• The objective of this Blog is to facilitate access to research resources and analyses from all relevant and useful sources, mainly on the economy of Cuba. It includes analyses and observations of the author, Arch Ritter, as well as hyper-links, abstracts, summaries, and commentaries relating to other research works from academic, governmental, media, non-governmental organizations and international institutions.
    Commentary, critique and discussion on any of the postings is most welcome.
    This Blog on The Cuban Economy is dedicated to Cuba's Generation "A". Although inspired by Yoani Sánchez' original blog "Generation Y" this is not dedicated to those with names starting with the letter "A". Instead, it draws from Douglas Coupland's novel Generation A which begins with a quotation from Kurt Vonnegut at a University Commencement:
    "... I hereby declare you Generation A, as much as the beginning of a series of astounding triumphs and failures as Adam and Eve were so long ago."

New Publication: The Cuban Diaspora in the 21st Century

A new analysis of the potential role for the Cuban diaspora was made public today – October 7, 2011 – in Washington and will be presented in Miami on October 10. It was produced under the auspices of the Cuban Research Institute of Florida International University and more specifically, the Project entitled “The Cuban Diaspora and the Development of the Entrepreneurial Sector” of the Cuban Research Institute in cooperation with the Cuba Study Group.

As can be seen from the Table of Contents below, the Report, while concise, is wide ranging in scope and constructive in orientation. It may prove to be an important catalyst in generating changes in attitudes and eventually policy on both sides of the Florida Straits. At least, I hope that this is the case.

A distinguished group of scholars produced this Report, including Uva de Aragón (Florida International University), Jorge Domínguez (Harvard University), Jorge Duany (the University of Puerto Rico), and Carmelo Mesa-Lago (University of Pittsburgh).  Orlando Márquez, director of Palabra Nueva, a journal of the Havana Catholic Archdiocese, joined the committee in March. The coordinator for the project is Juan Antonio Blanco (Florida International University), who also coauthored the report.

The complete study is available here:

The Cuban Diaspora in the 21st Century, FIU, October 2011

From the Preface by Juan Antonio Blanco:

The authors have analyzed relations between several states and their diasporas and studied the problems and potentials associated with the Cuban diaspora’s potential role in Cuba’s national development. While this document does not attempt to evaluate the measures adopted by the Cuban government in August 2006, it suggests that Cuba’s so-called economic update would have a better chance of success were it accompanied by a parallel update of the island’s migratory policy.
The authors have reviewed the tensions, conflicts, and traumas in the history of Cuban state’s relationship with its diaspora, but their emphasis is always on the future. Without glossing over problems, they prefer to scan the horizon for possibilities that could bring about a genuine normalization of relations between the diaspora and its country of origin; in particular, changes in existing migratory policy to bring it in line with universally recognized standards. Their analysis also includes the obstacles posed by United States policy toward Cuba, especially for the Cuban diaspora, and the need for their removal.
The members of the committee—who volunteered their services to produce this report—have formulated a series of recommendations for respectful submission to the governments of Cuba and the United States, as well as to the Cuban diaspora and Cuban civil society.
As the authors note in the conclusion to this document, “Many of the observations, conclusions, and suggestions expressed in this report are aimed at tomorrow, with the hope that they will eventually be implemented in whole or in part. Tomorrow can begin today, however, if the actors with decision-making power in this area so choose, as Cuba so urgently needs.”

Table of Contents

Preface 5
Summary 7
Introduction 11

A Better, Shared Future 11
Points of Departure  12
Advantages of a Shared Future 13

State-Diaspora Relations 16

Haiti: A strategically selective state 18
The Dominican Republic: A Transnational Nation-State 20
Cuba: Between Disinterest and Denunciation 23
Policies for Improving State-Diaspora Relations 28
The Role of Government Institutions 33
Relations with Non-Governmental actors 34
Dual Citizenship Laws 34
External Voting 35
Investment Incentives  35
“Brain Circulation” 35
Ethnic Tourism 36
Nostalgic trade 36
Relations with Charitable and Voluntary Organizations 37

The Cuban Diaspora: Possibilities and Challenges 38

The Cuban Diaspora in the United States 38
New Policies and the Diaspora  45

The Diaspora: Resources and Possibilities 47

Economic Capital  48
Social Capita 50
Human Capital 50
Symbolic Capital 51
Possible Diaspora Support for the Non-State Sector  52
Venture Capital or Joint Investment in Small Enterprises  53
Using Symbolic and Social Capital to Attract Financial Capital  55
Access to Foreign Markets, Marketing, and Outsourcing 56
Tools, Inputs, and Technology 57
Training and Consulting 58
Obstacles and Challenges 59
Policy Framework: Updating Cuba’s Migration Laws 61
The Subjective Context  63

Conclusions and Recommendations .65

Conclusions 65
Recommendations 68
To the Government of Cuba  69
To the Government of the United States70
To the Cuban Diaspora 72
To Cuban Society. 72
Epilogue 73

 

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Miriam Celaya on Corruption: “About Controls, Comptrollers and the Uncontrollable”

An interesting and cutting critique on corruption from the Blog Sin Evasión by Miriam Celaya. October 3 2011

Miriam Celaya

One of the first rulings of General R. when he assumed the enthronement to power (please allow me to flatter the younger Castro’s vanity) was to create a system to detect and to put a stop to the rampant corruption that has been entrenched in the country through all spheres and at all levels. It is suspected that corruption is generalized, but the controls and audits reach only to a point … past this point, it might cause dangerous vertigo.

The first (detecting corruption) should be extremely easy. It is obvious and jumps up at you without much effort. The second (putting an end to it), is another matter. Because the General, of course, initiated from the start a process on the surface – not exactly from above — and downward, just where the pockets of the regime resent it the most, and many illustrious heads have rolled since then, including some gray-haired celebrity ones or some that don’t even have enough hair for a comb-over and only until recently were part of the trusted court of their olive green Majesties.

The first of the renowned Band of Seven to have been sacked were Otto Rivero, Felipe Pérez Roque, Francisco Soberón, José Luis Rodríguez, Carlos Lage, Carlos Valenciaga Estenoz and Fernando Rodríguez, who apparently were some sort of threat to the higher epaulets in the palace. “Revolutionaries” of the old guard, who until recently were known for their proven commitment to the regime have joined them.

Apparently, the effects of the Finance Ministry are proving more outrageous than what is prudent, so the official press has been given explicit orders to keep silent. That is, even more silent. So the media, mainly the written press, is engaged, with zeal worthy of better causes, to bring to the light of day the misuse of resources by the manager of some bakery or some agrarian co-op, but sweeps under the rug the dirt of ministries and of other senior bureaucrats with titles that are longer than their own names.

It seems that no one escapes the scrutiny of the severe comptroller of impulses of the purifying will of the General. Personally, I think it’s like a cash count, in which the incoming treasurer makes an effort to purify the accounts so that their own gains are not resented. Because in the state we find ourselves, it could be said that comptrollers have defecated against the ceiling fans, and more courtiers have been hit with feces than their majesties had thought. From ministers, managers of firms (foreign and Cuban), aviation directors, corporate officers of various magnitudes, including the brand-new and militant ETECSA, and countless numbers of minor number of minor entourages that have indeed been publicly beheaded.

But what more curious individuals won’t stop wondering, those who won’t stop misbehaving, who wonder about everything and are always full of ill-intentions, is who will be the leaders charged with renovating a model that seems to generate epidemics of corrupt leaders? What guarantees will there be that of those who will assume the responsibilities of the deposed won’t end up corrupted? What are the chances that a government that has not been able to create morally able replacements to carry out the “high mission of the revolution” will ever succeed in putting together, in the short run, a group of responsible and honest leaders? Will they create leadership schools? Will the General be able to trust anyone under the age of 75? Can we trust (and this is the clincher) the selection capability of the General?

But, in the midst of this sea of corruption of those who used to manage just a small slice of the power and the money, maybe the hardest questions to answer are precisely those that seem more urgent and logical: Are our president and his closest cronies the only “pure” ones we have left to take the helm in the midst of so many storms? Is the General “auditable”? Who is the comptroller who scrutinizes the financial dealings of the administration of the country?

Let’s sit and wait for the answer from the brand-new Comptroller General of the Republic.

 

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Crecimiento económico y sector externo en Cuba

A descriptive analysis of Cuba’s external sector and economic growth has been published by Jorge Mario Sanchez, of the Centro de Estudios sobre la Economia Cubana. Here is the hyperlink:

Jorge Mario Sanchez, Crecimiento económico y sector externo en Cuba

Jorge Mario Sánchez

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New Publication from Cuba: Cooperativas y Socialismo: Una Mirada DesdeCuba

A collection of essays on Cooperatives has just been published in Cuba, compiled by Camila Piñeiro Harnecker of the Centro de Estudios sobre la Economia Cubana. Ms. Camila Piñeiro comes with an impeccable political pedigree, with parents Manuel Piñeiro Losada (a Revolutionary from 1952 onwards and a 32 year veteran of the Central Committee) and Marta Harnecker, (a Chilean sociologist,  leading ideologue and prolific author.) The volume was made available courtesy of ASCE and Joaquin Pujol

The complete document is available hyperlinked here: Cooperativas y Socialismo: Una Mirada DesdeCuba, La Habana: Editorial Caminos, 2011

Compiladora: Camila Piñeiro Harnecker; Coordinador editorial: José Ramón Vidal

Edición: Mayra Valdés Lara; Diseño: Olmer Buchholz Espinosa

The Table of Contents is reproduced below.

Índice

Prólogo Camila Piñeiro Harnecke, 7

Parte 1 ¿Qué es una cooperativa?

1.       Una introducción a las cooperativas, Jesús Cruz Reyes y Camila Piñeiro Harnecker, 31

2.       La construcción de alternativas más allá del capital,  Julio C. Gambina y Gabriela Roffinelli, 55

Parte 2 Las cooperativas y los pensadores socialistas

3.       Cooperativismo y autogestión en las visions de Marx, Engels y Lenin,  Humberto Miranda Lorenzo 71

4.       Cooperativismo socialista y emancipación humana. El legado de Lenin, Iñaki Gil de San Vicente, 103

5.       El Ché Guevara: las cooperativas y la economía política de la transición al socialism, Helen Yaffe 132

6.       Las bases del socialismo autogestionario: la contribución de István Mészáros, Henrique T. Nova, 167

Parte 3 Las cooperativas en otros países

7.       Mondragón: los dilemas de un cooperativismo maduro, Larraitz Altuna Gabilondo, Aitzol Loyola Idiakez y Eneritz Pagalday Tricio, 191

8.       Cuarenta años de autogestión en vivienda popular en Uruguay, El “Modelo FUCVAM”,  Benjamin Nahoum, 219

9.       Economía solidaria en Brasil: la actualidad de las cooperativas para la emancipación histórica de los trabajadores/ Luiz Inácio Gaiger y Eliene Dos Anjos, 245

10.   Autogestión obrera en Argentina: problemas y potencialidades del trabajo autogestionado en el contexto de la poscrisis neoliberal, Andrés Rugge, 272

11.   De las cooperativas a las empresas de propiedad social directa en el proceso venezolano Dario Azzellini, 301

Parte 4 Las cooperativas y la construcción socialista en Cuba

12.   Las cooperativas agropecuarias en Cuba: 1959-presente,  Armando Nova González, 321

13.   La UBPC: forma de rediseñar la propiedad estatal con gestión cooperative, Emilio Rodríguez Membrado y Alcides López Labrada, 337

14.   Notas características del marco legal del ambiente cooperativo cubano,  Avelino Fernández Peiso, 366

15.   Retos del cooperativismo como alternativa de desarrollo ante la crisis global. Su papel en el modelo económico cubano, Claudio Alberto Rivera Rodríguez, Odalys Labrador Machíny Juan Luis Alfonso Alemán, 397

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Cuba closes once powerful sugar ministry

Marc Frank, Reuters
External Link: http://www.reuters.com/article/2011/09/29/food-cuba-sugar-idUSS1E78S0AG20110929

An Aerial View of What is Left of the Australia Sugar Mill, 2011

HAVANA, Sept 29 (Reuters) – Cuba is closing its once powerful Sugar Ministry in favor of a state holding company charged with pulling the sector out of a long decline, official media announced on Thursday.

A government communique said the decision was made at a  meeting of the Council of Ministers on Saturday. “The Council of Ministers, after an analysis of the sector, decided to close the Sugar Ministry as today it carries out no state functions,” it said.

President Raul Castro was quoted as stating the ministry would be replaced by holding company. Castro said 13 provincial companies   would belong to the new holding company with 61 mills, of which  five would close.

Plans to create the new sugar corporation and revitalize the industry by, among other things, allowing foreign investment and closing inefficient sugar mills were first reported by Reuters more than a year ago. The ministry’s demise is the last chapter in the dramatic decline of the sugar industry in a Caribbean island country where sugar was once king but now accounts for around 5 percent of foreign exchange earnings.

Cuba’s fall from once being the world’s biggest sugar exporter, producing 8 million tonnes of raw sugar annually, began with the  collapse of former benefactor the Soviet Union in 1991. Since then, the sector has declined relentlessly to 1.2 million tonnes. The country plans to produce 1.45 million tonnes during the harvest that gets underway in December.

Former Economy Minister Marino Murillo, recently promoted to lead economic reform efforts, said last year plans called for the industry to gradually increase production to around 2.5 million tonnes by 2015. Cuba itself consumes a minimum 600,000 tonnes of sugar annually and has a 400,000 tonne toll agreement with China.

In a painful 2002 downsizing of what was once the island’s flagship
sector, Cuba shut down and dismantled 71 of 156 mills, all 71 built well before the revolution, and relegated 60 percent of sugar plantation land to other uses.

More than 200,000 of the industry’s 400,000 workers were moved to other employment and many rural sugar towns were left stagnating, their closed mills marking the skyline. More mills have closed since then. Only 1.7 million acres (700,000 hectares) of the more than 5 million acres (2 million hectares) once controlled by Cuba’s sugar ministry are currently dedicated to sugar cane.

Repairs Inside the Australia Sugar Mill, November 1994

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US-Cuba policy, and the race for oil drilling

By Sarah Stephens,Executive Director of the Center for Democracy in the Americas. Jake Colvin, Vice President for Global Trade Issues at the National Foreign Trade Council – 09/29/11 03:39 PM ET
.

To protect the national interest — and for the sake of Florida’s beaches and the Gulf of Mexico’s ecosystem — it is time to stop sticking our heels in the sand when it comes to U.S.-Cuba policy.

Before the end of the year, a Chinese-made drilling platform known as Scarabeo 9 is expected to arrive in the Gulf.  Once it is there, Cuba and its foreign partners, including Spain’s Repsol, will begin using it to drill for oil in waters deeper than Deepwater Horizon’s infamous Macondo well.  The massive rig, manufactured to comply with U.S.-content restrictions at a cost of $750 million, will cost Repsol and other companies $407,000 per day to lease for exploration.

They are taking this financial risk because Cuba needs the oil and its partners — Spain, Norway, Russia, India, Vietnam, Malaysia, Canada, Angola, Venezuela, and possibly China — believe that drilling in waters said to contain undiscovered reserves of approximately 5 billion barrels of oil is good business.

In virtually every other country in the world, developments like these would prompt high-level discussions about how to exploit these resources safely or to anticipate a crisis were a disaster to strike. Experts who have studied the currents say a spill in Cuban waters would send 90 percent of the oil into the Keys and up the East Coast of Florida. But the embargo leaves Florida’s sensitive coastal resources defenseless.

Due to the fact that the drilling involves Cuba, American companies and workers cannot lend their expertise to what could be a risky operation.  U.S. economic sanctions prevent our private sector from helping Cuba drill safely and paralyze the U.S. government, which ought to be convening bilateral discussions on best practices and coordinating disaster response.  In fact, the U.S. has no emergency response agreement with Cuba for oil spills.  While some specific licenses have been granted to permit U.S. firms to conduct limited transactions with Cuba, current sanctions bar the United States from deploying the kind of clean-up equipment, engineers, spare parts for blow-out prevention, chemical dispersants, and rigs to drill relief wells that would be needed to address an oil crisis involving Cuba.

One welcomed development came earlier this month, when William Reilly, a former head of the U.S. Environmental Protection Agency and co-chair of the Commission that investigated the Deepwater Horizon disaster, led a group of experts to Cuba to take a look at their plans.  While the administration has done well giving permission to Mr. Reilly, as well as to other experts, to discuss the problem with Cuban counterparts, it should move more aggressively to work with the Cuban government to cooperate on plans for safe drilling and responding to a possible crisis.

Rather than moving forward, some in the U.S. Congress would make the problem worse.  Rep. Ileana Ros-Lehtinen (FL-R), who criticized Mr. Reilly’s visit to Cuba as “giving credibility to the regime’s dangerous oil-drilling scheme,” has offered legislation to try and stop Repsol from drilling.  Rep. Vern Buchanan (FL-R) would deny Repsol the right to drill in U.S. waters if it helped Cuba drill in its waters.   Thirty-four members of both parties have written Repsol directly, threatening the company if it drills with Cuba.
Yet this tactic can’t work.  Even if they could deter Repsol from drilling – which is unlikely – they cannot stop Cuba and partners from countries like China, Russia, and Venezuela, from using the rig and searching for oil.

At some point, it is likely that drilling will begin and the United States ought to do what it can to prepare for that eventuality.  The U.S. government should facilitate access by Cuba and its drilling partners to the resources they need to drill safely.  President Obama should instruct the Treasury Department to issue a blanket general license now that would allow private industry to provide what oil expert Jorge Piñon calls ”any conceivable response” in the event of a crisis.

As we have already done with Mexico and Canada, the U.S. should join Cuba in crafting a crisis response agreement covering on-scene coordinators, a joint response team, response coordination centers, rapid notification protocols, customs and immigration procedures, and communications.  The plan should be written, signed, tested, and implemented as quickly as possible.

Earlier this year, the Deep Water Horizon Commission, which Mr. Reilly co-chaired, said in its final report “that neither BP nor the federal government was prepared to deal with a spill” of its magnitude or complexity; that industry and policy makers were lulled by a “culture of complacency” that resulted in 5 million barrels of oil being dumped into the Gulf.

Having seen this movie once before, complacency is inexcusable.  Politics should not blind Washington to the reality of the situation unfolding off of our shores.

Sarah Stephens is Executive Director of the Center for Democracy in the Americas.  Jake Colvin is Vice President for Global Trade Issues at the National Foreign Trade Council.

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POLITICAL ECONOMY OF CHANGE IN CUBA

A three-day international symposium held under the auspices of the Bildner Center at City University of New York. and spearheaded by its Director Mauricio Font, was held in March 2011. It was entitled Cuba Futures: Past and Present, and focused on the dynamics of change in contemporary Cuba—the politics, culture, economy.

A selection of the papers on the Cuban economy have been published on the web by the Bildner Centre.  The are all hyperlinked here: Political Economy of Change in Cuba, Bildner Center, CUNY New York. A Table of Contents is presented below. Of special interest are the essays by the analysts from the Centro de Estudios sobre la Economia Cubana, Armando Nova, Camila Piñeiro, Pavel Vidal Alejandro and Omar Everleny Pérez .

Table of Contents

Preface                                                                                                                                   xi

1 La actualización del modelo económico cubano, Omar Everleny Pérez Villanueva

2 Forecasting Cuba’s Economy: 2, 5, and 20 Years, Emily Morris*    10

3 Las restricciones de divisas en la economía cubana, 2010, Pavel Vidal Alejandro 19

4 New Forms of Enterprise in Cuba’s Changing Economy, Camila Piñeiro Harnecker    43

5 Valoración del impacto de las medidas más recientes en los resultados de la agricultura en Cuba, Armando Nova González     63

6 Las nuevas transformaciones en la agricultura cubana: éxitos y desafíos, Reynaldo Jiménez Guethón           81

7 Cuba y el turismo norteamericano. Analisis de potencialidades y de impactos en la región caribeña, Gerardo González Núñez and Roberto Orro Fernández         9

78 Tourism in Cuba: Barriers to Economic Growth and Development Hilary Becker     117

9 Cuba: A Services-Centered Survival and Development Pattern, Alberto Gabriele        133

10 Theoretical Foundations of a Future Privatization in Cuba: The Property and Ownership Paradigm, Frank-Christian Hansel   155

11 Globalization and the Socialist Multinational: Cuba and ALBA’s Grannacional Projects at the Intersection of Business and Human Rights, Larry Catá Backer         183

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Cuba’s Offshore Petroelum Exploration and U.S. Policy

POLITICO: Cuba drilling next hurdle for U.S.
By: Darren Goode (Courtesy of Jorge R. Piñón)
September 27, 2011 10:38 PM EDT
The White House must crisscross complex political and policy waters as it faces the impending reality of oil drilling off Cuba a mere 60 miles from the Florida Keys.

“It’s just like firing a shotgun in a crystal store,” said Jorge Piñón, a visiting fellow with the Florida International University Latin American and Caribbean Center’s Cuban Research Institute. “You’re going to break something eventually.”

That presents multiple challenges for the Obama administration, which is tasked with protecting the U.S. coastline and waters if a catastrophe begins off Cuba.

“I think there is a lot of a tendency to hold the breath and hope it doesn’t happen,” said Lee Hunt, president of the International Association of Drilling Contractors. “I can assure you that inaction and lack of leadership against a potential disaster would be this administration’s Katrina.”

Administration officials have already upgraded drilling standards for operations off the U.S. coast and have established a partnership with Mexico to set higher bilateral standards in the Gulf of Mexico since last year’s historic spill. And Bureau of Ocean Energy Management, Regulation and Enforcement Director Michael Bromwich said last week that “the issue of drilling offshore Cuba has been on our screen for many months.”

“I can say that this issue has been focused on and discussed in very high levels of the government,” Bromwich said.

The Spanish company Repsol is expected by January to begin drilling a deepwater exploratory oil well off Cuba in waters about 60 miles south of Key West and slightly deeper than BP’s doomed Macondo exploration well. Other exploratory wells from the same Chinese-built semi-submersible rig owned by the Italian company Saipem would follow in subsequent months — involving companies such as Russia’s Gazprom.

“Politicians don’t like to take the risk with Cuba unless they see a clear positive payback of some sort,” said Bill Reilly, a former EPA administrator under President George H.W. Bush. “Now that we see the rig approaching Cuban waters, the political calculus will change.”

Reilly — who co-chaired a bipartisan commission that investigated last year’s Gulf spill — and Hunt were among a group granted permission by the administration to trek to Havana in early September to talk to senior Cuban officials in the absence of direct talks between the two governments.

“The message was drilling in deepwater is a highly challenging, risky, technologically complex job, and the lessons of Macondo show that even very experienced companies and very practiced regulators can get it wrong,” Reilly said.

Hunt, who was following up on a trip he made to Cuba last year, said the biggest difference between the two trips is the Cuban government “had taken a great deal more investigation” into safety and other protocols adopted by the U.S. and Mexico.

“In a way, I would say in 2010 they had a very solid regulatory plan. In 2011, they had a fairly sophisticated regulatory plan,” Hunt said. “I don’t have too many concerns about their ability to drill safely.”

Reilly and former Royal Dutch Shell Vice President Richard Sears, the chief technical adviser to the president’s spill commission, were in Cuba to explain the commission’s recommendations and findings.

“Turned out they knew the oil spill commission’s recommendations cold,” said Reilly, who later briefed Bromwich and White House officials about the trip. “That was kind of surprising and reassuring. They are aware they have very serious challenges, as any country that’s never done this before should have.”

But for many, the main concern is that U.S. equipment and personnel would not be ready to act quickly enough to respond to a spill.

“What’s in place from the U.S. side to respond and basically prepare for a worst case or really a spill of any kind?” asked Dan Whittle, director of the Environmental Defense Fund’s Cuba program, who was also on this month’s five-day trip to Havana.

Because of the decades-old U.S. embargo against Cuba, Hunt said, many resources would have to be shipped from as far away as the North Sea, the United Kingdom, North Africa or Asia.

Reilly, Hunt and Whittle are among those asking the Obama administration to grant general licenses or narrow emergency exemptions to the embargo to ensure that U.S. companies of all stripes can assist in preventing and responding to a subsea well leak.

The Commerce Department and the Treasury Department’s Office of Foreign Assets Control have granted licenses to some U.S. companies that operate in Cuban waters, including those that could help with oil spill preparation and response. Both agencies promised to act quickly on any additional approvals that are required.

But some say granting a wider exemption is needed so that various companies — including parts manufacturers and vessel and plane operators — can respond quickly.

“It’s very complex, so the easiest way is to issue a general license and to make sure that the general license is only to be used during an emergency,” Piñón said. “There are hundreds of companies. We don’t know who is going to have that valve that is going to be needed.”

For example, well containment systems developed by the Marine Well Containment Co., a coalition of major Gulf oil producers that formed after last year’s spill, and the Helix Energy Solutions Group were instrumental in the Interior Department’s decision to start granting deepwater drilling permits again this year. Repsol has contracts with MWCC and Helix for their operations in U.S. waters, but not in Cuba.

Bromwich said he is not pressuring the Treasury to issue or not issue a general license to companies.

“It would be in the national interest to make sure that everything that can be done certainly in U.S. waters is done,” he said. “Whether it goes beyond that, I think, is among the issues that are being discussed in high levels of the government.”

Regular talks also continue with Repsol, Bromwich said.

But while Cuba appears willing to adopt offshore drilling standards modeled after those in the U.S. and Mexico, Piñón said there needs to be direct talks between the two governments.

While the embargo tightened during the George W. Bush administration, the Obama administration has loosened some sanctions, including easing specific travel restrictions in January.

One challenge will be the politics in Florida, which will again be a swing state in the 2012 election. The state includes critics of any oil or gas drilling near the state’s coastline, along with hard-line Cuban refugees who wince at any melting of relations with the Castro regime. Florida congressional members from both parties have offered bills punishing companies that operate in Cuba.

Republicans on Capitol Hill, and potentially on the presidential trail, could also accuse the Obama administration of focusing more on shoring up Cuba’s domestic energy production rather than at home.

But Florida political observers say any concern about fiddling with the embargo runs a distant second to the state’s economic doldrums and the devastating impact that a spill could have on the Sunshine State.

“It’s much more of an issue for the Republican candidates than it is for the administration,” said Florida Republican strategist Ana Navarro. “I frankly don’t think the administration cares about the hard-lined Cuban-American vote, and I don’t think the hard-lined Cuban-American vote cares for the administration. And I don’t think that’s changing anytime soon.”

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Can Cuba Recover from its De-Industrialization? I. Characteristics and Causes

By Arch Ritter

[Note: a subsequent Blog Entry will analyze “Consequences and Courses of Action” ]

Since 1989, Cuba has experienced a disastrous de-industrialization from which it has not recovered. The causes of the collapse are complex and multi-dimensional. Is it likely that the policy proposals of the Lineamientos approved at the VI Congress of the Communist Party of Cuba will lead to a recovery from this collapse? What can be done to reverse this situation?

One of the last Cane-Harvesting Machines Fabricated in Cuba, en route to its Destination, November 1994

Perhaps it should be noted to begin with that the  manufacturing sector of many if not most high income countries have shrunk as a proportion of GDP and especially in terms employment. This has been due to the migration of  labor-intense manufacturing to lower wage countries, most notably China and India, as well as technological change and rising labor productivity in many areas of manufacturing. However, given Cuba’s income levels and its historical record, it could and should be expanding its manufacturing base and perhaps even increasing employment in the sector rather than remaining in melt-down phase

I. Characteristics of Cuba’s De-Industrialization, 1989-2010

The accompanying Charts and Tables, all using data from Cuba’s Oficina Nacional de Estadisticas, indicate the severity of Cuba’s manufacturing situation.

Chart 1 illustrates the almost 60% decline in the physical volume of industrial output – excluding sugar – from 1989 to 1998. By the year 2010, the level of output was at 49.9% of the 1989 level. This does not constitute a recovery.

The physical volume of output by destination is presented in Appendix Table 11.2 below. This Table indicates industrial output including sugar in 2010 was at 43% of its 1989 volume. Products for Consumption were at 81.8% of their 1989 value in 2010. Some product areas had improved, namely manufactures for consumption and “other manufactures” but food drink and tobacco production were at 71.5% of their 1989 volume. Footwear and clothing were at 21.8% of their 1989 volume.  Equipment production had almost totally disappeared and was at 6.6% of their 1989 volume in 2010. Intermediate products were at 34.7% of their 1989 volume, despite a near 50% increase in volumes of mineral extraction. .

Volumes of industrial output by origin or industrial sub-sector are presented in Appendix in Table 11.1 Some manufacturing sub-sectors have virtually disappeared with production at very low levels as a percentage of 1989 levels. For example, for the following sectors, 2010 levels as a percentage of 1989 levels were as follows:

  • Textiles:                                     6.9%
  • Clothing:                                      27.8%
  • Paper and paper products:        6.5%
  • Publications and recordings:   18.0%
  • Wood products:                         12.3%
  • Construction Materials:           27.1%
  • Machinery and Equipment:      0.4%

On the other hand, pharmaceutical production increased dramatically, with 2008 production at 822% of the 1989 level. Tobacco, drinks (presumably alcoholic) and metal products were approximately at the 1989 levels. But almost everything else was around 25% of the levels of 1989 or less.

The collapse of the sugar agro-industrial complex is well known and is illustrated in Chart 2.

II. Causal factors

There are a variety of reasons for the collapse of the industrial sector.

1.      The initial factor was the ending of the special relationship with the Soviet Union that subsidized the Cuban economy generously for the previous 25 years or so. This resulted from the shifting of the Soviet Union to world prices in its trade relations with Cuba rather than the high prices for Cuba’s sugar exports as well as an end to the provision of credits to cover Cuba’s continuing trade deficits with the USSR. The break-up of the Soviet Union and recession in Eastern Europe also damaged Cuba’s exports. These factors reduced Cuba’s imports of all sorts, especially of imported inputs, replacement parts, and new machinery and equipment of all sorts.  The resulting economic melt-down of 1989-1993 reduced investment to disastrous levels and resulted in cannibalization of some plant and equipment for replacement parts. The end result was a severe incapacitation of the manufacturing sector.

2.      The technological inheritance from the Soviet era as of 1989 was also antiquated and uncompetitive, as Became painfully apparent after the opening up of the Soviet economy following Perestroika.

3.      Since 1989, levels of investment have been continuously insufficient. For example, the overall level of investment in Cuba in 2008 was 10.5% of GDP in comparison with 20.6% for all of Latin America, according to UN ECLA, (2011, Table A-4.)

4.      Maintenance and re-investment was also de-emphasized even before 1989. After 1989, maintenance and re-investment were a category of economic activity that could be postponed during the economic melt-down – for a little while. But over a longer period of time, lack of adequate maintenance of the capital stock has resulted in its serious deterioration or near destruction. This can be seen graphically by the casual observer with the dilapidated state of housing in Havana and indeed the frequent “derrumbes” or collapse of houses and abandoned urban areas.

5.      The dual monetary and exchange rate system penalizes traditional and potential new exporters that receive one old (Moneda Nacional) peso for each US dollar earned from exports – while the relevant rate for Cuban citizens is 26 old pesos to US$1.00. This makes it difficult if not impossible for some exporters and was a key contributor to the collapse of the sugar sector.

6.      The blockage of small enterprise for the last 50 years has also prevented entrepreneurial trial and error and the emergence of new manufacturing activities.

7.      Finally, China has played a major role in Cuba’s de-industrialization as it has done with other countries as well. China has major advantages in its manufacturing sector that have permitted its meteoric ascent as a manufacturing power house. These include

  • Low cost labor;
  • An industrious labor force;
  • Past and current emphases on human development and higher education;
  • A relatively new industrial capital stock;
  • Massive economies of scale;
  • Massive “agglomeration economies”;

But of particular significance has been its grossly undervalued exchange rate that has permitted it to incur continuing trade and current account surpluses and amass foreign assets now amounting to around US$ 3 trillion. Indeed, in my view, China has cheated  in the globalization process and captured the lion’s share of its benefits through manipulation of the exchange rate, and has contributed to the generation of major imbalances for the rest of the world, including both the United States and Cuba among other countries. .

China’s undervalued exchange rate has co-existed with Cuba’s grossly overvalued exchange rate that has been partly responsible for pricing potential Cuban exports of manufactures out of the international market. The result is that Cuba is awash with cheap Chinese products that have replaced consumer products that Cuba formerly – in the 1950s as well as the 1970s – produced for itself.

With respect to the sugar sector, there are a number of factors have been responsible for its decline.

1.      Most serious, the sector essentially was a “cash cow” milked to death for its foreign exchange earnings, by insufficient maintenance and by insufficient re-investment preventing productivity improvement.

2.      The monetary and exchange rate regimes under which it labored have also damaged it badly. Earning one “old peso” for each dollar of sugar exports has deprived the sugar sector of the revenues needed to sust4ain its operations.

3.      Finally the decision by former President Fidel Castro to shut down close to half the industrial capacity of the sector and try to convert former sugar lands to other uses sealed its fate.  In view of Cuba’s natural advantages in sugar cultivation, the sophistication and diversity of the whole sugar agro-industrial cluster of activities, the high sugar prices of  recent years and the competitiveness of ethanol derived from sugar cane, this decision was foolish in the extreme.

Next: Part II, The Consequences of Deindustrialization and Possible Future Courses of Action. will be published in the next Blog Entry

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Oil Diplomacy to the Rescue? Cuban Drilling off Florida Keys to Begin by End of the Year

John Daly,Oil Price; Tuesday, 27 September 20, Courtesy of Jorge R. Piñón.

[Oil Price is a well respected oil price research and analysis publication]

For 51 years the U.S. has imposed an economic embargo against Cuba, severely crippling the island’s economy for its effrontery in choosing a socialist path for development, a policy confirmed and intensified in the wake of the 1962 Cuban Missile Crisis.

Now the unlikeliest of economic interests may be bringing the two countries closer together – oil.

Specifically, oil deposits in the Florida Straits between Key West and Cuba.

Spain’s largest oil company, Repsol-YPF, has contracted the massive Italian-made Scarabeo 9 semi-submersible oil rig, currently en route from Singapore, to arrive in the Florida Straits by the end of the year after the end of hurricane season to begin exploring Cuba’s offshore reserves. Repsol-YPF, which drilled Cuba’s first onshore well in 2004, intends initially to drill six wells with the Scarabeo 9 rig.

Cuba, which currently produces a paltry roughly 50,000 barrels of oil per day from onshore sources, is understandably keen to begin exploiting its offshore reserves, which estimates place between 5-20 billion barrels of crude in a 43,000 square-mile drilling area containing 59 maritime fields it has designated off its northern coast. While Fidel Castro’s close ally, Venezuelan Hugo Chávez currently dispatches 120,000 bpd to Cuba on very favorable financing terms, the arrangement is heavily dependent on the friendship between octogenarian Castro and cancer-stricken Chávez, hardly a recipe for permanency.

While Repsol-YPF is the first out of the gate, other concessionaires include Norway’s Statoil ASA, India’s state-owned Oil and Natural Gas Corporation Ltd (ONGC) and Brazilian state oil company Petroleo Brasileiro, or Petrobras.

Note the total absence of U.S. oil companies – that’ll punish those pesky Commies!

While the 1982 United Nations Convention of the Law of the Sea (UNCLOS) maritime treaty provides littoral nations with a 200-mile Exclusive Economic Zone (EEZ) extending 200 miles offshore for exploiting maritime reserves, in 1977 U.S. President Jimmy Carter signed a treaty with Cuba that essentially split interstate waters and created for Cuba an “exclusive economic zone” extending from the western tip of Cuba northward to roughly 50 miles from Key West, which Havana then divided into 59 parcels for leasing.

So, what is Washington’s view of the latest developments? Depends how close you get to Florida, where politicians rely on the anti-Castro Cuban émigré vote to stay in power.

Congressional leaders like Cuban-born Republican House of Represenatives member Ileana Ros-Lehtinen and U.S. Senator Florida Democrat Bill Nelson would like to see Cuba scrap its offshore drilling plans altogether, a most unlikely scenario.

A more realistic approach is embodied in last week’s visit to Cuba by International Association of Drilling Contractors chief executive Lee Hunt, who as part of a joint Environmental Defense Fund traveled to the island with William Reilly, a former Environmental Protection Agency administrator and co-chair of the White House task force investigating the 2010 BP oil spill in the Gulf of Mexico, Royal Dutch Shell former vice president of deepwater drilling Richard Sears and Environmental Defense senior attorney Fund Dan Whittle to discuss plans to deal with possible oil spills from the Cuban projects, and whether U.S. firms might participate in cleanup activities.

The 64,000 peso question is whether Washington will allow such participation. Despite the embargo the Obama administration has said it will let U.S. companies do business with Cuba’s foreign partners in that context on a case-by-case basis. The reality of a Cuban oil spill having effects on U.S. waters has even allowed a bit of reality to intrude on Ros-Lehtinen’s policies, as she recently observed that “should a disaster occur and Florida’s waters be threatened, U.S. regulations could allow U.S. oil spill mitigation companies to engage in clean-up activities.”

Another potential factor in influencing Washington’s decisions is that Repsol-YPF may not be going it alone, either. Mexican daily La Jornada reported earlier this month that Mexican state oil company Petroleos Mexicanos, more familiarly known as Pemex, is shifting from its former “Mexico first” policy and intends to begin foreign operations, including offshore drilling in Cuba. The development is hardly surprising in light of Pemex’s recent announcement that it spent $1.6 billion to raise its stake in Repsol YPF from 4.8 percent to 9.8 percent, with the idea of creating a strategic partnership. In raising its stake, Pemex said it will unite its votes on the Repsol board of directors with those of Spanish construction company Sacyr Vallehermoso, which owns 20 percent of Repsol’s shares. Pemex seems to be emulating the successful global strategy of Brazil’s Petrobras.

As Pemex, ONGC and Petrobras are all state-owned companies, while the Norwegian government owns a majority share in Statoil ASA, to interfere with these companies’ activities is to roil relations with their parent governments, and in the case of Pemex, such a stiff-necked policy could have ominous implications for U.S. energy security, as according to the U.S. Energy Administration, the United States total crude oil imports now average 9,033 thousand barrels per day (tbpd), with Mexico being the second largest source of U.S. imports, running at 1,319 tbpd.

It may be time for a rethink of U.S. policy towards Cuba. After all, Castro has outlasted the Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush I, Clinton and Bush II administrations, so it rather seems unlikely that the embargo has produced the desired effect of removing the Cuban government.

And oil spills know no nationality.

OilWells, just off the Via Blanca, the road from Havana to Matanzas, 1999

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