Sea Changes: The New Cuban Economy
Monreal, Pedro
The two interconnected goals of economic policy are survival and progress. Cuba is approaching the first-securing a "place under the sun" in the global economy-but its prospects for...
...Traditional exports would not be able, under the most favorable scenario, to reach the levels to pay for the imports of capital and consumer goods that were considered necessary for the normal operation of the economy...
...On the other hand, by selling to tourists, some traditional industries have become indirect exporters...
...dollars now account for around 54% of total domestic retail sales, a proportion considerably higher than the 46% reported by the tourism sector.4 There are many sources of dollars in the Cuban economy, including income obtained by providing "personal services" to tourists, but by 1997-1998 remittances were the main net provider of hard currency for the country and a vibrant and important component of Cuba's current modem economy...
...Policy makers realized that successful reinsertion into the world economy would require diverse and stronger linkages between the modern and traditional sectors, as well as domestic macroeconomic stabilization...
...The second requires "upgrading" within the 21REPORT ON CUBA A work crew in a state factory heatedly disputes a proposed increase in output quotas with the factory manager...
...The perception that some kind of minimum floor in exports and imports had finally been established sustained by tourism income and family remittances created more room to look for ways to absorb technology and knowledge in order to maximize the benefits of international insertion...
...Even those who homes can charge dollars and are in heavy demand...
...In a general economic context of inflation, currency devaluation and lack of working incentives, any micromanagement approach that limited itself to certain sectors of the economy, no matter how successful on its own terms, would be insufficient to revive the economy...
...None of those alternatives would be free of social and political problems...
...This reinsertion-or "relinking"-follows a previous long period of "delinking" from that same world system, particularly during the 1980s...
...There was not much hope in the f+tlt f' ltiti.nl + A1to In+I ruri , rUi-ia WJL Iia a Au a sugar, minerals and tobacco, but they were needed to maintain a minimum level of exports...
...On the one hand, tourism was performing very well...
...In general a small amount of value added stays within the country...
...Survival continued to be the primary goal of relinking, at least until early 1995, when economic policy makers began to see that recovery was taking hold, making it possible to focus more on longer-term issues...
...Remittances are acting, in fact, as a major force in the restructuring of the Cuban economy...
...That was the period of the "great experiments": the legalization of the holding and free circulation of U.S...
...4. See Rofolfo Casals, "Turismo: El coraz6n de la economia," Granma Internacional, Vol...
...Reinsertion was not postulated as leaving all decision-making to the market...
...2 (January 1998...
...Afro-Cubans demned in his January speech...
...He noted that the average month- ly salary had increased by 14% to 217 pesos...
...Reform was then relatively broad...
...The number of Cubans who now enjoy what Rodriguez described as "hard-currency incentives and other equivalent forms" increased last year by 21%, to 1.2 million...
...embargo and other political factors cost the Cuban onomy $800 flllltiori a year, equilent to about 2% of Cuba's cUrrent import bill...
...Nonetheless, he admitted that in 1998 there were shortfalls in deliveries of some rationed goods, such as kerosene and eggs...
...Limited reinsertion, therefore, is a more plausible outcome but even this will require a significant upgrading of the traditional sector, a process which will require massive investment...
...This model has been adopted in countries such as the Dominican Republic and China, which have large numbers of impoverished, poorly educated workers...
...dollars...
...dollars, the most reliable of which based commerce that has become a are remittances from relatives in fact of life for most Cubans since the the United States and employholding of foreign currency became ment in some activity which prolegal in 1993...
...ty of activities with no Here, the crucial factor, perhaps more important than LOUI AIII ILtsl, Iihas been il a ily remittances...
...Omitted from Rodriguez's report was the fact that inflation last year reached 5...
...Economic policy is therefore a key factor and political considerations are paramount...
...and the financial package for macroeconomic stabilization...
...The modern external sector was basically comprised of what were called the new exports, particularly tourism and pharmaceuti- cals.' Indeed, since the early 1990s, the tourism and pharmaceutical sectors were identified as Cuba's "shin- ing stars" of competitiveness...
...The process of reinsertion is therefore incompatible with low levels of economic growth...
...At the beginning of the 1990s, Cuba only had about 2,000 hotel rooms...
...rn that insertion dictates Most of the limits which shape the options in the ora n f rrncIrtrn non ixo mndTfi,.A 1r nocFil Ortifn Economic policy is therefore a key factor and political considerations are paramount...
...It has been argued that EPZs in Cuba will create job positions for skilled workers and that they will be a means to increase export revenues and obtain high technology 8 But the likelihood that EPZs in Cuba might be different from those in other countries seems remote...
...In the early 1990s the government viewed the traditional industries as the way to provide hard currency to secure a minimum level of imports, with the goal that by the latter part of the decade, they would attain medium to satisfactory levels of exports plus a certain degree of import-substitution produc- tion...
...Cuba, on the other hand, has a highly skilled industrial labor force...
...Survival continued to be the primary goal of relinking, at least until early 1995, when economic policy makers began to see that recovery was taking hold, making it possible to focus more on longer-term issues...
...Voi XXXII, No 5 MARcH/APRIL 1999 25 REPORT ON CUBA ment of linkages with the traditional sector, especially agriculture, food processing, construction, building materials, engineering services, light industry and equipment production...
...Hagelberg, "The Cuban Sugar Economy in the Soviet Era and After," Cambridge Journal of Economics, Vol...
...Their capacity to establish backward linkages NACLA REPORT ON THE AMERICAS 26REPORT ON CUBA throughout the domestic economy has been effectively utilized to create a vast semiprotected market which has allowed segments of the national economy to become relinked indirectly...
...In addition...
...earn professional salaries, however averaging 300 to Anyone with a car can use it as a taxi...
...Finally, the modem sector showed an uneven pattern of performance and the volume of its exports was considerably lower than initial expectations...
...2 (March 1998...
...It also now included the absorption of technology and knowledge to increase the efficiency of traditional exports, the development of new sources of hard-currency income from traditional products, and the reduction of imports...
...Since it is evident that the Cuban state has no means of its own to successfully implement the required economic transformations, private funds will be required to achieve these high rates of growth...
...The first phase of the relinking process began in 1990 and 1991, and the emphasis was on survival...
...the modification of the organization of agriculture...
...A trial-and-error process revealed important lessons about efficiency among alternative options for economic policy and institutiona of the transformation adopte insertion has created a grow property and an expanded role assume, however, that this is dictable process, and the notion European tourists visit the town of Trinidad, on the south-central coast...
...Third, having so many people who consider themselves loyal Cubans participating in de facto illegal activity has undermined revolutionary values...
...Natural gas is expected tQ be generating about 215 Megawatts per year by the year 2000...
...and the financial package for macroeconomic stabilization...
...In a general economic context of inflation, currency devalVoL XXXII, No 5 MARCH/APRIL 1999 23 REPORT ON CUBA be the product of deficiencies in the economic system, but rather the consequence of a foreign-trade shock-the loss, that is, of Cuba's socialist bloc trading partners...
...Sugar was particularly hard hit by the adverse weather conditions...
...Nickel production, for example, has been notably upgraded to the point that it is now possible to question its classification as part of the traditional sector...
...While the revolution still guarantees free health care, education, a minimum standard of nutrition and-for most-a job, the need to get dollars has had several negative consequences that raise some fundamental questions about socialism...
...imports had been reduced by 75%, and the gross domestic product (GDP) had contracted by almost 35%.3 The first phase of relinking, in other words, had not been successful in providing survival at a tolerable level...
...Important sectors of the ENERGY Reducing the islands oil dependency is one of the government's top priorities...
...Social exclusion and increasing inequality brought about by dollarization a cen- tral mechanism in reinsertion has been partially compensated by social programs, but the fact remains that even a mild model of reinsertion can be conducive to outrageous forms of social exclusion...
...Sea Changes: The New Cuban Economy 1. Elena Alvarez, La apertura externa cubana (Havana: Instituto Nacional de Investigaciones Econ6micas, 1995...
...First, the dollar economy ha5 reintroduced inequality...
...Reform was then relatively broad...
...Much of the investment in tourism is coming from the government itself...
...4 There are many sources of dollars in the Cuban economy, including income obtained by providing "personal services" to tourists, but by 1997-1998 remittances were the main net provider of hard currency for the country and a vibrant and important component of Cuba's current modem economy...
...Last year oil production increased by 12% to 1.65 million metric tons...
...On a recent trip for example, Pedro Monreal calls dollarization a "central to Cuba, a doctor told me of a colleague who retired mechanism" of Cuba's current reinsertion into the from his hospital post and now drives his car as a cab to world economy, support the family...
...We cannot assume, however, that this is a linear and totally predictable process, and the notion that insertion dictates Tourism, a business now estimated to be worth about $1.9 billion, has continued to expand...
...Economic decisions made within this period of relinking or the failure to make those decisions will strongly affect the coming decades of the counI try's development...
...Of these total sales in dollars, two thirds take place on the dollarized retail market, less than one quarter is sold to the tourism sector, and only oneeighth is actually exported.6 Another attempt to relink traditional activities to the global economy but one which, in fact, does not seem destined for success has been the creation of export-processing zones (EPZs...
...That, of course, could change to accommodate larger potential flows of investment...
...It has also been incorporated as a full membeof ALADI, the Ltin American Integration Association Caribbean & CentralAmerica Report, 1/19/99 EMBARGO In late December, Vice-President Carios Lage estimated that the U.S...
...Social exclusion and increasing inequality brought about by dollarization-a central mechanism in reinsertion-has been partially compensated by social programs, but the fact remains that even a mild model of reinsertion can be conducive to outrageous forms of social exclusion...
...This is the only way his son, also a But the need for dollars also takes a heavy toll on doctor, can afford to keep practicing medicine...
...33, No...
...Reacting to a crime wave that is still very slight by Caribbean standards, many Cubans are favorably disposed to such a crackdown...
...1.0 NICARAGUA -39 -0.2 PANAMA 07 2.9 PARAGUAY 0.0 0.0 PERIl -3.3 3.7 D0MINAN REPUBL:C 0.2 2.8 URUGUAY -0.6 3.5 VENEZUELA -3.2 1.0 Source: Economic commission on Latin America and the caribbean (ECLAC), 1998...
...That was the period of the "great experiments": the legalization of the holding and free circulation of U.S...
...Macroeconomic instability was creating an unpredictable economic environment, and this was preventing producers, investors and policy makers from taking the actions necessary for recovery with any degree of confidence...
...Last year it installed 100,000 new telephone lines and it plans to invest about $900 million in the sector...
...B y late 1994, the focus had clearly shifted from survival to upgrading...
...Tourism and pharmaceuticals, on the other hand, were seen as having greater growth potential and pos- sibilities for upgrading...
...Under the official assumption of an annual average growth rate of 4% over the next few years, the recovery of the level of output that existed in 1989 would be reached by the year 2005...
...It was assumed that a successful relinking would solve most of the problems of the economy...
...9. Helena Johanson, "The Economics of Export Processing Zones Revisited," Development Policy Review, Vol...
...In addiThe legalization was a bow to reality, since so many tion, some firms with foreign investors pay productivity Cubans were receiving dollars either from emigre rela- bonuses to workers in dollars, and some state firms in tives or by working in the tourist trade, fueling a lively key sectors are beginning to do the same...
...dollars...
...annual sugar output declined steadily, was potential for growth, and foreign capital was Finally, the modern sector showed an uneen pat- available for financing the sector's further developtern of performance and the volume of its exports was ment...
...Their capacity to establish backward linkages A fruit vendor in downtown Havana...
...gap between high and low wages, and reinforced equality through the social provision of basic necessi- hose without a steady source of dollars rely on a ties...
...The trajectory of the transformation adopted in order to facilitate insertion has created a growing presence of private property and an expanded role for markets...
...The perception that some kind of minimum floor in exports and imports had finally been established--sustained by tourism income and family remittances--created more room to look for ways to absorb technology and knowledge in order to maximize the benefits of international insertion...
...In the same period the number of airlines serving the island increased from three to 47...
...This is simply to say that a mixed economy is needed in Cuba...
...Therefore, most of the adjustment, it was thought at the time, would be confined to the external sector of the economy...
...The structure of sales in hard currency of so-called light industry textiles, apparel, shoes, furniture and toiletries, for example is highly illustrative of the importance of the domestic market in dollars supported by tourism and remittances...
...It was therefore the task of the foreign-trade sector to achieve a new point of equilibrium so that the country could resume economic growth...
...New markets and suppliers had to be found in a very short period of time...
...This approach was created in the second phase of the reinsertion process when new foreign-investment regulations allowed for the creation of free-trade zones and industrial parks...
...vides contact with foreigners, notably tourism...
...It is feasible that they could be utilized to address the inequalities and dislocations a stronger form of reinsertion would imply...
...Foreign capital has played a role in recent transformations of the Cuban economy, though by policy design, its role has been relatively limited until now...
...Relations with the "capitalist world" were very modest and perceived to be neither fair nor advantageous in comparison with socialist-bloc patterns of trade and credit, which had built-in mechanisms for preferential prices, soft loans and arrangements for the re-export of oil in hard currency...
...2 In addition, the numbers simply did not add up...
...Goods available bureaucratic requirements and pay a stiff licensing fee, _____________________________________________ but the many people who do these jobs without licensJack Hammond is professor of sociology at Hunter College and es are outside the law...
...Last year it totalled $500 million compared with $49 million for the foodstuffs industry and $37 million for the steel and metals sector...
...The in formal economy (called the self-employed sector) pro v/des a means of survival for a large sector of the population...
...In addition, profits from domestic private enterprises could become an important source of savings and capital accumulation within the country, and the transfer to the private sector of assets inefficiently utilized by the state would improve through efficient taxation the state's potential for accumulation...
...Note that Cuba goes agair?st the trend in both periods...
...An estimated 400 pesos a month do little better...
...fading has extended to previous export background such as furniture making, with tourism income, interior-design services and the production of engihus had a dual effect...
...In addition, decentral- ized and market-oriented notions are now part of the mainstream equation of economic management in Cuba, no matter what the ideological explanation maybe...
...Here, the crucial factor, perhaps more important than tourism itself, has been family remittances...
...relative to its foreign The establishment of a dollarized economy along by selling to tourists, chains of enterprises supplying both the tourism sector ave become indirect and the retail stores trading only in dollars has resulted stries are traditional in sales generated by enterprises of the traditional sec[eries and fruits, and tor which are now "exporting within the borders...
...however, could make the key difference between paths of low and high economic growth...
...building materials, engineering services...
...The government decided to base its strategy of economic recovery on the construction of a dual foreign-trade sector in which a "modem" component would provide dynamism and the potential for upgrading, while a "traditional" component maintained a basic export floor...
...It is difficult to identify an exact date for the beginning of the second phase of relinking, which involved a greater emphasis on upgrading an activity which had now become de facto redefined to include activities of both the modern and traditional sectors...
...We cannot talist economy is certainly not the solution to the cura linear and totally pre- rent problems of Cuba...
...This is the time for those difficult choices to be made...
...Upgrading has also been partially extended to other important traditional Voi XXXII, No 5 MARCH/APRIL 199925 VOL XXXII, No 5 MARCH/APRIL 1999 25REPORT ON CUBA export industries such as sugar cane, citrus, tobacco, fisheries, mining and telecommunications...
...The informal economy (called the self-employed sector) provides a means of survival for a large sector of the population...
...See Pedro Monreal, Paises pequehros, migraciones y remesas familiares: Notas conceptuales (Havana, 1998), Mimeograph...
...To be sure, the goal of survival has never been abandoned, but upgrading has achieved pride of place during the second phase...
...His breakdown, based on data for 1997, is as follows: Higher freight charges: $130 million Higher cost of irl)ports: $200 milliofl lower export revpues: $55 million Exchange operatkns: $260 millior Caribbean & Central America Report 1/19199 VOL X)(XII, No 5 MARCH/APRIL 1999 27REPORT ON CUBA policies then, which have discouraged the formation of private domestic capital, the non-state sector can only play a limited role in investment and economic growth...
...This article will examine the process by which Cuba shifted gears under extreme duress, and will critically discuss some options the country faces in the very near-term future...
...it now has 29,000...
...Pedestrians in Havana are regularly accosted by people offering cigarettes and other goods at low prices...
...In 1989, 80% of Cuba's total trade was with the socialist economies...
...This will require a relatively significant reorientation of the gen- eral framework of current economic policy...
...None of those alternatives would be free of social and political problems...
...The 50-50 partnership established between the state-owned Compahia General del Niquel S.A...
...Caribbean & Central America Report, 1/19/99 It is important to keep in mind that when, in the wake of the collapse of its socialist trading partners, the Cuban government sought to reestablish economic well-being by reinserting itself into the trade and investment networks of the capitalist economies, the very survival of the Cuban economy was in question...
...According to the government, low prices translated into a shortfall of about $55 million...
...The period connecting the worst of the crisis (1993) and the clear beginning of recovery (the second half of 1994) can be best understood as a transition between the first and the second phases of relinking...
...One of the greatest ironies of the remnants of the Cold War in the Caribbean is precisely the upgrading of Cuban industry funded by savings originating in the United States...
...Even oil, a critical sector for the Cuban economy, has received less, about $300 milhon over the past three years...
...Economic reform should also include the revitalization of state-owned enterprises, which can still play an important role in the economy...
...Production is for export only, and foreign partners are typically interested in keeping the costs of production very low...
...It also now included the absorption of technology and knowledge to increase the efficiency of traditional exports, the development of new sources of hard-currency income from traditional products, and the reduction of imports...
...It is difficult to identify an exact date for the beginning of the second phase of relinking, which involved a greater emphasis on upgrading-an activity which had now become de facto redefined to include activities of both the modem and traditional sectors...
...the sector, in terms of volume, had performed below expectations...
...Simply put, low growth is neither conducive to a domestic high-savings environment nor particularly attractive for external funding...
...Having anniversary of the founding of the Those without a steady access to dollars is thus necessary National Revolutionary Police, Fidel to live with any margin of cornCastro spoke of some of the criminal source of dollars rely fort...
...The combined effect of tourism and remittances on the upgrading of other activities not directly relinked to the world economy has been very significant...
...That perception was a crucial factor in the government's decision to allocate scarce investment resources to these industries...
...33, No...
...Many workers in state manufacturing and commercial firms supplement their income by pocketing goods on the job and selling them on the street...
...Both the economy and the "social contract" political consent supported by an acceptable standard of living and opportunities for social mobility seemed to be rapidly falling apart...
...The logic of upgrading was no longer limited to developing high value-added exports...
...Indeed, throughout the early OflC hand, tourism was performing ery well: there 1990s...
...By 1993, however, it was clear that the approach to relinking had to be revised, this time as part of a broader reform which would introduce substantial modifications to the domestic side of the economy...
...The global economy has had a visible "pull effect" on policy making in Cuba...
...Among these indu exporters like beverages, fish increasingly a rather wide variety A fruit vendor in downtown Havana...
...the modification of the organization of agriculture...
...26 NACIA REPORT ON THE AMERICAS REPORT ON CUBA export industries such as sugar cane, citrus, tobacco, fisheries, mining and telecommunications...
...Now Fidel promises psychological counseling for prostitutes-whose profession was just criminalized-and draconian measures If relatively few Cubans have turned to prostitution or mugging, however, survival requires many of them to commit minor economic offenses...
...By 1998 there were three free-trade zones in Cuba with 190 foreign operators, with immediate plans to create two more.7 The standard outcome of EPZs is the establishment of a pattern of limited linkages between the free-trade enclave and the rest of the economy, with predominant use of low-skilled and low-wage jobs...
...It is useful to recall that in 1991 it was not clear at all what the demand for traditional Cuban exports-primary products like sugar, tobacco and minerals--would be in world markets...
...The number of visitors to Cuba grew last year by 19.5% to 1.4 million...
...Both the economy and the "social contract" -political consent supported by an acceptable standard of living and opportunities for social mobility-seemed to be rapidly falling apart...
...In the case of tourism, upgrading has extended to traditional activities financed with tourism income...
...5 It is evident that personal demand supported by remittances has been playing a key role by bolstering demand for domestic products and services...
...REPORT ON CUBA Cuban economy are--like tourism and nickel production-already market-oriented and have found "a place under the sun" in the global economic system as well as potential for upgrading within the system...
...Spain's Caja Madrid is financing Cuban businesses and a 8ritish health-insurance venture...
...5. There are few published studies of family remittances in Cuba from a broader theoretical perspective...
...That perception was a crucial factor in the government's decision to allocate scarce investment resources to these industries...
...There are not yet adequate data to analyze the consequent relocation of workers who have been displaced by downsizing, but it seems that such relocation would have to take place outside manufacturing...
...In addition, this joint venture is considered the world's most technologically innovative in nickel metallurgical processing...
...Private domestic capital has a very limited presence in Cuba basically confined to agricultural production although the cooper- ative sector is relatively large...
...Cuba has been admitted as an observer in the ongoing trade negotiations between the European Union and the ACP (Africa-Caribbean-Pacific) group of developing nations...
...Therefore, most of the adjustment, it was thought at the time, would be confined to the external sector of the economy...
...Under current C urrent policies which have promoted downsizing and industrial restructuring in the traditional manufacturing sector have been conducive to leaner and more efficient enterprises...
...It is interesting that while tourism is a high-volume sector with a rather modest potential for upgrading by itself most of its activities performed in Cuba are labor intensive and relatively low- technology services the pharmaceutical industry is currently a low-volume activity but with a great potential for upgrading...
...There is very little control over author of Fighting to Learn: Popular Education and GuerrIla them, but since Fidel's January speech condemning the member of AL4 (IA's editorial b Press, 1998...
...BY JACK HAMMOND the booming tourist trade, people have expected a crackdown...
...Also its net contribution and its potential for upgrading were closely associated with the establishfor ty ArC NACIA REPORT ON THE AMERICAS 24REPORT ON CUBA men...
...One of the heralded accomplishments of the revolution in the 1960s was the elimination of prostitution and the retraining of pTostitutes for new jobs...
...The great concern at the beginning of the crisis was simply not to be left outside the system...
...It was assumed that a successful relinking would solve most of the problems of the economy...
...547-569...
...2. The modern sugar cane industry, the main source of Cuban exports until very recently, is highly dependent on timely and constant access to inputs...
...Cuban economists recognize legalization a job which produces tips in dollars can live very well, as part of a package of economic reforms which have and necessity has forced many well-educated Cubans to contributed to greater economic efficiency and an leave prestigious positions in health and education for increase in the supply of consumer goods...
...First, the dollar economy has reintroduced inequality...
...y late 1994, the focus had clearly shifted from survival to upgrading...
...of linkages with the traditional sector, especially agriculture, food processing, construction...
...The language people use reflects their feelings about pilfering on the job: they do not talk about goods as stolen but as "diverted...
...Policy makers realized that successful reinsertion into the world economy would require diverse and stronger linkages between the as well as domestic macroeconomic stabilization...
...4 (1994...
...Not mcidaily life and forces many otherwise law-abiding and dentally, this situation threatens to resurrect social diviloyal Cubans to do some of the very things Fidel con- sions between black and white Cubans...
...variety of hustles, legal and illegal, to pick up hdrd Those who earn only the minimum wage in pesos currency: renting rooms to tourists, preparing food to roughly 100 pesos, or five dollars a month do not sell on the street, or opening restaurants in their homes...
...Macroeconomic instability was creating an unpre- dictable economic environment, and this was preventing producers, investors and policy makers from taking the actions necessary for recovery with any degree of confidence...
...Reality clashed with the idealized models of reinsertion into the world econo- my of the early 1990s...
...light industry and equipment production...
...As he spoke about prostitu- ' like restaurants, which require tion, street crime and the drug trade, legal and illegal, to some capital investment, alert Cubans heard the threat of a . There are several sources of crackdown on the unauthorized dollar- pick up hard currency...
...In any case, private capital will be needed as a source of funds, technological learning and efficiency...
...A shifting pattern of relinking has taken place in Cuba through the 1990s...
...One area where efforts in this field have been paying off is that of power generation: Since the beginning of this decade, the share of electricity generated with Cuba's own energy resources has doubled, to 40...
...1981- 19911990 1997 A'E.NTNA 2.1 4.2 BOuVIA -1.9 1.6 BRAZIL 04 1.6 cH!LE 1.4 6.3 coi.oMB:A 1.6 2.2 COSTA RICA -0.6 1.1 CUBA 2.8 .4.3 Ec1ADOR -0.9 1.3 EL SALVADOR -1 A 2 8 GUATEMALA -1.6 1.4 HAIr: -2.4 -4.3 HosDiAs -0.8 0.7 MExico -0.7...
...The trajectory transition to a market economy is mechanistic...
...Tourism is at the heart of Cuba's "modern" economy...
...Now Fidel promises psychological counseling for prostitutes -whose profession was Just criminalized and draconian measures for other offenders, including life sentences for pimps...
...Most Cubans accept economic reform as inevitable, but many of them, including some who are surviving by illegal petty hustles, wonder aloud what is happening to socialism...
...the establishment of free markets for agricultural products...
...In addition, decentralized and market-oriented notions are now part of the mainstream equation of economic management in Cuba, no matter what the ideological explanation may be...
...To be sure, the goal of survival has never been abandoned, but upgrading has achieved pride of place during the second phase...
...uation and lack of working incentives, any micromanagement approach that limited itself to certain sectors of the economy, no matter how successful on its own terms, would be insufficient to revive the economy...
...New firms have entered the construction and realestate sectors...
...Indeed, throughout the early 1990s, annual sugar output declined steadily...
...It was therefore the task of the foreign-trade sector to achieve a new point of equilibrium so that the country could resume economic growth...
...It was not lost on listeners that the occasion of the speech was the anniversary of the police force...
...Many kinds of 22% of the Cuban labor force was working in the prigoods can only be bought with dollars, including vate sector in 1994, up from 4% in 1988.1 clothes, gasoline and some medicines that used to be Many of these activities are legal for those who meet available for free or on the ration card...
...the legalization and extension of self-employment...
...there was potential for growth, and foreign capital was available for financing the sector's further development...
...A mild approach to reinsertion, like the one now in operation in Cuba, is an option, but stronger modalities of reinsertion can also be considered...
...I At the beginning of the process, the predominant notion was that the functioning of a dual economy was possible even in the absence of well-developed linkages between the two sectors...
...Rapid economic growth is not, however, only a mat- ter of accelerating the process of recovery and minimizing the duration of long-term stagnation...
...Caribbean & Central America Report, 1/19/99 transition to a market economy is mechanistic...
...The manager had just been given the task of breaking the news to the workers...
...Most Cubans accept economic reform as inevitable, but many of them, including some who are surviving by illegal petty hustles, wonder aloud what is happening to socialism...
...On the other hand, i some traditional industries h exporters...
...Cuba, with inadequate institutions and little knowledge, had to secure a minimum level of imports, purchased with export earnings, in order to avoid a downward spiral in the economy...
...So far, most of the finds have been heavy oils, which poses extra problems for refining, but the government is predicting a 130% increase in oil refining in 1999...
...At the time, policy makers believed that traditional exports required huge quantities of resources just to sustain their current levels and that those resources were simply not available...
...Politics may be part of the explanation since the notion of remittances as a balance of payments "fixer" is much less politically uncomfortable than the consideration of remittances as a "subsidy" provided by emigrants, or the notion that a "modern" sector of the Cuban economy is located beyond its formal borders...
...Total exports in 1993 were only one-fifth of the export level of 1990...
...On the upgrading were closely associated with the establishThe High Cost of Dollars T his past January 5, in a major _______________ for pesos are often of lower quaIlspeech commemorating the fortieth ty and fairly expensive...
...It was riot lost on listeners that the occasion of the speech was the anniversary of the police force...
...Many workers in state manufacturing and commercial firms supplement their income by pocketing goods on the job and selling them on the street...
...6 (1994), pp...
...imports had been reduced by 75%, and the gross domestic product (GDP) had contracted by almost 35%3 The first phase of relinking, in other words, had not been successful in providing survival at a tolerable level...
...It is, above all, a necessary condition for the vast structural transformation that the Cuban economy requires...
...and the Canadian mining company, Sherrit, Inc., in December 1994 has given Cuba a stake in the profits from refining, on top of its share of the proceeds from resource extraction and intermediate processing...
...Authorities did not interpret the economic downturn of the early 1990s to NACIA REPORT ON THE AMERICAS 22REPORT ON CUBA be the product of deficiencies in the economic system, but rather the consequence of a foreign-trade shock the loss, that is, of Cuba's socialist bloc trading partners...
...U 1. Lilia Nu'oi Moreno, "Mas ala del cdentapropisrno en cuba,' the sector, in terms of volume, had performed below expectations...
...On the other hand, despite strong expectations of upgrading for pharmaceuticals, ably disposed to such a crackdown...
...And unequal access to are not only less likely to have relatives who have left dollars has meant growing inequality in a society that the country, but are less likely to be hired by managers for the first 30 years of the revolution had narrowed the of the hotels co-owned by foreigners...
...Indeed, the possibility of creating an efficient state productive sector should be seriously considered, though given past experience, the burden of persuasion may be more on the side of its proponents than on the side of its critics...
...It is not reasonable to assume beforehand that a mild approach to reinsertion is more acceptable because it is gentler in terms of its social costs...
...Also its net contribution and its potential for considerably lower than initial expectations...
...The government is predicting an expansion rate of 16% for tourism in 1999, and says that hotel occupancy will rise by 66...
...Tourism and pharmaceuticals, on the other hand, were seen as having greater growth potential and possibilities for upgrading...
...Such a :d in order to facilitate transition is a possible but far from necessary-much ing presence of private less desirable--outcome...
...Pharmaceuticals, the sleeping giant of the modern sector, is still considered a strategic industry but expectations are lower than in the early 1990s for its actual export volume...
...The first means simply "securing a place under the sun," even a very modest one, in the global system...
...In the absence of the development of a sizeable domestic private sector, sustained high economic growth may be difficult to achieve in Cuba...
...and Susana Lee, "CIMEX: Una organizaci6n socialista que aspira a ser moderna y eficiente," Granma (Havana), June 26, 1998...
...A trial-and-error process revealed important lessons about efficiency among alternative options for economic policy and institutional change...
...the establishment of free markets for agricultural products...
...Pedestrians in Havana are regularly accosted by people offering cigarettes and other goods at low prices...
...Traditional exports were not able to secure a tolerable minimum floor, which only aggravated the relatively weak performance of the modern sector...
...This is the time for those difficult choices to be made...
...A mild approach to reinsertion, like the one now in operation in Cuba, is an option, but stronger modalities of reinsertion can also be considered...
...dollars now account for around 54% of total domestic retail sales, a proportion considerably higher than the 46% reported by the tourism sector...
...Given its estimated high-growth potential, the modem sector was simply perceived as the emergent hard-currency provider for the entire economy...
...Only a high rate of growth can secure the vast amount of resources needed for such a structural transformation...
...This article draws on a paper co-authored with Claes Brunde- nius, "The Future of the Cuban Economic Model: The Longer View, " presented at the Workshop on Globalization, Changing Paradigms and Development Options in the Third World: Cuba and Vietnam, Copenhagen, June 11-13, 1998...
...This was partly the result of inadequate investment and inputs, but authorities also perceived that micromanagement had failed, particularly in key areas such Economic Growth in Latin America and the Caribbean, 1981-1997 At the beginning of the process, the predominant notion was that the functioning of a dual economy was possible even in the absence of well-developed linkages between the two sectors...
...In the case of tourism, upgr traditional activities financed The upgrading of tourism has t On the one hand, the Cuban retains a larger share of income partners...
...All figures are percentages of GDP...
...18, No...
...The modem external sector was basically comprised of what were called the new exports, particularly tourism and pharmaceuticals...
...The two interconnected goals of economic policy are survival and progress...
...If autarky is discarded as a realistic option, then the long-term viability of Cuba's international insertion will depend on a relatively large share of the country's total output finding its way onto world markets...
...French and Canadian investors have initiated prtnerships for th modernization 3f power plants and the introduction of gas-fueled 9eneration...
...8. Iraida Calzadilla and Oria de la Cruz, "Espacio seguro para inversionistas," Granma Internacional, Vol...
...After the abrupt disappearance of "really existing socialism" in Europe, the challenge for Cuba was to reestablish its links to the world economy...
...The combined effect of tourism and remittances on the upgrading of other activities not directly relinked to the world economy has been very significant...
...1 Indeed, since the early 1990s, the tourism and pharmaceutical sectors were identified as Cuba's "shining stars" of competitiveness...
...On the other hand, despite strong expectations of upgrading for pharmaceuticals...
...It is interesting that while tourism is a high-volume sector with a rather modest potential for upgrading by itself-most of its activities performed in Cuba are labor intensive and relatively lowtechnology services-the pharmaceutical industry is cirrentlv a low-volume activity but with a great potential for upgrading...
...At least a portion of Cuban nickel production is so well integrated and upgraded that it has produced out- standing results, even in a context of lower world prices and intense competition...
...The establishment of a dollarized economy along chains of enterprises supplying both the tourism sector and the retail stores trading only in dollars has resulted in sales generated by enterprises of the traditional sec- tor which are now "exporting within the borders...
...On the one hand, the Cuban tourist industry now retains a larger share of income relative to its foreign partners...
...In addition, this joint venture is considered the world's most technologically innovative in nickel metallurgical processing...
...VOL XXXII, No 5 MARCH/APRIL 1999 former socialist bloc, and particularly with the former Soviet Union...
...VOL X)O(lI, No 5 MARcH/APRIL 1999 29 REPORT ON CUBA European tourists visit the town of Trinidad, on the south-central coast...
...STANDARD OFLVN In his address to the Cuban Assembly in late December, Finance Minister Jose Luis Rodriguez noted that the living standards of the Cuban people were improving, if slightly...
...S]kT71 1I LI U ll cI'tI] Latin LowerAmerica & middle Cuba Caribbeana Incomeb URBAN POPULATION 77 74 42 (PERCENT OF POPULATION) LIFE EXPECrANCY 76 70 69 (ni YEARS) INFANT MORTALITY 8 32 36 (PER 1OOO LIVE BIRThS) ACCESS TO 93 73 84 SAFE WATER (PERCENT OF POPULATION) ILLITERACY 4 13 19 (PERCENT op PoPuLATIoN) Source: World Bank Development Report, 1998...
...Fifteen years of economic growth would thus have been lost for the country...
...The 50-50 partnership established between the state-owned CompahIa General del Niquel S.A...
...It had also become clear that the traditional sector was more important for survival than initially believed...
...Productive demand for the highly skilled Cuban labor force would then be determined by investment and technological change, two factors apparently well beyond the current capabilities of the Cuban govern- ment...
...Cuba is approaching the first-securing a "place under the sun" in the global economy-but its prospects for progress are less certain...
...I change...
...To make matters worse, slack world prices further affected revenues...
...An efficient domestic private sector...
...Over the course of the 1990s Cuba has dramatically changed its trade, technology and investment partners, modified its institutions of foreign trade, opened the door to foreign investment, developed international tourism at a breathtaking pace, and changed, albeit not so dramatically, the product composition of its exports...
...The so-called selfemployed sector is the result of the formalization of the informal economy and, other than providing a survival mechanism for a sector of the population, plays no important role in economic strategy...
...These goals are "survival" (sobrevivir or resistir) and "progress" (avanzar...
...7. Joaqu(n Oramas, "Mayor eficiencia en la b0squeda de socios," Granma Internacional, Vol...
...If relatively few Cubans have turned to prostitution or mugging, however, survival requires many of them to commit minor economic offenses...
...During the 1970s and 1980s Cuba had a very open economy based on its interaction with countries of the Pedro Monreal is a research economist at the Center for Inter- national Economic Research (CIEI) an the University of Havana...
...Such social programs have their own political logic, and are rooted in the social commitments of the political system...
...While Fidel did not call directly for more severe penalties for economic crimes, he did associate them with the more serious crimes by saying that cases of burglary, armed robbery and violence are "often connected with selfemployed street vendors," and that many people who rent out rooms are "turning them into whorehoLuses...
...Most of the limits which shape the options in the area of reinsertion can be modified by social action...
...Anyone with black market...
...Traditional exports were not able to secure a tolerable minimum floor, which only aggravated the relatively weak performance of the modern sector...
...6. Iraida Calzadilla, "Cuando restar significa sumar," Granma (Havana), June 15, 1998...
...Caribbean & Central America Report, 1/19/99 28 NACLA REPORTONTHEAMERICASCuban economy are like tourism and nickel production already market-ori- ented and have found "a place under the sun" in the global economic system as well as potential for upgrading within the sys- tem...
...Upgrading has also been partially extended to other important traditional Temac, No...
...One of the heralded accomplishments of the revolution in the 1960s was the elimination of prostitution and the retraining of prostitutes for new jobs...
...AccorIing to scattered public information, sales in U.S...
...Recovery is not expected to be swift...
...3. Economic Commission on Latin America and the Caribbean (ECLAC), Preliminary Balance 1993 (Santiago de Chile: ECLAC, 1994...
...FOREIGN INVESTMENT There are currently some 340 foreign companies operating in association with state concerns in Cuba...
...and the Canadian mining company, Sherrit, Inc., in December 1994 has given Cuba a stake in the profits from refining, on top of its share of the proceeds from resource extraction and intermediate processing...
...Doltars are also typically consequences of Cuba's dollariied on a variety of hustles needed to start small businesses 'economy...
...At least a portion of Cuban nickel production is so well integrated and upgraded that it has produced outstanding results, even in a context of lower world prices and intense competition...
...Reinsertion has always been a priority and autarky was never seriously considered as a long-term strategy for development in the new context...
...This was partly the result of inadequate investment and inputs, but authorities also perceived that micromanagement had failed, particularly in key areas such VOL XXXII, No 5 MARCH/APRIL 1999 23REPORT ON CUBA as sugar production...
...neering products such as elevators, steam boilers and tourist industry now electrical equipment...
...And finds of natural gas have led ministers to forecast a fourfold increase in output...
...system-the absorption of new knowledge and technology in one industry after another and consequently the achievement of higher levels of national income...
...Traditional exports would not be able, under the most favorable scenario, to reach the levels to pay for the imports of capital and consumer goods that were considered necessary for the normal operation of the economy...
...In the early 1990s the government viewed the traditional industries as the way to provide hard currency to secure a minimum level of imports, with the goal that by the latter part of the decade, they would attain medium to satisfactory levels of exports plus a certain degree of import-substitution production...
...5 (February 1998...
...It is not reasonable to assume beforehand that a mild approach to reinsertion is more acceptable because it is gentler in terms of its social costs...
...The current situation of structural mismatch between the quality of the skilled work force and available unskilled job placements reveals the critical impasse that exists in this area...
...The substantial transformation of the current structure of traditional output will thus be determined by the availability of investment funds...
...Hotel room occupancy rose to 64%, while the number of hotel rooms increased by about 17...
...In fact, the EPZ model is unlikely to bring much upgrading to the Cuban economy since most successful cases of insertion into global industries have followed a pattern of activities that has allowed for the development of strong local networks of products and services . J n any case, large-scale reinsertion will be depen- dent on a systematic process of upgrading of the traditional sector something that cannot at present be fully achieved due largely to continuing shortages of investment and inputs...
...According to scattered public information, sales in U.S...
...It had also become clear that the traditional sector was more important for survival than initially believed...
...The government decided to base its strategy of economic recovery on the construction of a dual foreign-trade sector in which a "modern" compo- nent would provide dynamism and the potential for upgrading, while a "traditional" component maintained a basic export floor...
...More Cubans have dollars--14% more than 1997-and the purchasing power of the peso increased by 5.45% in the last year...
...These changes represent the beginnings of the country's reinsertion into the international economy, or to be more precise, into the capitalist world system...
...Total exports in 1993 were only one-fifth of the export level of 1990...
...See Brian Pollitt and G.B...
...starve, buying everything available to them on a ration Skilled workers who can repair equipment or fix up card and paying very low or no rent...
...This year officials say it will rise by 21%, to 2 million metric tons...
...4.6 points more than the increase in average pay...
...Such a transition is a possible but far from necessary much less desirable outcome...
...The language people use reflects their feelings about pilfering on the job: they do not talk about goods as stolen but as "diverted...
...Nickel production, for example, has been notably upgraded to the point that it is now possible to question its classification as part of the traditional sector...
...Two different but interconnected policy goals have been in force since the beginning of the process...
...33, No...
...b: average for World Bank category of "lowermiddle income countries...
...There was not much hope in the future of traditional exports like sugar, minerals and tobacco, but they were needed to maintain a minimum level of exports...
...But at the hard-currency stores out of the reach of most Cubans, and even the free agricultural markets are too pricy for many...
...The government is predicting an increase in production of 11.5%, to 3.5 million tons in 1999, far below normal output...
...The development of a capitalist economy is certainly not the solution to the current problems of Cuba...
...the legalization and extension of self-employment...
...12, No...
...Second, activities that earn dollars are not as economically or socially useful as the production of goods and the provision of professional and social services...
...The upgrading of tourism has thus had a dual effect...
...Tourism is at the heart of Cuba's "modern" economy...
...Economic decisions made within this period of relinking--or the failure to make those decisions-will strongly affect the coming decades of the country's development...
...This last conclusion is very important because it suggests that if a sizeable reinsertion is proposed as a goal and upgrading as one of its cardinal mechanisms, then the pursuit of a path of high economic growth sustained rates of growth of at least 8% per year should be adopted as a priority and all other factors should be considered instrumental to it...
...While Fidel did not call directly for more severe penalties for economic crimes, he did associate them with the more serious crimes by saying that cases of burglary, armed robbery and violence are "often connected with selfemployed street vendors," and that many people who rent out rooms are "turning them into whorehouses...
...it was taken for granted that control of the Cuban economy would remain in the hands of Cuban policy makers...
...E 1. Lia Nuez Moreno, "Ms al del centapropismo en Cuba," Temnas, No, 11 (July-SeptLember 1997)1, p. 42...
...By 1993, however, it was clear that the approach to relinking had to be revised, this time as part of a broader reform which would introduce substantial modifications to the domestic side of the econo- my...
...At the time, policy makers believed that traditional exports required huge quantities of resources just to sustain their cur- rent levels and that those resources were simply not available.2 In addition, the numbers simply did not add up...
...One of the greatest ironies of the remnants of the Cold War in the Caribbean is precisely the upgrading of Cuban industry funded by savings originating in the United States...
...Sales in the free markets for farm produce were up by 10.2% and those in hard-currency stores by 16.1%, while govern- ment sales of rationed foodstuffs were up 12...
...The logic of upgrading was no longer limited to developing high value-added exports...
...Third, having so many people who consider themselves loyal Cubans participating in de facto illegal activity has undermined revolutionary values...
...Pharmaceuticals, the sleep- ing giant of the modern sector, is still considered a strategic industry but expectations are lower than in the early 1990s for its actual export volume...
...Remittances are acting, in fact, as a major force in the restructuring of the Cuban economy.5 It is evident that personal demand supported by remittances has been playing a key role by bolstering demand for domestic products and services...
...The potential of a developed private sector to attract remittances and allocate them to investment as well as its potential to attract foreign investment itself might be the most cost-effective mechanism to attract foreign savings...
...11 (iuly-Septemner 199/), p 42...
...Production fell by 24% to 3.2 million tons...
...a: average for 20 Latin American and Caribbean countries, excluding C uba...
...While the revolution still guarantees free health care, education, a minimum standard of nutrition and for most a job, the need to get dollars has had several negative consequences that raise some fundamental questions about socialism...
...Among these industries are traditional exporters like beverages, fisheries and fruits, and increasingly a rather wide variety of activities with no previous export background such as furniture making, interior-design services and the production of engineering products such as elevators, steam boilers and electrical equipment...
...Caribbean & Central America Report, 1/19/99 SUGAR The drought in Cuba's eastern provinces and the devastation caused by hurricane Georges cost Cuba at an estimated $630 million, or the equivalent of 2.6% of GDP...
...He is a prostitution and street crime which have accompanied 24 NI1A REPORTONTHEAMERICAS REPORT ON CUBA as sugar production...
...Reality clashed with the idealized models of reinsertion into the world economy of the early 1990s...
...Given its estimated high-growth potential, the modern sector was simply perceived as the emergent hard-currency provider for the entire economy...
...It is feasible that they could be utilized to address the inequalities and dislocations a stronger form of reinsertion would imply...
...In this report, employment as waiters and bartenders...
...The development of a capifor markets...
...Such social programs have their own political logic, and are rooted in the social commitments of the political system...
...The process has been facilitated in those limited cases where associations with foreign capital have been possible, and have generally been directed towards "exports within the borders...
...Second, activities that earn dollars are not as economically or socially useful as the production of goods and the provision of professional and social services...
...The government is also financing investment in the area of communications...
...The period connecting the worst of the crisis (1993) and the clear beginning of recovery (the second half of 1994) can be best understood as a transition between the first and the second phases of relinking...
Vol. 32 • March 1999 • No. 5
