• 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."

Ernesto Hernández-Catá: “THE GROWTH OF THE CUBAN ECONOMY IN THE FIRST DECADE OF THE XXI CENTURY. IS IT SUSTAINABLE?”

Ernesto Hernández-Catá has agreed to have his recent essay “The Growth of the Cuban Economy in the First Decade of the XXI Century: Is it Sustainable?posted on this Web Site. It was written for presentation at the forthcoming 22nd annual meeting of the Association for the Study of the Cuban Economy in Miami in August 2012. The full study is available here: Ernesto Hernandez-Cata, “The Growth of the Cuban Economy in the First Decade of the XXI Century”.


Ernesto Hernández-Catá

Conclusion

Income and production increased rapidly in Cuba during the first decade of the XXI century. Growth was fueled by a surge in government spending and a boom in services exports and investment—all of them made possible by rapidly increasing in payments received from Venezuela. The expansion in both domestic and foreign demand during the decade did not visibly result in higher inflation or in a massive deterioration of the country’s external position, partly because potential output also increased rapidly reflecting the strong performance of investment. (In this connection, it is a good thing that part of the Venezuelan money was used to finance capital formation rather than consumption.) However, capacity utilization also increased markedly, and the gap between actual and potential GDP must have dwindled considerably, leaving little room for supply to respond to additional demand pressures.

While there was no explosion in the current account of the balance of payments for most of the decade, severe pressures did emerge in 2008 and the authorities had to restrict imports, ration foreign exchange, and take measures that damaged the nation’s reputation in world financial markets. The Central Bank also intervened on a large scale to keep the exchange value of the Cuban peso fixed—a policy that cannot continue forever.

The large size of Cuba’s dependence on Venezuelan aid makes the country hostage to fortune. A sudden interruption in such aid would trigger a deep recession and put the balance of payments in a critical position. Therefore the structural measures that were taken or announced in 2009 and 2010 should now be extended and pursued much more aggressively. This will not be easy. But as Russia’s former Finance Minister Boris Fedorov once said, dependence on foreign largesse is a luxury that a free country cannot afford.[i]

[i]  At the Conference on Russia’s Economic Reform held in Stockholm in June 1994. In response to an injunction by Jeffrey Sachs to suppress hyperinflation by fixing the value of the Ruble and borrowing massive amounts from abroad.

Ernesto Hernandez-Cata was born in Havana, Cuba in 1942. He holds a License from the Graduate Institute of International Studies in Geneva, Switzerland; and a Ph.D. in economics from Yale University. For about 30 years through, Mr. Hernandez-Cata worked for the International Monetary Fund where he held a number of senior positions, including: Deputy Director of Research and coordinator of the World Economic Outlook; chief negotiator with the Russian Federation; and Deputy Director of the Western Hemisphere Department, concentrating on relations with the United States and Canada. When he retired from the I.M.F. in July 2003 he was Associate Director of the African Department\, where he dealt with Ethiopia, Guinea, Sierra Leone and the Democratic Republic of Congo, among other countries. He was also  Chairman of the Investment Committee of the IMF’s Staff Retirement Plan. Previously he had served in the Division of International Finance of the Federal Reserve Board. From 2002 to2007 he taught economic development and growth at the Paul Nitze School of Advanced International Studies of the University of Johns Hopkins. Previously he had taught macroeconomics and monetary policy at The American University.

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Mark Frank on Cuban Access to Internet and Telephone Technology

By Mark Frank, (Reuters) – June 15, 2012

The original article is here: More Cubans have local intranet, mobile phones

The number of Cubans linked to the country’s state-controlled intranet jumped more than 40 percent in 2011 compared to the previous year and mobile phone use rose 30 percent, the government reported, even as Cuba’s population remained largely cut off from unfettered access to the Internet.

Communist-run Cuban monopolizes communications in the state-controlled economy. There is no broadband Internet in Cuba and the relatively few Internet users suffer through agonizingly long waits to open an email, let alone view a photo or video, which also hampers government and business operations.

The National Statistics Office said the number of ?Internet users reached 2.6 million last year, up from 1.8 million in 2010, although almost all were likely on the local intranet through government-run computer clubs, schools and offices.

Some of Cuba’s Intranet Users

Cuba reports intranet use as Internet use even though access to the Internet is banned without government permission.

The number of mobile phone users increased to 1.3 million in 2011, up from 1 million in 2010, the government said. Cubans do not have Internet connectivity on their phones. Cuba’s population is 11.2 million people.

Cell phone usage has grown by leaps and bounds since 2008, when the government first allowed all Cubans to buy the phones. That first year there were 330,000 users. Mobile phones are available only in a local dollar-pegged currency and sending even a Twitter message from a mobile phone can cost more than the average daily earnings of many Cubans.

There were 783,000 personal computers in the country, or 70 per 1,000 residents, though around 50 percent of those were in state hands, according to the report available at www.one.cu/ticencifras2011.htm

During a recent tour of Cuba by a Reuters reporter, no Internet users were found, though a few people said they occasionally accessed the Web using black market passwords or hotels.

WORST IN LATIN AMERICA

Cubans who want to leave the country often cite local telecommunications, rated as the worst in Latin America by the United Nations International Telecommunications Union, as one of the reasons.

Officials say that data detailing individual use of Internet and ownership of computers and telephones is misleading and argue the country’s technological priorities are on encouraging social use at government-operated computer clubs and through services that provide professionals access to literature in their fields.

Cuba blames the United States embargo for denying access to underwater cables, saying it must use a satellite system and is limited in the space it can buy. In February 2011, a fiber optic cable was laid fromVenezuelato Cuba to provide download speeds 3,000 times faster than Cuba’s current Internet and capable of handling millions of phone calls simultaneously. To date there is no evidence the cable is operational and the government and state-run media have remained mum on the matter.

Cuba has around a million fixed telephone lines. The country has a total telephone density of just 22.3 percent.

Access to satellite television is also severely restricted. Satellite TV access in Cuba is illegal without special permission from the government and authorities regularly raid neighborhoods and homes in search of satellite dishes.

 

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Cuba in the 2012 Yale University “Environmental Performance Index Rankings.”

By Arch Ritter

In the recently published Yale University 2012 Environmental Performance Index, Cuba’s ranking is surprisingly strong. Its position in the world is # 50 which looks pretty reasonable in comparative international perspective, though the Yale study classifies Cuba as a “Modest Performer”. (The ranking for Canada is #37 and that for the United States is # 49.) In the Latin American context, Cuba is tied for 8th place with Argentina. Other Latin countries rank higher: Costa Rica at #5; Colombia #24; Brazil #30; Ecuador #31; Nicaragua #35; Panama #39; and Uruguay, # 46.

On a second related index, namely the Trend EPI, or the trend rank based on performance over the last decade, Cuba ranks #101 in the world and #12 in the Latin American and Caribbean region.

The Yale Index now seems to be “the gold standard” in such environmental performance indices. Comprehensive information on the Yale index is available on their web site: Yale University 2012 “Environmental Performance Index Rankings”. The detail of the final results and background studies for the 2012 Report are all available here:  File Downloads.

A pictorial summary of the methodology and indices used to construct the composite index are presented in Chart I below, and Cuba’s performance in the various component indices is pictured in Chart 2.Chart 1

Chart 2:

According to the Yale study, and illustrated in Chart 2, Cuba performed well in the following areas:

  • Environmental impacts on health and the environmental burden of disease;
  • Forest cover and planting (reflecting the conversion of sugar lands to plantation);
  • Protected Areas;
  • Agricultural subsidies.

Cuba’s performance was considered weaker in

  • Air quality;
  • The ecosystem effects of water resources;
  • Fisheries;

Cuba was judged to be more or less “OK” on water resources for human consumption and CO2 emissions.

A second study produced as Appendix 5 of the Republic of Cuba – European Union Country Cuba’s Strategy paper and national indicative programme, 2011-2013, Appendix 5  provides  additional information on Cuba’s environmental performance that is more worrying. Among the environmental performance measures and commentaries that it includes are the following:

  • “Of the flora in Cuba about 48% is in danger, of which around 22% in serious risk. Of the fauna these figures are 30% in danger of which 14% in critical risk.”
  • There is an almost complete lack of infrastructure to manage water pollution. “Of the 2,160 main contaminant sources recognized by UNEP, 1,273 or 59 percent, release their pollution into the Cuban environment without any treatment whatsoever. Another 433, or roughly 20 percent, receive limited but inadequate treatment before being discharged.”
  • “Some 17 or 18 percent of urban sewage receives treatment before discharge into Cuban waterways.”
  • According to UNEP, approximately “341,716 tons per year of organic material are discharged into Cuban waters, equivalent to the pollution generated by a population of over 22.3 million people (almost twice the actual population).”
  •  “….it has been estimated that annually 863.4 billion gallons of contaminated water finds its way into Cuba’s rivers, much of it industrial.”
  • “Salt-affected soil covers 14 percent of the national territory, or approximately 1 million hectares. The cost of recovering these salt-affected soils has been estimated at $1.43 billion. This is one of the main contributors to soil erosion which according to the Cuban government, affects 60 percent of Cuba’s territory, which has given rise to serious concerns about desertification, or extreme topsoil loss.”
  • “Waste is collected efficiently in most parts of the country but dumped in uncontrolled dumpsite for the mayor part. The existing landfills for Havana are full and new two landfills will be constructed, making use of state-of the art technology (ground water protection, leakage and leaching control).”

In addition, as visitors to Havana can attest, air pollution is a serious concern though it seems to have improved somewhat since some of the older Soviet era trucks, buses and the “Camellos” have been taken off the streets. The smoke from the old electricity generation plant and the refineries in Havana also has a major effect when the wind is in the wrong direction. The waste waters of Havana are sent by sewage pipe – clearly visible from the eastern part of the Malecon – one kilometer off-shore where they are swept into the Florida Straits – thankfully missing the beach areas or east Havana, Varadero, Cayo Coco, Guardalavaca etc.

All in all, like virtually all other countries, Cuba has no grounds for environmental complacency.

Smoke from Havana’s Thermal Elecctricity Plant, from the Edificio Fochsa,  Photo by Arch Ritter

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Dagoberto Valdes, ” Cuba Does Have Ideas, Projects and Actors for Its Future”

Dagoberto Valdes has published an interesting article on Cuban democracy in the Cuban Study Group’s “From the Island” series. The essay is available here: Dagoberto Valdes, From the Island June 2012 and here: Cuban Studies Group: From the Island: Issue #11

Here is a brief excerpt from Valdes’ text:

“WHAT CUBA NEEDS IS TO LEARN TO BUILD, PIECE BY PIECE, THE ROAD TO DEMOCRACY.
Therefore to those who stop, or attempt to monopolize for their own benefit the processes of change, arguing that there is no outstanding leader and viable project, we could say that Cuba does not need more of this. Its history, past and recent, shows conclusively where these two messianic and excluding aspirations eventually lead. On the contrary, Cuba needs to believe and be convinced that democracy is built, block by block, step by step, with all the pieces of the national puzzle. “Democracy is the worst of all political systems, with the exception of all others”—joked very seriously, Winston Churchill. This may be one of the political lessons that Cuba needs most to come out of its civic illiteracy. Never seek the perfect project, forever. Democracy is the art of trial and error, without improvisation, or opportunism, or unethical pragmatism. And not to tie the score means not to tie to the nation, to any political project, exclusive economic or social. And much less one that is considered the kingdom of heaven here on earth.
What Cuba needs is to learn to patiently assemble the national puzzle without ignoring, discrediting, or destroying any of its “pieces” that are not such, but free and responsible citizens or peaceful and non-sectarian groups. Must also avoid considering actors and projects as parts of a machine manipulated by a single group or person who, without transparency, believe they can lead the masses to a future that is cooked in the backyard of the nation.
What Cuba needs is to create viable and pluralistic thought to start designing its own future consistent and faithful with its historical roots, cultural heritage, spirituality and idiosyncrasies.”

DAGOBERTO VALDÉS HERNÁNDEZ, (Pinar del Río, Cuba, 1955)

Intelectual católico. Graduado de ingeniero agrónomo (1980)
Fundador del Centro de Formación Cívica y Religiosa (1993)
Fundador y director de la revista Vitral (1994-2007) (www.vitral.org)
Miembro del Pontificio Consejo Justicia y Paz del Vaticano (1999-2005)
Presidente del Instituto de Estudios Cubanos (IEC) desde 2007.
Director de la revista Convivencia desde 2008. (www.convivenciacuba.es)

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Encuesta de Opinión Pública Cubana 29 Febrero– 14 Marzo, 2012

The International Republican Institute has produced its seventh survey of public opinion on the economic reforms, on future reforms and utilization of electronic media. A variety of interesting results emerge but there are no major shifts of opinion since the previous few surveys which are reviewed comparatively in the presentation.

The full presentation is available here: Enquesta IR Feb-Mar 2012

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Cuba’s Debt Situation: Official Secrecy and Financial “Jineterismo”

By Arch Ritter

Does Cuba have an “external debt problem”? Is servicing the debt, that is, paying the interest and amortization, a serious burden for the balance of payments?

Unfortunately, Cuba does not provide sufficient information to analyze this issue clearly. One searches in vain in the documentation of the Oficina Nacional de Estadisticas (ONE) and the web site of the Banco Central de Cuba (BCC) for useful and up-to-date information on debt magnitudes or the cost of servicing the debt. Why is it that all the countries in Africa – excepting Somalia and South Sudan – and all the countries of Latin America can provide up-to-date information on their debts but Cuba can not? [For Africa see the African Economic Outlook, 2012, Table 12    and for Latin America, Naciones Unidas, CEPAL, CEPAL, Naciones Unidas, Balance Preliminarde las Economias de America Latina y el Caribe. 2012]

One can only conclude that Cuba’s debt issue is a matter of “official secrecy”. Presumably it is not due to incompetence in the Central Bank or the Statistical Agency.

Surprisingly, the present lack of timely and detailed information on the external debt is in sharp contrast with the situation under the government of President Fidel Castro in the 1980s. In this period, the BCC published detailed information on the external debt which permitted independent external analysis (See for example A. Ritter, “El problema de la deuda de Cuba en monedas convertibles”; “Cuba’s convertible currency debt problem”, – Revista de la CEPAL; CEPAL Review, 1988, not available in electronic format.)

The most recent number for Cuba’s external “gross debt” provided by the ONE for 2008 was 11.6 billion pesos in Moneda Nacional. This constituted 19.1% of Cuba’s GDP for that year (ONE AEC Table 8.2). These numbers are undoubtedly higher now in 2012 after the 2008-2009 recession.

The total external debt ostensibly amounted to 92.7% of Cuba’s exports of both goods and services in 2008. This does not seem unduly onerous. However, Cuba’s service exports, paid for primarily by the Government of Venezuela in exchange for medical and other services are vulnerable to change if Hugo Chavez were to leave the scene or lose the forthcoming presidential election. These service exports are unsustainable in the long run in any case as countries develop their own medical services.

As a percentage of merchandise exports, Cuba’s gross debt comes in at 325%, a magnitude that is more onerous. Unfortunately lack of relevant information prevents a determination of debt service as a percentage of exports of goods and services or of merchandise exports alone.

But how meaningful are these gross debt figures?

Cuba’s external debt is in foreign currency. Cuba’s domestic GDP is measured in Moneda nacional. What is the reasonable exchange rate for translating Moneda Nacional into a common foreign currency such as the US Dollar? The appropriate exchange rate would not be the official 1.00 CuP = $US 1.00. Nor would the appropriate rate be  24.00 CuC = $US 1.00, which was the exchange rate of the CuP (in Moneda Nacional) to the CuC (or the Convertible Peso.) If it were the latter, then the hard currency debt of 11.6 billion would be 458% of Cuba’s GDP, an amount that would be horrendous. Likely the true weight of the external debt is somewhere the 19.1% of GDP and the astronomical 458% of GDP, but we have little idea exactly where.

Cuba underwent a debt crisis in the late 1980s when it faced a total hard currency debt of $US 5.5 billion. It resolved the problem by first arranging a series of reschedulings. When these did not solve the problem, Cuba suspended negotiations on July 1, 1986, and entered a debt moratorium paying neither interest nor amortization.

According to a report by the Republic of Cuba-European Union entitled Country Strategy Paper and National Indicative Programme for the period 2011-2013. 24 March, 2010, “Annex VIII: Debt Sustainability Analysis.” Cuba’s creditors, excluding the former Soviet Union, were owed a total of $31.7 billion in 2008. The total volume of debt outstanding now in 2012 is undoubtedly higher than the 2008 figure. Some 20 billion of this was “inactive” or no longer honored by Cuba, but we do not know which debts were no longer active.

Under President Fidel Castro and perhaps Raul Castro as well, Cuba has played an interesting and remunerative game, making economic friends with a succession of suitors, obtaining trade, official and bank credits from its partners, and then reneging on the debt. The most dramatic example was of course the former Soviet Union which extended credits amounting to around 20 billion transferable rubles, or some $US(1988) 28 billion. This debt plus other debts with the countries of the Soviet Bloc is not acknowledged by Cuba will never be repaid.

More recently, Venezuela, China and Iran have been the favored economic partners with Cuba extending credit to promote their exports. Will they also be “stood up”, “let down” or “dumped” by Cuba when the credits run out?

Certainly when Chavez leaves the scene and when Venezuela decides to end its special relationship with Cuba, Cuba will likely declare a moratorium. Are there additional suitors who are willing to enter a special economic relationship with Cuba and provide new credit lines? I can no longer see a waiting list of suitors. However, there may well some ready to succumb to the charms of Cuba, its diplomats and its trade negotiators. Perhaps Brazil is next in line!

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Blogger Yoani Sanchez filed the demand to know why she’s banned from leaving Cuba.

By Juan O. Tamayo; jtamayo@ElNuevoHerald.com May 30, 2012

Cuban blogger Yoani Sánchez has filed a notice with the Interior Ministry demanding to know why she’s not allowed to travel abroad, the latest in a string of daring legal challenges to the communist government.
Sánchez said the notice filed Wednesday asks Interior Minister Abelardo Colomé Ibarra to explain why the ministry office that is in charge of exit permits never answered her Nov. 18, 2010 request for the reasons behind the refusals.
Colomé Ibarra now has 60 days to respond to her complaint of “administrative silence,” Sanchez said. If he doesn’t, she will file a lawsuit against the minister seeking a court order that he must reply.
“Of course, I know what’s going to happen. But I want to maintain that innocence of having hope,” Sánchez added, referring to the high probability that her complaints will go nowhere in a country where the courts faithfully follow the government line.
Cubans who want to travel abroad require a government permit, known as a “White Card” and regularly denied to dissidents. It has turned down several Sánchez requests to travel abroad to receive prizes, attend conferences or for other reasons.
She has repeatedly asked for an explanation at the Interior Ministry’s Office for Immigration and Foreigners’ Affairs, but received none. Her notice Wednesday elevated her question to the minister’s office.
“It’s a step before a lawsuit,” she told El Nuevo Herald by phone from Havana. “It is a legal, juridical opportunity in the hands of citizens, which allow an appeal against Cuban authorities when the authorities have not responded to a petition.”
Her notice was the latest in a handful of bold attempts by dissidents and others to use Cuba’s legal system to challenge official actions. The courts have knocked down almost all the cases, including some filed against police.
But the Cuban Juridical Association is still fighting a three-year-old case seeking the legal recognition of the Justice Ministry as a group of lawyers that provides legal advice on a nonprofit basis, usually to government critics.
CJA chief Wilfredo Vallín, who also is advising Sánchez on her case, took the first step required to register the group in April 2009 by asking the Justice Ministry’s Registry of Associations to certify that no other group had registered the same name.
The registry never replied so the 1992 graduate of the University of Havana Law School elevated his request to Justice Minister María Esther Reus. When she didn’t reply, he filed suit under Cuba’s Law for Civil, Administrative and Labor Procedures.
To his surprise, a three-judge panel first officially accepted Vallín’s complaint, and then ordered Reus to appoint lawyers to defend her. Cuba’s highest court, the Supreme Tribunal found a technical fault with one of his filings last year but allowed the case to continue and later ordered the minister to reply to Vallín’s initial request.
The Justice Ministry certified last June that no other group was registered with the same name or purpose as the CJA, but earlier this year it rejected the CJA’s application for recognition on technical grounds. Vallín has vowed to appeal.
Ministry officials had never officially recognized any dissident group, making them illegal and therefore subject to sanctions for the crime of “illegal association.”
Cuba’s justice system argues that the role of the law is to promote stability and the development of a “socialist society.” Dissidents put on trial are almost always convicted.
Lawyers are required to work for the government or government-approved Collective Law Offices, where criminal defense attorneys can be hired. But lawyers who spend too much time defending dissidents are sometimes fired from the law offices.

Arch Ritter, Yoani Sanchez and Reinaldo Escobar, Havana April 2012

 

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Phil Peters: “A Viewer’s Guide to Cuba’s Economic Reform”

A comprehensive, concise and high quality study on Cuba’s economic reforms has just been published by Phil Peters, the Vice President of the Lexington Institute.  Peters is also the author of the Blog The Cuban Triangle: Havana-Miami-Washington events and arguments and their impact on Cuba.

The complete presentation is available here:  Phil Peters, A Viewers Guide to Cuba’s Economic Reform

TABLE OF CONTENTS

Introduction

A Tale of Two Speeches

Raul Gets Started

The Communist Party Blueprint for Economic Reform

A Viewer’s Guide, Sector by Sector

Small Entrepreneurs

Agriculture

Cutting Government Spending

Private Cooperatives

State Enterprises

Foreign Investment

Removing “Excessive Prohibitions”

Tax Policy

 Local Government

Credits for Business and Home Improvement

 Conclusion

APPENDICES

A Chronology of Reform

The Media and Reform

The Legalization of Residential Real Estate Sales

The Demographic Squeeze

Phil Peters, Lexington Institute

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Cuba waits anxiously for oil dreams to materialize

By PAUL HAVEN. Associated Press, May 27, 2012

HAVANA (AP) — It was supposed to be Cuba’s economic savior: vast untapped reserves of black gold buried deep under the rocky ocean floor.

But the first attempt in nearly a decade to find Cuba’s hoped-for undersea oil bonanza has come up dry, and the island’s leaders and their partners must regroup and hope they have better luck – quickly.

Experts say it is not unusual that a 3-mile (4.8-kilometer) deep exploratory well drilled at a cost of more than $100 million by Spanish oil giant Repsol was a bust. Four out of five such wells find nothing in the high-stakes oil game, and petroleum companies are built to handle the losses.

But Cuba has more at stake, and only a few more spins left of the roulette wheel. The enormous Scarabeo-9 platform being used in the hunt is the only one in the world that can drill in Cuban waters without incurring sanctions under the U.S. economic embargo, and it is under contract for only one to four more exploratory wells before it heads off to Brazil.

“If oil is not found now I think it would be another five to 10 years before somebody else comes back and drills again,” said Jorge Pinon, the former president of Amoco Oil Latin America and a leading expert on Cuba’s energy prospects. “Not because there is no oil, but because the pain and tribulations that people have to go through to drill in Cuba are not worth it when there are better and easier options in places like Angola, Brazil or the U.S. Gulf of Mexico.”

A delay would be catastrophic for Cuba, where 80-year-old President Raul Castro is desperately trying to pull the economy out of the doldrums through limited free-market reforms, and has been forced to cut many of the subsidies islanders have come to expect in return for salaries of just $20 a month.

It could also leave the Communist-governed island more dependent on Venezuela, where President Hugo Chavez is ailing with cancer. Chavez provides Cuba with $3 billion worth of heavily subsidized oil every year, a deal that might evaporate if he dies or fails to win re-election in October.

An oil find, on the other hand, would potentially improve Cuba’s long-bitter relations with the United States, some analysts suggest. They say the U.S. oil industry could lobby Congress to loosen the embargo so it could get in on Cuba’s oil game. At the very least, coordination between the Cold War enemies would be necessary to prepare for any spill that could coat beaches in the U.S. and Cuba with black goo.

The Cuban government has not commented on Repsol’s announcement May 18 that the first well came up dry, and declined to make any oil officials or experts available to be interviewed for this article.

Next in line for using the drilling rig in Cuban waters is Malaysia’s Petronas, which holds the rights to explore an area in the Florida Straits known as the Northbelt Thrust, about 110 miles (180 kilometers) southwest of Repsol’s drill site. Wee Yiaw Hin, Petronas’ executive vice president of exploration and production, told The Associated Press that drilling has begun and he expects results by the end of July.

After that, two industry experts said, Repsol is under contract to drill a second well, though it could get out of the deal by paying a penalty to Saipem, the Italian company that owns the rig. Kristian Rix, a spokesman for Repsol in Madrid, said a decision on whether to sink another well was still being evaluated.

Venezuela’s PDVSA and Sonangol of Angola have options to drill next, but are under no obligation if they don’t like their odds. While both countries are strong allies of Cuba, at $100 million a well, the decision to drill will likely be based solely on economics.

Even if oil is found, the Scarabeo-9 is under contract to power up its eight enormous thrusters and sail to Brazil after that, with no date set for its return to Cuba. The bottleneck highlights the difficulties Cuba faces, and why it could be well into the 2020s before the island sees any oil windfall.

“Assuming they’re successful in finding oil, to bring the oil to market will take years of development efforts,” said Victor Shum, an energy analyst with consulting firm Purvin & Gertz in Singapore.

Once an exploratory well finds oil, companies generally drill between 10 and 20 additional wells nearby to get a sense of the reservoir’s size. The process can take several years even under normal circumstances, and circumstances are not normal in Cuba.

The Scarabeo-9 was built in Asia with less than 10 percent U.S.-made parts to avoid violating Washington’s embargo, making it the only rig in the world that meets the requirement. That means no other rig could be used in Cuba without risking U.S. sanction, and the additional wells would have to be drilled by the rig one at a time, with each taking about 100 days to complete. At about three wells a year, it could take up to six years for this second phase – assuming the rig is available.

After gauging a reservoir’s size, an oil company then must assess whether the economics of a field make it a prime spot for exploitation, or whether to concentrate resources elsewhere.

If exploitation does go forward, complicated equipment is required to pull oil from such depths. Several industry experts said the only country that produces the necessary apparatus is the United States, although Brazil and other countries are working to catch up. Unless they do, the oil could not be removed unless the U.S. embargo was lifted or altered.

“A lot of folks are looking at the energy sector in Cuba because they are looking at a Cuba of five years from now, or 10 years from now,” said Pinon. “So a lot of people are betting that either the embargo is going to be lifted, or the relationship between the U.S. and Cuba is going to improve in some way.”

Still, the benefits of hitting a gusher would be enormous for Cuba, and the impact could be felt long before any oil was pumped.

Because of the embargo, Cuba is shut off from borrowing from international lending institutions, and the island’s own poor record of repayment has left most other creditors leery. Cuba, for instance, owes the Paris Club of creditor nations nearly $30 billion.

An oil find could change the game, with Cuba using future oil riches as collateral to secure new financing, economists say. They point to China and Brazil as potential sources of new funding, but say neither is likely to put money into the island without reasonable confidence they will get their investment back.

Lee Hunt, the recently retired president of the Houston-based International Association of Drilling Contractors, said the stakes are enormous for Cuba that one of the wells hits oil before the Scarabeo-9 leaves. Hunt has worked to bring U.S. and Cuban industry and environmental groups together.

“If the only rig you can work with is gone, it’s like somebody took your shovel away,” Hunt said. “You are not going to dig any holes without a shovel, even if you know the treasure is down there.”

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Prison workers used in many Cuban government enterprises

By Juan O. Tamayo, Miami Herald, Posted on Mon, May. 21, 2012

Combinado del Este

 The Cuban government-owned enterprise Provari is known on the island for making everything from bricks and construction blocks to mattresses, tourist handicrafts and the insecticide Lomaté — I Killed It.

What is less well known is that the vast majority of its workers are prison inmates — what dissidents denounce as “slave laborers” who work with few safety protections and receive meager wages or are not paid at all.

Prison labor in Cuba is extensive yet “like the dark side of the moon, not well known at all,” said Elizardo Sánchez Santa Cruz, head of the Cuban Commission for Human Rights and National Reconciliation.

A Provari business prospectus claimed it had 150 production facilities around the island in 2001. Sánchez said it operates in virtually all of the estimated 200 prisons and labor camps in Cuba.

Prison labor is common around the world. In the United States, prisoners make license plates, government furniture and much more. Florida state prisons require inmates to work unless they are exempt for medical or other reasons. Most earn nothing, and canteen workers, barbers and a few others get only $50 a month.

“There’s no objection in principle to companies managing factories in prisons,” said Andrew Coyle of the International Centre for Prison Studies in London. But inmates should have equal salaries and work conditions. “This should not be forced or slave labor.”

But Cuba is a dictatorship, Sánchez argued, where the communist government can do anything and keep it secret. That includes exploiting inmate workers at will and punishing anyone who complains.

He added that he was specially concerned about the safety conditions in prison factories and singled out the Lomaté insecticide, manufactured in Havana’s Combinado del Este and other prisons around the island.

Farm workers seldom get special clothing to protect them from chemicals, and cane cutters rarely get proper boots to protect their feet from their machetes, said Joel Brito, a former safety expert in the island’s lone labor union, the Cuban Workers’ Central.

The Interior Ministry (MININT) and Ministry of the Armed Forces, which own a large number of manufacturing and construction enterprises, do not report industrial accidents to the National Statistics Office, Brito noted.

“There are no protective measures because there’s always a shortage of money. And if that’s the case in the general economy, imagine what it’s like for prisoners,” added Brito, who now heads a Miami group that monitors labor abuses in Cuba.

Questions about prison labor in Cuba arose recently amid reports that the IKEA furniture chain and an East German firm had hired the Cuban state-owned company EMIAT to use prison labor to manufacture tables and sofas in 1987.

One Cuban business report says EMIAT imports supplies and commercializes products for government-owned companies, including Provari. EMIAT and Provari — Enterprise for Various Products — share a Havana address in some of the reports.

A man who answered the phone at Provari’s Havana office, asked if the company uses prison labor, said, “Yes, the work is by prisoners.” He also confirmed the firm is owned by MININT, which is in charge of prisons, but declined further comment.

A Cuban government radio report on Provari’s work last summer said it was established 20 years earlier “principally with the objective of offering work to prisoners … and integrating them into work useful for society.”

Many prisoners work for the chance at fresh air and perhaps better food, and to avoid having their records marked “refused to work,” which would dash any hope for an early release, said Luis Enrique Ferrer, a dissident who spent eight years in prison.

Authorities allow only common criminals to work, fearing that political prisoners would publicize the work conditions, he added. Ferrer, who did not work in prison, was freed in 2010 and now lives in Miami.

But dissidents and independent journalists in touch with prisoners have published several reports over the years alleging problems at Provari’s prison workshops.

Journalists Jorge Alberto Liriano Linares reported in 2010 that 16 inmates suffered serious accidents at a Provari factory for construction materials at the Kilo 8 prison in eastern Camaguey Province, where he served part of his own13-year sentence.

Inmates in “this killer factory” are forced to work without salary, clothes, shoes or gloves, he wrote for the news service Hablemos Press. They work 10 hours a day and handle toxic chemicals “and because of that they suffer respiratory and skin diseases.”

Brito’s International Group for Corporate Social Responsibility in Cuba reported in 2010 that a factory in Prison 1580 near Havana was forcing inmates to work up to 12 hours a day making construction blocks and seldom paying the promised $10 a month.

Its 2009 annual report included complaints that inmates at the Nieves Morejón prison in Sancti Spiritus were paid a mere $2 per month, and that prisoners in Boniato in eastern Cuba were paid $1 per month — plus a promised bonus that was never paid.

Dissident Felix Reyes reported last year that prisoners at the Canaleta prison in eastern Ciego de Avila had complained that the gloves bought for them by the Provari factory there “were rotted and were missing fingers.”

Independent journalist Dania Virgen Garcia, who has written often about prison conditions, told El Nuevo Herald that she knew of prisoners who worked up to 16 hours a day, six days a week, and were paid nothing.

Sanchez and Ferrer said most of the overall prison labor in Cuba involves agricultural work like weeding fields, harvesting vegetables and picking fruit — some for sale, some for the prisons’ own consumption.

Provari uses the prison labor more for manufacturing, said Sánchez and García. It also has subsidiaries that build roads and government buildings, although it is not clear if they use prison labor.

A report last year in the government’s Guerrillero newspaper noted that the Provari branch in the western province of Pinar del Rio had the equivalent of $200,000 worth of sales in 2010, “mostly for products sold locally rather than export.”

The branch’s production included bleach and muriatic acid, beach chairs, cribs and playpens, clay and concrete construction blocks, paint and paint brushes, plastic tubes and ornamental plants, according to the report.

A large shop in a Havana women’s prison sews jeans for export under several brand names, as well as uniforms for the police and the military, García said. Sánchez said the Boniato prison, where he spent time in the 1990s, makes metal chain link fencing.

Other Cuban news reports noted that a Provari unit in eastern Ciego de Avila made 20,000 plastic molds, and that the enterprise and the Ministry of Construction were to provide the materials for a 2010 campaign to step up home construction.

The company also manufactures the Lomaté insecticide as well as lice and tick killers “and other products “for sanitary hygiene,” and was planning to build a 170-liter solar water heater, according to other media reports.

A business prospectus issued in 2001 listed some of Provari’s activities as carpentry using precious woods as well as textiles sold under the OESTE and HERCULES brands and the upholstery of office furniture sold under the brand name of OFIMAX.

The prospectus also said the enterprise was ready to do business “with foreign and national companies,” though the deal with IKEA appeared to have run into trouble.

The first sofas made for IKEA in 1988 reportedly had “quality problems,” and it was not clear if any part of the deal was ever carried out.

 

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