

Quarterly Briefing

• Hugo Chávez dies on March 5 after a long battle with cancer; Venezuela’s vice president Nicolás Maduro is named acting president and an election is called for April 14; Chávez’s death leaves the future of PETROCARIBE and Venezuela’s role in Caribbean oil financing deeply uncertain.
• North Korea conducts its third underground nuclear test on February 12; the blast, estimated at 6–7 kilotons, draws condemnation from the UN Security Council, including China, and leads to tighter sanctions; Pyongyang threatens further escalation.
• France launches Operation Serval in Mali on January 11 at the request of the Malian government, halting an Islamist advance toward Bamako; French and Malian forces subsequently recapture northern cities including Timbuktu and Gao.
• Cyprus agrees in March to an EU-IMF bailout of €10 billion that includes an unprecedented levy on bank deposits; after initial rejection by parliament, a revised deal imposes heavy losses on deposits above €100,000 at the two largest banks.
• An In Amenas gas facility in eastern Algeria is seized on January 16 by Islamist militants with ties to Al-Qaeda in the Islamic Maghreb; Algerian forces storm the complex on January 19, ending the siege with 39 foreign hostages and 29 militants dead.
• Pope Francis is elected on March 13, the first Latin American pontiff in history; his election from the Society of Jesus is celebrated across the Caribbean and Latin America as the beginning of a new chapter for the Catholic Church.

Prologue: The Caribbean Loses Its Great Patron

The death of Hugo Chávez on 5 March 2013 was, for Jamaica and the Caribbean, the geopolitical event of the quarter — perhaps of the decade. Chávez had been more than a controversial Venezuelan president; he had been the architect and financial engine of PETROCARIBE, the programme through which Caribbean states received Venezuelan oil at deeply concessional terms and channelled the resulting savings into development funds and fiscal relief. Over nearly eighteen years in office Chávez had also positioned Venezuela as the regional counterweight to American influence, aligning Cuba, Bolivia, Nicaragua and various Caribbean governments in a Bolivarian alternative that provided diplomatic cover as well as financial support. His death at fifty-eight from cancer he contracted in 2011 leaves a successor, Nicolás Maduro, with a thin mandate, a struggling economy and a political inheritance whose contradictions are only beginning to become visible. The presidential election on 14 April will be the first test of whether Chavismo can survive its founder.

Chávez: What PETROCARIBE Now Faces

Chávez signed the PETROCARIBE agreement in 2005 with fourteen Caribbean nations, providing oil on payment terms that allowed governments to finance between 40 and 70 per cent of the bill over 17–25 years at 1–2 per cent interest. The programme grew to include 18 countries and by 2012 was supplying roughly 100,000 barrels per day to the region. Jamaica benefited enormously: PETROCARIBE financing has allowed the government to maintain oil imports without the full balance-of-payments burden, and the PETROCARIBE development fund provided capital for public investment that would otherwise have required expensive borrowing. As the IMF structural adjustment programme tightens Jamaica’s fiscal space, PETROCARIBE’s concessional flows have provided a crucial buffer.

Whether Maduro, or whoever succeeds him if he loses in April, will maintain the programme on its existing terms is the question that Caribbean finance ministries are now urgently assessing. Venezuela’s oil production has been declining; its fiscal position, with inflation above 20 per cent and shortages of basic goods, is fragile. PETROCARIBE requires a Venezuela able and willing to subsidise its neighbours. The new government, whichever shade it takes after April 14, will inherit a country whose economic fundamentals have been deferred rather than resolved under Chávez. The Caribbean’s exposure to that inheritance is enormous and underappreciated.

Mali, Algeria and the Sahel’s Jihadist Crisis

France’s Operation Serval, launched on 11 January after a formal request from Mali’s government, was a remarkably successful rapid military deployment that halted an Islamist advance that had been moving southward toward the capital Bamako with no effective opposition. French forces, joined by troops from ECOWAS and eventually from the United Kingdom, recaptured the key northern cities of Gao and Timbuktu by late January. The military success was swift; the political and humanitarian challenge that underlies it is not. Mali’s north has been a haven for Al-Qaeda in the Islamic Maghreb and affiliated groups since the collapse of authority that followed the 2012 coup in Bamako. The root causes — ethnic marginalisation, Tuareg grievances, a flow of weapons from post-Gaddafi Libya — cannot be addressed by airstrikes.

The In Amenas hostage crisis of 16–19 January demonstrated that Islamist militants operating in this space could project their violence well beyond Mali’s borders. The attack on BP’s jointly-operated gas facility in Algeria, carried out by a group affiliated with AQIM, killed 39 foreign nationals from ten countries. Algeria’s military response was unapologetic and resulted in high militant fatalities; it also ended a long period in which Algeria had effectively insulated itself from regional jihadist dynamics. The crisis reinforced the assessment that the Sahel’s security challenge was metastasising, with implications for energy markets and European security that Caribbean economies would ultimately feel through their terms of trade and remittance flows.

North Korea, Cyprus and Pope Francis

North Korea’s nuclear test on 12 February — the largest to date, estimated at 6–7 kilotons — drew unprecedented condemnation including from China, which has traditionally shielded Pyongyang from Security Council action. The test was followed by threats to abrogate the armistice with South Korea and to target the United States with nuclear weapons. The rhetoric escalated further in March; the peninsula’s tension is a persistent risk factor in global markets even if its direct Caribbean relevance is limited.

Cyprus’s banking crisis, which produced the first EU bailout to include a direct levy on bank deposits, sent a signal that rattled small open economies globally. The initial proposal to tax deposits below the EU’s €100,000 guarantee threshold was rejected by Cyprus’s parliament and revised; the final agreement imposed heavy losses — ultimately over 47 per cent — on deposits above €100,000 at the Bank of Cyprus. The episode demonstrated that eurozone bail-in mechanisms were real, and that even insured depositors had been considered fair game. For Caribbean offshore financial centres and banking systems, the Cyprus model was a cautionary tale about the vulnerability of small jurisdictions in systemic crises. The election of Pope Francis on 13 March was received with joy across the region; the first Latin American pope brought an identifiably Caribbean-adjacent cultural sensibility to the Vatican.

Looking Ahead

Venezuela’s presidential election on 14 April will be the most consequential vote for Caribbean economies in years; whether Maduro can consolidate the Chavista coalition and maintain PETROCARIBE will determine the programme’s medium-term future. North Korea’s escalation is at a point where its next move could trigger a military incident; South Korean and American forces are on high alert. France’s operation in Mali is militarily successful but the political reconstruction of the Malian state has barely begun. And in Syria, the third year of civil war has begun with no political process on the horizon. The quarter just ending was defined above all by a death; the quarter beginning today will be shaped by its consequences.

Jamaica Homes Global Conflict & Caribbean Impact Review is published quarterly, examining how wars, geopolitical tensions and major international crises have shaped Jamaica, the Caribbean and their economies.

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