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January 2012 v CubaNews
FOREIGN TRADE
CTP: Cuba still dangerously dependent on Venezuelan oil VANESSA LOPEZ / CUBA TRANSITION PROJECT
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s Cuba entered into the Special Period, infamous for significant food shortages and constant blackouts, in 1991 with the disintegration of the USSR and consequent lack of Soviet subsidies, reports the University of Miami’s Institute for Cuban and Cuban-American Studies. Saving Cuba as its new benefactor was Venezuela President Hugo Chávez, who has sacrificed his country’s own needs to financially support a bankrupt Cuba. Chavez has supported the Castro brothers for various reasons. He’s indebted to Fidel for helping him after the 2002 anti-Chávez coup attempt. In addition, he shares with Cuban revolutionaries an ideological hatred for the United States. Finally, Cuba’s security apparatus has helped Chávez solidify his position of power while offering him personal protection. The gross amount of financial assistance flowing from Venezuela to Cuba has been difficult to fully quantify as a result of the secrecy surrounding the affairs of both countries. But looking at a number of indicators, one can estimate that Venezuela’s largesse approaches roughly $10 billion a year for Cuba over the past few years. Without this financial support, the poor state of Cuba’s economy would likely rival the levels of distress experienced during the mid-1990s. Venezuela sends Cuba about 115,000 barrels of oil a day; that’s worth $3.5 billion annually. This oil is reportedly sold at a 40% discount, and Cuba pays the rest through a subsidized loan provided by Venezuela. It is also estimated that Cuba’s medical personnel operating in Venezuela through the
Barrio Adentro program earn Cuba roughly $5.86 billion a year. Between both these sources of aid, Venezuela contributes roughly $9.3 billion to Cuba’s economy yearly. Venezuela’s generosity doesn’t end there. A report by Venezuela’s Bank of Economic and Social Development (Bandes) obtained by El Nuevo Herald and given to ICCAS documents even more financial assistance to Cuba from January 2007 through May 2010. This report indicates that Venezuela provided 100 Cuban companies involved in Venezuela’s “twin enterprises” program with nearly $1 billion worth of solidarity credits. Additionally, $47 million worth of financing was provided for a telecom project between the countries. A line of credit worth at least $100 million was approved for Cuba’s railway sector and a $45.5 million credit line was opened for expansion of two Cuban airports. This figure doesn’t include Venezuela’s $500 million stake in the Cienfuegos oil refinery, and it’s unclear if it includes the $70+ million investment in a joint fiberoptic cable. Similar investment projects are likely in the future. Venezuela also approved a $150 million loan — which Cuba refuses to pay — to help the island recover from hurricanes Ike and Gustav. Ultimately, between January 2007 and May 2010, Bandes approved $1.5 billion worth of aid; 83% of these funds went directly to Cuba (excluding projects that benefit the Caribbean in general), providing Cuba with at least $1.25 billion over the three-year period. All told, between 2007 and 2010, Venezuela subsidized Cuba to the tune of nearly $10 billion per year — an astonishing figure considering Venezuela’s own domestic problems. Raúl Castro, cognizant of Cuba’s increasing
EIU’s outlook for Cuban economy: 2012-16 The Economist Intelligence Unit has issued its outlook for the Cuban economy over the next five years. Among the highlights of this report are the following: n A change of leadership within the forecast period is highly likely. Although we expect the transfer of power to be relatively smooth, there is no obvious candidate for the presidency among the younger generation of politicians. n Even though the global outlook for 2012 is gloomy, we do not expect nickel prices (the main source of foreign exchange) to drop as sharply as in 2008-09, so the authorities should not have to resort to dramatic adjustment measures. n Although the economic reform process will remain uneven and some vital measures (such as improving credit provision) will lag, we nevertheless expect an expanded scope for private enterprise and foreign investment. n Real GDP growth will be relatively low in 2012, at 2.4%. However, there is huge scope for catch-up, with GDP growth expected to pick up from 2013. n Inflation will rise to close to double digits in 2013, assuming that the basket of goods begins to change as price subsidies are scaled back. Rising competition and output should help to reduce inflation thereafter, to 5% by end-2016. n Following moves to increase usage of the “unofficial” (but legal) exchange rate in late 2010, the process of closing the gap with the official rate is forecast to begin in 2013, as part of a strategy to unify the two currencies. Details: Anna Szterenfeld, Latin America Editor, Economist Intelligence Unit, 750 Third Ave., New York, NY 10017. Tel: (212) 554-0608. Email: annaszterenfeld@eiu.com. URL: www.eiu.com.
dependence on Venezuela, is fostering ties with other ideologically sympathetic world leaders, hoping for other sources of support should Venezuela no longer be willing to so generously support Cuba’s ailing economy. EIU DISCUSSES VENEZUELA IN CUBA REPORT
The Economist Intelligence Unit also talks about Cuba-Venezuela ties over the next few years in its 2012 Cuba country report. “Venezuelan largesse will be a vital source of support for the economy and the government, owing to the favorable terms of trade that link Cuba’s oil imports to the supply of Cuban healthcare and educational professionals in Venezuela,” according to an EIU Cuba country report issued in December. “The uncertain outlook in that country will be a key concern to Cuba in the coming months, given that Chávez, has received treatment for cancer,” it says. As long as Chávez. 57, remains in power, Cuba’s access to preferential oil imports will continue. But what happens after he’s gone? “If a chavista were to succeed him, the agreement would be likely to remain in place, but if the current opposition were to take office, it could be scaled back,” says the EIU. “However, given the popularity among the poor of programs such as the one involving Cuban doctors, even if the Venezuelan opposition were to take power, the agreements with Cuba could be phased out over several years, rather than terminated immediately.” Despite this, it says, “Cuba will continue to broaden its international economic ties, with China, Brazil and Russia becoming more important trade and investment partners.” q
Piccone — FROM PAGE 8 sands of American visitors. For now, Cuba’s slow-motion evolution toward a hybrid phase of economic liberalization and political control remains a work in progress. The next Communist Party conference to be held later this month is likely to bring only modest changes in the regime’s aging leadership, for example, but promises of adopting term limits for senior government officials appear all but certain to be fulfilled. Raúl Castro, a military man who believes in discipline, organization and institutions, has instituted regular cabinet meetings and clear lines of communication. In this sense, he is no Fidel. These, too, are signs of change that will, with time, make long overdue reconciliation with the United States inevitable. q Ted Piccone is a senior fellow and deputy director of foreign policy at the Brookings Institution in Washington. CubaNews thanks Piccone and Brookings for granting permission to reprint this report.