High stakes for Cuba in Hugo Chavez's cancer battle

Havana: 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 per cent 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 per cent 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."