For Aging Castro, Chavez Emerges as
a Vital Crutch
Cuba's Ballooning Oil Debt
To Venezuela Serves
As Form of Life Support
By ALEXEI BARRIONUEVO
and JOSE DE CORDOBA
THE WALL STREET JOURNAL
La Nueva Cuba
February 3, 2004
Amid a new round of rumors that his health is failing, Fidel Castro has
found a key benefactor and heir apparent to the cause of derailing the
U.S.'s agenda in Latin America: Venezuelan President Hugo Chávez.
With little fanfare, Venezuela's left-leaning government has become the
biggest financial supporter of Cuba since the Soviet Union pulled the
plug on Mr. Castro more than a decade ago.
Over the past three years, Cuba has run up a massive debt of $752
million for oil shipped by Venezuela's state oil company, according to
people close to the company and internal documents reviewed by The Wall
Though Venezuelan officials deny that Cuba is falling behind, people
familiar with the matter say the debt is piling up and that the
government has made little effort to collect. This makes the shipments a
crucial subsidy that is helping keep the island nation's economy afloat
as it struggles with the impact of endemic mismanagement, declining
sugar sales and longstanding U.S. sanctions.
While the subsidy doesn't approach what the Soviets were doling out to
Cuba at the height of the Cold War, it underlines the growing strategic
alliance between Venezuela's Mr. Chávez, a populist former coup plotter
elected in 1998, and Cuba's Mr. Castro. At a time of rising
anti-American and anti-free-trade sentiments, U.S. officials fear that
the combination of Venezuela's oil billions and Mr. Castro's well-honed
political skills could cause trouble for the U.S. throughout a restless
Worries of such an alliance have grown since Indian and radical groups
forced Bolivia's President Gonzalo Sanchéz de Lozada to resign last
October. Evo Morales, head of Bolivia's coca-growing farmers and one of
the architects of Mr. Sanchéz de Lozada's downfall, has close ties to
both Mr. Chávez and Mr. Castro.
Both leaders, meanwhile, are working actively to sink U.S. plans for a
34-nation Free Trade Area of the Americas -- which would exclude Cuba --
and are preaching an antiglobalization message throughout Latin America.
More than 1,000 peasant, labor-union and student activists met last week
in Havana to draw up plans for hemisphere-wide protests against the FTAA.
"We certainly see a Venezuela-Cuba axis which is broadening and
deepening and which is not conducive to the promotion of democracy and
human rights," said Otto Reich, the White House special envoy to the
U.S. officials have another reason to be concerned about the rising
Cuban debt to Venezuela's oil company: It represents a further threat to
an oil-producing apparatus that is the fourth-largest provider of oil to
The U.S. has not offered any evidence that Messrs. Castro and Chávez
have meddled in the affairs of Bolivia or anywhere else. Mr. Chávez
denies U.S. allegations he and Mr. Castro have formed a revolutionary
partnership to destabilize pro-U.S. governments in Latin America. Mr.
Castro complains such unfounded claims may be used by U.S. officials to
justify future aggression against Cuba.
Still, during the long twilight of his career on the world stage, Mr.
Castro, 77 years old, increasingly appears to consider Mr. Chávez, 49,
as the heir to his revolutionary mantle. Indeed, last week in the course
of a 5˝-hour speech that appeared designed to give the lie to the latest
wave of reports of his failing health, Mr. Castro waxed long in praise
of Mr. Chávez. Although Venezuela's political process differs from that
of Cuba, said Mr. Castro in a closing speech to the meeting of
anti-free-trade activists, Venezuela "has fertile territory for a
"These gentlemen are saying I'll die soon because 'if the dog dies, so
does the rabies,' " said Mr. Castro, referring to President Bush and
other U.S. officials. "But now Venezuela has turned into a [new] dog."
From his first days in power, Mr. Castro has had a keen appreciation for
the strategic importance of Venezuela and its huge oil reserves. Indeed
the country was one of the first targets of his campaign to export
revolution. In 1966 Mr. Castro sent 17 of his closest collaborators to
fight in Venezuela. Some were killed in combat before the contingent
returned to Havana three years later.
In the late 1980s, according to conservative estimates, the Soviets were
funneling more than $3 billion a year in aid to Cuba, including as much
as $2 billion in oil subsidies. As that support dwindled in the waning
days of the Soviet Union, Cuba's economy crashed. Mexico and Venezuela
continued to sell oil to Cuba on favorable terms for a time, but Mexico
pulled out in 1999 because Cuba failed to keep up with payments. Other
countries also cut off credit after the Castro regime ran up huge debts
for everything from auto imports to fish, including some $1.7 billion
owed to Japan and $1.58 billion owed to Argentina.
Mr. Chávez's election in 1998 marked an upswing in Cuba's fortunes. He
has made no secret of his admiration for Mr. Castro and quickly took
steps to ease the aging revolutionary's isolation. In some ways, he was
just returning a personal favor: After Mr. Chávez was released from
prison following his 1992 coup attempt, Mr. Castro embraced him,
inviting him to Cuba to recuperate and make speeches.
Once in power, Mr. Chávez wrapped himself in Mr. Castro's revolutionary
mantle as he sought to consolidate his popularity among the Venezuelan
poor. In an act of solidarity, Cuba sent 12,000 teachers, doctors and
sports trainers to Venezuela, many of whom work in the poorest barrios.
In October 2000, Messrs. Castro and Chávez signed a so-called Integral
Cooperation Accord that provides Cuba with as much as 53,000 barrels a
day of crude oil and refined products under preferential terms. The
shipments represent about a third of Cuba's estimated daily energy
Among other things, Cuba has 90 days to pay for the shipments, compared
with no more than 30 days for the other clients of the state oil
company, Petroleos de Venezuela, or PDVSA, according to company
documents. Unlike other PDVSA clients, Cuba wasn't required to obtain
bank guarantees from a world-class bank. Instead, Cuba's National Bank
provides a letter of credit.
But Cuba quickly fell into arrears, fueling an internal clash in PDVSA
between long-time professional employees and the new leaders Mr. Chávez
brought in to run the oil giant. "We didn't mind that Cuba was a client,
just as long as it paid its bills and the terms of the contract were
transparent," says Edgar Paredes, PDVSA's former director of refining
and supply, who helped lead a general strike against President Chávez
To break the strike, the Chávez government fired 19,000 workers and
consolidated control of the company under Ali Rodriguez, a former leader
of pro-Cuban Communist guerrillas who fought unsuccessfully to overthrow
Venezuela's young democracy in the 1960s and 1970s. This year, PDVSA
plans to slash investment in exploration while boosting spending on
social programs, including building homes for the poor and combating
illiteracy. According to the company's budget, it will spend more than
$1.2 billion this year for such activities.
According to internal documents from Venezuela's national oil company,
Cuba's oil debt to Venezuela has been piling up quickly. When Cuba asked
to renegotiate its debt in November 2001, its short-term debt owed PDVSA
was $95.7 million, including the money due up through December. By
August 2002, Cuba owed $144 million. By late last year, that figure had
leapt to $520 million. Last month the figure was $752 million, people
with knowledge of the matter say.
Venezuelan Energy and Mines Minister Rafael Ramirez flatly denied that
Cuba was delinquent in paying for its oil shipments. "There is no delay
at all," said Mr. Ramirez in a telephone interview. He said that such
claims were an attempt to make political hay by Mr. Chávez's opponents.
Lazaro Herrera, a spokesman for the Cuban Interests Section, which
serves as Cuba's diplomatic representative in Washington, declined to
comment on the size of Cuba's oil debt to Venezuela. "It is totally
false that Cuba doesn't have any real intent to pay," he said. "Cuba is
honoring its agreement" with the Venezuelan oil company.
Cuba has from time to time made token gestures to pay off a portion of
the debt to PDVSA. Cuban officials frequently meet in Caracas with their
Venezuelan counterparts to brainstorm new ways in which Cuba can pay
some of what it owes, says a person familiar with the discussions. The
original agreement called for Cuba to offset the debt by charging for
the services of the doctors, teachers and sports trainers, but that has
so far not been implemented, these people add.
Cuba has renegotiated the terms of the debt at least twice, the internal
documents show. Among other things, officials argued that the damage
wrought by Hurricane Michelle in November 2001 and the decline in
tourism after the Sept. 11, 2001, terrorism attacks made it impossible
to keep up with payments. In the months before the PDVSA strike in
December 2002, Cuba paid down at least $87.2 million of its oil debt,
according to the documents.
People familiar with PDVSA say the debt dispute has become a virtually
taboo subject inside the company. For instance, PDVSA employees are
forbidden to talk about the contract in e-mail messages or to issue
official correspondence on company letterhead, these people say.
PDVSA officials declined to comment on any aspect of the Cuban
The debt represents about 80% of the roughly $931 million owed PDVSA by
its clients, say the people close to the company. In 2002, PDVSA had
revenue of $42.58 billion and net income of $2.59 billion, according to
its latest filing with the U.S. Securities and Exchange Commission. The
company is still struggling to bring oil production back to prestrike
levels of 3.1 million barrels a day, according to independent oil
Prospects for repayment appear slim. Although Cuba has managed to double
its own production since 1991, so far it has only found sulfur-laden
heavy oil, which is less valuable. The country is pinning hopes of
finding more oil on newly announced projects by foreign companies to
explore in deeper waters.
Cuba's biggest source of dollars is the more than one million Cuban
exiles that live in the U.S. In 2002, exiles sent an estimated $1.1
billion to Cuba in remittances, according to a study by the
Inter-American Development Bank. In addition, 150,000 Cuban-Americans
travel to Cuba every year, spending crucial tourist dollars while they
Nevertheless, the island's economy is fragile, and Havana would be
hard-pressed to find other sources of supply if Venezuela were to cut it
off. Such a possibility looms large right now, with President Chávez
facing a potential recall election. Leading opposition figures have
already spoken out against the shipments.
"If Chávez loses in Venezuela it would be total devastation to the Cuban
economy," says Jorge Salazar-Carrillo, a Cuba expert at Miami's Florida