Castro Deal With U.S. Fuels Shift Away From Venezuela

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Cuba’s decision to agree to a prisoner exchange with the U.S. in return for easing a five-decade embargo comes as the Caribbean island's key benefactor, Venezuela, struggles to avoid default.

With Venezuelan President Nicolas Maduro unable to contain the world’s fastest inflation and the country’s bonds trading at default levels, Cuban President Raul Castro has been working to diversify the Communist country’s economy away from Venezuela, which provides about 100,000 barrels of oil a day in exchange for medical personnel.

“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, said in phone interview from New York. “That 100,000 barrels per day gift of oil is going to end very soon.”

Cuba’s leaders are well aware of the risks of dependency after the economy collapsed in the early 1990s when the Soviet Union collapsed. Since early 2013, Castro has eased travel restrictions, increased incentives for foreign investment and tried to reduce public payrolls. That hasn’t boosted the economy, which is poised to expand 0.8 percent this year, according to Moody’s Investors Service, less than the 2.2 percent forecast by the government at the start of 2014.

U.S. President Barack Obama today said he will use his authority to begin normalizing relations with Cuba, loosening a trade and travel embargo that dates back to the early days of the Cold War. The move came after Castro released an American aid contractor, Alan Gross, who had been imprisoned for five years and an unnamed U.S. intelligence agent.

Credit Cards

Under the new policies, U.S. travelers will be able to use credit and debit cards in Cuba and Americans will be able to legally bring home as much as $100 in previously illegal Cuban cigars treasured by aficionados.

U.S. companies will be permitted to export to Cuba telecommunications equipment, agricultural commodities, construction supplies and materials for small businesses. U.S. financial institutions will be allowed to open accounts with Cuban banks.

“It’s a huge step,” Philip Peters, a Cuba scholar and vice president of the Lexington Institute in Arlington, Virginia, said in a telephone interview. “The travel will help the economy, the sales from the private sector will help.”

Venezuela Sanctions

The U.S. Congress last week cleared legislation imposing sanctions including the cancellation of visas on Venezuelans deemed responsible for human-rights violations against anti-government protesters, which White House spokesman Josh Earnest said President Obama would sign.

“It’s a lack of respect to sanction us! They can take their visas and shove them where they need to be shoved! Insolent, imperialist Yankees,” Maduro said Dec. 15 during a march he convened in Caracas to protest the measures.

He said today that Obama’s move to relax restrictions on Cuba was a victory for the Cuban people.

Maduro’s approval rating fell to 24.5 percent in November, Bank of America said in a note to clients on Dec. 15, citing a poll from Caracas-based polling company Datanalisis.

The South American country has seen the price it receives for its oil exports, which account for 95 percent of its foreign currency earnings, fall 40 percent this year to $57.53 a barrel last week.

“In a sustained lower oil price scenario, Maduro’s menu of policy options are all potentially destabilizing,” Eurasia Group analyst Risa Grais-Targow said in a note to clients today. The country faces a 60 percent chance of defaulting on its foreign debt in the second half of next year if oil prices do not recover, she said.

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