Shortages plague Cuba as U.S. sanctions sharpen economic woes

FILE PHOTO: People buy chicken in a supermarket in Havana, Cuba May 13, 2019. REUTERS/Sarah Marsh

By Sarah Marsh

HAVANA (Reuters) – Israel Hidalgo and his wife left home around 7:30 a.m. to reach a supermarket across Havana, Cuba because they heard it might be selling chicken, a staple of the Cuban diet increasingly scarce on the shortage-plagued island.

After Cuba started limiting sales this month, partly blaming tightened U.S. economic sanctions on the Communist-run island, the couple wanted to buy as much as possible and lined up for three hours under the Caribbean sun to get tickets guaranteeing them their rations.

Inside, they lined up again to collect two bags of chicken thighs each, as fellow shoppers elbowed one another in pursuit of their own rations, and headed for the checkout feeling like they had won the lottery.

“We were born in this revolution and are used to rough times,” said Hidalgo, a 61-year old blacksmith. “We are bracing ourselves for it to get worse.”

Long lines outside shops with mostly bare shelves are increasingly common in Cuba, and the government has indeed signaled that things are going from bad to worse.

Cuban President Miguel Diaz-Canel, in a speech last month, accused the Trump administration of engaging in an “asphyxiating financial persecution that makes the import of goods and resources of primary necessity particularly difficult.”

The degree to which new U.S. sanctions, due in part to Cuba’s support for Venezuelan President Nicolas Maduro, have compounded its economic woes is open to debate.

The economy had already stagnated in recent years in tandem with the implosion of strategic ally Venezuela, resulting in cuts in fuel and energy use by state entities and this year shortages of basic goods such as bread, chicken and eggs.

But the increase in sanctions, which have hit the key tourism sector and added to investor and bank jitters about dealing with Cuba, has some economists predicting the economy will slip from stagnation into a full-blown recession later this year.

The economy has averaged 1% annual growth over the last three years, compared with the 5% to 7% rate economists say is needed to recover fully from the depression caused by the fall of its former benefactor, the Soviet Union, in 1991.

“While the crisis will not be as bad as in the 1990s, it will have a worrying social impact on the most vulnerable households, which are already on subsistence salaries,” said Pavel Vidal, a former Cuban central bank economist who teaches at Colombia’s Universidad Javeriana Cali.

Bracing for harder economic times, the government has resorted to what it knows best to manage the crisis and prevent social unrest: more control.

Interior Commerce Minister Betsy Diaz said two weeks ago the government would “temporarily” ration sales of a handful of basic products like eggs on a monthly basis, using ration books distributed after the 1959 Revolution, and limit the sale of others like chicken to ensure everyone gets their fair share.

“A CRITICAL MOMENT”

Some Cuban economists say the developing crisis stems fundamentally from an inefficient centrally-planned economy that imports more than two thirds of its food needs. Calling rationing little more than a short-term solution, they say the government must open up to a series of market-oriented economic reforms before the crisis deepens.

“This could be a critical moment that generates the consensus necessary to apply changes,” said Vidal. “The government needs to give more space to the private sector and investment.”

Cuba has enacted some economic reforms in recent years, including expanding the private sector from 2010 onward and introducing a new foreign investment law that cut taxes by around 50% in 2014.

But local economists like Omar Everleny say the reforms undertaken have been too cautious so far. The government has backtracked on overhauls of areas like agriculture and the dominant public sector remains deeply inefficient.

Cuba was already behind on an estimated $1.5 billion (£1.1 billion) in short-term commercial debt and warning of austerity before U.S. President Donald Trump started the latest round of tightening of the decades-old U.S. trade embargo.

Aid from Venezuela, in the form of subsidized oil, had long masked the true extent of Cuba’s economic problems, but it started to fall from 2015 when a drop in oil prices roiled that OPEC nation’s economy.

Venezuela’s crude shipments to Cuba are now about half what they were four years ago, and they could soon fall further. Last month, the United States also began targeting vessels and companies that ship oil to the island from Venezuela for sanctions, threatening the energy grid and transportation.

U.S. sanctions against its old Cold War foe are also hitting the two bright spots in the otherwise glum economy: tourism and foreign investment. Both had boomed briefly after the announcement of a Cuba-U.S. detente in 2014.

Tourism revenues dropped by 4.6% in 2018, according to official data released last month. The announcement in 2017 of tighter travel restrictions on U.S. citizens played a role.

“At one point U.S. visits dropped more than 40 percent,” Cuban Tourism Minister Manuel Marrero told Reuters, adding he still hoped tourism would grow this year.

Meanwhile the Trump administration has activated a long dormant law under which Cuban-Americans can sue foreign companies that profit from their properties nationalized during the first years of the 1959 Revolution.

Western diplomats and businessmen have called the threat of potentially costly U.S. court battles another clear disincentive for banks and outside investors to do business with Cuba.

The United States has also threatened to further tighten restrictions on travel and to impose a cap on cash remittances to Cuba, measures that could hit the economy hard.

SIEGE MENTALITY

Cuba’s government has said it will continue moving down the path toward reform. But it has failed to respond so far to calls from the island’s entrepreneurs for basic changes such as the creation of wholesale markets for the private sector, and the right to import and export.

Instead of opening the economy further, some Western diplomats and analysts say there is risk Cuba’s leadership will adopt a siege mentality in the face of increased U.S. hostility. That could mean turning to allies like Russia, Vietnam and China for help to muddle through while keeping its stranglehold on economic life.

“The U.S. sanctions could be counterproductive,” said one diplomat who asked not to be identified. “Cuba has historically closed up at times like these.”

Cubans are not going hungry like they did during the so-called “Special Period” after the collapse of the Soviet Union. But they are increasingly connected to the rest of the world via the internet and foreign travel, and many have grown weary of government attempts to blame the U.S. embargo for the bulk of their country’s woes.

“We are in total freefall,” said Hidalgo’s wife, Carmen Lozano, 55, clinging to her two bags of rationed chicken. “They should have allowed free production and sales from the beginning of the revolution.”

Inequality has risen in recent years in Cuba and many believe the economic crisis could have a more disproportionate impact now than it might have in the past.

In a country where the government’s claim to legitimacy rests to a large extent on ensuring a certain level of equality, the authorities seem well aware that most people lack the cash to stock up on whatever basics they need on the black market.

“The government’s new rationing program is trying to address that simmering discontent by making the small quantities of goods that are in stock more widely available,” said William LeoGrande, a professor of government at American University.

“The government understands that discontent over the economy is their biggest political vulnerability so they will do everything they can to maintain supplies of basic goods.”

(Reporting by Sarah Marsh; Additional Reporting by Marc Frank and Nelson Acosta; Editing by Daniel Flynn and Tom Brown)

Crowds see off Venezuela convoy headed to Colombia border for aid

Venezuelan opposition leader Juan Guaido, who many nations have recognized as the country's rightful interim ruler, attends a news conference to mark the 5th anniversary of the arrest of the opposition leader Leopoldo Lopez in Caracas, Venezuela February 18, 2019. REUTERS/Manaure Quintero

By Angus Berwick and Vivian Sequera

CARACAS (Reuters) – Venezuelan opposition leader Juan Guaido left Caracas with some 80 lawmakers on Thursday on a 800-km (500-mile) trip to the Colombian border where they hope to receive food and medicine to alleviate shortages in defiance of President Nicolas Maduro.

Crowds formed alongside a main highway out of the capital, waving Venezuelan flags and whooping in support, as the convoy of buses departed.

Guaido, recognized by dozens of countries as Venezuela’s legitimate head of state, has pledged to bring in the humanitarian aid by land and sea on Saturday. Guaido invoked the constitution to assume an interim presidency on Jan. 23 and denounces Maduro as an usurper.

“Through this call for humanitarian aid, the population will benefit from the arrival of these goods to the Venezuelan border,” said opposition legislator Edgar Zambrano, as he waited to board a bus in a plaza of eastern Caracas.

Maduro’s beleaguered socialist government denies there is an economic crisis in Venezuela and has said soldiers would be stationed along the country’s borders to prevent potential incursions.

He accuses the Trump administration, which recognizes Guaido and is supporting the relief effort but has levied crippling sanctions against his government, of seeking to force his ouster.

Guaido still has not provided details on how they will bring in the aid. Opposition figures have suggested forming human chains across the Colombian border to pass aid packages from person to person and fleets of boats arriving from the Dutch Caribbean islands.

The United States has sent tons of aid to Colombia’s border with Venezuela, which Maduro has mocked as a “cheap show.” Maduro’s vice president, Delcy Rodriguez, has alleged the aid is poisonous and could lead to cancer.

On Wednesday, Maduro’s socialist administration said it had closed the country’s maritime border with the Dutch Caribbean islands of Aruba, Curacao, and Bonaire after Curacao’s government said it would help store aid destined for Venezuela.

Colombia expelled five Venezuelans from Cucuta for “carrying forward activities which attack citizen security and social order,” its migration agency said in a statement late on Wednesday.

“We know there is interest by the Maduro dictatorship in affecting national security because of coming events,” agency director Christian Kruger added in the statement.

(Reporting by Angus Berwick and Vivian Sequera; Additional reporting by Julia Symmes Cobb in Bogota; Editing by Bernadette Baum, Bill Trott and Sonya Hepinstall)

Exclusive: As Venezuelans suffer, Maduro buys foreign oil to subsidize Cuba

FILE PHOTO: A general view of the Amuay refinery complex which belongs to the Venezuelan state oil company PDVSA in Punto Fijo, Venezuela November 17, 2016. REUTERS/Carlos Garcia Rawlins/File Photo

By Marianna Parraga and Jeanne Liendo

HOUSTON (Reuters) – Venezuela’s state-run oil firm PDVSA has bought nearly $440 million worth of foreign crude and shipped it directly to Cuba on friendly credit terms – and often at a loss, according to internal company documents reviewed by Reuters.

The shipments are the first documented instances of the OPEC nation buying crude to supply regional allies instead of selling them oil from its own vast reserves.

Venezuela made the discounted deliveries, which have not been previously reported, despite its dire need for foreign currency to bolster its collapsing economy and to import food and medicine amid widespread shortages.

The open-market oil purchases to subsidize one of Venezuela’s few remaining allies underscores its increasing global isolation and the disintegration of its energy sector under socialist President Nicolas Maduro.

The purchases came as Venezuela’s crude production hit a 33-year low in the first quarter – down 28 percent in 12 months. Its refineries are operating at a third of capacity, and its workers are resigning by the thousands.

(For a graphic on Venezuela’s rising oil imports and falling exports, see: https://tmsnrt.rs/2wHCTUF )

PDVSA bought the crude for up to $12 per barrel more than it priced the same oil when it shipped to Cuba, according to prices on internal documents reviewed by Reuters. But Cuba may never pay cash for the cargoes because Venezuela has long accepted goods and services from Cuba in return for oil under a pact signed in 2000 by late presidents Hugo Chavez and Fidel Castro.

PDVSA, the Venezuela government and the Cuba government did not respond to requests for comment.

Venezuela’s government has previously said it only imports oil to blend with its own tar-like crude to improve quality and create an exportable product, or to feed its refinery in Curacao. But hundreds of PDSVA documents examined by Reuters detailing imports and exports, dated from January 2017 to May of this year, show the company is now buying crude at market prices to deliver to allies – in shipments that never pass through Venezuela.

The subsidized deliveries are aimed at maintaining political support from Cuba, one of a dwindling group of Venezuela allies, according to diplomats, politicians and PDVSA executives.

“Maduro is giving away everything he can because these countries’ backing, especially from Cuba, is all the political support he has left,” said a former top Venezuelan government official who declined to be identified.

Caracas has come under increasing international pressure as the United States, the European Union and Canada have sanctioned Venezuela for what they see as Maduro’s attempts to cement a dictatorship.

As Venezuela spends on oil imports, it has imported less of everything else its citizens desperately need. Venezuela’s spending on non-oil imports plunged from nearly $46 billion in 2011 to $6 billion in 2017, according Venezuela Central Bank data and Ecoanalitica, a Caracas-based economic research organization.

The oil PDVSA procured for Cuba was Russian Urals crude, the documents show, a variety well-suited for Cuban refineries constructed from Soviet-era equipment.

PDVSA bought the crude from Chinese, Russian and Swiss firms – not for cash, but a pledge that PDVSA would deliver other oil shipments later, the documents show.

That adds to Venezuela’s already towering debts of oil to state-owned firms in Russia and China, which together have extended Venezuela’s government more than $60 billion in oil-for-loan deals that have propped up its budget amid declining exports and lower oil prices.

“It’s nonsense to import oil to keep subsidized exports flowing,” said Ecoanalitica President Asdrubal Oliveros.

PETRO-DIPLOMACY

Venezuela’s socialist government has long used oil for domestic and international political ends, subsidizing goods and services at home and currying favor across the region with oil deliveries on generous terms.

Venezuela’s oil supply arrangements have helped soften international political censure of Maduro’s government.

The Organization of American States (OAS), which includes most Western Hemisphere nations, last year took up a motion seeking to pressure Venezuela to hold free elections, liberate political prisoners and declare a humanitarian crisis.

The effort was defeated when 12 countries that have received regular oil shipments from Venezuela in recent years – about a third of the OAS membership – opposed it or refused to vote. Eventually, the OAS passed a watered-down motion urging free and fair elections.

Venezuela has avoided formal OAS condemnation “thanks to the support of the bloc of Caribbean nations that have benefited from its subsidized oil and development programs for years,” said Michael Fitzpatrick, deputy assistant secretary in the U.S. State Department’s Bureau of Western Hemisphere Affairs, said on April 30 during a talk at the Atlantic Council, a foreign policy think tank in Washington.

Most of those countries are members of Venezuela’s Petrocaribe trade pact, launched in 2005, which has granted up to 16 Caribbean and Central American states with oil supplies on favorable terms.

OAS President Luis Almagro declined to comment through press office representative Monica Reyes.

El Salvador’s Economy Minister, Luz Estrella Rodriguez, said Petrocaribe and other pacts promoted by Venezuela had played an important role in her country’s development.

“Our country is very grateful,” she said. “The government of El Salvador, of course, is a friend and an ally of the Venezuelan government.”

El Salvador refused to vote last year on the OAS motion to condemn Venezuela.

Venezuela also supplied fuel last year to Nicaragua, the Dominican Republic, Haiti and Dominica, the documents show.

In total, members of oil trade pacts with Venezuela last year received at least 103,000 bpd of crude and refined products from PDVSA, the documents show, or about 6 percent of Venezuela’s exports.

FALLING OUTPUT, SHRINKING IMPORTS

The falling output of Venezuela’s refineries has also left the country increasingly dependent on fuel imports to meet domestic consumption.

The internal PDVSA data reviewed by Reuters shows Venezuela last year purchased some 180,000 barrels per day of foreign crude and refined products from PetroChina, Rosneft, Lukoil, Reliance Industries and other suppliers, 17 percent more than in 2016.

Those companies did not respond to requests for comment.

The purchases totaled more $4 billion, according to PDVSA records.

Last year, total oil-industry purchases, including equipment and services, consumed 45 percent of Venezuela’s total import spending, up from 13 percent in 2011, Ecoanalitica data shows. Energy imports totaled $5.4 billion out of $11.9 billion.

The resulting scarcity of food, medicine and employment has caused thousands of citizens to flee Venezuela. The pay of PDVSA workers now can’t cover the barest essentials because of the collapse of its currency, the bolivar.

“A worker’s salary is not even enough for a box of eggs,” said Hector Bertis, a PDVSA worker and union leader. “We go to the bank, and they give us 10,000 bolivars – less than what a transportation fare costs.”

(Reporting by Marianna Parraga in Houston and Jeanne Liendo in Calgary; additional reporting by Alexandra Ulmer in Washington, Paula Rosales in San Salvador and Gary McWilliams in Houston; Editing by Gary McWilliams, Simon Webb and Brian Thevenot)

Shortages of Drugs Globally

A pharmacy employee dumps pills into a pill counting machine

By Ben Hirschler

LONDON (Reuters) – Philip Aubrey buys medicines for British government-funded hospitals across London, capital of the world’s fifth-largest economy, but last year he struggled to secure supplies of a basic AIDS drug.

He is not alone. Shortages of essential drugs, mostly generic medicines whose patents have long expired, are becoming increasingly frequent globally, prompting the World Health Organization (WHO) to suggest minimum prices may be needed to keep some products on the market.

Drug shortages are due to a variety of factors from manufacturing, quality and raw material problems to unexpected spikes in demand, but such upsets are aggravated when there are few suppliers.

“It can be really problematic,” said Aubrey.

The rise in shortages has gone hand in hand with a wave of consolidation among the companies making generic drugs – which range from global pharmaceutical giants to smaller firms in countries such as India – reducing the number of manufacturers making individual product lines.

Downward pressure on generic drug prices is good news for healthcare systems in the short term, but it may fuel disruption if a supplier hits production problems. While the lack of a patent means other suppliers could also make the same drug, they would still need regulatory approval and that can take years.

The result, according to experts, is a worryingly fragile supply chain, particularly for injectable medicines such as chemotherapy treatments and certain antibiotics.

Benzathine penicillin, for example, a vital drug for preventing transmission of syphilis from mother to child, has been in short supply for years because of manufacturing problems, inconsistent demand and a relatively low price.

“Medicines can be too cheap,” said Hans Hogerzeil, professor of global health at Groningen University in the Netherlands and a former director for essential medicines at the WHO. “For a viable market model you need at least three and preferably five different manufacturers.”

The idea of minimum prices for certain essential medicines contrasts sharply to traditional pricing debates about how to reduce the sky-high cost of new patented drugs for diseases such as cancer and hepatitis C.

Drug shortages will be discussed as a specific topic for the first time at this year’s WHO World Health Assembly in May, and U.S. and European regulators told Reuters more needed to be done to address the problem.

Shortages in the United States hit a peak in 2011 due to manufacturing outages, yet the American Society of Health-System Pharmacists still lists 155 products as being in short supply.

The European Association of Hospital Pharmacists says more than four out of five of its members face regular shortages, while doctors in Canada have been grappling this year with tight supply of a widely-used epilepsy drug.

COUNTERFEIT RISK

Shortages in developing countries can go unreported for months or even years, increasing the risk of counterfeits entering the supply chain, according to Lisa Hedman, a procurement and supply chains expert at the WHO.

Hedman was an author on a WHO report released earlier this year setting out possible ways to tackle the problem.

These include a global notification system for supply problems, increased collaboration between regulators and potential advanced purchase commitments for priority drugs, as well as action on pricing.

Low-cost generic manufacturing has produced huge benefits in increasing drug affordability but the report warned: “Too low prices, however, may drive manufacturers out of the market.”

Valerie Jensen, associate director of the U.S. Food and Drug Administration’s drug shortage program, believes global action could complement national measures, such as a new FDA policy to speed reviews of generics competing with only one other product.

“We know that internationally this is a problem and we need to think of ways to address it,” she said.

Drug regulators themselves have limited scope for action, since while they can keep a drug off the market, they cannot require a company to make a product.

“We need to sweet talk manufacturers to get them to think about best practices,” said Brendan Cuddy, head of manufacturing and quality compliance at the European Medicines Agency.

Brendan Shaw, assistant director general at the International Federation of Pharmaceutical Manufacturers and Associations in Geneva, argues that recognising the need to keep generic drugmakers financially viable is essential.

“Companies don’t like stock-outs either, so it is in everyone’s interest to find a way forward,” he said.

In London, medicines buyer Aubrey has now resolved the supply difficulties he faced over the HIV/AIDS treatment nevirapine, after one generic supplier eventually fixed its production problems, but he is still struggling to get supplies of other important drugs.

These include the bladder cancer therapy BCG and even diamorphine, or heroin, the powerful painkiller sometimes given to end-stage cancer patients.

As the man holding the purse strings, Aubrey needs to get a good deal on price but he worries that a couple of hundred medicines in Britain now have only one supplier.

“We need a balance,” he said. “It’s not good news if there is a shortage and patient care is compromised.”

(editing by David Stamp)