Up until March 2015, Venezuela was our principal supplier of hydrocarbons. That month the South American nation provided Nicaragua with 43.9 million dollars’ worth of petroleum and its derivatives – 83% of the total hydrocarbon imports of US$52.9 million. That was the last time that Venezuela was the majority supplier of this raw material.
Since then, oil supplied from Venezuela has come to cover only a third of the country’s hydrocarbon purchases, leaving the United States as the principal source of oil. This change adds additional pressure to the international reserves in dollars that the Central Bank of Nicaragua guards and oversees.
Economist Adolfo Acevedo adds details, quoting from Article IV of the report prepared for the International Monetary Fund’s mission that visited Nicaragua at the end of April. This source stated that oil supplies from Venezuela had been reduced from almost 11 million barrels a year to merely 3.7 million barrels.
“The implication of this announcement is that the virtual monopoly on hydrocarbon imports held by the Venezuelan oil company Albanisa has ended. There was a time when the 10.95 million barrels that could be imported from Venezuela represented the greater part of the hydrocarbon needs of the country. From one year to the next, the supply of Venezuelan oil has been cut by 66.7% to a mere 3.65 barrels a year.”
The problem for Nicaraguan public finances derives from the fact that the difference of 7.5 million barrels “that now represents the better part of the annual import needs for hydrocarbons, have to be imported from other countries and paid for in foreign exchange.”
“This signifies a new pressure on the international reserves, since the potential oil importers are forced to acquire the foreign exchange to pay for the 7.3 million barrels that Venezuela has stopped supplying.
Thanks to trade
Although the official statistics from the Nicaraguan Central Bank show that at least in the last month, the gross international reserves have improved their position – from 2 billion, 585 million US dollars on June 28 to 2 billion, 594.4 million by July 24 – Juan Sebastian Chamorro, executive director of the Nicaraguan Foundation for Economic and Social Development (FUNIDES) believes that this is thanks to international trade.
He observes that the obligation to pay the new providers up front can generate a greater demand for dollars and affect the reserves, “but on the other hand, exports are increasing, many at a double-digit level, something that could be cushioning the outflow of hard currency.”
While it may be true that the growth in exports isn’t intense enough to sufficiently compensate for the demand for foreign currency to pay for oil imports, Chamorro notes that “the drop in the flow was gradual, not sudden, and this year exports are increasing a lot.” Last year exports fell off, generating a fall in reserves, but “this year they’re not diminishing anymore,” he clarified.
For the economist Enrique Saenz, ceasing to import Venezuelan oil under extremely favorable economic conditions, more than a risk, represents a series of consequences. The first is that “instead of receiving oil on credit, it has to be paid like any other import, which over the long run has repercussions for the balance of payments.”
“Currently, the variations in the international oil prices lack the cushion that the agreement with Venezuela represented. It must also be noted that the cash flow from that country was invested, but now there is a negative cash flow, since the accumulated debt repayments are greater than the sums received as oil credits,” he added.
Fuel continues to be expensive
Despite what could be expected, the diversification of the oil sources (besides the United States and Mexico, the country is buying small quantities of hydrocarbons from Italy and Estonia, among others), doesn’t represent any perceptible savings in terms of the price that the end consumer pays.
Saenz explains that “the problem with the internal price of the fuel is that it’s under monopoly control, with the aggravating factor that those who control this business also have political power. It’s the same government band. For that reason, in Nicaragua the prices are higher than in the rest of Central America.
“Another powerful reason is that when the benefits of the Venezuelan oil aid fell off, those benefitted looked to the consumers’ pockets to compensate for this. In other words, they are compensating for what they have stopped receiving from the Venezuelan oil aid at the expense of businessmen and local consumers,” he assured.
Business leaders from certain sectors that produce for export have also been affected. Juan Sebastian Chamorro of FUNIDES notes how the loss of a substantial part of the income from Albanisa, was translated into a diminishing of the exports of milk, meat and other sectors where “we’re exporting only a fraction of what was exported” in the best times.