As Chávez Falters, Cuba Faces An Uncertain Future

The health problems of its most important ally could force Cuba to finally build a better economy

The health problems of its most important ally could force Cuba to finally build a better economy

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When President Hugo Chávez admitted two weeks ago that he'd had a cancerous tumor removed in Havana, Venezuelans weren't the only ones suddenly worried about their country's political stability. Chávez and Fidel Castro are close friends, and Cuba relies on Venezuela for more than $3.5 billion in oil subsidies. With a population living on subsistence wages and an economy sensitive to import prices, any dramatic change in Venezuelan oil access could leave Cuba staggering -- and accelerate their long-overdue process of economic liberalization.

Cuba is a country accustomed to living in crisis. The Havana I saw on a January 2010 research trip was just starting to recover from hurricanes that had caused $4 billion dollars worth of damage two years earlier. I arrived on a 1968 Russian Yakovlev, a Soviet hand-me-down with insulation hanging from the ceiling in strips. My taxi from the airport, a red 1950 Bel Aire held together by wire and duct tape, lurched north in the sticky heat. Holes left by crumbling brick revealed full views of offices rooms. Through the thick brown smog, people were going about their afternoon business. This being Cuba, a friend told me, "People here are used to going with the flow."

Since the devastating time known as the Special Period, following the collapse of the Soviet Union -- when the average Cuban lost 10 pounds and the protein-starved island collectively ate an entire species of anaconda into extinction -- Cubans have perfected the art of "resolviendo." Like many jokes that are only funny because they approach the truth, people "resolve" -- the office worker who steals supplies to sell on the black market, or the mechanic who makes a moto out of a soda bottle gas tank -- when they practice the creative strategies that help them survive. "The salary of an average Cuban is not enough to buy food for a month," said a Cuban government official on Monday, who asked to remain anonymous because, as she put it, "There can be confusion about who and who is not an enemy of the Revolution, and there are many people in Cuba who unfortunately can't tell the difference between one and the other."

"Cubans can't afford to have a balanced diet, we just eat what we can afford. So, I'm not talking about having a car, or clothes, shoes, or even paying rent. We are talking here about surviving," she said.

After Fidel quietly stepped down from leadership in January of 2008, Raúl Castro loosened economic restrictions and encouraged the slow burgeoning of a private sector, granting 250,000 licenses for new small businesses. The lucky few who can afford these licenses now legally drive taxis, offer a room for tourists to spend the night, or run a small restaurant out of their home. Although the government still employs 80 percent of the work force, the sixth Communist Party Congress this April ratified the first major adjustment of their Soviet-style economic model. While change has been slow in coming -- Cubans still can't buy or sell homes or cars, and businesses are still heavily regulated -- Raúl's regime is attempting to bolster trade, devaluing the tourist currency by 8 percent and lowering bulk prices on Monday to simulate a whole-sale market.

But the transition to increased economic freedom has been difficult. Raúl originally announced the scheduled lay-offs of a million government workers this winter, a decision he was forced to postpone this spring due to Cuba's faltering economy.

This restructuring could lead Cuba to greater self-reliance, something the government has sought since the loss of Soviet sugar subsidies. Venezuela currently provides Cuba more than 115,000 subsidized barrels of oil a day, but Anya Landau French, the Director of the New American Foundation's U.S.-Cuba Policy Initiative, said Cuba's relationship with Venezuela is different than their past relationship with the Soviets. Since the Special Period, Cuba has diversified its exports. She says if Venezuela abruptly cut ties with Cuba, "Cuba would be staring a similar moment in the face, but it wouldn't be quite as bad or as shocking. They've been trying to wean off a single-benefactor system. The reform process has just been going very slowly, in part because Raúl doesn't want to make any mistakes, and in part because there are still hardliners in the Cuban elite who are nervous about the dangers of market capitalism."

Others disagree. A U.S. diplomatic cable made public by WikiLeaks claimed Cuba's economy was struggling and could be "insolvent" by 2011. Written by a U.S. diplomat in Havana after a February 2010 breakfast with representatives from five of Cuba's largest trading partners, the cable suggested the Cuban government would face an economic collapse without Venezuelan subsidies. The dire predictions were written before Raúl Castro announced this spring's reforms, but many, including Paul Hare, the UK ambassador to Cuba from 2001 to 2004, are worried that the cable might still be a herald of things to come.

"Chávez has described Fidel Castro as his 'father,'" Hare told me. "Venezuelan support to Cuba is not a treaty between sovereign nations, but an understanding reached between two political soul mates -- the equivalent of a secret fraternity that is going to be difficult, if not impossible to replace." A frightening repercussion of this personal relationship is that no one, "apart from a very few people close to the Castros and Chávez knows the [exact] size of Venezuelan subsidies."

If Chávez loses power, Hare said, "It would be hard for the Chavista movement to remain cohesive, even if his brother Adan steps in. Chávez has the personality and track record of a populist leader -- there is no one who can readily inherit that mantle." When I called Carlos Blanco, former Venezuelan President of the Commission for State Reform, in Caracas, he said, "Chávez didn't prepare a second layer of leaders within his own movement, he has no clear successors. If there is any change, any reason Chávez cannot continue, a new relationship with Cuba would have to be agreed on."

In a world without Chávez, Cuba will still need a sponsor. Its best hope may be to work out a preferential relationship with Iran, already a partner in smaller trade agreements. But given the power of the personal relationship between Chávez and Castro, any such agreements would likely be less favorable than the current arrangements with Venezuela. If the Spanish company Repsol's offshore drilling results in 2011 are productive, other non-Venezuelan companies (such as the National Iranian Oil Company) might be interested in helping Cuba develop offshore oil fields. But no foreign business can own majority control in any Cuban joint venture, which may discourage non-Chavista investors.

One interesting result of all this is that nervousness over the future of Venezuelan support will likely encourage Cuba's Old Guard to go along with Raúl's economic reforms, and Cuba's economy may begin to open more quickly. U.S. policymakers are considering ending the U.S. trade embargo, which would bolster Cuba's private sector and remove much of Cuba's need for an Iranian benefactor. Congress has long been divided on the embargo. Some, like Representative Ileana Ros-Lehtinen (the House Foreign Affairs Committee chairwoman, and a Florida Republican of Cuban-American heritage) claim, "It is reprehensible that the administration would continue to make it a priority to advance ... exchanges with Cuba." Others, like former Republican Senator Chuck Hagel believe blocking exports, "Does nothing to harm governments and the government leaders with which we disagree."

While Venezuela's instability has created a nightmare for the Castros and generated speculation around the world, most Cuban people are largely unaware of the enormity of Venezuela's influence over their economy. Generally, Cubans only get their news from the Granma Internacional, Cuba's official newspaper, which is eight pages of text, half of which are dedicated to reprinting various Revolutionary anniversaries. Director Landau French predicted that, if Venezuela cut oil subsidies, many Cubans might only hear of it when they start to experience power brown outs and black outs.

The Cuban official I spoke to said that even without knowing the full extent of Cuba's vulnerability, "Most people are skeptical that we'll see a change from Raúl's reforms in the economy, while others are hopeless." As she said, "You can't feel stable financially as long as you earn 5 or 10 percent of what you need."

She added, "And that's a truth we can't hide."