Venezuelan oil helps neutralize U.S. pinch
By Gary Marx
Tribune foreign correspondent
Published May 16, 2005
HAVANA—In recent weeks, an ebullient Cuban President Fidel Castro has delivered the first bits of good economic news in years to the island’s 11 million residents.
Speaking on state-run television, the 78-year-old leader announced a doubling of the minimum wage for 1.6 million workers and an increase in pensions for the elderly while also reporting the delivery of thousands of pressure cookers and rice steamers to the poor.
Diplomats and experts have been wondering where Castro is getting the cash for such initiatives, given that in recent years the country has suffered poor domestic production, chronic power blackouts and anemic economic growth.
The partial answer came last month when Venezuelan Energy Minister Rafael Ramirez acknowledged the oil-rich nation has increased shipments of oil to Cuba on preferential terms.
The increased oil shipments of 90,000 barrels daily, up from 53,000 barrels, were announced during a visit by leftist Venezuelan President Hugo Chavez. They represent a gigantic subsidy for the Cuban economy and ease pressure on Castro to implement economic reforms.
“Without this artificial lifeline the Cuban economy would be dead in the water,” said Damian Fernandez, director of the Cuban Research Institute at Florida International University in Miami.
Experts say the oil subsidies have neutralized the impact of President Bush’s efforts to squeeze the Cuban economy and hasten Cuba’s transition from dictatorship to democracy.
The U.S. measures, which went into effect in July 2004 and include tightening American travel and remittances to the island, are expected to cost the Castro government up to $500 million in lost revenue during the first year, U.S. officials said.
But Hans De Salas, a researcher at the University of Miami’s Institute for Cuban and Cuban-American Studies, said the value of Venezuela’s oil shipments alone to Cuba amount to more than $1 billion annually.
De Salas said Venezuela is further bolstering the Cuban economy by purchasing hundreds of millions of dollars worth of products from Cuba’s state-run industries and by providing financing to purchase everything from Venezuelan chocolate to sardines to work boots.
The recent announcement that Cuba will increase the number of its physicians and other medical personnel in Venezuela to 30,000 from 20,000 by year’s end also benefits the two nations.
The program has boosted Chavez’s popularity because most of the Cuban medical personnel work in poor neighborhoods that are the Venezuelan leader’s political base.
“The U.S. measures have failed to achieve their purpose not because they are ineffective in and of themselves but because Fidel Castro has managed to circumvent them,” De Salas said.
U.S. State Department officials have long suspected that Chavez has been shipping Cuba far more than 53,000 barrels of oil a day, the official amount under an agreement that the two nations signed in 2000.
One U.S. diplomat in Havana acknowledged the oil deliveries “may keep Cuba afloat economically a while longer” but said the largess has failed to improve the standard of living for most Cubans.
The economy has recovered from its lows of a decade ago but has continued to struggle because of stifling government regulations, limited foreign investment and continued dependency on imported oil, said diplomats and experts.
The sugar industry, once the mainstay of the Cuban economy, has virtually collapsed. And Cuba remains under a 40-year-old U.S. economic embargo, though its impact remains the subject of debate.
Hemispheric tag team
Still, Cuba has received a recent economic boost from the high price for nickel, a key Cuban export, and growth in the number of tourists, which last year topped 2 million.
While Bush hoped to exploit Cuba’s weak economy by tightening the trade embargo, De Salas and others say Castro has outmaneuvered the U.S. president by forging closer ties to China, which recently agreed to invest $500 million in a nickel plant.
Yet, it is the relationship between Chavez and Castro that has blossomed in recent years, especially after the United States appeared to endorse an unsuccessful coup against Chavez in April 2002.
Since then, Chavez has joined Castro in denouncing everything from the Iraq war to free market economic policies to the U.S.-backed hemisphere-wide free-trade agreement, an initiative facing stiff opposition.
U.S. officials are now re-evaluating policy toward Venezuela with an eye toward stiffening it. But experts say there are few options, given that Venezuela is among the largest sources of crude oil for the U.S.
“The U.S. is not going to stop buying Venezuelan oil,” said Fernandez of the Cuban Research Institute.
Jennifer McCoy, a Venezuela expert at Georgia State University, said Chavez is aiding Castro as part of a broader strategy to forge regional alliances and limit U.S. global influence.
In return, Chavez’s support has allowed Castro to partially roll back the economic reforms of the 1990s, remove the dollar from legal circulation and slap a 10 percent exchange surcharge on the currency—something that has produced a windfall for the cash-starved government.
Experts say Castro is in a good position to outlast yet another U.S. president as long as Chavez wins next year’s presidential election, as now seems likely according to a recent poll, and the two leaders remain on good terms.