High stakes for Cuba in Chavez's cancer battle

Analysis:

High stakes for Cuba in Chavez's cancer battle
By Marc Frank
HAVANA | Tue Dec 18, 2012 7:19am EST

(Reuters) - As Venezuelan President Hugo Chavez recovers in Havana from
his fourth cancer operation, Cubans face renewed worries about their
economic future if the country's top ally dies or has to step down from
office.

Cuba has staked its economic well-being on the success - and generosity
- of Chavez's self-declared socialist revolution, much as it did with
another former benefactor: the Soviet Union.

Cubans vividly remember the great depression of the 1990s that followed
the demise of the Soviet Union, and they worry about the communist-run
island plunging into similar economic hardship if Chavez loses his
struggle with cancer.

In the 1990s, they suffered through severe shortages of food, consumer
goods and oil. Prolonged electricity blackouts made daily life miserable
in what the government called the "special period".

"I remember those days. No lights, no transportation, no food. Nothing
of nothing. It drove you crazy and it can't happen again," said Havana
handyman Domingo Garcia.

Recalled Marlen Perez, an operator at the state telephone monopoly: "I
had to ride a bicycle to work and I'm too old for that now."

The gravity of Chavez's condition became clear when, before returning to
Cuba to be operated on last week, he named his vice president and
foreign minister, Nicolas Maduro, as his preferred successor if he
cannot continue in office.

Between bouts of cancer, Chavez won a new, six-year term in October, but
if he has to step down in the first four years of his new mandate, a new
election must be held within 30 days.

In politically polarized Venezuela, where Chavez's opponents do not hide
their disdain for Cuba, their victory at the polls would have huge
consequences for the heavily indebted island which relies on lucrative
barter contracts with Venezuela, such as exchanging thousands of medical
personnel for oil.

One economist warned that if a loss of Venezuela's support were to
destabilize the Cuban economy and cause a new round of serious
shortages, there could be bouts of social unrest.

"Take away the preferential terms for our oil and the billions of
dollars for our services and there is no doubt we would be in very
serious trouble," he said, requesting anonymity due to a ban on speaking
with journalists. "I doubt many people would put up with another crisis,
even if it was only half as bad as the last. There would be serious unrest."

HELPING LATIN NATIONS

Chavez's government offers economic help to allies around Latin America,
but Cuba is the biggest beneficiary, receiving 60 percent of its energy
needs on preferential terms.

Ahead of Chavez's re-election, opposition candidate Henrique Capriles
made clear that the distribution of oil to Cuba and other countries at
reduced prices or in barter deals would end if he won the presidency.

Capriles, who won 45 percent of the vote in the October election, would
likely be the opposition candidate again if Chavez died or had to step down.

While a change of government in Venezuela would clearly be bad for Cuba,
Capriles would be unlikely to cut off all ties.

"It is potentially a serious blow, but it is unlikely that the entire
relationship with Venezuela would end because the opposition has said it
would continue to pay for Cuban medical personnel," Phil Peters, a Cuba
analyst at the Virginia-based Lexington Institute, said.

"Even a steep drop in revenues from Venezuela would not be as severe as
the loss of the Soviet bloc support. Cuba is on a better international
footing today," he said.

Soon after Chavez won his first election in 1998, Fidel Castro anointed
the young and vitriolic firebrand as his revolutionary successor in
Latin America.

The two men became close friends and as leader of oil-rich Venezuela,
Chavez proved to be a crucial ally for Cuba, which has faced a U.S.
embargo for half a century. Today, the worst horrors of the "special
period" are just painful memories.

President Raul Castro, who replaced his ailing brother in 2008, has
strengthened relations with Venezuela even as he forged closer ties with
other oil-producing nations such as Brazil, Angola, Algeria and Russia.

ECONOMIC DEPENDENCE

Cuba and Venezuela have formed more than 30 joint ventures over the
years, most of them based in Venezuela.

They range from a fishing fleet, to port and rail repair, to hotels,
agriculture, nickel and steel production and just about all of Cuba's
downstream oil industry.

In 2011, Venezuela accounted for $8.3 billion of Cuba's $20 billion in
foreign trade. It pays Cuba an estimated $6 billion or more annually for
the services of 40,000 doctors, nurses and other professionals, local
economists say. That is around 60 percent of the foreign exchange Cuba
earned from services.

Venezuelan banks provide soft credits for dozens of development projects
across the island.

"Venezuela's support for Cuba reduces the risk of investing in and
trading with the country," a foreign banker said, asking his name not be
used. "They lose that and things might dry up."

Most Cuban economists point out that the economy has become more
diversified over the last 20 years with the development of tourism,
pharmaceuticals and increased oil and nickel production. But they say it
remains far too dependent on Venezuela for comfort.

Many Cubans expect that if Chavez fades Maduro will win the election,
thereby ensuring the continuity of Venezuela's support - but the mere
possibility of a major change is nerve-wracking.

"If we return to a situation similar to the fall of the Soviet Union, it
would be horrible," said Garcia, the handyman.

Raul Castro, since taking over for his brother, has initiated an
overhaul of Cuba's state-dominated economy and has loosened various
regulations on daily life, allowing people to buy and sell property, own
mobile phones and travel.

Venezuela's economic largesse has helped cushion the economic pain of
moving away from a bankrupt paternalistic system to a less centralized
and more market-oriented model.

No matter what happens now, most experts agree that as the man Cubans
pinned their hopes on falters, the pace of reform and Cuba's opening to
foreign investment will have to pick up.

"The old model started to decay with the expanding role of Raul Castro
and pragmatist reformers," said Mauricio Font, director of the Bildner
Center for Western Hemisphere Studies in New York.

"Other things being equal, a substantial loss of Venezuelan support
would thus make clearer to Cubans the urgency of structural change."

(Editing by David Adams, Kieran Murray and Philip Barbara)

http://www.reuters.com/article/2012/12/18/us-cuba-venezuela-idUSBRE8BH0K120121218