Venezuela’s ALBA in the face of the Global Economic Crisis

In response to the G20 Summit in Washington D.C. last month, Chavez established an equivalent, the ALBA (Bolivarian Alternative of the Americas) Summit in Caracas in November. This 6-member group represents an alternative vision to neoliberal economics, one with a socialist agenda in trade relations attempting to re-embed ‘the social’ back into economic and political relations in the region.


Latin American presidents at the ALBA Summit

In response to the G20 Summit in Washington D.C. last month, Chavez established an equivalent, the ALBA (Bolivarian Alternative of the Americas) Summit in Caracas, Venezuela on November 26th. This 6-member group consisting of Venezuela (2004), Cuba (2004), Bolivia (2006), Nicaragua (2007), Dominica (2008), and its most recent member Honduras (2008), represents an alternative vision to neoliberal economics, one with a socialist agenda in trade relations attempting to re-embed ‘the social’ back into economic and political relations in the region. This ad hoc meeting was a response to the discontent expressed by many Latin American nations to the lack of representation from poorer nations in the G20 summit. It was also an attempt to confirm the notion that neoliberalism is at its end, a remark expressed by Nicaragua’s President Daniel Ortega during the Summit, who called the crisis as the ‘funeral of Capitalism’, naming ALBA as ‘an alternative model of development’.[1] As neoliberalism reveals its fissures and weaknesses, ALBA may be gaining ideological legitimacy as an alternative for poorer Latin American states facing these failures of neoliberalism (past and present). The question remains, however, of how ALBA will gain institutional legitimacy in this economic storm. In the context of a global financial crisis, ALBA’s institutional consolidation will be even more vital.


The United Nations reported in response to Hugo Chavez’s Bolivarian Revolution in Venezuela, that ‘the left wing theory of creating parallel powers to break down and end the old order is here taken to new breathtaking heights.’ [2] This is certainly applicable on the regional level, where the parallelization embraced by ALBA has created a list of developments which attempt to replace its neoliberal counterpart. For example, the implementation of an OPEC-style enterprise called Petroamerica in Latin America now consists of Petrosur, Petrocaribe, Petroandina in an effort to replace multinational companies with state oil companies such as PDVSA, Petrobras and Bolivia’s YPFB (Yacimientos Petroliferos Fiscales Bolivianos). These exist alongside numerous other incentives such as the Latin American Parliament (to replace the Organization of American States) the Food Security Fund, the ALBA Bank or Banco del Sur (in place of the IMF and World Bank) and the latest development proposed in the ALBA Summit; a Monetary Union with the ‘Sucre’ as its currency unit in order to reduce the influence of the U.S. dollar. 


Although emulation and replication is not the main issue here, the problem is its multitude. There are numerous ongoing projects established during Venezuela’s oil boom when oil was hovering near the $150/ barrel mark. However, oil as a commodity has become extremely volatile and is now threatening to dip below the $50/ barrel mark. Because ALBA is almost solely financed by Chavez’s subsidized oil exports, the survival of ALBA has now rested on that of Venezuela alone through this economic crisis.


Chavez had reportedly said that, thanks to the introduction of his 21st century socialism, Venezuela will be insulated from upheaval elsewhere. However, his domestic situation has not shown Venezuela’s immunity from the economic crisis and Chavez now admits that, as long as oil lingers below $50/barrel, Venezuela will face ‘serious difficulties’. [3] Venezuela faces one of the highest inflation rates in the world, alongside recurring food shortages, infrastructure problems, housing shortages, increased crime and corruption although 6 million have been lifted out of poverty. [4] Undoubtedly this will have large consequences on Chavez’s own regional Bolivarian Revolution expressed through ALBA.  


Already there have been some ramifications due to Venezuela’s difficulty in riding out the financial storm. For example, the Bank of the South has already stalled as dedication to its fund is decreasing due to Latin American economies reacting to the U.S. market slowdown.[5]  This has also affected ALBA’s future extension of its trade initiative. For example, Ecuadorian President Rafael Correa is retaining his membership by waiting for ‘concrete actions’ of ALBA’s institutions.[6] At the Mercosur Summit earlier this week, Correa spoke of the failure of the Bank of the South to help buffer the negative effects of the global economic crisis as a major issue, noting that, if it were more consolidated, its funds would have ‘coordinated savings’ and generated resources to compensate for the loss of foreign investments in the region.[7] Chavez has also reportedly commented that Banco del Sur will remain ‘on ice’ for the moment.[8]


Secondly, the Petroamerica initiative has also slowed down in recent years, most notably in areas of production and the development of energy accords. This has caused other countries to find new sources. For example, Brazil’s Petrobras has continued with the joint North-Eastern Brazil venture refinery project before negotiations with PDVSA, Venezuela’s state oil company, and Uruguay has reportedly started planning a refinery project without the influence of PDVSA.[9]


Petroandina, a joint venture promoted by Bolivia’s YPFB state oil company and Venezuela’s PDVSA, has also been unsuccessful in its attempt to integrate ALBA in the Andean region. 2008 witnessed an energy shortfall on behalf of Bolivia to supply energy to Argentina for this coming winter. Due to inadequate investment on the part of Venezuela in Bolivian oil and gas incentives, a report has been published confirming that Argentina will only receive 27.7 mmcm/d of gas from Bolivia in 2014 (four years later than originally planned) causing concern to Argentineans about the risk of continued gas shortages over the next years. Under a bilateral accord in 2006, Argentina is currently entitled to 7.7 mmcm/d of gas from Bolivia gradually increasing to 27.7 mmcm/d to 2010, however Argentina at present is receiving only about half of this stated amount.[10]


Most alarmingly, ALBA’s Petrocaribe incentives have been stalling. This is one of ALBA’s most active incentives, which has helped in buffering poorer Caribbean nations from the oil crisis with subsidized oil, the food crisis with ALBA’s food security fund and consolidating political support for nations such as Cuba. However, numerous issues have emerged which threaten the sustainability of this initiative. For one, Venezuela has reportedly not been keeping up with current quotas. The Dominican Republic has expressed a desire to see its share of Petrocaribe reach 55,000 barrels/day however it is only currently receiving 33,000.[11] Furthermore, oil and gas infrastructure ventures are also slowing down. For example, a ten-year delay was recently announced (2018 instead of the original 2012 mark) regarding the Petrocaribe funded Nicaraguan Refinery, a joint project between Venezuela’s state oil company PDVSA and Nicaragua’s Petronic which would have seen 150,000 barrels/day output and a US$4 billion investment, an equal to 5% of PDVSA’s exports.[12] Yet Chavez has reassured other Petrocaribe countries that the terms still apply even with the international drop in oil prices.[13] Plans to make PDVSA a partner in a plant bought from Shell by the Dominican Republic government has been quashed while an Ecuador refinery project, the Manabi Refinery Project still seems to be under construction and in the early research stage. Furthermore, the Cuban refinery in Cienfuegos costing US$3 billion is still under way.[14]


All in all, member countries of Petrocaribe are only receiving around 86,000 barrels/day, significantly less than their quota of 125,000 primarily due to storage and transportation problems.[15] This brings this parallelization process back down to the role of Chavez’s domestic problem: declining oil production due to a lack of PDVSA investment and rising oil consumption at home.[16] In the midst of a global economic crisis, these countries, if unable to receive the subsidized oil from Venezuela, will face an even harsher reality with the chance of a re-emergence of the role of already existing neoliberal institutions such as the IMF as bail-outs. This is counteractive to ALBA’s desire to reinstate a multi-polar world where the United States plays a less dominant role.

However, Chavez is attempting to preserve these measures, one way is through OPEC which has already agreed to cutback production by 2 million a day, the largest cutback since OPEC began its quota system.[17]  Saudi Arabia’s reinvigorated position as the ‘central bank of oil’ is changing the oil industry in which ALBA is reliant on. The worry now is how the global economy will fare during this transformation.  


Furthermore, emerging from the ALBA summit came the idea of a regional monetary zone with the ‘Sucre’ as its currency unit. This has already begun its implementation and a follow up ministerial meeting was established on December 9th, 2008. The monetary union is an attempt to strengthen the regional economy against the declining dollar and replace it as its foreign currency reserve.[18] ALBA aims to have this system implemented by January 9th, 2009.[19] This is an attempt, according to Mr Mujica Cantelar, Cuban Ambassador, at ‘restructuring the continent’s financial architecture so that we are no longer dominated by the US’.[20]


Thus, this parallelization process has proven to become very high maintenance and not necessarily adaptable to changing economic situations. This also takes up a lot of political resources when during this economic instability, governments across Latin America are expected to engage in initiatives such as the Rio Group Summit, the Mercosur Summit, the Latin American Integration Association, UNASUR, and the Organization of American States which adds to the list of integration measures which ALBA parallelizes. Thus, this maintenance becomes an issue, where prioritization may leave out the many ALBA initiatives aside during a time of political and economic upheaval.  


This parallelization process undertaken by ALBA is also a sign of its reluctance to cooperate with existing multilateral institutions. This is further emphasised by the region’s cooperation with BRIC (Brazil, Russia, India and China) countries on an economic and sometimes diplomatic level. It is an attempt to strengthen economic ties with semi-peripheral countries in order to bypass the developed world and decrease dependence on the West as a market for its exports. The recent tours by Russia’s Medvedev and China’s Hu Jintao, is recognition of the United State’s declining influence in the region and the world for that matter. This suggests that Latin America is embracing a new mutlipolar world while at the same time it represents an attempt, especially by Chavez to divert dependency away from U.S. markets and instead send its textile, electronics, minerals, and food goods to other economies of scale. Medvedev on the other hand closed many contracts on military technology and armament deals with Venezuela, and cooperation on a nuclear power plant in Venezuela. But according to some, China’s investment in Latin America will only come to the benefit of South American nations such as Chile, Argentina and Brazil, while in Central America and Mexico, Chinese investment has been viewed as taking away domestic industries from the U.S. market.[21] For Russia, the only genuine economic opportunity rising from such a visit was between the Russian Oil company Gazprom and Brazil’s Petrobras to undertake marine drilling to search for hydrocarbons.[22]


The ALBA Summit was also a sign of distrust of Brazil, the only Latin America nation attending the G20, as its regional representative. This is recognition that Brazil is embracing its own agenda. According to Rubens Barbosa, former Brazilian Ambassador, Brazil has already increased its financial contribution to the IMF, waiting for its increase in influence in the multilateral institution to come from it.[23] Brazil also seems to be taking on the role as representative of developing nations internationally. According to Maria Teresa Romero, a Central University of Venezuela graduate studies professor, the Brazilian Government is taking on a different project, a democratic left-wing alliance, to stand in contrast to the radical left as consolidated by Chavez in ALBA.[24] 




As neoliberalism shows its vulnerability through the global economic crisis, alternatives such as ALBA are expressing their ideological legitimacy however just as this article has assessed, numerous problems remain in the survival of its institutional framework. After all, this is a global economic crisis, one which will see most developments affected financially one way or another. However, the issue here involves ALBA’s financial dependence on Venezuela putting pressure on Venezuela to come out strong on the other side of this crisis. Venezuela however is showing domestic problems such as inflation, low oil prices, and a under achieving state oil company PDVSA. This undoubtedly is affecting Chavez’s role in ALBA and his support for its institutions. The parallelization pattern of this regionalist project makes it more difficult to handle during a crisis. Thus, ALBA will eventually face a crossroad by which it will be forced to either drop lingering projects or simply merge them with already functioning incentives. Furthermore the parallelization processes of ALBA is also a sign of its mistrust of Brazil as the regional representative and an anxiety of its increasing status as semi-peripheral and largely influential in the international scene. Chavez will have to ensure that a competition of regional dominance does not ensue and threaten the sustainability of ALBA as a genuine alternative to failing neoliberal economic policies. Brazil’s international role may also be vital to the survival of Latin America’s economy in the future. Furthermore, ALBA must be careful of Chinese and Russian interests in the region as this may hamper development as hunger for its primary resources could keep Latin America in a state of underdevelopment. Lastly, ALBA must engage in genuine, organic engagement with the developed world rather than provide a parallel or emulate already existing institutions. This would involve forming links with already existing multilateral institutions and creating avenues of communication which seek to work in cooperation with other nations rather than opposed to them. Despite the institutional problems inherent within ALBA, it certainly retains its ideological strength throughout this crisis and will be no stranger on the list of solutions for poorer Latin American nations facing a giant global economic crisis. 


[1] Tim Rogers, ‘Central American Countries Look Beyond U.S.’ The Miami Herald, Dec. 15th, 2008.

[2] United Nations Development Program Study on Latin American Democracies quoted by Collins, 2005, p.390.

[3] Benedict Mander. ‘Bolivarian Bravado’, Financial Times, Nov. 27th, 2008.

[4] Ibid.

[5] Marion Barbel. World Markets Research Centre, Nov. 27th, 2008.

[6] Ibid.

[7] Mario Osava. ‘South America: Mercosur Melds Social Views’, IPS: Inter Press Service, Dec. 16th, 2008.

[8] Ibid.

[9] Juliette Kerr. ‘Venezuela and Ecuador to Build Joint Refinery’, Global Insights, 16th July, 2008.  

[10] Ibid.

[11] El Universal, Dec. 2nd, 2008

[12] World Markets Research Centre, Global Insights, Oct 23rd, 2008)

[13] Ibid.

[14] ‘PDVSA puts regional project refineries on back-burner’, El Nacional, Venezuela: Oct. 22nd, 2008.

[15] ‘A Storm Brews,’ The Economist, 5 April 2008.

[16] Ibid.

[17] Carola Hoyos. Financial Times, Dec. 16th, 2008.

[18] Xinhua News Agency, Dec. 10th, 2008.

[19] Global Insights, Nov. 27th, 2008.

[20] Paul Haste, Morning Star, Dec. 8th, 2008.  

[21] Antonio Albinana ‘To Conquer America’, BBC, Dec. 13th, 2008. 

[22] Ibid.

[23] Jonathan Wheathley. ‘Brazil Pushes Emerging Nation’s Role’, Financial Times, Nov. 8th, 2008)

[24] Mario Osava. ‘Latin America: Summit Seeks Full Regional Integration’, Inter-press Service, Dec. 16th, 2008.