How will the Venezuela-Cuba link fare after Chávez's death?

Posted on Tuesday, 03.05.13

How will the Venezuela-Cuba link fare after Chávez's death?
BY JUAN O. TAMAYO
jtamayo@ElNuevoHerald.com

The death of Venezuelan President Hugo Chávez has given free rein to
fears that Cuba will plunge into an economic abyss again if Caracas
halts its subsidies, estimated at well above the massive aid that the
Soviet Union once provided to Havana.

"The impact of a cutoff will be that the crisis we now have will turn
into chaos, because the Cuban government has no other source of
financing," said Miriam Leiva, a Havana dissident and former Cuban diplomat.

Havana now gets two-thirds of its domestic oil consumption from Caracas
— about 96,000 barrels per day — and pays part of the bill with the
vastly overpriced labor of 35,000 Cuban medical personnel, teachers and
others working in Venezuela.

The rest of the bill is chalked up as a debt, mostly to Venezuela's
PDVSA oil monopoly, which now stands at more than $8 billion, said Jorge
Piñon, a Cuba–born oil expert at the University of Texas in Austin.

"If Cuba had to pay $96 to $98 per barrel, that would mean a gigantic
negative impact on its cash register," Piñon said.

A July report by the London-based Economist Intelligence Unit noted that
an oil cutoff could plunge the island's import-export balance into the
red and lead to "the possible imposition of restrictions on energy
consumption outside key industries."

Venezuela also is now by far the island's single-largest commercial
partner, with bilateral trade officially pegged at $6 billion in 2010 —
more than Cuba's trade with the next five countries together — and
likely one of its largest sources of hard currency.

Carmelo Mesa-Lago, an economist and professor emeritus at the University
of Pittsburgh, has estimated that Venezuela in fact accounted for more
than 20 percent of the country's overall economic activity in 2010.

Cuban officials have not commented on a post-Chavez future, but
highlighted his importance to the island when they interrupted TV
programs Dec. 8 to announce that the president would return to Havana
for another surgery of his battle with cancer.

Some analysts argue that a cut in Venezuelan aid might prove beneficial
to Cuba in the long run by forcing ruler Raúl Castro to drastically
broaden and speed up the reforms toward a market economy that he has
been pushing since 2007.

Castro's reforms so far have done little to resolve the massive problems
in the economy, from bottom-of-the barrel industrial productivity and
salaries to a stalled rural sector that forced Havana to import $1.6
billion worth of agricultural products in 2011.

"It's imperative to have a truly deep opening that would allow Cubans to
import and export, professionals to be productive and enterprising
citizens to become the motor for the economy," wrote Emilio Morales,
head of the Havana consulting Group in Miami.

Havana also might not feel an aid cutoff as sharply as it felt the end
of the Soviet subsidies because its good relations with China and Brazil
could attract some additional support from them, according to the
Economist Intelligence Unit report.

And Venezuela may only trim and not totally cut off its assistance
because it benefits from the relationship through the Cuban doctors, who
treat poor families that tend to vote for Chávez's party, as well as
security, military and other advisers.

Chávez's handpicked successor, Vice President Nicolas Maduro, reportedly
favors continuing the tight relationship with Havana. Diosdado Cabello,
head of the legislative National Assembly and also mentioned as a
possible successor, is believed to be less friendly to Cuba yet for now
seems to have little chance of overtaking Maduro.

But Cuba today is less prepared to deal with an aid cutoff because the
island's infrastructure is in much worse shape than when the Soviet
Union's subsidies collapsed in the early 1990s, argued dissident Havana
economist Oscar Espinosa Chepe.

Cuba built its massive health, education and social welfare system on
the backs of the $4 billion to $6 billion in subsidies that the Soviet
Union provided to the communist-ruled ally each year from the mid 1960s
until 1991.

But when Moscow cut off its rubles, the island's economy shrank by 38
percent between 1990 and 1993 and its foreign trade, previously focused
on the Soviet bloc because of its friendly payment terms, dropped by 85
percent.

Factories and transportation ground to a halt. Cubans grew noticeably
thinner and suffered from diseases caused by malnutrition. Power
blackouts lasted for days. Families cooked grapefruit rinds, and many
cats disappeared from the streets.

But two decades later, several sectors of the economy still have not
returned to their pre-1990 levels, Mesa Lago noted in a report presented
at the 2011 Miami gathering of the Association for the Study of the
Cuban Economy.

"Cuban industry is producing 50 percent less by volume than it produced
in 1989. The transportation system has collapsed, and agriculture is
importing 80 percent of the food" the country consumes, Espinosa Chepe
was quoted as saying in a recent report by the Agence France Press news
agency.

Then-ruler Fidel Castro imposed what he called "a special period in time
of peace" in 1990 — in essence wartime emergency measures to conserve
fuel, food, clothes and other supplies.

But the Soviet aid cutoff fueled much discontent, which finally exploded
in 1994 with the Balsero Crisis, which saw 35,000 Cubans leave on
homemade rafts, and a large riot on the Malecón, Havana's iconic seaside
boulevard."
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