Over a barrel - oil and debt

The OPEC group of oil-producing countries has demanded action to reduce the debts of the poorest countries. The call has come as OPEC faces pressure to increase oil production in order to bring down the price of the commodity from its current high level. The group's new chair, Venezuelan president Hugo Chavez Frias, has told richer countries, “we won't simply talk about the price of oil. We will talk about external indebtedness, the transfer of technology, and the entire range of global economic problems."

Historians of third world debt know that OPEC features highly as one of the key characters in the origins of the escalating debt burden. The increase of the oil price by the cartel in the 1970s led to 'petro-dollars' flooding western banks who in their desperation to lend sowed the seeds of the present debt crisis. Because of this, it is perhaps surprising that the resolution of the debt crisis was one of the key issues raised in last month's OPEC Summit, held in Caracas, Venezuela.

The reason lay with President Chavez, who has used his chairmanship of OPEC to revive the group's role as a political player on the global stage. He used the fact that the world was focusing on the meeting to specifically raise the issue of debt. The oil producing countries have come under fire this autumn, as protests against rising fuel costs have swept from London to Lima. "The eyes of the world are upon us," Mr Chavez said. "Everyone is attentive to what we do, what we discuss, what we decide." He argued that fuel price rises are attributable to high taxes and market speculation, and said that debt and unfair trade terms presented greater threats to developing countries than the price of oil.

President Chavez has brought a new sense of purpose and harmony to OPEC, personally visiting all of the member countries this year. The Summit was only the second in OPEC's 40-year history. Co-operation within the group has been hindered up to now by wars between OPEC members, who include Iran, Iraq and Kuwait.

In a key speech at the OPEC summit, described by Guardian writer Alex Bellos as "combining revolutionary rhetoric with folksy references to Gabriel Garcia Marquez and the Hindu philosopher Krishna Murti", Mr Chavez rallied the assembled leaders - including the presidents of Nigeria, Indonesia, Algeria and Iran - to demand justice from industrialised countries.

"We cannot allow that once again we be indicted as guilty for the imbalance of the world," Chavez declared. "We are victims of the imbalances of the world economy. We are not at fault."

Mr Chavez compared the cost of oil to the price of barrels of Coca-Cola, ice cream, spring water, shampoo and Tabasco, all more expensive than oil. Recalling how a president of “a powerful country” had telephoned him to express concern over the price of oil, Mr Chavez threw down a gauntlet to the rich countries, “I share your concerns, Mr. President. And it's a good opportunity that we should have this talk. Why don't we talk about the external debt, which is scourge of the poor countries of the world? Why don't we speak about the terms of trade which are so unequal and savage ... Let's speak about these matters."

Chavez later said: “From this Summit we also voice our concern for the high level of external indebtedness of many Third-World Countries, many southern countries, many underdeveloped countries, and this burden of the debt hinders, limits, and makes their development extremely difficult, more so than the circumstantial prices of oil. We call on and urge all countries to study the topic of the external debt."

At the closing press conference, Chavez decried the "savage difference" between the world’s rich and poor and said, "if we're going to talk with developed countries at the highest levels, we won't simply talk about the price of oil. We will talk about external indebtedness, the transfer of technology, and the entire range of global economic problems."

Chavez also called at the meeting for 'preferential pricing' of oil for developing countries. This call will certainly be welcomed by many indebted countries for whom the rise in oil prices could herald even more serious economic difficulties. Kofi Annan in an article to the International Herald Tribune on October 3^rd, warned that many developing countries have become very dependent on oil for their production. Even the leaders of the creditor nations have noted the impact of oil on debt when they agreed at the IMF and World Bank meetings in Prague to the principle of additional debt relief to offset 'external adverse shocks' - clearly referring to the rise in oil price. However Chavez's call to prevent shocks of oil prices affecting indebted nations, may go some way to winning further support from other developing countries for his radicalisation of OPEC's agenda.

The Caracas declaration, signed by all participants, in the end produced a moderate call on debt relief, perhaps due to varying views between countries like Venezuela and Nigeria on the one hand and Saudi Arabia and the United Arab Emirates on the other. The declaration noted “with concern, that the debt levels of many Developing Countries have become unsustainable. We, therefore, call for substantive effort for debt reduction initiatives by the international donor community, including the urgent fulfilment of the Heavily Indebted Poor Countries (HIPC) initiative.”

However other OPEC leaders apparently share Chavez's vision of a new agenda for the organisation. Both Presidents Obasanjo of Nigeria and Bouteflika of Algeria, have spoken out categorically about the urgent need to tackle the debt crisis. Certainly, as a body with considerable economic leverage, OPEC's focus on the debt crisis could have significant impact. Its members supply just over 40% of the world's oil - which gives its members far more political leverage than many poor indebted nations. If it continues to push for debt cancellation, OPEC may believe it is redeeming its past role in the history of the debt crisis.