Cuba’s economy survives largely on Venezuelan aid

CNN's Ana Navarro: Cuba's economy survives largely on Venezuelan aid
BY JON GREENBERG PUNDITFACT
12/26/2014 3:32 PM 12/26/2014 3:32 PM

President Barack Obama's historic decision to open full diplomatic
relations with Cuba has appalled many opponents of the Castro regime.
Among their biggest complaints is that Cuba got huge concessions from
the United States without being required to make fundamental changes to
its political system.

CNN contributor and Republican strategist Ana Navarro also argued that
Obama could have outwaited the Castro brothers, Fidel and Raul. The
Cuban economy is in shambles, Navarro told CNN's Anderson Cooper.

"A lot of what their survival depends on is Venezuelan oil money, which
is drying up," Navarro said. "Now that we are so close to the end of
those two dictators — who have oppressed these people for over half a
century — now we're going to change and do it unilaterally without them
lifting the oppression?"

The Cuba-Venezuela connection has been on the lips of many commentators
since the news broke. We thought it would be good to put a number to
Venezuela's generosity toward Cuba and to what extent that aid is a
matter of life or death for the Cuban economy.

Cuba and Venezuela have been joined at the hip in their shared antipathy
toward the United States. The superpower to the north sees both
governments as fundamentally opposed to political freedom and free
markets. In return, leaders in Cuba and Venezuela regularly speak out
against the United States.

Out of this tension emerged a deal between Cuba and Venezuela. Cuba sent
tens of thousands of medical staff and other skilled professionals to
treat Venezuela's poor and otherwise aid the government. In exchange,
Venezuela sent Cuba oil and provided money to modernize that country's
infrastructure.

The plunging price of oil has put the basic tenets of that swap in
jeopardy, experts say.

We found estimates that Venezuela sends about 80,000 to 100,000 barrels
of oil per day. Luis R. Luis is the former chief economist with the
Organization of American States, an international body with
representatives of governments that span from Canada to Argentina. Luis
told PunditFact the swap means a lot to Cuba.

"Venezuelan oil and transfers play a key role in allowing the country to
import essential foodstuffs, medicines and industrial inputs," Luis
said. "The value of oil plus investments and grants from Venezuela to
Cuba varies greatly from year to year largely because of oil price
fluctuations. In 2008, it was over 10 percent of GDP. Last year some 6
percent of GDP. This year less."

Former International Monetary Fund economist Ernesto Hernandez-Cata
offered a slightly higher estimate of "just over $7 billion, or 11
percent of Cuba's GDP," in 2011.

Whatever the exact percentage, and even though the aid has been falling,
Venezuela pulls a lot of weight in the Cuban economy. University of
Maryland economist Roger Betancourt said that impact only grows when you
factor in trade between the two nations. Betancourt, who co-founded the
Association for the Study of the Cuban Economy, said Venezuela accounts
for about 40 percent of Cuba's trade in goods. We found another estimate
that put Venezuelan purchases at 20 percent of Cuba's GDP.

Why would Venezuela stop helping Cuba?

Venezuela has seen the price it receives for sending oil overseas fall
40 percent this year because of the drop of oil prices worldwide. And
oil revenues account for about 95 percent of the country's export
earnings, according to the Organization of the Petroleum Exporting
Countries.

As such, Venezuela faces an economic collapse that include defaulting on
its debts.

"You only need to look at the economic disaster that is Venezuela, and
clearly it's a bad bet to have all your chips in one basket,"
Christopher Sabatini, policy director at Council of the Americas, told
Bloomberg. "That 100,000 barrels per day gift of oil is going to end
very soon."

While the Venezuelan connection is hefty, its importance can be
overblown. Hernandez-Cata ran the numbers and found that if the aid
stopped, Cuba's real GDP would contract "somewhere between 7 percent and
10 percent" without Venezuelan oil. Which would be no garden party for
Cuba, but as Hernandez-Cata noted, the country emerged from a fall of 38
percent in GDP when the USSR cut off its economic support in the early
1990s.

And today, Cuba has been moving to diversify.

"Current efforts to obtain financing at non-market terms from other
countries, like Algeria, Angola and Brazil, would, if successful,
diminish the magnitude of the shock," Hernandez-Cata wrote.

A longtime critic of the Castro regime, Pedro A. Freyre, a partner in
the law firm of Akerman LLP, is skeptical of the doom and gloom
predictions of Cuba's precarious economy.

"Cuba has turned surviving misery into an art," Freyre said. "Cuba has
been diminishing expectations for decades. Everything collapsed in 1992.
It was a disaster and they survived."

For the record, Freyre, who lost a brother-in-law in the failed
U.S.-backed Bay of Pigs assault on Cuba in 1961, now favors normal
diplomatic relations.

Our ruling

Navarro said a lot of Cuba's survival depends on Venezuelan oil money,
and that it's drying up. The data we found and the experts we reached
back that up, to a point. Venezuelan aid added at least 6 percent to
Cuba's GDP last year. Venezuela is also a major trading partner, buying
as much as 40 percent of Cuba's trade in goods.

The loss of direct support from Venezuela could cause a 7 to 10 percent
drop in Cuba's GDP, experts told us. While that hasn't happened yet,
it's certainly a strong possibility.

Though Cuba has been moving to reduce its dependency on Venezuela, and
has a track record of making it through tough times, that would still be
a significant hit.

We rate the claim Mostly True.

PUNDITFACT
The statement: "A lot of what (Cuba's) survival depends on is Venezuelan
oil money, which is drying up."

— Ana Navarro on Wednesday, December 17th, 2014 in an interview on CNN's
"Anderson Cooper"

The ruling: Venezuelan aid added at least 6 percent to Cuba's GDP last
year. Venezuela is also a major trading partner, buying as much as 40
percent of Cuba's trade in goods. The loss of direct support from
Venezuela could cause a 7 to 10 percent drop in Cuba's GDP, experts told
us. While that hasn't happened yet, it's certainly a strong possibility.

We rate this claim: Mostly True.

Source: CNN's Ana Navarro: Cuba's economy survives largely on Venezuelan
aid | The Miami Herald -
http://www.miamiherald.com/news/politics-government/article5012790.html