Excerpt from The Wall Street Journal:
For Cuba, Chávez's Health Is a Vital Statistic
For more than a year, Venezuelans have fretted over how they will fare as their charismatic president, Hugo Chávez, faces dual battles of cancer and a fall election. But Mr. Chávez's fate may pose an even greater cause of concern in another country—Venezuela's Communist ally, Cuba.
In more than a decade of friendship between Mr. Chávez and Cuba's rulers, Venezuela has sent cash and oil subsidies worth billions of dollars a year. Those handouts could come under threat without Mr. Chávez in power to back them—showing how the flip side of Venezuelan largesse is a deep potential Cuban vulnerability.
In 2010, Venezuela accounted for at least 40% of Cuba's overall trade in goods, up from 27% the year before. That figure was more than the trade levels of the next five countries combined.
Overall, Venezuelan assistance and trade with Cuba accounted for up to 22% of Cuba's annual economic output in 2010, according to Carmelo Mesa-Lago, a professor emeritus at the University of Pittsburgh and an economist who is writing a book about the Cuban economy.
The extreme situation has drawn comparisons to Cuba's relationship with the Soviet Union, which underwrote the Cuban economy for decades until its sudden collapse in 1989. What followed was what Cubans call the "Special Period" of the 1990s, during which the Cuban economy contracted 35% in three years, leading to rationing of food and electricity.
Cuba is on more solid footing than it was then. But it still faces the U.S. economic embargo, and economists say the ending of Venezuelan largess would be a massive blow.
"This could be a disaster," Mr. Mesa-Lago said. "If this help stops, industry is paralyzed, transportation is paralyzed—and you'll see the effects in everything from electricity to sugar mills."
Mr. Chávez has long called Fidel Castro, Cuba's retired dictator, a father figure and mentor. For 12 years, the Venezuelan president has propped up the ailing island's economy with generous subsidies. They include roughly 105,000 cut-rate barrels of oil a day—about half of Cuba's energy needs for petroleum, economists believe—and cash payments for a stream of Cuban doctors, sports trainers and teachers who work in Venezuela.
Under the arrangement, Venezuela pays the Cuban government $135,000 a year for each doctor it sends over, 27 times the salary of the average Venezuelan public doctor, Mr. Mesa-Lago estimates. Cuba gets similar payments for sending teachers and sports trainers.
The oil arrangement is also unusual: Not only does Venezuela sell the oil to Cuba at what is believed to be submarket prices, it also extends Cuba 25-year loans at 1% interest—well below the rate of inflation—that Havana uses to foot about half of the bill.
Venezuela is also supporting Cuba through investment. From 2000 to 2011, Venezuela signed deals for 370 investment projects in Cuba for an estimated $11 billion. They included $1.4 billion to renovate an idle refinery in the coastal town of Cienfuegos. The plant, from 1991, used defunct Soviet-era technology and had never operated.
Last year, Venezuela installed an 820-mile fiber-optic cable meant to bring high-speed Internet to Cuba. It still hasn't been put into use.
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