Monday, September 20, 2010

Is this change Cubans can believe in?

Is this change Cubans can believe in?
11:22 AM 09/20/2010

First, news rocketed around the Internet that Fidel Castro himself, in
an interview with an American journalist, had denounced the merits of
communism. Next, his brother and successor to power on the island nation
announced that the state would lay off 500,000 workers by next March. If
you are able to read this, then apparently the apocalypse is not upon us.

But what is clearly upon Cuba is the reality that they must embrace
long-needed economic reforms. To wit, along with a raft of pink slips,
the nation's Communist party is rumored to be analyzing a revamped tax
code and a framework for private cooperatives.

Despite the flurry of recent news, this did not happen overnight.
Rather, the first cracks can be traced to Russia under Putin, who
clearly broke the mold of the relationship between Cuba and Russia.
Indeed, the Russian leader questioned the merits of the level of state
investment in Cuba and ultimately opted to do away with the remaining
vestiges — Russian military presence, closing the Lourdes intelligence
facility — of the historical relationship, one predicated on the Cold
Ward climate. This is not to say that there has been a complete break in
the relationship. In recent years, Russia has taken a renewed commercial
interest in Cuba, looking at oil and other direct investment opportunities.

But what else has occurred to expedite this economic debate in Cuba?
Almost unmentioned, but perhaps just as important for the long-bankrupt
island, is the economic malaise gripping Venezuela. Venezuela, unlike
the rest of Latin America, is in the throes of a recession that will see
the country's economy contract by 3% this year; the nation also has
skyrocketing inflation of over 30%.

Many years ago Venezuela replaced Russia as the principal economic and
capital lifeline for Cuba, which allowed the Castro regime to roll back
the reforms that were forced by the collapse of the Soviet Union, the
disinterest of the FSU states and the interim period between Russian
financial tutelage and that of Venezuela. But the go-go years for
Venezuela are over, or as one regional economist said: "It spent its boom."

This brings us back to the economic realities confronting Cuba. Indeed,
it appears that in addition to an ailing Fidel, what Cuba needed to
finally embrace the economic reforms that have been long expected from
the more pragmatic Raul Castro was an economically weak Venezuela.

But Venezuelan investment in Cuba has always been about more for both
nations than just propping up the latter. Indeed, in political terms the
exchange of "oil for doctors" has paid off for both countries and is at
base quite simple: Cuba has doctors, Venezuela has oil. The doctors, and
an abundance of other community and health care providers, gave
Venezuelan President Hugo Chavez an important boost in opinion polls and
brought electoral success. Meanwhile, Cuba gained cheap oil that reduced
its import bill and offered hard currency from the resale of the oil it
did not use internally.

It does not seem coincidental that in conjunction with Venezuela's
economic train heading over a cliff comes the divulging of the economic
policy rumination occurring in Cuba. Now that Venezuela is unable to
continue subsidizing Cuba, we are treated to Fidel questioning the
legacy of communism and, more importantly, Raul's plans to lay off
hundreds of thousands of government employees.

Some analysts have ascribed to Raul Castro an obsession to reshape Cuba
into an "Asian Tiger." They point to his fascination and avid attention
as a student of reforms in China and Vietnam. That makes for good copy,
but let's assume that Cuba's cash cow, Venezuela, continues to run dry —
will the confluence of economic stresses on the nation really be dealt
with by the proposals that have leaked?

It may only be a matter of time before '57 Chevy's are cruising the
streets of Havana with bumper stickers that say "El cambio en el que
podemos creer" — that is, "Change we can believe in."

Jeremy Martin is a frequent commentator and writer on Latin American and
energy issues speaking at international conferences and appearing in
both print and broadcast media. Roger Tissot, an economist, is an
independent energy and political risk consultant.

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