Nearshore Americas

Cuba Would Hurt If Venezuela’s Chavez Is Replaced

Source: Miami Herald

Cuba would plunge swiftly into chaos if Venezuela’s ailing President Hugo Chávez is replaced by someone less willing to subsidize Havana to the tune of $3.5 billion this year, analysts say.

Havana already is divided between older leaders determined to maintain a friendly regime in Caracas at all costs, they added, and others who view Chávez’ subsidies as disincentives to the profound economic reforms that Cuba desperately needs.

Chávez, who has been Cuba’s top ally and benefactor for nearly a decade and considers Fidel Castro as his top political mentor, announced from a Havana hospital Thursday that he has cancer, sparking immediate speculation about his and Venezuela’s political future.

A charismatic populist, he has no clear successor as head of the “21st Century socialism” also embraced in Bolivia and Nicaragua — and plenty of opponents ready to challenge his 12-year grip on power in presidential elections scheduled for next year. His subsidies to Cuba have never been popular in Venezuela, which today faces one of the hemisphere’s highest inflation and lowest growth rates. One of the first acts of a military coup that briefly ousted him in 2002 was to halt all oil shipments to Havana.

Cuba would be crippled if the oil subsidies — $2.2 billion in 2009 and estimated at $3.5 billion today because of higher prices — are suddenly halted, said Jorge Piñón, an oil expert with the Cuban Research Institute at Florida International University. “There would be an immediate collapse of the Cuban economy if a future Venezuelan government adopts a policy that it will no longer subsidize the sale of oil to Cuba,” Piñón noted.

Venezuela sends Cuba an average of 115,000 barrels of oil per day, the oil expert added, most of it for Cuban consumption but 25,000 barrels for processing in a refinery in Cienfuegos owned as a joint venture by the two countries. Venezuelan oil accounted for 30 percent of Cuban imports in 2009, when Cuba’s debt to Caracas was estimated at $4 billion. The South American country was Havana’s top commercial partner that year, with bilateral trade valued at $3.1 billion, compared to $1.7 billion for trade with China.

Cuba will soon begin an apparently promising search for oil off its northwestern shore, Piñón added, but even if crude is found in profitable quantities it will take three to five years to begin significant production. Caracas marks Havana’s oil bill “paid” through the vastly overvalued assistance it receives from the estimated 60,000 Cubans in Venezuela, including 40,000 medical personnel as well as teachers, sports coaches and military and intelligence advisors.

Havana economist Marta Santos noted last year that the Cuban government raised gasoline prices by 18 percent just hours after Chávez had failed to win a two-thirds majority in congressional elections.

Pedro Burelli, a Venezuela analyst in Washington who regularly criticizes Chávez, said he has received information that there’s already “pressures” among Cuban officials over how to react to possible changes in Venezuela’s leadership.

Havana’s older “historic” leaders favor propping up socialism in Caracas at all costs, he said, to guarantee the continuation of subsidies for Havana and as a possible safe haven should the island’s own communist system begin to falter. Younger officials argue it’s time to snip the Venezuelan lifeline, Burelli added, embrace deeper and swifter domestic reforms toward a market economy and diversify trade and investments, specially with China, Brazil, Russia and Iran.

“They believe that the modernization of the Cuban economy was delayed because of the Venezuelan subsidies, and they don’t want to waste any more time,” he added.

Undoubtedly, they also want to avoid a repeat of the early 1990s, when the collapse of the Soviet Union and the end of its massive subsidies to Havana shrank the island’s economy by 35 percent and sparked outbreaks of malnutrition-related diseases. Just last month, China announced that Venezuela’s investment in the Cienfuegos refinery would be backed up with part of a $12 billion line of credit extended to Caracas by the Central Development Bank of China and the China National Petroleum Corp.

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“That’s a wild card for Cuba, in case Venezuela defaults,” said Piñón.

Cuba’s trade with China grew by 34.4 percent during the first six months of 2010, and Brazil is investing $800 million to modernize the port of Mariel west of Havana. Brazilians also are reported ready to make mayor investments in soy and ethanol.

“Raúl Castro has synchronized his watch with Hugo Chávez, but that doesn’t guarantee that the hands on the watch are going the same way,” Santos wrote in a column detailing Cuba’s growing economic relations with the other countries.


Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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