Center for International Policy

August 4, 2006

Economic upturn would bolster Raúl Castro

By Juan Forero The New York Times
International Herald Tribune

BOGOTA As Raúl Castro, now at the helm of Cuba's government, confronts the task of navigating the island in the absence of his brother, one fewer worry he has is, surprisingly, the state of Cuba's once-moribund economy.

With Fidel Castro out of sight since undergoing emergency surgery on Monday, and the Bush administration calling for a transition to democracy, the pressure on Raúl Castro is alleviated in part because Cuba's economy has been recovering with the help of the Venezuelan president, Hugo Chávez, who shares both an ideological affinity and a sharp aversion of the Bush administration with the Castro brothers.

One of the last Communist countries, Cuba's economy is far from healthy, but it is also a world away from the one left destitute and marooned when Cuba's long-time benefactor, the Soviet Union, collapsed.

The credit goes largely to the economic lifeline thrown to Cuba by Chávez, who has been using his country's tremendous oil reserves to build an alliance with Cuba and Bolivia's new indigenous president, Evo Morales, to counter the conservative Bush administration in Latin America.

That has American officials, long determined to choke off Castro's government, exasperated that Venezuela, whose governments were once close to Washington, has helped turn around the Cuban economy just as policymakers thought dramatic change could take place.

"The current regime in Havana is working with like-minded governments, particularly Venezuela, to build a network of political and financial support designed to forestall any external pressure to change," says a 93-page U.S. government report issued last month for President George W. Bush on the likelihood of Cuba's transition to democracy.

Wayne Smith, a former American diplomat in Havana, said that the Bush administration's policy toward Cuba had evolved from openly working to bring an end to Castro's regime to simply preventing the leftist icon from being replaced by his brother or another Communist figure.

"Getting in the way is Chávez and Venezuela giving assistance to Cuba, and not only giving assistance, but forming an alliance with Cuba," said Smith, a senior fellow at the Washington-based Center for International Policy.

"It just drives the Bush people crazy," Smith said.

Compared with the grim early 1990s, when imports - the vast majority from Eastern Europe - plunged nearly 75 percent in three years, Cuba's economy has shown important signs of revival. The government says economic growth topped 10 percent last year.

The figure is doubtful to many economists, but even the CIA said growth reached 8 percent in 2005. Cuban resources, like nickel, are selling at record highs, and the island may in the future benefit from plans to turn sugar cane into ethanol.

Havana has also signed important economic deals with China, Canada and Spain, whose companies are interested in everything from tourism to oil exploration.

But no country has been more important to Cuba than Venezuela. Chávez, who often speaks of Castro as Latin America's most important statesman, has provided Cuba with 100,000 barrels of oil a day under highly preferential terms.

Venezuela provides credits, pays for 20,000 Cuban doctors who offer services to the poor in Venezuela and bankrolls programs like Mission Miracle, whereby tens of thousands of Latin Americans are flown to Havana for eye surgeries that raise hundreds of millions of dollars annually for the state.

"Without a doubt Cuba was able to come back and it's because of Venezuela's help, not just the oil accord but many other types of assistance," said José Toro Hardy, an oil economist in Caracas.

The Cuba Transition Project, a University of Miami team of researchers who study Cuba's economy, says that Venezuela has provided more than $2 billion, or about €1.6 billion, in financing in the last year, most of it in crude oil and refined petroleum products.

The oil Venezuela ships to Cuba accounts for half of its total consumption - a windfall for a country that, until recently, was surviving mostly on tourism dollars.

Venezuela has also become a key buyer of otherwise uncompetitive Cuban goods, with exports from the island to Venezuela rising from about $25 million in 2002 to $300 million by 2004, the last year for which statistics are available.

All together, Caracas and Havana have signed dozens, perhaps hundreds, of economic accords, the most important being a trade pact with Bolivia that is aimed at countering Washington's efforts to create a hemispheric trade agreement.

Among the most important projects undertaken by Chávez's government in Cuba is a project to overhaul the Cienfuegos oil refinery on the island, a plan that could cost Venezuela hundreds of millions of dollars.

The Venezuelans are talking not just of reactivating the long-dormant facility, but of upgrading it to refine the heavy, tar-like oil that Venezuela pumps.

Raúl Castro, as his brother's chosen successor, would benefit greatly from that largesse.

Though the head of the army and state security apparatus, Castro has also run the country's tourism industries, which generate about $2 billion a year.

Though once considered a dogmatic Communist, he has shown that he could veer Cuba toward a more economically liberalized model, like that of China.

That could be crucial because in recent years Fidel Castro has tightened the state's hold on the economy after it had been liberalized in the '90s during Cuba's most serious economic crisis.

The Cuban government has made statements lately that if Raúl Castro succeeds his brother, "one of his main concerns is going to be dealing with the basic needs of the Cuban population," said Eric Driggs, associate researcher at the Institute for Cuban and Cuban-American studies at the University of Miami.

"If that means giving some measure of a better life or putting more food on the table, I think he'll take it," Driggs said.