Cuba has much to lose as ally Chavez fights cancer

Published on NewsOK Modified: December 26, 2012 at 1:37 pm •  Published: December 26, 2012
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HAVANA (AP) — Cubans who were tuned in to the nightly soap opera on a recent Saturday received a sudden burst of bad news, from the other side of the Caribbean.

State TV cut to the presidential palace in Caracas, Venezuela, where President Hugo Chavez revealed that his cancer had returned. Facing his fourth related surgery in 18 months, he grimly named Vice President Nicolas Maduro as his possible successor.

The news shocked not only Venezuelans but millions of Cubans who have come to depend on Chavez's largesse for everything from subsidized oil to cheap loans. Venezuela supplies about half of Cuba's energy needs, meaning the island's economy would be in for a huge shock and likely recession if a post-Chavez president forced the island to pay full price for oil.

Despite the drama, the news likely wasn't a surprise to Cuba's Communist government, and not only because Chavez has been receiving medical care on the island.

Havana learned important lessons about overdependence when the 1991 collapse of the Soviet Union threw the country into a deep crisis. Trying to avoid the consequences of a similar cut, the Cuban government has been diversifying its portfolio of economic partners in recent years, looking to Asia, Europe and other Latin American nations, and is only about half as dependent on Caracas as it was on the former Soviet Union.

Cuba is also working to stimulate its economy back home by allowing more private-sector activity, giving a leg up to independent and cooperative farming, and decentralizing its sugar industry. A stronger Cuban economy would in theory have more hard currency to pay for energy and other imports.

Also getting off the ground is an experiment with independent nonfarm collectives that should be more efficient than state-run companies. And next year, another pilot program is planned for decentralized state enterprises that will enjoy near-autonomy and be allowed to control most of their income.

"This could have good results," said a Cuban economist who spoke on condition of anonymity because he wasn't authorized to talk to the foreign media. Cuba "is also thinking of boosting foreign investment in areas of the national economy, including in restricted areas like the sugar industry."

One of the country's top goals has been to make the island's struggling economy less dependent on a single benefactor.

Under the leadership of Chavez, who regularly calls former Cuban President Fidel Castro his ideological father and has followed parts of the Communist leader's governance playbook, Venezuela has sent billions of dollars a year to Cuba through trade and petro-aid.

Bilateral trade stood at a little over $8 billion last year, much of it in Cuban imports of oil and derivatives. In return, Havana primarily provides Venezuela with technical support from Cuban teachers, scientists and other professionals, plus brigades of health care workers. Analysts say those services are overvalued by outside standards, apparently costing as much as $200,000 per year per doctor. Experts peg the total Venezuelan subsidy to Cuba at around $2 billion to $4 billion a year.

While business with Venezuela makes up 40 percent of all Cuban trade, it's still a far cry from the days when the Communist Eastern Bloc accounted for an estimated 80 percent.

"A (loss of) $2 billion to $4 billion would definitely pinch. But it is not the same relative weight as the sudden complete withdrawal of the Soviet subsidies in the early '90s," said Richard E. Feinberg, a professor of international political economy at the University of California, San Diego. "Cuba's not going to go back to the days of bicycles. Could it throw the Cuban economy into recession? Yes."

That kind of resilience would result largely from Cuba's successes in courting foreign investors for joint ventures.

Last month, authorities announced a deal with a subsidiary of Brazil's Odebrecht to manage a sugar refinery, a rare step in an industry that has long been largely off limits to foreign involvement.

China has invested in land-based oil projects, and along with Canada is a key player in Cuba's important nickel industry. Spain has ventures in tourist hotels and tobacco, while French company Pernod Ricard helps export Cuban liquors. And since 2009, Brazil has been a partner in a massive project to modernize and expand the port at Mariel, west of the capital.

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