Counting on Chávez

By Heather Berkman and Risa Grais-Targow

The state of Hugo Chávez’s health has prompted plenty of speculation and debate across Washington and among the Venezuelan president’s universe of Twitter followers, but for some of his regional friends, the stakes are particularly high. For the past decade, Chávez’s Petrocaribe program, which provides heavily discounted Venezuelan oil and finances a slew of infrastructure projects around the region-has helped a handful of Central American and Caribbean leaders avoid the kinds of tough economic choices that drive angry citizens into the streets. Yet, with the approach of elections in October, Chávez now faces some tough challenges-to the state of his country’s own finances and to his ability to sustain both his political and personal strength.

In the Dominican Republic, the loss of help from Venezuela would put the new Danilo Medina administration in a tough spot, particularly since Chávez’s patronage allowed the outgoing Leonel Fernandez administration to avoid painful belt-tightening, in particular, by bailing out the state-owned electricity company and keeping money flowing to privately owned generators who threatened to shut off the lights. If Chávez exits and Petrocaribe is cut off next year, Medina’s government will have to finally force consumers to pay for their electricity (or at least stop stealing it), and tap domestic financial markets or turn to international creditors to avoid leaving its people in the dark. Access to foreign financial markets can probably help the new government keep the lights on, but that will leave Medina’s government with less of the financial capital it needs to begin building its political capital.

For Nicaragua, the loss of Venezuelan aid would be much more serious. By some estimates, Venezuelan support amounts to 7-8 percent of Nicaragua’s GDP, a sum that has allowed President Daniel Ortega to subsidize electricity rates and public transportation, boost public sector wages, and finance lots of popular social programs. Ortega has few other friends he can turn to. US and European donors have scaled back aid amid accusations of electoral fraud and concerns that Ortega is running roughshod over Nicaragua’s fragile democratic institutions. Without help from his friend in Caracas, Ortega would probably have to make conciliatory moves toward skeptics in Washington and seek additional help from the multilaterals.

But, of course, no government would be harder hit by the loss of Chávez than the one in Cuba, where billions of dollars in infrastructure investment and 115,000 bpd of Venezuelan oil help the Castro regime go slow on economic reform while keeping a tight lid on demands for new political freedoms. With the collapse of its Soviet benefactor in 1991, Cuba entered what state officials still call the "special period," a time of extreme hardship and anxiety that brought the Castros as close to the abyss as they have ever been. The brothers are now in their 80s, and a replay of that era would almost certainly yield unprecedented pressure for change.

Since beginning a process of gradual liberalization in 2010, Raul Castro has taken two steps forward and one step back in his bid to cut public payrolls and allow for limited private enterprise. Without money from Venezuela, however, the Castro regime would likely be forced to push the pace of economic liberalization, making it more difficult to contain demands for political reform.

Venezuelan opposition leader Henrique Capriles has warned that his administration would end preferential oil deals for Chávez’s friends, which he estimates will save Venezuela about $6.7 billion per year. The Cuban government continues to hope that oil discoveries of its own in the waters around the island might ease the need for a foreign patron, but early exploratory wells have come up dry. Even if Cuba discovers significant amounts of recoverable oil, it will take years for production to come online. That may be more time than Chávez has left.

Though a physically robust Chávez would probably win in October, he has undergone three cancer operations in the past year, and we can’t know how long he might be strong enough to govern. We can say with confidence, however, that Venezuela cannot afford its president’s generosity indefinitely-and, of course, that no man lives forever.

Heather Berkman and Risa Grais-Targow are analysts in Eurasia Group’s Latin America practice.