chapter 2 - cuba

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UNIVERSITY OF SANTO TOMASFACULTY OF ARTS AND LETTERSSt. Raymund de Peñafort Bldg.España Manila, Philippines

• Prepared by: Joseph Andre Dela Pasion

• Subject: HETAR

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Chapter 2

Economic System: Cuba

Cuba is an archipelago of islands located in the Caribbean Sea, 90 miles Southeast of the United States.

Capital: Havana

Land Area: 110,860 km2 (42,803 sq mi)

Provinces: 15

Municipalities: 168

Population: 12 Million with 99% literacy rate

Language: Spanish

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Cuba’s Government Structure Government type: Totalitarian Communist State (West

definition) Socialist Republic (Marxist-Leninist

definition)

Politics: Cuban politics retains a top-down structure run by a minority, but with very low levels of political opposition.

Ruling Party: Communist Party of Cuba (Founded 1965) Has the upper-hand when it comes to politics

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Cuba’s Government Structure Cuba’s leading institution: Revolutionary Armed

Forces (FAR)Has the upper-hand when it comes to economic decision

making. FAR is the “go to” in terms of problem solving. It controls 60% of the Cuban economy.

Former President: Fidel Castro (1959 until 2008)

President: Raul Castro (February 24, 2008)

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Raul’s government at the highest level is a gerontocracy, with an average age of over 70, underscoring the theme of continuity and consensus policy direction that characterizes the regime. Raul is an institution man who is focused on process and predictability and would like the government to work better.

Separation of Power: There is no separation of power in the liberal sense. No meaningful checks and balance in the formal sense.

Civil Society is weak with no common agenda and there is no political expression with a national reach. It does not provide a vehicle for protest against the regime.

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Judiciary: The judiciary is institutionally differentiated but not independent, as its decisions and doctrine are subordinate to political authorities.

Constitution: Cuba has had five constitutions. The current constitution was drafted in 1976. In 2002, the Cuban Constitution was again amended to stipulate that the socialist system was permanent and irrevocable.

7Source: The Economist Intelligence Unit's index of democracy http://www.eiu.com/public/

Computer ownership bans, computer ownership rates are among the world's lowest. The right to use the Internet is granted only to selected people and these selected people are closely monitored. Connecting to the Internet illegally can lead to a five-year prison sentence.

Citizens cannot leave or return to Cuba without first obtaining official permission, which is often denied.

Human Rights Watch alleges that the government "represses nearly all forms of political dissent" and that "Cubans are systematically denied basic rights to free expression, association, assembly, privacy, movement, and due process of law".

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Source: The Economist Intelligence Unit's index of democracy http://www.eiu.com/public/

Indicator

Political IndicesRank in the

WorldRank in Latin

America

1. "Political Instability Index", The Economist (2009/10)

#25 of 165 #2

2. "Freedom of the Press", Freedom House (2010) # 190 of 195 #33 of 33

3. Press Freedom Index 2010, Reporters Without Borders (2010)

#166 of 178 # 26 of 26

4. "Freedom in the World", Freedom House (2010) "Unfree" "Unfree"

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Source: Freedom House Orgnization https://freedomhouse.org/report/freedom-press/2015/cuba

“In 2014, the Cuban government continued to suppress dissent, including harassing, intimidating, and detaining independent journalists. At the same time, the country eased some restrictions on expression, allowing previously taboo topics to be aired in the national media and certain opposition voices to be more widely heard.”

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Legal Environment

“Cuba has the most restrictive laws on freedom of expression and the press in the Americas. The constitution prohibits private ownership of media outlets and allows free speech and journalism only if they “conform to the aims of a socialist society.”

Political Environment

“For years, independent or critical Cuban journalists and bloggers have suffered harassment for their reporting on topics deemed sensitive by the government”.

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Economic Environment

“The government owns virtually all traditional media except for a number of underground newsletters”.

“Cuba has one of the lowest internet connectivity rates in the world. The majority of users can reach only a closely monitored Cuban intranet consisting of e-mail addresses ending in “.cu” and a few government-controlled and approved websites. The penetration rate for real access to the global internet is estimated to be around 5 percent, and continues to come mostly through outdated dial-up technology. There is almost no broadband service on the island…”

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Source: Transparency International

http://www.transparency.org/

Corruption Perceptions Index 2003 - 2010

Year Rank Surveyed CPI Score2004 62 146 3.72005 59 159 3.82006 66 163 3.52007 61 179 4.22008 65 180 4.32009 61 180 4.42010 69 178 3.72015 63 175 3.7

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Cuba’s Economic StructureEconomic System: State-Controlled Economy

Centrally Planned Economy

Economic Planning Agency: Ministry of the Economy and Planning

Economy: US$56bn worth economy

Banking System: Central Bank of CubaCuban financial system is integrated by 9 banks and a

group of non-financial institutions and offices of representation of foreign financial institutions.

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Cuba’s Economic StructureCurrency Regime: Monetary Duality (Dual Currency System)

The Cuban economy currently operates with two local currencies –the Cuban peso (1857) and the convertible peso (1994), both with convertibility problems and multiple and overvalued exchange rates– and has been subject to a banking crisis since 2009. It is a veritable monetary and financial jigsaw puzzle. In order to do away with the dual currency and overcome financial imbalances, monetary policy must devalue the two domestic currencies. Cuba’s banks are facing a systemic liquidity crisis with no lender of last resort to help them out of it.

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Rationing in Cuba (March 12, 1962) refers to the system of food distribution known in Cuba as the Libreta de Abastecimiento ("Supplies booklet"). The system establishes the rations each person is allowed to buy through that system, and the frequency of supplies.

Workforce: 4.9 Million

Employment: 95% of the labor force are employed by the state. Self-employment requires license from the government. License cost $12 to $ 200 USD or 40 to 700 Cuban Peso per month

The income tax rates rise progressively

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Cuba is a net food importer, and manufacturing potential is limited due to high nonwage cost imposed by the government. Agriculture is Cuba’s most glaring economic weakness, with low food imports. Food security is a national security issue.

Infrastructure is decrepit, especially electricity, water, sewage, and transportation.

Lack of free media is a major economic disincentive, and institutional secrecy inhibits reliable economic statistics.

The most promising sector of the Cuban economy are medicines and biotechnology, medical services, energy and tourism

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International Membership: IMF – Withdrew its membership on 2nd April

1964 WBG – Withdrew its membership on 14th

November 1960 IDB – Inter-American Development Bank – Not

a member UN – Member since 24th October 1945 WTO – Member since 20th April 1995

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Foreign Debt: $17.8 Billion USD Active Debt (Cuba 2007)

$ 21 Billion roughly estimated by analyst Soviet Union - $26 Billion USD (Frozen)China - $4 Billion USD (Cuba’s creditor of last resort) Venezuela - $3 Billion USD (Cuba’s creditor of last resort)Japan - $1.70 Billion USDRussia - $162 Million USD and recently offered 350 MillionSouth Africa - $137 Million but recently wrote off and issued

$30 Million aid package

Source of hard currency revenues: tourism, sugar, oil, nickel and services thru sending an army of doctors oversees.

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Business

Freedom

• Mostly Unfree to Repressed• To form and run a business remains constrained by

the state. The application of regulations is inconsistent and non-transparent.

Trade

Freedom

• Moderately Free• The trade regime remains largely non-transparent,

customs corruption is common, rules and regulations are burdensome, and imports and exports are dominated by the government.

Cuba’s Economic Freedom

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Fiscal

Freedom

• Mostly Unfree to Repressed• The overall tax level is punitive. Cuba has a high

income tax rate of 50 %. The top corporate tax rate is 30 % (35 % for companies with entirely foreign capital).

Government

Spending

• Extremely High• Total government expenditures, including consumption and

transfer payments, are very high. This depicts state dominance over the economy. Expansive government employment commitments are an obstacle to sound fiscal management.

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Monetary

Freedom

• Mostly Free to Moderately Free• Inflation has been low by suppressing food cost.

The government determines prices for most goods and services and subsidizes much of the economy, although some private and informal-market retail activity is not government-controlled. Food ration is implemented by the state.

Investment

Freedom

• Repressed• Foreign investment must be approved by the

government. There is no foreign ownership of land.

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Financial

Freedom

• Repressed• Cuba’s financial sector remains underdeveloped,

and access to credit for entrepreneurial activity is seriously impeded by bureaucracy and the shallowness of the financial market. Over a dozen foreign banks have opened offices, but they are not allowed to operate freely.

Property

Rights

• Repressed• Cuban citizens may own land and productive capital for

farming and self-employment. The law and trial practices do not meet international standards for fair public trials. The constitution subordinates the courts to the National Assembly of People’s Power and the Council of State.

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Labor

Freedom

• Repressed• The formal labor market is not developed, and the

government-controlled labor market has helped to create a large informal economy and “over-employment.” In an attempt to reduce labor market rigidity, the government implemented a measure to allow workers to hold more than one job. Its impact has been limited.

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Major Economic Burdens:

1.The tightening of the U.S. embargo that took effect on October 1960 and recently extended until September 14, 2011 by U.S. President Barack Obama.

2.The collapse of the Soviet Union in 1991 that ended annual US$ 500 per capita Soviet subsidies or a total 6 billion dollars-per-year subsidy.

3.The difficulty in finding funds as Cuba has negative reputation as to its debt repayment and that Cuba has no lender of last resort.

4.Dual Currency System

5.The economic system itself.

“If you can’t explain it simply, you don’t understand it well

enough.”

- Albert Einstein

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End of

Presentation26

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chapter 2 - cuba

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