Obama Provides Economic Lifeline to Cuba

Other Cuban allies, including Venezuela and Russia, in economic crisis

December 19, 2014

The Obama administration’s normalization of relations with Cuba has handed the Communist government an economic lifeline, critics say, just when its traditional foreign patrons are suffering from their own domestic troubles.

President Obama announced on Wednesday that the United States would loosen travel and commercial restrictions on Cuba as part of its efforts to reestablish diplomatic relations. The measures could provide some initial relief to the country’s largely state-controlled economy, which is afflicted by massive debts and unemployment thought to be twice as high as the official rate of 4.3 percent in 2013.

Obama said in remarks that "50 years have shown that isolation has not worked" in displacing the regime of Fidel Castro and his brother and current president, Raul.

However, economic relief from the United States comes just as two of Cuba’s major foreign benefactors and traditional U.S. adversaries—Venezuela and Russia—are facing significant economic headwinds.

Venezuela’s bond prices fell to record lows this week as plunging oil prices cut into the government’s revenues. Crude oil accounts for 95 percent of Venezuela’s exports.

Trade with Venezuela for oil and other goods comprised about 20 percent of Cuba’s GDP in 2012. While Cuba returned the favor by providing Caracas with doctors and military and intelligence advisers, bilateral exchanges were likely to decline as Venezuela’s oil production and sales slowed.

Some financial analysts say Venezuela is already teetering on the brink of default due to economic mismanagement and its shrinking oil revenues.

Jose Cardenas, a Latin America expert and former National Security Council member in the George W. Bush administration, said in an interview that Cuba has long been planning for an alternative economic partner to Venezuela. The Castro regime knew it "couldn’t bet on the longevity of that bonanza" under former Venezuelan President Hugo Chavez, he said, who benefited from high oil prices but bequeathed a statist economy to current President Nicolas Maduro. Maduro is now suffering from the consequences.

Cuba’s strategy is to improve relations with the United States to supplant support from Venezuela, Cardenas said. Opening up Cuba to the global economic system could yield almost $20 billion a year in trade, according to some estimates.

"They never took their eye off the ball," Cardenas said of Cuba. "The ball is a margin of economic relief in the case [Venezuela] collapses."

Russia, too—which forgave about $32 billion of Cuban debt in August—has less leeway to aid the Castro regime. The Russian ruble has collapsed amid the low oil prices and Western sanctions linked to the Kremlin’s aggression in Ukraine.

"Now [Russian President Vladimir] Putin has a lot more problems on his plate and doesn’t have the time to spend it yucking around with anti-American dictators in the Americas," he said.

Additionally, Cardenas said the Obama administration has sent "mixed" signals about its overall Latin America policy. The White House has previously said that the president would sign a bipartisan bill that imposes sanctions on Venezuelan officials who committed human rights abuses earlier this year. Maduro responded by blasting U.S. officials as "insolent Yankees of the North."

By seeking a rapprochement with Cuba while simultaneously punishing its ally Venezuela, the Obama administration might be trying to satisfy Democratic critics of their Cuba policy such as Sen. Robert Menendez (D., N.J.), Cardenas said. But the overall regional policy is muddled.

"They claim that it was all about uniting the region and getting the United States policy more in line with the policies of the region toward Cuba," he said. "Then at the same time they’re going to now support targeted sanctions on Venezuela. It is an entirely contradictory stance."

A White House National Security Council spokesperson did not respond to a request for comment.