LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Friday, May 12, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Friday, May 12, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Do Venezuela’s Colombia’s ELN Cargill Doesn’t Expect Joyce Chang Global Head of Research, Crises Spell Peace Deal Before JPMorgan Chase & Co. W. Bowman Cutter 2018 Elections Former Partner, Trouble for Cuba? The country’s second-largest rebel E.M. Warburg Pincus group, which is engaged in peace Dirk Donath talks with Colombia’s government, Senior Partner, Catterton Aimara said it does not expect a peace deal before next year’s presiden- Barry Featherman Senior Director, tial election. International Government Affairs, Page 2 Gilead Sciences Marlene Fernández Corporate Vice President for ECONOMIC Government Relations, Arcos Dorados Mexico Seeks Peter Hakim Closer Trade President Emeritus, Inter-American Dialogue Ties With Brazil Donna Hrinak A Mexican delegation is in Brazil President, Boeing Latin America Venezuela and Cuba have had close ties for more than a decade. Cuban President Raúl Castro, his Venezuelan counterpart, Nicolás Maduro, and Venezuelan First Lady Cilia Flores are to explore closer trade ties as part Jon Huenemann pictured last December in Havana. // File Photo: Cuban Government. of an effort to diversify trade away Vice President, U.S. & Int’l Affairs, Philip Morris International Since late President Hugo Chávez took power in Venezuela from the United States. Page 2 James R. Jones in 1999, the Andean nation and Cuba have had close ties. Chairman, ManattJones Global Strategies Those ties have included Venezuela sending oil to Cuba Q POLITICAL Craig A. Kelly on preferential terms and Cuba sending doctors and other Director, Americas International Venezuelan Health Gov’t Relations, Exxon Mobil professionals to Venezuela. Venezuela, however, is now beset by polit- John Maisto ical and economic crisis, including skyrocketing infl ation, shortages of Minister Fired Director, U.S. Education food and basic goods, and recent deadly protests. In which ways does Finance Group After Data Release Nicolás Mariscal Cuba still rely on Venezuela, and how important is that support to the Venezuela’s president fi red the Chairman, island nation? Is Cuba at risk of losing the support that Venezuela has country’s health minister, Antonie- Grupo Marhnos provided? To what extent has the thaw in relations between Cuba and the ta Caporale, after her department Thomas F. McLarty III released data showing startling Chairman, United States affected Cuba’s reliance on Venezuela? increases in infant mortality, McLarty Associates maternal mortality and some Carlos Paz-Soldan diseases. Partner, Carlos Saladrigas, chairman of the Cuba Study Group DTB Associates, LLP Page 2 Beatrice Rangel and Regis HR Group: “Upon Hugo Chávez’s rise to power, Director, Venezuela’s oil largesse was crucial in pulling Cuba out of the AMLA Consulting LLC doldrums of economic stagnation during the ‘Special Period,’ Gustavo Roosen A Chairman of the Board, which followed the loss of Soviet subsidies. The relationship that ensued Envases Venezolanos between the two countries, like the old Soviet arrangement, became an Andrés Rozental President, Rozental & economic arrangement that was not based on market fundamentals, but Asociados and Senior Policy Advisor, Chatham House rather on political goals and affi nity. Both allowed Cuba’s economy to Shelly Shetty exist on make-believe premises that masked its massive economic ineffi - Head, Latin America ciencies and own internal distortions. Although Chávez bought additional Sovereign Ratings, Fitch Inc. Roberto Sifon-Arevalo time for Cuba to reform and diversify its economy, fear of change, bureau- Managing Director, Americas cratic rigidity and lack of political consensus squandered the Venezuelan Sovereign & Public Finance Ratings, Standard & Poor’s resources and the opportunity for a more relaxed process of reforms. Since Raúl Castro became president, he has shown that he understood Caporale // File Photo: Venezuelan Government. Continued on page 3

POLITICAL NEWS most of whom are from Haiti, comes at a “very NEWS BRIEFS high fi nancial cost” for the Dominican Republic, Venezuelan Health EFE reported. “The Dominican Republic is and Colombia’s ELN Doesn’t always has been the most supportive of Haiti, Expect Peace Deal Before Minister Fired After understanding that the development of our neighbor mitigates the social pressure that 2018 Presidential Vote Release of Data their migration exerts in our country,” he said. Colombia’s second-largest rebel group, the The United Nations plans to replace the U.N. National Liberation Army, or ELN, on Thursday Venezuela’s president on Thursday fi red the Stabilization Mission in Haiti, or MINUSTAH, said it did not expect to reach a peace agree- country’s health minister, Antonieta Caporale, with a smaller organization that is focused on ment with the government before the 2018 just days after her department released health strengthening institutions, including commerce elections, Reuters reported today. The rebel data showing stark increases in statistics and citizen security. In an interview with the group also said the government has failed to including infant mortality and maternal mor- Latin America Advisor, Vargas said the Domin- address the issue of right-wing paramilitary tality. In Caporale’s place, President Nicolás ican Republic’s relations with Haiti under new groups. The ELN and the FARC held a joint Maduro appointed 43-year-old pharmacist Luis President Jovenel Moïse “are already going news conference in Havana to discuss their ap- López Chejade, the country’s vice minister of very well.” Vargas also told the Advisor that proaches to ending the country’s decades-long hospitals, El Universal reported. Health data re- other countries should intervene in an effort to armed confl ict. The ELN and Colombia’s leased Tuesday showed a 30 percent increase help remedy the political crisis in Venezuela. government are currently holding peace talks in in infant mortality in the Andean nation, as well “Regardless of whether one side has more guilt Quito, which are to restart on May 16. as a 66 percent increase in maternal mortality over another … we have to look for solutions,” and increases in diseases including diphtheria said Vargas. “We understand that the partic- and malaria. The announcement of the health ipation of other countries that are friends of Venezuelan Opposition statistics marked the fi rst time since 2015 Venezuela, in a general sense, could contribute that the government had released such data. It to fi nding a resolution mechanism that will Seeks Int’l Backing for came as Venezuela is grappling with a political return the country to the democratic agenda, ‘Democratic Agenda’ and economic crisis, which includes a shortage implementing and scheduling the pending Venezuela’s Democratic Unity Roundtable of basic goods, including food and medicines. elections, and also return legality to the current opposition coalition, or MUD, is asking other The shortages have led to more than a month government of Venezuela.” It is necessary to Latin American countries to pressure President of violent protests in Venezuela. acknowledge that Venezuela’s government “is Nicolás Maduro’s government to put in place a legitimately established and is the result of the “democratic agenda,” opposition leader Julio popular vote,” Vargas said. However, he said Borges said Thursday, Reuters reported. “It’s DR Foreign Minister the Andean nation “must respect its own laws, important—fundamental—that we get several and we should channel these laws to a process Seeks to Strengthen governments in the region to unite in the short that can contribute to a positive outcome for term to make sure in Venezuela there exists Ties in U.S. Visit Venezuela.” nothing other than a popular and democratic agenda,” said Borges said. Borges traveled to During a visit this week to the United States, Peru to meet with legislators and President the Dominican Republic’s foreign minister, Mi- ECONOMIC NEWS Pedro Pablo Kuczynski this week. guel Vargas Maldonado, met with offi cials the State Department, Organization of American States and Inter-American Development Bank Mexico in Talks and said he hopes to “strengthen and deepen” for Closer Trade Brazil Eyes Reforms political and commercial relations between for Power Sector his country and the United States, as well Relations With Brazil The Brazilian government is planning to launch as attract investment to his country. Vargas free-market reforms for the power sector, visited Washington following a stop in New A Mexican delegation of government and Energy Ministry Planning Secretary Eduardo York, where he met with U.N. Secretary General private sector representatives is on a three-day Azevedo said Thursday, Reuters reported. The António Guterres and discussed relations mission to Brazil, during which it has been in measures will reverse a 2012 power-sector between the Dominican Republic and neighbor- talks with Brazilian counterparts to create new overhaul by expanding unregulated power mar- ing Haiti. Vargas told Guterres that the process supply deals of corn, soy and rice and reduce kets and simplifying industry taxes, Azevedo of regularizing foreign residents in the country, dependence on U.S. trade, members of the said.

FEATURED Q&A / Continued from page 1 Mexican delegation said Thursday, Reuters reported. The general coordinator of international the dilemma, no doubt prodding him to However, neither Cuba’s benefi cial relation- affairs at Mexico’s Ministry of Agriculture, accept the re-establishment of relations with ship with Venezuela nor all of the above has Raúl Urteaga, said during the second day of the United States. Yet, his brother’s longevity resulted in an economic boom for the island. the mission that the main goal of the visit is to and lack of internal consensus paralyzed That will be impossible if we do not achieve expedite business contracts between the two or signifi cantly slowed the implementation a mixed economic model with monetary countries as Mexico seeks to diversify its trade of needed reforms. As Venezuela spirals vitality and an arbitrary but free market that ties beyond the United States. The long-term into collapse, nine years older, and with is sustained by the liberation of Cubans’ goal is to deepen an economic cooperation one year to go before he steps down, Raúl potential and an equitable development agreement between the two countries. “Both is now facing the prospect of leaving to strategy. But this fact does not succeed in sides are seeking better access to each other’s his successor the very economic quandary becoming government policy because it is markets,” Urteaga said. The visit comes as that he inherited—an economy on the brink suffocated by incapacities, rigidities and talks to renegotiate the North American Free of collapse. Like a recovering addict, Cuba a fear or powerful and infl uential sectors. Trade Agreement draw near. In an interview needs to recognize and accept the problem. This depends not on Venezuela, nor on any published Thursday in The Economist, U.S. Given the absence of potential new benefac- other individual country, but rather on Cuba President Donald Trump said he wanted to get tors, this reality shock might fi nally convince and the world, which can guarantee Cuba’s the U.S.-Mexico trade defi cit down to zero and Cuban leaders that there is only one way out. economic development.” renegotiate NAFTA to get a better deal for the Reform or death!” United States. He has threatened to rip up the Paul Hare, professor at the agreement entirely if he cannot negotiate what Roberto Veiga González, Pardee School of Global Studies he sees as a satisfactory deal. Mexican Econ- director of Cuba Posible: “The at Boston University and former omy Minister Ildefonso Guajardo on Thursday current relationship between A British ambassador to Cuba: said an upcoming visit by Mexican offi cials to A Cuba and Venezuela was “For more than 15 years, Cuba and Venezue- China will show the United States that Mexico conceived between Fidel Castro and Hugo la have not been two sovereign nations. They has other alternative trading partners if Trump Chávez. That political alliance and econom- are much more interdependent than that and decides to withdraw the United States from ic link benefi ted the island. Nevertheless, unique in the world. Cuban advisors have NAFTA, Reuters reported. “We will use [the Venezuela’s assistance to Cuba led Cuba themselves crafted much of Chávez’s and China visit] geopolitically as strategic leverage,” to dismiss opportunities for a strategy now Maduro’s policies. They are still active Guajardo said. “It sends the signal that we have capable of ensuring the country’s economic in areas such as intelligence, communica- many alternatives.” development. Meanwhile, the design of an tions and in creating the role of Maduro’s effi cient economic model was delayed, as feared ‘civilian’ militias. So we must assume was negotiation with international fi nancial that the disastrous results of Venezuelan BUSINESS NEWS institutions and Cuba’s potential insertion government policy are partly the result of into global chains of value creation—in short, Cuban advice. Fidel Castro saw Chávez as integration into the world economic system. his political protégé, but also an indefi nite Banco do Brasil Despite this, for some time there has been source of economic support. The Cuban Misses Estimates for an awareness of this mistake—even by parts medical and other personnel sent were to of the Cuban government. Never before cement a Soviet-type relationship. Maduro First-Quarter Profi t had Cuba so depended on a single country. scraped a win in the 2013 presidential Because of this, the government itself has election despite the wave of emotion after State-controlled Banco do Brasil on Thursday been trying to improve and diversify its eco- Chávez. Cuba got the message that Maduro reported a fi rst-quarter profi t before one-off nomic relations. It has negotiated part of its would likely stumble. The oil price collapse items of 2.52 billion reais ($794 million), external debt and is seeking integration into confi rmed this prediction, and Cuba began missing estimates amid a decline in interest regional (though not international) fi nancial making adjustments. Countries like Algeria and fee income, Reuters reported. Analysts had institutions. It has arranged oil imports and Russia are now supplying oil to Cuba, expected a quarterly profi t of 2.93 billion reais. from Angola, Algeria and Russia, re-estab- which is itself in recession. The Cubans will The bank’s actual profi t was 44 percent higher lished relations with the United States and know better than Maduro himself whether than in the fourth quarter and 96 percent higher approved a new investment law in order to he will survive. The key may be dissident than in the fi rst quarter of last year. The bank’s attract capital, technology and markets. offi cers in the military. Even if he does, Ven- write-offs of bad loans nearly tripled and de- Continued on page 4 faults over 90 days were higher than estimates.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 ezuelan largesse will not return to Cuba. And democracy and on Cuba-Venezuela linkages, Latin American countries see Cuba’s hands once it tackles the legacy of President Erik Brand all over the catastrophe unfolding. So far, Obama’s normalization of relations with Publisher [email protected] the new U.S.-Cuba relationship has not made Cuba. The previous administration largely much difference. Cuba sees political support gave the Castros a pass on Venezuela and Gene Kuleta Editor to Maduro as unconditional. And media on democratization. It may not be revalidat- [email protected] coverage has forced a reluctant Trump ed in the months ahead.” Nicole Wasson administration to comment. Meanwhile, Reporter, Assistant Editor no other country can replace Venezuelan Julia Buxton, professor of [email protected] subsidies for Cuba. They now must talk the comparative politics at the language of international business.” School of Public Policy of A Central European University in Ray Walser, retired U.S. Foreign Budapest: “The high point of Cuban-Ven- Michael Shifter, President Service offi cer and former ezuelan relations was reached during the Genaro Arriagada, Nonresident Senior Fellow policy analyst at the Heritage presidencies of Fidel Castro and Hugo Sergio Bitar, Nonresident Senior Fellow Joan Caivano, Director, Special Projects Foundation: “In the midst of the Chávez; a period when Venezuela was fl ush A Michael Camilleri, Director, Peter D. Bell Rule of Law worsening crisis, open coordination between with oil money. Close bilateral ties with Cuba Program Cuba and the Maduro regime continues in was part of a broader Venezuelan strategy of Kevin Casas-Zamora, Nonresident Senior Fellow ALBA, in maneuvering within CELAC and in building new multipolar relations—including Ariel Fiszbein, Director, Education Program efforts to undermine the readiness in the with China and Russia. In this context, Cuba Alejandro Ganimian, Nonresident Fellow OAS and its members to question the dem- was an economically small but ideologi- Peter Hakim, President Emeritus ocratic breakdown in Venezuela. Like Fidel cally and diplomatically salient partner for Claudio Loser, Senior Fellow Castro and Hugo Chávez, Raúl Castro and Venezuela, while for Cuba, Venezuela was a Nora Lustig, Nonresident Senior Fellow Nicolás Maduro are kindred authoritarian, lifeline—nearly 400 joint investment projects Margaret Myers, Director, China and anti-U.S. hardliners committed respectively signed during the Chávez presidency, access Latin America Program to the preservation of Cuban communism to imports of plastics and chemicals, and a Manuel Orozco, Director, Migration, Remittances & Development and Chavismo. Once a democratic, mid- market for Cuban exports. But this created Jeffrey Puryear, Senior Fellow dle-income country, Venezuela, with eager a new dependence for Cuba, with Venezuela Tamar Solnik, Director, Finance & Administration Cuban assistance, has become, so it ap- accounting for half of its total trade, while Lisa Viscidi, Director, Energy Program pears, ‘the Zimbabwe of the Western Hemi- conversely, Cuba represented just 5 percent Denisse Yanovich, Director of Development and sphere.’ Nonetheless, decision-makers in of Venezuelan trade. Chávez’s death was the External Relations Havana are skilled survivalists and are surely precursor of a downturn in relations. Madu- wary of being sucked into the whirlpool of a ro’s inept and dysfunctional drift has been a Latin America Advisor is published every business day, except for major U.S. holidays, bloody collapse of the Maduro regime. The serious concern for Cuban offi cials. Subsi- by the Inter-American Dialogue at stakes for Cuba are high. At risk is a back- dized oil shipments have more than halved— 1155 15th Street NW, Suite 800 Washington, DC 20005 lash against Castroite penetration into the but it seems Cuba long anticipated this risk. www.thedialogue.org marrow of the Bolivarian Revolution. Think This month, Russia shipped 250,000 barrels ISSN 2163-7962 the mysterious role of a Cuban overseers of refi ned crude to Cuba, following a $105 Subscription inquiries are welcomed at like Commandante Ramiro Valdés, support million deal between Cuba and Rosneft. We [email protected] for agents of repression, links to corrupt will likely see Russia move into the vacu- Venezuelan offi cials and even the true facts um that has been caused by Venezuela’s The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily surrounding Chávez’s cancer treatment and economic implosion and the inability of the represent those of the publisher. The analysis is the sole death. There are numerous rocks in need of United States to develop a coherent position view of each commentator and does not necessarily lifting in the most opaque and troublesome on Cuba. Pressure from the anti-Castro lob- represent the views of their respective employers or fi rms. The information in this report has been obtained from alliance in the Western Hemisphere. Vene- by—particularly noisy senators from Florida reliable sources, but neither its accuracy and completeness, zuelans are forced to deal with the mess the combined with a lack of strategy or staff nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, Chavistas and Castros created. Unclear is focused on Western Hemisphere affairs in contact the editorial offi ces of the Inter-American Dialogue. the readiness of the Trump administration Trump’s White House—perfectly positions Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permis- to focus attention on the fundamentals of Russia to resurrect an old friendship.” sion from the publisher.