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Death of Chavez could force to Cuba speed reform

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(Globalpost/GlobalPost)

Cuba could be forced to speed its economic reforms following the death of its main benefactor, Venezuela's Hugo Chavez, whose oil-backed largesse has kept the country afloat for years.

Venezuela's leftist leader, who died on Tuesday, gave generously to Cuba over the years, supplying Havana with billions of dollars' worth of low-cost oil from its vast reserves and paying royally for medical services.

Chavez came to Cuba's rescue at a point when the communist-run island was in deep crisis after economic support that Havana had received as a client state of the now-defunct Soviet Union dried up a decade-and-a-half ago.

Moscow had been the financial mainstay of the island since Fidel Castro came to power in 1959.

Now, after a decade-and-a-half of support from Caracas, Havana once again finds itself economically vulnerable, political observers said.

"The death of Chavez highlights the shortcomings of the Castros' policies -- not diversifying the Cuban economy, not allowing more Cubans themselves to generate wealth and make the country genuinely independent," Paul Webster Hare, Britain's former ambassador to Havana told AFP.

Webster Hare, who now teaches in the United States at Boston University, said Cuba seemed to believe the cozy arrangement could go on indefinitely.

"No other country in the world has bet as extravagantly on the fortunes of another leader as have the Castros on Chavez," he said.

Havana imports 100,000 barrels of oil a day from Venezuela, which supplies oil to Cuba on very favorable terms. Cuba for its part, sends some 40,000 trained medical personnel to Venezuela.

The sale of medical and other services, mostly to Venezuela, was the main source of foreign exchange for Cuba, reaping some $6 billion dollars a year.

Other major sources of hard currency are remittances from relatives living overseas, which brings in about $2.5 billion; tourism, ($2.0 billion) and nickel exports, ($1.1 billion).

Cuba has been mum about how it could be hurt if its favorable trade arrangement with Caracas were suddenly to disappear, although not every analyst believes that it will.

"I don't think that if there is a change of government in Caracas, that it will abruptly sever the economic relations that Cuba has with Venezuela," said Omar Everleny Perez, director of the Center for the Study of the Cuban Economy at the University of Havana.

He added that Venezuela has come to rely on the doctors sent by Cuba to help sustain its social welfare system and therefore has a strong interest in continuing the arrangement.

But a dissident opposition economist, Oscar Espinosa Chepe, said the fallout would be "terrible" on the island if Venezuela's oil shipments were to end.

That is the case today even more than when aid from the Soviet Union stopped, he said, because "Cuba's infrastructure now is in worse shape than it was back then."

During that crisis two decades ago, Cuba abruptly lost 85 percent of its foreign trade. Industrial production lurched to a standstill because of a shortage of fuel and raw materials.

To address the crisis, then-president Fidel Castro imposed austerity in the form of a so-called "special period" during which he sharply restricted consumption of many goods and drastically rationed energy.

Although the "special period" has not officially ended, the economy began to recover gradually from 1997 as the country bolstered its tourism industry.

The real shot in the arm to Cuba's economy, however, came after Chavez ascended to power in 1999, and began to financially prop up its ally.

It is far from certain that Caracas will continue to provide the aid, which is enormously expensive to a nation which has its own economic problems, including one of Latin America's highest rates of inflation.

"Without Chavez, the possibility of expanding the trade of Cuban services in exchange for oil is reduced," political analyst Arturo Lopez-Levy, of the University of Denver in Colorado, told AFP.

In recent years President Raul Castro has undertaken a series of reforms that has nudged Cuba a bit closer towards a free market system, but the government still controls more than 90 percent of the economy.

Espinosa Chepe said Havana will have to go a lot further -- and faster -- in its reform program, including by welcoming greater outside investment.

"Havana will have to speed up the reforms," he said. "It will have exercise maximum flexibility in its rules and provide security to outside investors, because the country has no capital resources to invest."

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http://www.globalpost.com/dispatch/news/afp/130306/death-chavez-could-force-cuba-speed-reform