"Working together for a free Cuba"




For Aging Castro, Chavez Emerges as a Vital Crutch

Cuba's Ballooning Oil Debt
To Venezuela Serves
As Form of Life Support

Staff Reporters
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 Street Journal.

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 Latin America.

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 Western Hemisphere.

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.

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 revolutionary process."

"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 consumption.

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 last year.

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 agreement.

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 analysts.

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 are there.

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 International University.