LatAm Minute: How the Drop in Oil Price Affects the Region

By Elizabeth Gonzalez

IMF’s Adrienne Cheasty explains why a decrease in oil prices is a boon for some Latin American countries and a bane for others. 

Latin American Minute

Crude oil prices dipped below $50 a barrel in February, raising questions about the price drop’s economic impact. In Latin America and the Caribbean, cheaper oil can be a boon for oil-importing countries, while delivering a blow to exporters. Adrienne Cheasty, deputy director of the International Monetary Fund’s Western Hemisphere Department, spoke with AS/COA Online about the impact of oil’s price drop on the region. She explained what it means for the Central American and Caribbean countries receiving preferential payment terms from Venezuela-led Petrocaribe, including if an economically battered Caracas halts the flow of oil.

Says Cheasty: “Petrocaribe countries are small importers and the oil bill is large as a percent of GDP for them, so they will gain a lot by the declining oil prices. We expect them on average to gain around 3 and 3.25 percent of GDP cut in their net oil trade deficit,” Cheasty says. “This is not to say that a discontinuation of Petrocaribe supplies would be painless. Basically the gains would mainly go to the private sector and losses of the financing would affect governments, so governments would have to adjust.”

Watch a panel on the drop in oil prices.

For Venezuela, Latin America’s top oil exporter, the price drop spells economic worries; oil makes up 95 percent of the country’s export earnings while the oil and gas sector accounts for 25 percent of GDP.

But other countries are also feeling the pain. “After Venezuela, Ecuador and Colombia have the largest net oil exports,” says Cheasty, who joined AS/COA’s Washington office for a panel discussion on oil prices. “Ecuador’s oil exports are around 8 percent of GDP in 2014, and Colombia’s are 6 percent. So if you think that the prices decline by half, the cut to both of them will be significant.” 

Text by Carin Zissis.