THE AMERICAS

THE CARIBBEAN

A Storm Brews

THE ECONOMIST

CAP-HAÏTIEN AND SANTO DOMINGO - THE market bustles. Foul-smelling puddles lap at the feet of women selling rice and men selling charcoal. Cap-Haïtien, Haiti's second city, on its north coast, is a place struggling to escape its present. On the edge of town, by the ocean, the poorer residents of this poor city in a poor country build houses on a rubbish dump, their floors a thin layer of dirt. Outside are glimpses of a better future. Chilean soldiers from a United Nations peacekeeping force play football with the locals. The road to the border with the Dominican Republic is being paved, and plans are afoot to pave the highway to Port-au-Prince, the capital, as well.

But this air of possibility amidst penury is in peril. Though Haiti is far worse off than the other larger countries in the Caribbean, it shares two vulnerabilities with them. First, its economy depends greatly on the United States: for remittances (which account for 21% of GDP); as its main export market; and (potentially in Haiti's case) for tourists. So the economic slowdown in America is a problem, and a slump would be a disaster. Second, Haiti imports much of its food and all its oil. With world commodity prices at record levels, that threatens recent progress in controlling inflation, one of several successes since the UN began to try to rebuild Haiti in 2004. Market traders in Cap-Haïtien say that cooking oil and rice have doubled in price in the past few months.

The only shelter from this brewing storm is a rickety one: a scheme known as Petrocaribe under which Venezuela's president, Hugo Chávez, provides oil to 15 Caribbean and Central American countries on easy terms. But Mr Chávez is increasingly unpopular back home in Venezuela. That is a potential problem for Cuba in particular, which gets subsidies of around $2 billion a year from him. America's trade embargo has ensured that Cuba is not dependent on the United States. But Cuba, like Haiti, imports much of its food.

Adjacent to Haiti on the island of Hispaniola there is a similar story in the Dominican Republic. Leonel Fernández, the president (who is seeking a new term in an election in May), has restored the country after a financial collapse. The economy has grown at almost 10% a year for the past three years, and inflation had fallen to single digits from over 50% in 2004. Now this progress is threatened. Exports from the country's assembly plants, which ship most of their output to the United States, are already falling. Hopes for growth in holiday homes have vanished with the housing crash on the mainland. Tourism revenue was flat last year. Tourism is a mainstay in many other Caribbean states. More than 80% of visitors to the Bahamas come from the United States; in Jamaica the figure is around two-thirds.

For some countries the commodity boom has been a blessing. The Dominican Republic and Cuba export nickel and Jamaica alumina. But prices for both have dipped sharply in recent weeks. Only gas-rich Trinidad seems secure. Along with prosperous Barbados, it has been able to snub Mr Chávez.

Under Petrocaribe, Venezuela supplies 25-year loans at 1% interest, with which the beneficiary countries buy some 185,000 barrels per day (b/d) of Venezuelan oil (of which more than half goes to Cuba). This scheme has brought Mr Chávez political dividends. No visible strings are attached. But Petrocaribe may explain why the small island state of Dominica has joined the Bolivarian Alternative, Mr Chávez's anti-American block based on Venezuela and Cuba. Haiti's president, René Préval, attended one of its meetings in January. George Bush is said to have told Mr Préval last year that he understood why Haiti was friendly with Venezuela. Georgemain Prophete, a local official, says the turbines for a power station going up just outside Cap-Haïtien are paid for by Venezuela. The Dominican Republic's Mr Fernández is on good terms with the United States. But even his government has discussed joining the Bolivarian Alternative, according to Miguel Mejía, a minister.

The worry for the countries lining up for Venezuelan help is that Petróleos de Venezuela (PDVSA), the state oil company, may be unable to maintain the oil shipments indefinitely. That is because its production is declining, whereas oil consumption at home is rising. PDVSA exports around 1m b/d to the United States, full-price sales it needs to pay for the imports it is sucking in. Unless this economic storm dissipates, the IMF, which helps Haiti but has recently had little work elsewhere and is so hated by Mr Chávez, may find itself called upon to launch some financial lifeboats.

Copyright © The Economist Newspaper Limited 2008. Reprinted from The Economist of April 3rd, 2008.