INSIGHT: US has opportunity to strengthen ties with Latin America

06 March 2013 15:11  [Source: ICIS news]

By Nigel Davis

Hugo ChavezLONDON (ICIS)--The death of charismatic Venezuelan president Hugo Chavez presents an opportunity for the US to mend its broken relationships with Latin America, commentators were suggesting on Wednesday.

But the expulsion of two military attaches from Caracas illustrated the uncertainty surrounding the current situation. They were accused of plotting to destabilise the country, according to press reports.

Chavez’s death, after a long battle with cancer, marks a watershed for Venezuela, the world’s ninth largest oil exporter in 2011 but the holder of the second largest proven oil reserves. The country is a major trading partner with the US in oil and chemicals but increased government control of the economy has hit private investment and helped reduce non-petroleum exports.

In power for 14 years, Chavez became a thorn in the side Venezuela’s giant northern neighbour but there have been moves in recent months to build bridges between the two nations and to reopen closer diplomatic ties.

“At this challenging time of President Hugo Chavez’s passing, the United States reaffirms its support for the Venezuelan people and its interest in developing a constructive relationship with the Venezuelan government,” US president Barak Obama said in a statement on Tuesday.

“As Venezuela begins a new chapter in its history, the United States remains committed to policies that promote democratic principles, the rule of law, and respect for human rights,” the statement added.

Diplomatic relationships between the two countries have been tense but the US government continues to say that it seeks constructive engagement with Venezuela. Both countries are represented by Charge d’Affaires and the US State Department gives examples of overlapping areas of interests as “counternarcotics, counterterrorism, commerce and energy”.

The Obama administration is expected to seek Venezuelan support for sanctions against Iran, and Latin American experts believe closer regional ties are possible, according to press reports.

Venezuela depends hugely on its oil revenues which, according to the US Central Intelligence Agency (CIA) account for about 95% of export earnings, 45% of the country’s federal budget revenues and 12% of GDP. The drop in oil prices in 2009-10 hit the economy but GDP growth in 2011 was 4.2% helped by higher oil prices and record government spending.

The oil industry, particularly, stands to benefit from any warming in inter-governmental relations and potentially increased private investment in the Venezuelan oil sector. But oil industry players realise that it is way too early to tell whether Venezuelan economic policies might change.

Initially, there is anxiety over existing relationships as vice president Nicolas Maduro assumes power and plans are made for a new election which constitutionally has to take place within 30 days. Maduro is seen as more pragmatic than Chavez yet more leftist and there are concerns about on-going nationalisation in the oil sector. Chevron is the largest international oil company in the country while China and Russia will be seeking to protect their Venezuela investments.

Venezuela potentially could attract significant petrochemical industry investment although major industry players have tried and failed in the past to establish footholds in the country.

State-controlled producer Pequiven has plans to nearly triple its plastics production capacity to 1.86m tonnes/year in 2016 from 694,000 tonnes/year although its ability to do so is questioned against the backdrop of feedstock, power and financing constraints.

Venezuela will be in mourning for seven days and the president’s funeral will be on Friday but the nation is already polarising ahead of the new elections.

The change of leadership offers a new opportunity to mend US relationships with Venezuela and within Latin America, The Guardian newspaper in the UK argued on Wednesday. Shared commerce with Venezuela and other nations in the region “provides a formidable incentive and a launch platform for a fresh start”, correspondent Simon Tisdall said.

Latin America may not by any means be the largest regional trading partner with the US but Obama administration officials have pointed to the fact that the US does much more business with countries in the region than it does with China – and that Columbia is a bigger trading partner for the US than Russia.

US trade with the region has been growing fast, however, by 82% between 1998 and 2009, compared with 72% for Asia and 51% with the EU.

Read Paul Hodges’ Chemicals and the Economy blog
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By: Nigel Davis
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