Tag Archives: General Economic Analyses

ORDER FROM CHAOS: WHAT WILL BE RAUL CASTRO’S LEGACY?

Posted on December 5, 2017 by Arch Ritter

Richard E. Feinberg, Nonresident Senior Fellow – Foreign Policy, Latin America Initiative

Brookings, December 4, 2017

Original Article: Order from Chaos
In many ways, Raúl Castro’s 10-year presidential rule, ending in February 2018, has been utterly disappointing. Cuba’s economy is stagnant and economic reform has stalled. Political power remains highly centralized and secluded. The island’s educated youth are fleeing in droves for better opportunities abroad. And the Trump administration is renewing U.S. hostility.

Nevertheless, during his decade in power Raúl Castro oversaw historic shifts in Cuban foreign and domestic policies. Raúl initiated some policy innovations, deepened and consolidated others, and merely watched while forces beyond his control drove other changes. Regardless, these changes have paved the way for the successor generation of leaders—if they dare—to push Cuba forward into the 21st century.

MORE FRIENDS

Fidel’s younger brother, now 86, can be especially pleased with his achievements in foreign affairs. Cuba had been a colony of Spain, a dominion of U.S. capital, a cog within the Soviet-dominated Council for Mutual Economic Assistance (COMECON) system. Now, for the first time in its 500-year history, Cuba has escaped the grip of a single world power.

Today, Cuban traders circumnavigate the globe, engaging both state-directed and free-market economies. The top trading 10 partners in goods in 2016 were (in rank order): China, Venezuela, Spain, Canada, Brazil, Mexico, Italy, Argentina, Germany, and Vietnam. The next tier of merchandise trading partners (between $275 million and $100 million) includes the United States, France, Algeria, the Netherlands, Russia, and Trinidad and Tobago. No single country accounts for more than 20 percent of total merchandise trade.

This trade diversification began in the 1990s following the collapse of the Soviet Union, but Raúl’s economic team extended and consolidated it. Under Raúl, Cuba also expanded the number of countries that purchase its main service export—the labor of educated professionals, especially in the medical field. While Fidel initiated large-scale service exports to Venezuela, Raúl followed suit with Brazil and dozens of other developing countries.

In the last 10 years, Cuba has also diversified the sources of foreign investment. For example, in the economy’s bright spot, international tourism, investors hail from Spain, France, Canada, Germany, Switzerland, Canada, China, and Malaysia, among other locations.

A small island economy cannot hope to be fully autonomous; it must adapt to global constraints. But by diversifying its economic partners, Cuba has minimized its vulnerability to external dictates, and maximized its own margin for maneuver. This diversification of economic partnerships has paid handsome diplomatic dividends. Cuba has become an accepted participant in various Latin American forums and diplomatic initiatives; overcame its exclusion from the Summit of the Americas leaders’ meetings; gained membership in the Central American Bank for Economic Integration (CABEI); and gained access to resources at the multilateral Andean Development Corporation (CAF). President Donald Trump is alone in his efforts to damage the Cuban economy through comprehensive economic sanctions.

BREAKING IDEOLOGICAL BARRIERS

The slow, halting pace of economic reform has discouraged many Cubans, especially recent university graduates. Conservative forces resisting change remain strong within the Cuban Communist Party. Nevertheless, Raúl leaves a legacy that could greatly facilitate the work of reformers in the future. (I will further evaluate the economic reforms and pathways forward in a February 2018 Brookings policy brief.)

Raúl’s legacy lies not in standard measures of economic performance, such as per capita GDP growth, labor productivity, or investment rates, where results have varied from disappointing to disastrous. Rather, Raúl’s legacy in economic policy lies in breaking once forbidding ideological barriers. True, Raúl’s public statements often have been contradictory and shifting, as he apparently sought to balance conflicting tendencies within the Cuban Communist Party. But in key areas, Raúl demolished or at least cracked these obstacles to change: rejection of globalization (a favorite Fidel bugaboo), fear of foreign investment, and hostility to private business and markets. He also transformed relations with the United States.

In daily life, Cubans have left behind the comfort of social uniformity and relative economic equality for the more tumultuous worlds of greater social heterogeneity and income inequalities.

Raúl is no cheerleader for globalization. But he set aside his brother’s heated denunciations of multinational corporations and “exploitative” markets. Instead, he went about the practical business of building economic relations with a multitude of governments and foreign corporations. Without much pomp and circumstance (although there was the occasional ribbon-cutting), Raúl advanced the process of normalizing Cuba’s integration into global markets.

Raúl’s decision to normalize diplomatic relations with “the historic enemy,” the United States, dramatically revised his regime’s foreign policy doctrine. The hegemon just across the Florida Straits was no longer an imminent, existential threat, readily justifying economic deprivations and tight political restrictions. Notwithstanding the altered attitude in Washington today, so far a number of the concrete gains from the Obama era détente remain in place, notably the facilitation of travel (commercial airline flights and cruise ships) and the generous flows of remittances to many Cuban families, whether for household consumption or business start-ups.

Of the reforms most directly attributable to Raúl, the suppression of the special (and expensive) permit to travel abroad was among the most important to many Cubans. As a result, most Cubans can freely leave the island (provided they can acquire an entry visa elsewhere), to be enriched by their contact with foreign lands and ideas. Greater access to mobile technology and rapidly expanding social media, permission to sell homes and cars, and more freedom to stay in once-forbidden tourist hotels have also improved life for many Cubans during his tenure.

De facto, by building commercial partnerships worldwide, and by accepting the freedom to travel, Cuba has now embraced core components of globalization.

OPENING TO FOREIGN INVESTMENT

To stave off complete economic collapse in the early 1990s, Fidel had invited in limited foreign investment. El Comandante en Jefe made these concessions holding his sensitive ideological nose and again closed Cuba’s borders once he felt politically secure. In sharp contrast, Raúl has publicly chastised his ministers for not accelerating foreign capital inflows (although he hesitated to fire them).

Periodically, the government releases a “Portfolio of Opportunities for Foreign Investment.” Each edition is fatter and glossier; the 300-page 2017-2018 version features 456 projects with a cumulative price tag of $11 billion. Yes, most projects have remained on paper, victims of bureaucratic foot-dragging and red tape; but these documents are products of an inter-agency process whereby many ministries and state enterprises join in a collective waving of hands to the international commercial community.

In a 2011 official document outlining proposed reforms, foreign investment was derided as “complementary,” a secondary afterthought. In contrast, when addressing Havana’s annual international trade fair in 2017, Raúl’s minister for foreign trade and investment sang a very different tune: “Today foreign investment ceases to be a complement and has become an essential issue for the country.”

Mariel, the new economic development zone facing the Straits of Florida, has gotten off to a slow start, having approved over three years only 26 projects worth about $1 billion. However, 15 of these projects have broken through another ideological barrier: allowing 100 percent foreign ownership.

LEGITIMIZING PRIVATE PROPERTY

Fidel disliked and distrusted private property. In 1968, for example, he nationalized remaining mom-and-pop businesses. In contrast, over the last decade the government has issued hundreds of thousands of licenses to small-scale private businesses. Raúl has also encouraged some 200,000 Cuban families to farm as homesteaders (although not all survived). In addition to these authorized private businesses, many Cubans augment their income in more-or-less tolerated gray-market activities. Altogether, as much as 40 percent of the Cuban workforce have at least one foot in the private sector.

Recently, Raúl criticized private business for illicit activities, and the government halted the granting of new business licenses. Nevertheless, these concessions to anxious Communist Party stalwarts appear to be a temporary pause. The ideological foundations, and public constituency, for the acceptance and eventual expansion of a market-driven private sector have most likely been set too deep for a full-blown counter-revolution to succeed.

SOCIAL RELAXATION

This increase in economic pluralism has unleashed public debates on economic policy. Criticism of government performance is widely voiced with less fear, even if journalists and academics are still careful not to directly confront senior authority.

Another major shift that accelerated during the last decade: the evolution of Cuban society from socialist uniformity toward a more heterogeneous mix of property relations, income levels, and social styles. While legal statutes remain to be written, property can now be private (often in partnership with diaspora capital), cooperative (in numerous variations) and foreign-owned, as well as state controlled.

Income inequalities have become more visible, even if less jarring than in other Latin American and Caribbean nations. Many Cubans still honor social solidarity. But the transition toward a more normal, relaxed, and individualistic society is unmistakable. On Havana’s streets, Cuban youth—increasingly exposed to international tourists, travel opportunities and the worldwide web—sport the variety of hairstyles, tattoos, music, and other signatures of global youth.

These ideological adaptations do not guarantee speedy policy changes, much less their faithful implementation. The Cuban government is grappling with a severe foreign exchange crisis, and the sudden, unanticipated chill in bilateral relations imposed by the United States. All the more reasons for the next generation of Cuban leaders to build upon the diversity of international economic associations and the new ideological currents unleashed during the reign of the second and last Castro brother—and to launch their island state into deeper phases of global integration and economic transformation.

Richard Feinberg

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CUBA: CARTERA DE OPORTUNIDADES DE INVERSION EXTRANJERA, 2017-2018

Posted on November 14, 2017 by Arch Ritter

MINCEX, November 2017

Original Document: MINCEX:  CARTERA DE OPORTUNIDADES DE INVERSION EXTRANJERA 2017-2018

Great opportunities for foreign investors in Cuba!

After nationalizing all foreign investment as well as domestic private enterprise – right down to the street vendors and shoe shine boys in the 1960 to 1968 period –  Cuba is now  courting foreign investors.

Here is the current document from MINCEX listing the possiblde investment opportunities for foreign enterprises,. It was sent courtesy of Jose Luis Rodriguez, (former Minister of Economics and Planning, former Director and currently with the CENTRO DE ESTUDIOS SOBRE LA ECONOMIA MUNDIA).

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CUBA AFTER CASTRO: THE COMING ELECTIONS AND A HISTORIC CHANGING OF THE GUARD

Posted on October 19, 2017 by Arch Ritter

World Politics Review, October 17, 2017.

 William M. LeoGrande

Historic “Changing of the Guard”: Raul Castro to Miguel Diaz-Canel

On Nov. 26, Cubans will go to the polls to elect delegates to 168 municipal assemblies, the first step in an electoral process that will culminate next February when the National Assembly, Cuba’s parliament, will select a new president. In 2013, when Raul Castro pledged not to seek a third term, he also imposed a two-term limit for all senior government and Communist Party leadership positions.  That means the succession will replace not only Castro but almost all the remaining members of the “historical generation” who fought to overthrow Fulgencio Batista’s dictatorship in 1959.

The changing of the guard comes at a delicate political moment. Castro’s ambitious economic reform program, the “updating” of the economy, is still a work in progress and has yet to significantly raise the standard of living of most Cubans. Moreover, it is encountering resistance from state and party bureaucrats who are loath to lose control over the levers of economic power and the perks those provide.

The economy has also been struggling because of declining oil shipments from Venezuela, which sells oil to Cuba at subsidized prices, helping to ease Cuba’s chronic shortage of hard currency. The political and economic chaos engulfing Venezuela has caused oil production to decline, and shipments to Cuba are running 13 percent below last year and 37 percent below their peak in 2008. The resulting energy shortage has forced Cuba to impose drastic conservation measures and pushed the economy into a mild recession last year.

In September, Cuba’s economic woes were exacerbated when Hurricane Irma came ashore, inflicting several billion dollars’ worth of damage as it tracked along the north coast before turning toward the Florida Keys. The storm hit some of Cuba’s most lucrative tourist resorts, cutting into the one sector of the economy that has enjoyed sustained growth in recent years. Most of the major hotels predicted they would reopen for business quickly, but the storm did enormous damage to the power grid, leaving large swaths of central Cuba in darkness.

Popular discontent over the economy and impatience with the slow pace of improvement are both running high. In an independent opinion poll taken in late 2016, 46 percent of Cubans rated the nation’s economic performance as poor or very poor, 35 percent rated it as fair, and only 13 percent rated it as good or excellent. Solid majorities reported not seeing much economic progress in recent years for the country or themselves, and they had low expectations for the future.

The economy is not Cubans’ only source of anxiety. With the election of Donald Trump, Havana’s relations with Washington entered a period of uncertainty. In his speech to Cuban Americans on June 16 in Miami, Trump blasted the Cuban government as a murderous dictatorship, echoing the Cold War rhetoric of regime change. Although the new economic sanctions Trump imposed were surprisingly mild—the result of intense lobbying by the U.S. business community—the prospects for improved relations and expanded commercial ties look dim in the near term.

Secretary of State Rex Tillerson’s decision to withdraw nonessential from the U.S. embassy in Havana in the wake of mysterious health problems among nearly two dozen staff and family members, the expulsion of most Cuban diplomats from Washington, and the State Department’s decision to issue a travel advisory warning U.S. residents not to travel to Cuba, pushed relations to a low point not seen since December 2014, when then-President Barack Obama’s normalization process began.

Cuba’s new post-Castro leaders will therefore face an imposing array of problems, and they will have to answer to a population that has become more vocal in expressing its discontent. The expansion of internet access, the ability of Cubans to travel abroad without state permission and Raul Castro’s own calls for more open debate about Cuba’s problems have fueled an increasingly robust public sphere.

As the leadership transition gets under way, First Vice President Miguel Diaz-Canel is the likely successor to Raul Castro as president, but little is known about this party veteran’s real views. Until recently, he kept a low profile, but even as his public visibility has increased, his speeches have simply reiterated well established policy, providing little insight into his own thinking.

Continue Reading:

Historic Changing of the Guard

 

Miguel Diaz-Canel

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THE TROUBLE WITH CUBA’S NEW ECONOMY

Posted on October 13, 2017 by Arch Ritter

Why economic opening on the island has been slower  –  and less effective  –  than many hoped.

BY WILLIAM M. LEOGRANDE

America’s Quarterly, Cuba’s New Economy, 11 October 2017,

 When Raúl Castro steps down as Cuba’s president in February 2018, he will hand off to his successor the unfinished task of reforming the economy. It is Cuba’s most urgent need and, at the same time, an increasingly controversial one.

Castro succeeded his brother Fidel as president in 2008 amid serious structural economic problems on the island. State salaries were inadequate to cover basic needs, productivity in state enterprises was weak, and foreign reserves were chronically low. Agricultural production was so poor that Cuba had to import 80 percent of its food at a cost of $2 billion annually. The dual currency and exchange rate system produced severe distortions in the labor market and external sector.

Three years later, the Sixth Congress of the Communist Party of Cuba endorsed the Guidelines of the Economic and Social Policy of the Party and the Revolution, a document of 313 economic objectives comprising Castro’s plan to “update” the economy. In it, Castro was unsparing in his criticism of the hyper-centralized economic system imported from the Soviet Union in the 1970s. The key problem was low productivity. “No country or person can spend more than they have,” he reminded his comrades. “Two plus two is four. Never five, much less six or seven – as we have sometimes pretended.”

The Guidelines were a blueprint for a new economic policy in which the state’s role would be restricted to strategic sectors, leaving the rest to private enterprise and cooperatives. Decision-making would be decentralized to give managers greater authority, and state enterprises would be required to operate profitably or close. Wage incentives would reward productivity, and market mechanisms would balance supply and demand. Foreign investment would be actively sought. The social programs emblematic of the revolution – free health care and education – would continue, and no one would be left behind.

The pace of change had been intentionally deliberate – “without haste, but without pause,” in Castro’s oft-repeated phrase. But recent signals indicate the reforms may be stalled and that some of Cuba’s leaders are having doubts. At the Seventh Communist Party Congress in 2016, Castro reported that only 21 percent of the guidelines adopted in 2011 had been fully implemented.

The process of rationalizing state enterprises, which produce about three-quarters of GDP, has been especially slow. In April 2010, Castro noted that a million state sector workers – 20 percent of the labor force – were employed unproductively. By 2015, the state labor force had been reduced by 718,000 people and 15 percent of state enterprises had been closed. Nevertheless, productivity remained low and a significant number of firms still operated in deficit.

As workers were laid off from state enterprises, the private sector was expected to provide alternative employment. Although self-employment (cuentapropismo) was first legalized in the 1980s, it was not until Castro’s new economic policy that the state accepted the private businesses and cooperatives as a permanent part the economy. By 2017, some 543,000 people had self-employment licenses, operating a variety of small businesses.

The Seventh Party Congress promised to give private businesses legal status, but the National Assembly has yet to make good on it. Instead, the pendulum has swung in the opposite direction. In July 2017, Castro criticized the private sector for tax evasion and black-marketeering, though he insisted that private enterprise would remain a permanent part of the economic landscape. On Aug. 1, however, the government suspended the issuance of new licenses for some private occupations, including the most popular – private restaurants (paladares) and bed and breakfast rentals (casas particulares). A number of successful, high-profile businesses were closed for violating their licenses. More ominously, in a private Communist Party meeting, First Vice President Miguel Díaz-Canel, Castro’s likely successor, accused some private businesses of being counter-revolutionary.

Ideological suspicion has also hampered Cuba’s search for foreign direct investment (FDI). In 2014, Cuba adopted a new FDI law with competitive tax rates and concessions, hoping to attract $2 billion in FDI annually. By the end of 2016, however, only $1.3 billion had been approved in total. The problem was interminable bureaucratic delays in the approval of proposed projects. “It is necessary to overcome, once and for all, the obsolete mentality of prejudices toward foreign investment,” Castro insisted. “We must rid ourselves of unfounded fears of foreign capital.”

The most difficult task that Cuba’s new president will inherit is the unification of the dual currency and exchange rates. State sector employees are paid an average monthly wage of 779 Cuban pesos (CUP), which is insufficient for a decent standard of living. Convertible pesos (CUC) exchange 1-to-1 with the U.S. dollar and 24-to-1 with the CUP. Some Cubans have access to CUC through remittances or through work in the tourist sector (from tips), the private sector, in joint ventures, or work abroad. The imbalance drives highly skilled professionals out of the state sector and into low-skill jobs paying higher wages in CUCs – what Cubans call the “inverted pyramid.” Among state enterprises, half a dozen different exchange rates between CUPs and CUCs are in effect, ranging from 1-to-1 to 10-to-1, creating disincentives to export at a time when Cuba suffers from chronic balance of payments shortfalls and inadequate foreign reserves.

The government has been promising monetary unification since 2013, but implementation keeps getting delayed. The task is complex, and will reverberate through the economy with effects that are not entirely predictable. The government has little margin for error; it has no significant foreign reserves to cushion dislocations and no access to assistance from international financial institutions. Moreover, Cuba currently faces other serious economic challenges: the decline in shipments of cheap oil from Venezuela; the unprecedented damage from Hurricane Irma; and the unpredictability of relations with the United States.

Finally, while the reform process has had limited success stimulating growth, it has produced a noticeable rise in inequality, price increases that outpace wage growth, and rumblings of political discontent. When food prices surged in 2015-16, the state stepped in, imposing price controls. It did the same to taxi drivers, some of whom resisted by stopping work. The message, Castro made clear, was that markets had a role to play in the new economic policy, but a strictly regulated one, subordinate to political exigencies.

Formidable challenges await Cuba’s new president. He or she will have to hold together a shaky elite coalition behind the economic reform process, push the needed changes through a reluctant bureaucracy while maintaining economic stability, and simultaneously navigate the political shoals of popular discontent over a stagnant standard of living and growing inequality. At stake is nothing less than the future of Cuban socialism.

LeoGrande is Professor of Government at American University in Washington, DC, and co-author with Peter Kornbluh of  Back Channel to Cuba: The Hidden History of Negotiations between Washington and Havana (University of North Carolina Press, 2015)

 

“ACTUALIZANDO” (UPDATING) THE Cuban Economy: An Immense Task

Cuba’s unsung heroes! Professional and amateur car mechanics, keeping the economy ticking over.

Maintenance and repairs: urgent everywhere.

Coffee imports from Vietnam in a quasi-“dollar” store. Cuba provided technical assistance to Vietnam’s coffee sector in the 1970s. Now Vietnam is the world’s second largest producer while Cuba’s coffee production has plummeted.

Photos by Arch Ritter, March 2014

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Slim pickings. CLUELESS ON CUBA’S ECONOMY

Posted on September 29, 2017 by Arch Ritter

HAVANA. The communist regime can no longer rely on the generosity of its allies. It has no idea what to do

The Economist.  Print edition | The Americas. Sep 30th 2017

GABRIEL and Leo have little in common. Gabriel makes 576 Cuban pesos ($23) a month as a maintenance man in a hospital. Leo runs a private company with revenues of $20,000 a month and 11 full-time employees. But both have cause for complaint. For Gabriel it is the meagre subsistence that his salary affords. In a dimly lit minimá (mini-mall) in Havana he shows what a ration book entitles one person to buy per month: it includes a small bag of coffee, a half-bottle of cooking oil and five pounds of rice. The provisions cost next to nothing (rice is one cent per pound) but are not enough. Cubans have to buy extra in the “free market”, where rice costs 20 times as much.

Leo (not his real name) has different gripes. Cuba does not manufacture the inputs he needs or permit enterprises like his to import them. He travels abroad two or three times a month to get them anyway. It takes six to eight hours to pack his suitcases in such a way that customs officials don’t spot the clandestine goods. “You feel like you’re moving cocaine,” he says.

Making things easier for entrepreneurs like Leo would ultimately help people like Gabriel by encouraging the creation of better jobs, but Cuba’s socialist government does not see it that way. In August it announced that it will stop issuing new licences in two dozen of the 201 trades in which private enterprise is permitted. The frozen professions include running restaurants, renting out rooms to tourists, repairing electronic devices and teaching music.

This does not end Cuba’s experiment with capitalism. Most of the 600,000 cuentapropistas (self-employed workers), including restaurateurs, hoteliers and so on, will be able to carry on as before. But the government mistrusts them. Their prosperity provokes envy among poorer Cubans. Their independent-mindedness could one day become dissent. Raúl Castro, the country’s president, recently railed against “illegalities and other irregularities”, including tax evasion, committed by cuentapropistas. He did not admit that kooky government restrictions make them inevitable. The government “fights wealth, not poverty”, laments one entrepreneur.

A Santeria Message

Trump’s mouth, Irma’s eye

The clampdown on capitalism comes at a fraught time for Cuba. Mr Castro is due to step down as president in February. That will end nearly 60 years of autocratic rule by him and his elder brother, Fidel, who led Cuba’s revolution in 1959. The next president will probably have no memory of that event. Relations with the United States, which under Barack Obama eased its economic embargo and restored diplomatic relations, have taken a nasty turn. President Donald Trump plans to make it more difficult for Americans to visit the island. Reports of mysterious “sonic attacks” on American diplomats in Havana have further raised tensions.

Hurricane Irma, which struck in early September, killed at least ten people, laid waste to some of Cuba’s most popular beach resorts and briefly knocked out the country’s entire power system. With a budget deficit expected to reach 12% of GDP this year, the government has little money to spend on reconstruction.

These are blows to an economy that was already in terrible shape. Cuba’s favourite economic stratagem—extracting subsidies from left-wing allies—has had its day. Venezuela, which replaced the Soviet Union as its patron, is in even worse shape than Cuba. Their barter trade—Venezuelan oil in exchange for the services of Cuban doctors and other professionals—is shrinking. Trade between the two countries has dropped from $8.5bn in 2012 to $2.2bn last year. Cuba has had to buy more fuel at full price on the international market. Despite a boom in tourism, its revenues from services, including medical ones, have been declining since 2013.

Bound by a socialist straitjacket, Cuba produces little else that other countries or its own people want to buy. Farming, for example, is constrained by the absence of markets for land, machinery and other inputs, by government-set prices, which are often below the market price, and by bad transport. Cuba imports 80% of its food.

Paying for it is becoming harder. In July the economy minister, Ricardo Cabrisas, told the national assembly that the financial squeeze would reduce imports by $1.5bn in 2017. What appears in shops often depends on which of Cuba’s suppliers are willing to wait for payment. GDP shrank by 0.9% in real terms in 2016. Irma and the drop in imports condemn the economy to another bad year in 2017.

The government does not know what to do. One answer is to encourage foreign investment, but the government insists on pulling investors into a goo of bureaucracy. Multiple ministries must sign off on every transaction; officials decide such matters as how many litres of diesel will be needed for delivery trucks; investors cannot freely send profits home. Between March 2014 and November 2016 Cuba attracted $1.3bn of foreign investment, less than a quarter of its target.

Faced with a stalled economy and the threat of shortages, the government is trying harder to woo investors. It has agreed to let food companies, for example, repatriate some of their profits. But anything more daring seems a distant prospect. Cuentapropistaslike Leo are waiting impatiently for a planned law on small- and medium-sized enterprises. That would allow them to incorporate and do other sorts of things that normal companies do. It will not be passed anytime soon, says Omar Everleny, a Cuban economist.

An even bigger step would be a reform of Cuba’s dual-currency system, which makes state-owned firms uncompetitive, keeps salaries in the state sector at miserable levels and distorts prices throughout the economy. Cuban pesos circulate alongside “convertible pesos” (CUC), which are worth about a dollar. Although for individuals (including tourists) the exchange rate between Cuban pesos and CUC is 24 to one, for state-owned enterprises and other public bodies it is one to one. For those entities, which account for the bulk of the economy, the Cuban peso is thus grossly overvalued. This delivers a massive subsidy to importers and punishes exporters.

A devaluation of the Cuban peso for state firms is necessary for the economy to function properly. But it would bankrupt many, throw people out of work and spark inflation. Countries attempting such a devaluation usually look for outside help. But, because of American opposition, Cuba cannot join the IMF or World Bank, among the main sources of aid. Fixing the currency system is a “precondition for further liberalisation”, says Emily Morris, an economist at University College London.

It is unlikely to happen while Cuba is in the throes of choosing a new leader. The process has sharpened struggles between reformers and conservatives within the government. Mr Trump’s belligerence has probably helped the latter. Most Cuba-watchers had identified Miguel Díaz-Canel, the first vice-president and Mr Castro’s probable successor, as a liberal by Cuban standards. But that was before a videotape of him addressing Communist Party members became public in August. In it, Mr Díaz-Canel accused the United States of plotting the “political and economic conquest” of Cuba and lashed out at media critical of the regime. Perhaps he was just pandering to conservatives to improve his chances to succeed Mr Castro. If those are his true opinions, that is bad news for Leo and Gabriel.

State Food Distribution Center:  the rationing system. (2015)

Mobile Self-employed Food Vendor.  (2015)

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New Publication: CUBA: LOOKING TOWARD THE FUTURE

Posted on September 5, 2017 by Arch Ritter

CUBA: LOOKING TOWARD THE FUTURE

William LeoGrande, Guest Co-editor; Arien Mack, Journal Editor

TABLE OF CONTENTS

William M. Leogrande, Introduction: Cuba Looks to the Future                235

 

PART I: UPDATING THE ECONOMY

Ricardo Torres Pérez, Updating the Cuban Economy: The First 10 Years                                                                                                                            255

Archibald R.M. Ritter,   Private and Cooperative Enterprise in Cuba’s Economic Future                                                                                                                           277

Richard E. Feinberg,  Bienvenida—Maybe: Cuba’s Gradual Opening to World Markets                                                                                                                          305

Katrin Hansing,  Race and Inequality in the New Cuba: Reasons, Dynamics, and Manifestations                                                                                                               331

 

PART II: FACING POLITICAL CHALLENGES

William M. Leogrande,  Updating Cuban Socialism: The Politics of Economic Renovation                                                                                                                     353

Margaret E. Crahan, Cuba: Religion and Civil Society                                          383

Rafael Hernández, Intellectuals, Civil Society, and Political Power in Cuban Socialism  407

Ted A. Henken, Cuba’s Digital Millennials: Independent Digital Media and Civil Society on the Island of the Disconnected                                                                                     429

 

PART III: ENGAGING THE WORLD

 

Philip Brenner And Teresa Garcia Castro,  A Long Legacy of Distrust and the Future of Cuban-US Relations                                                                                                    459

Carlos Oliva Campos And Gary Prevost,  Cuba’s Relations with Latin America   487

Mervyn J. Bain, Havana, Moscow, and Beijing: Looking to the Future in the Shadow of the Past                                                                                                                                          507

 

 

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Cuba Standard Economic Trend Index 2017 Q1

Posted on May 12, 2017 by Arch Ritter

Pavel Vidal Alejandro, Chief Economist; Johannes Werner, Editor

www.cubastandard.com

The updated Cuba Standard Economic Trend Index (CSETI) through March 2017 continues to show a negative trend, which suggests a continued worsening of balance-of-payment problems in the Cuban economy.

News surfaced that confirm the government’s intentions about accelerating the opening towards foreign direct investment. Five new projects were approved for the Mariel Zone. The Food Industry and the Tourism Ministry announced upcoming projects with foreign investors. But the reform is still frozen. The government seems to have no new ideas about how to boost agriculture. Consensus seems to be moving towards a very critical assessment of the reforms. The modus “without haste, but without pause” didn’t really work.

Two favorable news in financial terms during the first quarter have been the beginning of operations of a fund equivalent to $300 million to back up the operations of Spanish enterprises in Cuba, and a similar one by Russia. The official announcement by the Central American Bank for Economic Integration (CABEI) to welcome Cuba as a member can also be considered good news. It has symbolical value because it shows the willingness of the Cuban government to join international multilateral financial institutions.

The Cuban financial crisis will continue in 2017, although it is not expected to worsen, given the perspective of higher international prices for oil and Cuban exports, sustained tourism growth, and the increase in foreign investment.

The Cuban authorities have yet to publish national account data for 2016, and there is not a single piece of official information available about the economic situation in 2017. Based on data we can estimate and the results of the two indexes we calculate, we still forecast GDP growth for 2017 within a range between -1.4% and -0.3%. We continue to perceive the net balance as pointing towards recession

Given the recession forecasts for the Venezuelan economy in 2017, a general and significant recovery of trade between the two countries is improbable. Revenues from medical services and oil shipments from Venezuela will continue under great strain, although there could be some moderate increase of both flows in nominal terms.

The final result of the Cuban GDP in 2017 depends in great measure on what happens with the oil price. Even without being an oil country, the Cuba economy has become vulnerable to changes in the international oil price, due to its close relations and special agreements with Venezuela. The oil price drop has led to a drop in medical of professional service exports to Venezuela, because of an indexation mechanism between the latter and the crude oil price. The correlation between total medical and professional service exports (to Venezuela and other countries) and the international oil price is 66% in the 2005-2016 period.

Source: Cuba Standard Economic Trend Report

 The CSETI allows the anticipation of Cuban GDP growth statistics. In total, the index counts with 28 variables taken on a monthly base from January 1998 to the present. It includes information on real exports and imports of the 10 leading trade partners, it retrieves data on nickel, sugar, oil and food prices, and it approximates real external financial flows, as well as the dependency on Venezuela. The Kalman Filter econometric technique used in the index allows estimating a common component of the evolution of the 28 variables. This signal contained in the combination of the 28 variables draws together the state of the economy every month. Values above (below) zero indicate favorable (unfavorable) conditions in balance of payments for GDP growth.

 

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SUN, SAND AND SOCIALISM: WHAT THE TOURIST INDUSTRY REVEALS ABOUT CUBA

Posted on April 6, 2017 by Arch Ritter

Stuck in the past: The revolutionary economy is neither efficient nor fun.

The Economist, April 1, 2017

Original Article: STUCK IN THE PAST

TOURISTS whizz along the Malecón, Havana’s grand seaside boulevard, in bright-red open-topped 1950s cars. Their selfie sticks wobble as they try to film themselves. They move fast, for there are no traffic jams. Cars are costly in Cuba ($50,000 for a low-range Chinese import) and most people are poor (a typical state employee makes $25 a month). So hardly anyone can afford wheels, except the tourists who hire them. And there are far fewer tourists than there ought to be.

Hotel at Vinales; apparently constructed with Mafia money as part of their major money-laundering 1950s tourism investment project. (Photo by Arch Ritter, 2015)

Few places are as naturally alluring as Cuba. The island is bathed in sunlight and lapped by warm blue waters. The people are friendly; the rum is light and crisp; the music is a delicious blend of African and Latin rhythms. And the biggest pool of free-spending holidaymakers in the western hemisphere is just a hop away. As Lucky Luciano, an American gangster, observed in 1946, “The water was just as pretty as the Bay of Naples, but it was only 90 miles from the United States.”

There is just one problem today: Cuba is a communist dictatorship in a time warp. For some, that lends it a rebellious allure. They talk of seeing old Havana before its charm is “spoiled” by visible signs of prosperity, such as Nike and Starbucks. But for other tourists, Cuba’s revolutionary economy is a drag. The big hotels, majority-owned by the state and often managed by companies controlled by the army, charge five-star prices for mediocre service. Showers are unreliable. Wi-Fi is atrocious. Lifts and rooms are ill-maintained.

Despite this, the number of visitors from the United States has jumped since Barack Obama restored diplomatic ties in 2015. So many airlines started flying to Havana that supply outstripped demand; this year some have cut back. Overall, arrivals have soared since the 1990s, when Fidel Castro, faced with the loss of subsidies from the Soviet Union, decided to spruce up some beach resorts for foreigners (see chart). But Cuba still earns less than half as many tourist dollars as the Dominican Republic, a similar-sized but less famous tropical neighbour.

But investment in new rooms has been slow. Cuba is cash-strapped, and foreign hotel bosses are reluctant to risk big bucks because they have no idea whether Donald Trump will try to tighten the embargo, lift it or do nothing. On the one hand, he is a protectionist, so few Cubans are optimistic about his intentions. On the other, pre-revolutionary Havana was a playground where American casino moguls hobnobbed with celebrities in raunchy nightclubs. Making Cuba glitzy again might appeal to the former casino mogul in the White House.

The other embargo is the many ways in which the Cuban state shackles entrepreneurs. The owner of a small private hotel complains of an inspector who told him to cut his sign in half because it was too big. He can’t get good furniture and fixtures in Cuba, and is not allowed to import them because imports are a state monopoly. So he makes creative use of rules that allow families who say they are returning from abroad to repatriate their personal effects (he has a lot of expat friends). “We try to fly low under the radar, and make money without making noise,” he sighs.

Cubans with spare cash (typically those who have relatives in Miami or do business with tourists) are rushing to revamp rooms and rent them out. But no one is allowed to own more than two properties, so ambitious hoteliers register extra ones in the names of relatives. This works only if there is trust. “One of my places is in my sister-in-law’s name,” says a speculator. “I’m worried about that one.”

Taxes are confiscatory. Turnover above $2,000 a year is taxed at 50%, with only some expenses deductible. A beer sold at a 100% markup therefore yields no profit. Almost no one can afford to follow the letter of the law. For many entrepreneurs, “the effective tax burden is very much a function of the veracity of their reporting of revenues,” observes Brookings, tactfully.

The currency system is, to use a technical term, bonkers. One American dollar is worth one convertible peso (CUC), which is worth 24 ordinary pesos (CUP). But in transactions involving the government, the two kinds of peso are often valued equally. Government accounts are therefore nonsensical. A few officials with access to ultra-cheap hard currency make a killing. Inefficient state firms appear to be profitable when they are not. Local workers are stiffed. Foreign firms pay an employment agency, in CUC, for the services of Cuban staff. Those workers are then paid in CUP at one to one. That is, the agency and the government take 95% of their wages. Fortunately, tourists tip in cash.

The government says it wants to promote small private businesses. The number of Cubans registered as self-employed has jumped from 144,000 in 2009 to 535,000 in 2016. Legally, all must fit into one of 201 official categories. Doctors and lawyers who offer private services do so illegally, just like hustlers selling black-market lobsters or potatoes. The largest private venture is also illicit (but tolerated): an estimated 40,000 people copy and distribute flash drives containing El Paquete, a weekly collection of films, television shows, software updates and video games pirated from the outside world. Others operate in a grey zone. One entrepreneur says she has a licence as a messenger but wants to deliver vegetables ordered online. “Is that legal?” she asks. “I don’t know.”

Cubans doubt that there will be any big reforms before February 2018, when Raúl Castro, who is 86, is expected to hand over power to Miguel Díaz-Canel, his much younger vice-president. Mr Díaz-Canel is said to favour better internet access and a bit more openness. But the kind of economic reform that Cuba needs would hurt a lot of people, both the powerful and ordinary folk. Suddenly scrapping the artificial exchange rate, for example, would make 60-70% of state-owned firms go bust, destroying 2m jobs, estimates Juan Triana, an economist. Politically, that is almost impossible. Yet without accurate price signals, Cuba cannot allocate resources efficiently. And unless the country reduces the obstacles to private investment in hotels, services and supply chains, it will struggle to provide tourists with the value for money that will keep them coming back. Unlike Cubans, they have a lot of choices.

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UNITED NATIONS ECLAC: PRELIMINARY OVERVIEW OF THE ECONOMIES OF LATIN AMERICA AND THE CARIBBEAN, 2016: CUBA

Posted on January 24, 2017 by Arch Ritter

Document is available here: UN ECLAC 2016, CUBA http://repositorio.cepal.org/bitstream/handle/11362/40826/70/1601259BP_Cuba_en.pdf

ECLAC estimates GDP growth of 0.4% for Cuba in 2016. This was a particularly difficult year for the country’s economy, in an international context where economic expansion was still slow and foreign trade continued to weaken as a driver of growth. A fiscal deficit of 6% is projected (compared with 5.8% in 2015). The current account is expected to yield a surplus again in 2016, but a smaller one of about US$ 1.9 billion. Although economic conditions have caused prices for some agricultural products to rise, price levels generally have remained fairly stable and inflation in 2016 is expected to be similar to the previous year’s (2.8%). The total number of employed remained unchanged, with a tendency for employment to fall in the State sector and increase in the non-State sector. The unemployment rate is projected to be 2.4%.

Disponible en español
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EL LEGADO DE FIDEL: BALANCE ECONÓMICO SOCIAL EN 2016

Posted on January 10, 2017 by Arch Ritter

A fin de enmendar el legado de Fidel, a Raúl le queda poco más de un año para acelerar y profundizar sus reformas estructurales.

Fidel Surveying Havana from the Cabana Fortress

Por Carmelo Mesa Lago, Nueva Sociedad, Enero 2017

Original Article: El legado de Fidel: balance económico social en 2016

Con motivo del deceso de Fidel Castro, los medios de comunicación mundiales han ensalzado su legado de soberanía política interna y su rol internacionalista, así como las notables mejoras en la educación y la salud, aunque el juicio es usualmente adverso en cuanto a la economía. En una previa publicación hice un balance económico social de medio siglo de Fidel en el poder (1959-2008) usando 87 indicadores que demostraban que el desempeño económico fue generalmente negativo y el social mezclado alcanzando una cima en 1989 y un deterioro después.1 Aquí se evalúa la situación entre 1989 y 2016, poniendo énfasis en la última década. También se evalúa si las reformas estructurales de Raúl en el último decenio han logrado dar un impulso a la economía y al bienestar social en la Isla

Entre 1960 y 1990 Cuba recibió US$65.000 millones de la URSS, dos tercios de los cuales no era reembolsable; esta ayuda fue superior a la recibida por toda América Latina durante la Alianza para el Progreso. Tras la desaparición del socialismo soviético (el «Período Especial») ocurrió un marcado declive en todos los indicadores económicos y sociales, seguido de cierta recuperación especialmente a comienzos del siglo XXI por la substancial ayuda económica de Venezuela, la cual equivalió al 21% del PIB de Cuba en 20102.He sugerido que a fin de mejorar el pobrísimo desempeño económico es primordial avanzar en las reformas estructurales de Raúl, mientras que los benéficos pero costosos servicios sociales deben hacerse sostenibles financieramente a largo plazo.

En múltiples publicaciones he analizado las reformas estructurales implementadas por Raúl entre 2007/08 y 2016, concluyendo que son las más importantes bajo la revolución, intentan resolver los problemas heredados de Fidel y están bien encaminadas, pero son excesivamente lentas, enfrentan severas trabas, altos impuestos y desincentivos, por cuyas razones no han logrado hasta ahora un impacto palpable en la economía y en los servicios sociales; de hecho ha ocurrido un retroceso en algunas reformas3. La grave crisis económica en la República Bolivariana ha contribuido a esos problemas.

La tasa de crecimiento económico cubana que fue de 12% en 2006, en buena medida por el apoyo económico venezolano, ha exhibido desde entonces una tendencia declinante: 4,4% en 2015 y -0,9% en 2016,4 un quinto de la meta inicial fijada a fines de 2015. La formación bruta de capital promedió 13% anual en 2008-2015, la mitad del requerido 25% para un crecimiento económico sostenido. El índice de producción industrial en 2015 estaba 38% por debajo de 1989; la caída fue más acentuada en fertilizantes (95%), azúcar (80%), cemento (60%), acero (29%) y textiles (25%); por lo contrario, la producción de petróleo, gas natural, electricidad y níquel era superior (pero la última 26% menor que en 2008). Similar declive se observa en la agricultura: cítricos (88%), pesca (70%), leche de vaca (56%), tabaco en rama (42%), arroz (22%), cabezas de ganado (18%) y huevos (13%); sólo eran mayores las hortalizas y los tubérculos. Las estadísticas del sector externo en 2015, comparadas con las 2014, indican una agudización de la crisis: las exportaciones de mercancías cayeron 31%, las exportaciones de servicios profesionales (primer ingreso en divisas de Cuba y vendidos mayormente a Venezuela) mermaron 18%, y el excedente entre el saldo positivo de servicios menos el saldo negativo de mercancías menguó 47%5. Si esto ocurrió cuando la economía creció 4,4%, el deterioro debe haber sido mayor en 2016 con la contracción. Cuba atraviesa la peor crisis desde los años 90.

Las reformas estructurales han tenido efectos adversos en los indicadores sociales. Entre 2008 y 2015, con el fin de recortar el insostenible costo social, la asignación a servicios sociales (educación, salud, pensiones, vivienda, asistencia social) decreció de 55% a 47% del presupuesto y de 37% al 28% del PIB. El salario medio estatal ajustado a la inflación en 2008 era 25% del nivel de 1989 y, aunque aumentó a 38% en 2015, el poder adquisitivo era 62% inferior a 19896. La pensión media en 2008-2015 era la mitad que en 1989. Todos los hospitales rurales y postas urbanas y rurales se cerraron en 2011; entre 2008-2015, el número de hospitales decreció 30%, el personal de salud total menguó 22%, los médicos de familia que proveen la atención primaria se redujeron en 65%, por otra parte el número de médicos creció en 15% (aunque parte está en el extranjero), la mortalidad infantil continuó bajando de 4,7 a 4,3 por mil nacidos vivos, y la tasa de mortalidad materna mermó de 46,5 a 41,6 por 100.000 nacimientos (pero aún mayor que 29,2 en 1989). La matrícula universitaria decreció de 743.979 a 165.926 (78%) entre los cursos 2007/08 y 2015/16. La construcción de viviendas declinó de 44.775 a 23.003 entre 2008 y 2015 y por 1.000 habitantes cayó de 4,0 a 2,0. La asignación a la asistencia social disminuyó de 2,1% del presupuesto a 0,4% y como porcentaje de la población de 5,2% a 1,6%7. La tasa de desempleo declarado que llegó a un mínimo de 1,6% en 2008, creció a 3,5% en 2012 por causa del programa de despedido de 1,8 millones de empleados estatales innecesarios, pero sólo medio millón fue despedido y la tasa disminuyó a 2,4% en 20158. Cuba nunca ha publicado estadísticas sobre distribución del ingreso, pero otros indicadores sugieren que se colocaba a la cabeza de la región en igualdad; las reformas han cambiado diametralmente la situación, debido a un grupo no estatal con altos ingresos y la caída en el salario estata9.

Un importante avance ha sido la condonación o reducción de la mayor parte de la deuda externa por los acreedores; Cuba comenzó a pagar la deuda restante en octubre de 2016 y se ignora si podrá continuar haciéndolo. El aspecto más brillante es el turismo. La normalización de relaciones con los EEUU y las órdenes ejecutivas de Obama, virtualmente han abierto la puerta a los visitantes norteamericanos que saltaron de 95.254 en 2004 a 161.233 en 2015 y a cerca de 200.000 en 2016; además todos los otros principales emisores han crecido, por lo cual el total de visitantes subió 17% en 2015 y alcanzó 4 millones en 2016; así mismo, los ingresos brutos por turismo crecieron 11% en 2015 y se proyecta que alcanzarán los US$4.000 millones en 2016.

En el balance, los factores adversos sobrepasan con creces a los favorables y 2017 será muy tenso. A fin de enmendar el legado de Fidel, a Raúl le queda poco más de un año para acelerar y profundizar sus reformas estructurales. Si Trump revierte las medidas de Obama y no avanzan las reformas, la crisis se agravará en Cuba.

The Cross-harbour Ferry from the Steps of the Russian Orthodox Church

  1. C. Mesa-Lago: Cuba en la era de Raúl Castro: Reformas económico-sociales y sus efectos, Colibrí, Madrid, 2012.
  2. C. Mesa-Lago: «Institutional Changes in Cuba’s Economic and Social Reforms» en R. Feinberg y T. Piccone (comps.): Cuba Economic Change in Comparative Perspective, Brookings Institution / Universidad de La Habana, Washington, DC, 2014, pp. 49-69; «El lento avance de la reforma” en Política ExteriorNº 171, 5-6/2016, pp. 94-104; y con R.Veiga, L. González, S. Vera y A. Pérez-Liñán: Voces de cambio en el sector estatal cubano, Iberoamericana, Madrid, 2016.
  3. Raúl Castro Ruz, Discurso en la clausura de la Asamblea Nacional del Poder Popular, Granma, 28 diciembre 2016, p.3.
  4. Cálculos del autor basados en Oficina Nacional de Estadísticas e Información (ONEI): Anuario estadístico de Cuba 2015, La Habana, 2016; datod de 1989, del Comité Estatal de Estadística: Anuario Estadístico de Cuba 1989, La Habana, 1991.
  5. La CEPAL, Balance preliminar de las economías de América Latina y el Caribe 2016, Santiago de Chile, diciembre 2016, cuadro 4.4, estima un crecimiento de 43% en el salario medio real, el mayor en la región, pero con base en el año 2010 cuando estaba 27% por debajo del nivel de 1989
  6. Cálculos del autor basados en ONEI: Anuario Estadístico de Cuba 2008, La Habana, 2009, y cit.
  7. Basado en C. Mesa-Lago: «El desempleo en Cuba: de oculto a visible” en Espacio LaicalNº 4, 2010, pp. 59-66, y ONEI: Anuario 2015, cit.

8. C. Mesa Lago: «La desigualdad del ingreso y la experiencia de América Latina” en Temas Nº 84, 10-12/2015, pp. 35-43

A Few of Cuba’s Amazingly Talented Musicians

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