May 12, 2016 / 8:47 PM / 2 years ago

Rousseff's fall in Brazil casts cloud on Cuba

HAVANA/BRASILIA (Reuters) - Brazilian President Dilma Rousseff’s suspension from office is bad news for newly trendy Cuba, which despite a detente with Washington is feeling the pinch from a downturn ravaging allies’ economies and political fortunes in South America and Africa.

Brazil's President Dilma Rousseff (L) and her Cuban counterpart Raul Castro stand aboard a tour bus during the inauguration of a port in Mariel on the outskirts of Havana in this January 27, 2014 file photo. REUTERS/Claudia Daut/File Photo

Friends such as Venezuela, Brazil and Angola for years used revenue from a commodities boom to pay for Cuban medical and educational services, turning it into the communist-run island’s main source of hard currency.

President Raul Castro’s detente with the United States has helped drive up tourism to record highs but income from the influx of foreign visitors were only about one-third of the $7 billion from health and education exports in 2014.

Over the last 13 years, Brazil’s leftist governments also provided at least $1.75 billion in credit on favorable terms, drawing fire from opponents who are also angered by a program that put 11,400 Cuban doctors to work in Brazil.

Those projects will now be re-examined after Brazil’s Senate voted on Thursday to put Rousseff on trial for breaking budget laws. She is now suspended from office while the trial takes place in coming months, and a likely conviction would end her presidency.

”There will be a short-term review of our Cuba policy, because the money has run out and because there are some serious governance questions regarding the loans. Everything will be put on hold,” said a Brazilian diplomat who served in Havana.

Some of Brazil’s loans bankrolled a major expansion project at Cuba’s Mariel port with 25-year repayment periods and rates of between 4.4 percent to 6.9 percent, Brazilian data shows. Critics say the terms are too generous given Cuba’s poor credit history.

Support from a bloc of leftist governments in Latin America since the turn of the century helped Cuba get back on its feet after the collapse of the Soviet Union caused a massive economic crisis in the 1990s. Improving relations with the United States and Europe hold the promise of new revenue, but for now Cuba’s economy will suffer as the tide turns against allies.

Centrist politician Michel Temer took over as interim president in Brazil on Thursday. His government is not expected to send home the Cuban doctors working in Brazil since 2013-14 but it will not hire any more.

“Obviously there will be no more Cuban doctors coming here in the future, because this model of assistance is questionable and there won’t be support for it, but I doubt any Cubans doctors will be booted out,” said the diplomat, who asked not to be named because he was not authorized to speak on the matter.

Senator Ronaldo Caiado, a leader of the Democrats party inside Temer’s coalition government, said the doctors should stay, but money paid to Cuba, approximately $500 million in 2015, should stay in Brazil and be paid directly to the medics.

Last month, Rousseff extended the medical services contract for another 3 years, but it has to be approved by Congress and might run into trouble with lawmakers critical of the terms first signed in 2013.

The doctors work in some of Brazil’s remotest regions, winning support of local mayors. That support, and municipal elections in October, might make Congress think twice about abruptly ending the program.

Cuba’s biggest doctors abroad program is with oil exporter Venezuela in exchange for crude and money, where collapsing crude prices have triggered economic chaos. Those shipments are stable at around 90,000 barrels a day.

CASH FLOW

Cuba has already tightened its belt. The government began cutting imports and asking for longer payment terms from foreign suppliers last year and has been late meeting its obligations this year, according to Western diplomats and businessmen.

“They clearly have a cash flow problem. Some of our companies are being paid and others are not,” a European ambassador said on Monday.

The government has said it expects economic growth to slow in 2016 from 4 percent last year.

Brazil’s government says it paid Cuba more than $500 million for the doctors’ services in 2015, and another $100 million went to the doctors themselves.

Rousseff is not the first leftist ally Cuba has lost in the past year. Argentina’s leftist Peronists lost power at the last election in November. And there are deep concerns in Cuba over political stability in Venezuela, where President Nicolas Maduro is struggling with a deep recession and a stronger opposition.

“Latin America and the Caribbean are feeling the effects of a strong and well planned counter offensive by the imperialists and oligarchy,” Cuban President Raul Castro charged last month at a gathering of Communist Party leaders.

Nevertheless, he has worked in recent years to broaden Cuba’s circle of friends by putting behind decades of hostility with Washington and improving its reputation with creditors.

“The crises in these Latin American countries just underscores Raul’s decision to normalize relations with the United States, to come to terms with Western creditors and sign a cooperation agreement with the European Union,” said Bert Hoffman, a Latin American expert at the German Institute of Global and Area Studies.

Additional reporting by Marianna Parraga in Houston; Editing by Sarah Marsh and Kieran Murray

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