Statistical information on Cuba may be hard to come by
and harder still to take at face value but even
with no numbers, there is little doubt that the country is in a
parlous state. Conversations on the economy in Havana
consistently feature comparisons with the so called
período especial that followed the fall of the USSR and
the end of Soviet subsidies and any comparison with
those dark days for Cuba bodes ill.
The consensus view from Cuba experts interviewed by
Emerging Markets, both on the island and abroad, is
that the country is languishing perilously close to economic
and social ruin, with no solution in sight.
The change of leadership in 2006, when Raúl Castro
took over from his brother Fidel as head of the government,
raised hopes that the countrys apparently inevitable
collapse would be halted. Expectations rose
quickly, says Eusebio Mujal-León, professor of
government and director of the Cuba XXI Project at Georgetown
University. But hopes outpaced the reality of change.
Raúl recognized that the 50-year embargo by the US,
both blocking trade with the country and isolating it, was
crippling Cuba. But he also acknowledged for the first time
that part of the problem was of Cubas own making. In a
public appeal to realism last July, he said: It is not a
matter of shouting Fatherland or Death; down with
Imperialism! The embargo is hurting us, yet the land just
lies there, waiting for our efforts.
There is talk of change and economic reforms. But real
change will require structural, rather than palliative economic
reforms most of which have been half-heartedly proposed
and implemented and certainly more than the mild shift
in posture that Raúl introduced.
Structural reforms must be matched by a rethinking of the
political economy and a serious injection of financing and
investment, says Omar Everleny, a senior economist at the
Center for the Study of the Cuban Economy in Havana. The
old model is done for; it cant be fixed, he adds.
We cant move forward with the same old
Raúls suggested reforms are shy of the urgent
overhaul needed. In part this is because Raúls
leadership has had to remain close to Fidels legacy, for
political as well as psychological reasons. But most
importantly this is due to the entrenched position that the
socialist structure of the political economy is non-negotiable.
The leadership wants to make some changes, but without
shaking things up too much, says Mujal León.
Concern within the government over retaining its slipping hold
on power still trumps the concern for economic improvement.
DROWNING BY NUMBERS
According to the Economic Commission for Latin America and
the Caribbean (ECLAC), the Cuban economy had a bad 2008, with a
slump in growth, an increase in the overall government deficit
to 6.7% of GDP, an increase of $1 billion in external debt, and
losses topping 20% of GDP from a string of hurricanes. This was
followed by a dismal 2009, when the governments GDP
growth estimate of 6% was revised downwards twice to an
official if hard to believe 1.4% by the end of
The balance of payments worsened again, as Cuba faced an
increase in the price of food imports and a decrease in the
value of its exports. This gave rise to a liquidity crisis that
translated into reduced access to credit and a severe
tightening of imports.
Capital spending decreased by 25% (on top of a drop of 40%
in 2008). Osvaldo Martínez, president of the Commission
for Economic Affairs of the National Assembly, says that
investment in enterprises will be reduced in 2010, too, as a
contribution to the planned reduction in the budgetary deficit.
This lack of investment leaves the country in worse shape by
The country also experienced difficulties in servicing its
debt and delayed payments due. The situation improved
marginally only towards the end of the year, when the central
bank authorized some overdue payments, on the condition that
the suppliers continued to do business with the country.
Meanwhile a dual currency system continues to create
inequality and aggravates the plight of those who only derive a
salary in national currency from the state.
On the street there is general agreement that things have
deteriorated over the last two years. Óscar Espinosa
Chepe, a prominent independent economist, says: There is
now less food in the supermarkets. And just look at all the
people milling in the streets all day long. Where is the 1.6%
FINDING THE FUNDS
The critical question is where Cuba will find the money to
survive the next couple of years.
Theres no help visible from abroad. Foreign direct
investment is said to be stable frozen is a better word.
Foreign companies working in Cuba instead report missed
payments due from the government and enormous difficulties in
repatriating profit, with bank accounts continuing to be
blocked in an attempt to stem the drainage of cash
Cuba is also running out of partners who can help.
Venezuela, Havanas biggest sponsor, is suffering from its
own economic crisis, which will limit president Hugo
China is a commercial and political partner, second only to
Venezuela, but is not seen as likely to do Cuba too many more
favours after extending $600 million in grants and loans in
Brazil is open to doing business, and the Brazilian
Investment Agency in Cuba was brimming with excitement during
the recent visit of its president Luiz Inácio Lula da
Silva. But concrete results, such as Brazils investment
in the port at Mariel, may not happen quickly enough.
Recent cooperation agreements with Libya and Singapore,
North Korea and Azerbaijan are also unlikely to provide Cuba
with the economic support it needs.
The most promising option for Cuba, says Everleny, would be
to access desperately needed funds and the expertise of the
multilateral development banks. He believes that such
assistance in principle could be forthcoming, although for now
Partly because of the countrys policies and partly
because of the US embargo, Cuba has no access to the very
institutions that could help it back on its feet.
Cubas predicament harks back to long-standing
The fundamental problem, says Jorge
Máttar, director of CEPAL for Cuba, is that the
levels of productivity and efficiency have not corresponded
with Cubas need to move forward. Put simply: Cuba
does not invest enough, nor produce enough, and consumes too
This situation has its roots in the heyday of Soviet
subsidies, and Cubas subsequent reaction as economic
support evaporated with the collapse of the Soviet Union.
Rather than focusing on growth or economic stability, the
government reacted to the blow by choosing to preserve wages
and full employment, via subsidies to state enterprises and the
provision of basic services such as ration cards for
food, free education, free health care. Between 1990 and 1993,
the countrys GDP shrank by 35%, the fiscal deficit
ballooned and the central bank financed it monetarily.
Things have improved since then, but the economy has never
fully recovered. Since Soviet subsidies ended, says
Máttar, Cuba has remained significantly undercapitalized
a problem compounded annually for 20 years. Its
infrastructure has grown obsolete and less productive.
Structural economic problems inherited during the 1990s
persist, embodied in the scarcity of hard currency, the
distortions in the pricing system that derive from the
overvaluation of the official exchange rate and the lack of
convertibility of the Cuban peso, the dual currency and the
segmented markets, the meagre performance of the sugar industry
and agriculture, and the inefficiency of public entities.
One structural reform that could revamp parts of the economy
laws allowing private ownership of property is
now being openly discussed. A major change is afoot, says
Chepe: Since the end of November, the official communist
paper Granma has been publishing letters from readers demanding
radical changes in the structure of property, and the defenders
of the status quo and of a supposed socialism.
Some official agreement has been forthcoming. In a country
where nearly every shop from the ice cream parlour to
the cinema is state-owned, it came as a shock when an
official report said, State companies must be efficient
and so must have resources to be so. The rest should adapt to
more adequate forms of property given the resources
Its typical in Cuba for controversial economic
changes to be spread in the form of rumours as a way to gauge
reactions before the government commits, says an
Rumours are raging, and there is speculation about moves to
privatize bakeries, garages and coffee shops. But, excepting
the talk, nothing of this sort has happened to date.
But one cannot look at the Cuban need for capital and
investment without looking at one of the most politicized
factors in the Cuban economy: the US embargo. It would be wrong
to believe that the embargo is the source of all Cubas
ills. But while lifting it would not change things overnight,
it is a condition precedent for Cubas significant
economic improvement, says Juan Triana, university professor
and one of the countrys foremost economists.
The embargo hurts Cuba in several ways. The most obvious is
the prohibition of trade with the US. That said, limited trade
exists. Cuba buys most of its agricultural imports from the US,
under an embargo modification made in 2000. But its a
one-way street Cuba cannot export north.
Even more biting is the impact on non-US corporations that
fear the consequences stateside of involvement in Cuba. Banking
giant ING pulled out of Cuba immediately after the US Office of
Foreign Asset Control placed its Cuba subsidiary on its ominous
black list of Specially designated nationals and blocked
persons, even though, sources report, Cuba was a
profitable market for the bank.
Triana points out a subtler, yet insidious consequence:
perfectly good economic policy will be trumped by embargo
posturing. All economic decisions in Cuba have to pass a
political scrutiny of their impact on relations with the United
States, and if they in any way advance the foreign interest,
they fail, he says.
But perhaps the worst consequence of the embargo is that so
long as the US blocks Cuba, the island will have no access to
any of the development banks and multilateral institutions.
These are the most likely to be able to provide the significant
capital injection that Cuba desperately requires. Their
involvement would also bring capacity building much
needed in a closed-off country that sees many of its brightest
Cubas protestations that its not interested in
membership in these institutions are disingenuous. The choice,
by now, is probably between joining or sinking alone. Even
Brazil, in a somewhat awkward move, advocated Cuban membership
in the IMF, and the Organization of American States accepted
Cuba for inclusion last year (though the inclusion was never
But the rhetoric of staunch independence lives on, reading
more pathetically every year. Even while delivering the bad
news of 2008s performance in front of the National
Assembly, Georgina Barreiro Fajardo, minister of finance and
prices, stubbornly stuck to the party line, dismissing
international financial help. We will not apply the
recipes imposed by the main international financial
organizations, aimed at eliminating the social programmes that
guarantee access to education, health, safety and social
The problem is that Cuba, without any prodding by the IFIs
(international financial institutions), has already failed on
all these guarantees, once hailed as socialist successes by
sympathizers around the world. On the ground in Cuba,
complaints about subpar education and bad medicine abound,
often accompanied by a melancholic smile.
THE FIRST MOVE
The inauguration of US president Barack Obama in January
last year revived hopes of change to the rules governing the
embargo. Yet little of what could have been done has been
implemented so far.
The delay is due, many suspect, to Obama having bigger
foreign and domestic problems to solve than relations with an
island of 11 million, says Mario González-Corzo, an
economics professor at the City University of New York.
But there is no reason to believe that Obamas initial
overtures to Cuba allowing increased travel for
Cuban-Americans to the island and easing restrictions on
remittances should not continue. But any further steps
will require a degree of willingness on both sides to play
ball, which has yet to be seen.
Rafael Hernández, a politologist and prominent Cuban
intellectual, doubts any opening: It is baffling that
there would be any expectations with respect to Obama, in a
country that has experienced the effects of other democratic
presidents, from Kennedy to Clinton.
Non-economic issues such as human rights, or the release of
five Cuban citizens held in the US and proclaimed heroes in
Cuba, cloud even the most pragmatic conversation on bilateral
aperture. The driver for change will have to be the
US, says a former official of the Cuban Ministry of
Foreign Affairs, suggesting that Cuba, for political reasons,
will not make the first move. If the US found a way to
relax the embargo, then Cuba would find it hard to justify an
obstinate stance to its population.
While the US has been unreasonable in its Cuba policy ever
since its first assassination attempt on Fidel Castro, both
parties need to take conciliatory steps. They missed a chance
in February when US and Cuban diplomats met in Havana to
discuss migration issues. The session was torpedoed, said the
minister of external relations, by the US calling in
dozens of its mercenaries... in line with the support for the
counter-revolution and the promotion of subversion.
Whatever that might mean, thats not the way to go.
The revolution continues. But each bickering is a lost
opportunity for change in a country that desperately needs