After several tough years, the Cuban economy in 2011 started
to show signs of recovery. Following a wave of reforms seeking
a mild opening of the economy, and renewed, if limited,
attention from international partners, some took this as cause
for hope that things might be looking up for the island
Yet the challenges for the small and isolated enclave of
socialism in the Americas remain daunting.
Faced with crippling foreign debt following the liquidity
crisis of 2008 and 2009, Cuba found itself in need of a drastic
overhaul. Already bare-bone, imports were slashed a further
38%, and government spending was cut back.
But this last crisis finally prompted the state to enact its
first series of serious economic reforms in six decades. As
Cubas outdated economic model is generally considered to
be the real reason of its economic ills, any kind of progress
in the model is an improvement.
Observers had anticipated that Raúl Castro, after
taking over the reins from his brother Fidel in 2006, would
herald a period of transition. But early attempts at reform
were stymied, and Raúl did not prove to be a stalwart of
change. His early criticisms of the Cuban economy did not
materialize into effective policy. Moves towards openness and
away from the almost absolute control by the state of economic
activity didnt happen.
Real change started to take place in 2011, when Raúl
pushed for the long-delayed Sixth Congress to adopt a series of
economic action points ranging from a slashing of the bloated
state payroll and a sliver of openness to private enterprise,
to private ownership of real estate and greater freedoms in
The reforms are moving Cuba in the right direction
and, as compared to previous measures, they are concrete
measures. According to Armando Linde, former president of the
Association for the Study of the Cuban Economy (ASCE), unlike
in the past: the current reforms are not merely to
appease possible Castro-fatigue in Cuba. They are doing it
because they feel that their model has been
Richard Feinberg, a non-resident senior fellow of the
Brookings Institution and author of a recent major report on
Cuba, notes that the reform process, which is still
cautious, is accelerating.
This positive impression of the states intentions is
accompanied by a widespread sentiment that the reforms still do
not go far or fast enough. Others, such as Arch
Ritter, a Canadian academic at Carleton University and an
expert on the Cuban economy, voice concerns over the
feasibility and the implementation of the 300-odd main
lines of reform.
Cuban economist Oscar Espinosa Chepe, a frequent critic of
the state, welcomes the reforms but also notes that the
government has already fallen short on its proposed
Omar Everleny, a professor as well as director of the
prominent Center for the Study of the Cuban Economy in Havana,
sounds a more positive note: The option given by the
government is a good one: a gradual approach, that is to say,
every few months a new measure is implemented.
A case in point is the reduction of the state employee
rolls: the plan called for the dismissal of half a million
workers in the states employ by the end of 2011.
According to Carmelo Mesa-Lago, a respected scholar of the
Cuban economy, only some 100,000 have been dismissed so far.
Without the sudden creation of jobs in the private sector, the
firing of so many state employees would have resulted in an
unemployment rate of 22%, says Mesa-Lago.
With significant limitations on alternative employment for a
population used to monopolistic state employment, change has to
But the resurgence of economic activity is evident,
particularly in the capital, and there is little doubt that
Cubas internal economy has received a positive push by
allowing private micro-enterprise.
Real GDP growth is expected to reach 2.5% in 2012.
But limitations remain in terms of the scarcity of
productive inputs, from flour to fertilizer, an uncertain new
taxation scheme, and the strangulation of any enterprise that
goes beyond a handful of employees.
Agriculture, another sector that has suffered tremendously
in the last years, is showing signs of recovery in the official
figures. This should be spurred further by easing restrictions
on independent agricultural production and sale of farm
produce. There is talk of making agricultural credits available
as well as providing raw materials, such as seeds and
fertilizers, that were previously accessible only to state
But national production across the board remains dismal.
Cuba manages its trade deficit in goods only by exporting
services, principally in the form of doctors and nurses, to
Venezuela and other friendly countries.
Cubas dependency on Venezuela creates problems of its
own. Venezuela now counts for 40% of Cubas hard currency
from trade, and its share in Cubas total trade deficit
has risen to 42%, according to Mesa-Lago. Cuba is still reeling
from the impact of the end of Soviet subsidies and many believe
that if Venezuelas policies vis-à-vis Cuba were to
change, the island would likely suffer another tremendous
Venezuelas elections, scheduled for October, have
raised the possibility, however slim, that Chávez could
be unseated, not least following his diagnosis with cancer.
Cuba is going to be in trouble if there is a change of
regime in Venezuela, says Ritter. With a regime
change in Venezuela, which looks like a possibility, Cuba may
lose its massive indirect quasi-subsidization through the
purchase of these medical services.
Nor is there any imminent rescue from other parties in
sight. Chinas credits are reportedly limited to
commercial purchases of Chinese goods (Cuba does not officially
publish such figures). Foreign direct investment is still low
after the scare from the 200809 liquidity crisis, which
caused investors to flee as the government froze foreign
companies bank accounts and limitations emerged on the
repatriation of proceeds.
At the institutional level, Brazil is a potential partner
for Cuba in the coming years. Lulas seminal visit in 2010
was followed by a three-day visit from president Dilma Rousseff
early this year. The economy featured at the core of the
discussions, reinforcing Brazils presence on the island,
with interests that range from a successful tobacco joint
venture, Brascuba, to Brazils $640 million contribution
to the renovation of one of Cubas main harbours.
Brazils interests in Cuba are far less ideological
than those of Venezuela. Brazils knowledge and
investments in sugar cane and its derivative ethanol could
revive Cubas sugar industry, for example. But the
interest is also geopolitical, as Brazil aims to assert its
diplomatic influence over the continent.
The prospect of oil revenues is another reason for hope that
Cuba can earn much-needed hard currency. Exploration began
earlier this year for offshore oil extraction in Cubas
waters. While the discovery of drillable reserves would be a
godsend to the Cuban economy, any financial rewards would not
come for another four or five years.
Cuba cant afford to wait that long on the economic
sidelines the reforms will have to prove effective in
spurring internal growth quickly if Cuba is to avert another
NOT SO SPLENDID ISOLATION
Beyond all this lies the fact that Cuba is still cut off
from all international financial institutions (IFIs).
Cuba cant be the only country out of some 200 that
doesnt belong to any of these institutions, says
Everleny. To the extent that Cuba is changing its economy
and is establishing better relations with other countries in
Latin America, why should Venezuela be a part of these
international institutions but not Cuba? Why Ecuador, Bolivia,
The notion that Cuba should become a member in IFIs is
gaining traction. Feinbergs recent seminal paper,
published by the Brookings Institution, analyses the
feasibility of Cuba joining the IFIs, and was read with
interest in Cuba.
Feinberg outlines the complicated interplay between the
morass of US legislation surrounding Cubas isolation from
the rest of the world and the islands real chances for
establishing relations with the IFIs and, perhaps more
plausibly, with Andean Development Bank Comunidad Andina de
Fomento (CAF), which has already invested beyond its member
One would imagine that influential CAF shareholders
(including Venezuela, Brazil and Argentina) would be
supportive, and would agree that the goals of a Cuba fund could
be made consistent with overall CAF policies, says
For a long time the socialist state scoffed at the idea of
dealing with such imperialist institutions as the World Bank
and the IMF, but Cuba under Raúl has toned down its
rhetoric against the IFIs. A recent visit to Cuba by several
World Bank economists though in their personal
capacities was mentioned positively by several
Everleny, who met officials from the Washington
multilaterals visiting Havana, says: The spirit is to try
to initiate an exchange from a technical standpoint
information, publication, access for them to see what is
happening in Cuba.
Officially, the World Bank, the IMF and the IDB will not
comment on anything concerning Cuba, but these informal
gestures have been welcome even on the part of the Cuban
government. There has to be a dialogue already, even
though officially there has not been a proposal to join any of
the IFIs, says Everleny. But at the same time
the state has not blocked it either.
Peter Hakim, president emeritus of the Inter-American
Dialogue, echoes the voices that would welcome more involvement
by the IFIs in Cuba, even if just at the consultative level.
The World Bank and the IMF have very talented people who
know a lot about developing economies; they could be very
helpful, he says, and even more helpful if they
could put some money behind the reform process.
Linde, the ASCE economist who retired as deputy secretary of
the IMF, agrees, but he sees little chance of any significant
steps happening quickly. While it is doubtful that any steps
towards openness will come from the Obama administration before
the 2012 elections, he says: The Cuban community in the
US is becoming more open to a rapprochement with the Castro
regime. This younger generation is more amenable to looking
ahead rather than looking back to the past.
But the fact remains that until the US for whatever
reason demonstrates a willingness to engage with Cuba,
there is little prospect for any international action that
could do much to improve the lot of the Cuban people.
Hakim calls this a terrible mistake that has
effectively stopped the IFIs from meaningfully approaching
One good chance for openness to a dialogue in recognition of
Cubas reforms should be the Summit of the Americas in
April. Despite its lack of participation in the OAS
(Organization of American States), Cuba has signalled its
willingness to participate in the summit if invited, a position
backed by the ALBA (Bolivarian Alliance for the Americas)
countries. This is seen by some as a good opportunity for the
US and Cuba to greet a new era where the two can sit at the
Uninspiringly, US hardliners such as chairman of the House
Foreign Affairs Committee Ileana Ros-Lehtinen are vehemently
opposed to Cubas presence at the Colombia Summit:
Allowing the Cuban tyranny to participate would fly in
the face of everything the Charter and the OAS is supposed to
stand for, she says.
The isolationist stance has fewer and fewer supporters
outside a narrowing cluster of Miami Cubans. The overwhelming
majority of non-political observers say the US should recognize
the steps taken by Cuba and help push them along.
It is 2012, not 1962, after all.