Nations that rely on Chavez's generous oil terms have much to lose if it slows to a trickle

HAVANA – Cubans remember the so-called Special Period of the 1990s, when the Soviet Union’s sudden collapse plunged the island into years of economic depression, with cars and buses disappearing from the streets for lack of fuel and rolling blackouts leaving the capital in darkness.

Now Cubans fear a return of hard times following the death of Venezuelan President Hugo Chavez, whose billions of dollars of oil largesse helps the island’s economy function. Some Havana residents were even talking about hoarding candles on Wednesday.

Francis Gomez, a 22-year-old tourism student from the city of Pinar del Rio, said she was “scared and worried.”

“Ever since Chavez became ill, my parents have been saying, ‘Please, God, don’t let there be another Special Period,” she said.

While Chavez’s party remains in power in Venezuela, and his political allies have said they won’t change the program, at least not in the short term, a victory by the opposition in a presidential election expected in the coming weeks could change the game entirely. Opposition leader Henrique Capriles has said he would reevaluate the program if elected.

Cubans are not alone in having worries following Tuesday’s death of Chavez, who used Venezuela’s oil wealth to aid allies through a part-ideological, part-humanitarian program that gives out petroleum at preferential terms.

More than a dozen other countries in Latin America and the Caribbean, many of them economic minnows, have benefited to the tune of billions of dollars from the Petrocaribe pact that was created in 2005 with the goal of unifying the regional oil industry under Venezuelan leadership and countering U.S. influence.

Cuba alone receives about 92,000 barrels of Venezuelan oil a day to meet half its consumption needs, worth around $3.2 billion a year, according to an estimate by University of Texas energy analyst Jorge Pinon.

Havana pays about half the bill through a barter exchange in which tens of thousands of doctors, teachers and other advisers provide services in Venezuela. The rest goes into 25-year credits with 1 per cent interest.

“There’s no cash exchange. They don’t have to write a check. That’s the importance of this agreement,” Pinon said. “It represents $3.2 billion of free cash flow to the Cuban economy.”

“If a new Venezuelan government turns that into a true commercial agreement where in 30 days you pay 100 per cent in cash for what you owe, it would be a substantial economic impact to both Cuba and to Petrocaribe countries, no question about that,” Pinon said.

Nicaragua, perhaps the second-most dependent on Venezuelan oil after Cuba, gets nearly all its 12 million barrels a year from Caracas, worth about $1.2 billion, said Nestor Avendano, an economist and president of the consulting firm Consultores Para el Desarrollo.

President Daniel Ortega, a staunch Chavez ally, pays about half up-front and finances the rest over 23 years at 2 per cent annual interest.

La Prensa, Nicaragua’s leading newspaper, noted in an editorial that Ortega has been trying to shore up economic reserves in recent months and raised taxes in January, apparently in anticipation of a reduction in Venezuelan aid.

The Dominican Republic gets just over 40 per cent of its oil through Petrocaribe, and saves roughly $400 million a year from the arrangement. Struggling Jamaica, where debt is a whopping 140 per cent of gross domestic product, gets roughly two-thirds of its crude through Petrocaribe.

Across the Caribbean, it’s the same story one island nation after another.

“Petrocaribe saved several Caribbean economies from certain collapse,” said Anthony Bryan, a senior associate at the Center for Strategic and International Studies in Washington and an expert on U.S.-Caribbean relations.

Nicolas Maduro, Chavez’s handpicked successor and a firm ideological ally of Cuba, is seen by analysts as more likely to win the election to replace Chavez. But in the absence of Chavez, who kept his political base in line through pure politics of personality, Maduro might come under pressure as he tries to control factions that don’t always agree.

“I think that there’s going to be a potential drop in Venezuelan willingness to sell oil (at preferential terms) because Maduro is going to be facing his own internal schisms,” said Gregory Weeks, a political scientist specializing in Latin America at the University of North Carolina at Charlotte. “I think he’s going to have to be paying more attention to directing resources to his own constituencies at home, rather than abroad.”

Weeks added that Maduro would likely try to maintain the Cuba subsidy as much as possible for symbolic reasons, and many analysts say the island is less dependent on Venezuela than it was on the Soviets.

But Venezuela’s economy has problems that Chavez’s successor will have to deal with. Inflation is 22 per cent, dollars for imports are scarce amid currency control and residents complain about sporadic shortages of basic goods.

“Once Venezuela’s budget deficit really begins to bite in a way that can no longer be ignored, then the government will have to make some tough decisions in term of spending,” said Eric Farnsworth, an energy specialist with the Council of the Americas. “And one of the quickest ways to cut in any country is foreign aid.”

For some Petrocaribe beneficiaries that might simply mean tightening belts. For others it could mean rising discontent or even potential unrest as popular social programs wither.

Nicaragua’s Ortega, for example, has used the extra cash to put roofs on homes and finance health care and education in a country where 80 per cent of the people live on less than $2 a day. Economist Rene Vallecillo said the country could see a 1 percentage-point drop in GDP growth if Venezuelan aid disappeared.

Haiti has used millions in Venezuelan aid to pay for fuel, renovate power stations and build low-income housing in the earthquake-torn nation.

Jamaica has used the 22,000 barrels of Venezuelan oil it got every day in 2011 to produce 95 per cent of its electricity.

“If it’s 95 per cent of your power generation, that has broader implications in terms of your social well-being,” Farnsworth said. “They’re really going to hurt. … This has been a lifeline.”


Associated Press writers Anne-Marie Garcia in Havana; Luis Andres Henao in Santiago, Chile; David McFadden in Kingston, Jamaica; Luis Manuel Galeano in Managua, Nicaragua; Ezequiel Abiu Lopez in Santo Domingo, the Dominican Republic; and Trenton Daniel in Port-au-Prince, Haiti contributed to this report.


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