For now the free oil spigot is shut to Castro and he's hurting.
Venezuela: Halt in Oil to Cuba May Ease Pressure on Chavez***Cuba owes PDVSA nearly $128 million at a time when cash flow is getting very tight at the firm due to a combination of lower international oil prices, failure by the Chavez government to pay its energy-related debts to the company and increasing doubts about the availability of more than $4 billion in PDVSA cash that is supposed to be on deposit at the macroeconomic stabilization fund (FIEM). PDVSA deposited the cash in the FIEM, which was created before Chavez was elected in December 1998, for the purpose of keeping surplus cash out of the economy so as not to trigger higher interest rates and inflation. Rodriguez said May 27 that the funds would be used for oil and gas investments, not to underwrite the government's current spending needs.
However, with the Chavez regime facing a cash flow shortfall estimated at nearly $11 billion -- due to its rapidly pending liabilities to state governments, workers and foreign and domestic creditors -- it's likely that PDVSA's funds are no longer in the FIEM. In fact, in order for PDVSA to withdraw the $4 billion, Venezuela's Central Bank likely would have to draw down its international reserves by an identical amount. Following a first quarter 2002 GDP contraction of 4.2 percent and a $3.7 billion balance of payments deficit, the Central Bank can't transfer $4 billion of its declining foreign exchange reserves to PDVSA without accelerating the currency's devaluation and raising interest rates even higher.
With the economy sinking deeper into recession and PDVSA in worsening financial health, continuing oil shipments to Cuba is a politically untenable proposition. The current oil supply agreement is highly unpopular within PDVSA and sectors of the armed forces opposed to closer ties with the Castro regime. Chavez likely will have more clashes in coming weeks with his political opponents, including moderates within his own camp. While the oil supply agreement has not been rescinded officially, the de facto suspension of more oil shipments to Cuba may help to defuse at least some of the tensions within potential flashpoint groups like the military and PDVSA.***
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Cash-Strapped Cuba Faces Summer***The 2,000 workers have been reassigned to other mills or farm work, according to mill administrator Isabel Chavez. The Sugar Ministry has given no reason for shutting the mill. But at the beginning of the 2001-2002 sugar harvest, the official Cuban news agency reported that only 100 of Cuba's 154 sugar mills were working. The whole sugar industry is being restructured, but the modernizing technology needed in the mills would cost between $4 million to $5 million per mill, the government has said. Meanwhile, as sugar prices fall, oil is up, and Cuba has to import more than half its petroleum needs. Fidel Castro's government is cutting energy use by 10 percent at state enterprises. ***