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.
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“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.