cuba: economic restructuring, recent trends, and main challenges
TRANSCRIPT
CUBA: ECONOMIC RESTRUCTURING, RECENT TRENDS, AND MAIN
CHALLENGES
The collapse of the European socialist block caused a deep crisis in the Cuban economy,
which suddenly lost:• Its main suppliers of equipment, raw materials, food and particularly fuels
• The markets for over 80% of its exports
• The sources of spare parts and assistance for most of the technology installed in the previous 30 years
• Its sources of financing and economic preferences
At the same time, the United States’ Government reinforced its economic embargo with several additional measures, aimed at defeating the Cuban Revolution
Effects of the external shock 1990-1993
-61%
-75%
-79%
-77%
-35%
158%
121%
-100% -50% 0% 50% 100% 150% 200%
Gross Investment
Imports
Exports
Foreign Trade
Gross Domestic Product
Budget deficit
Money supply
Economic Reforms to Face and Reverse the Crisis• Macroeconomic adjustment to correct some imbalances.Macroeconomic adjustment to correct some imbalances.• Structural reformsStructural reforms (decentralization and reorientation of foreign
trade, opening to foreign investment, banking re-structuring, enterprise rationalization and decentralization)
• Resources were concentrated in a few sectoral programs Resources were concentrated in a few sectoral programs (aimed at developing hard currency earners or substituting imports)
• Continued development of medical services and infra-Continued development of medical services and infra-structure (structure (not only for Cuban nationals, but also aimed at exports)
• The US $ was allowed to circulate in the countryThe US $ was allowed to circulate in the country (a network of state dollar shops was set up and $remittances were allowed)
• Reintroduction of small private propertyReintroduction of small private property (agricultural markets, industrial and handicraft private markets, self-employment)
• Conversion of most state lands and agricultural companies Conversion of most state lands and agricultural companies into semi-private cooperativesinto semi-private cooperatives.
THE STATE PROPERTY KEPT PREVAILING IN MOST KEY SECTORS
THE PHILOSOPHY OF TRANSFORMATION
MAIN DECLARED GOALS
• To preserve the country’s independence
• To keep and improve socialism• To create the economic and social
basis to re-launch a development program once the crisis was over
RESULTS
Gross Domestic Product
GDP Growth Rates1990-2000
4,3
-20,0
-15,0
-10,0
-5,0
0,0
5,0
10,0
15,0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Annual rate
Average 94-2000
Gross Domestic Product
GDP Growth Rates2001-2006
5,4
12,5
3
1,8
3,8
11,8
6,3
2,8
9,9
0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006
Annual rate
AR 01-06
AR 01-03
AR 04-06
Cuban strategy for reinsertion in world markets brought changes in sectors acting as growth engines
- Sugar, traditional engine now secondary
- Tourism and Remittances emerged with the reform displaced sugar
- Healthcare services, biotech patent licensing, nickel, oil & gas recently emerged as key sectors
For some of these sectors foreign investment played an important role
BUDGET DEFICIT / GDP ( % )
3,2
05
101520
2530
3540
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Breakdown of Budget Expenditures
250
1250
2250
3250
4250
525019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004 05 E
06 P
Education Healthcare PúblicaDefense Social SecurityDwelling and Communal Services
( M illion Pesos)
UNEMPLOYMENT
5
7,97,1
6,2 6,3
5,4
4,13,3
2,31,9 1,9
0
1
2
3
4
5
6
7
8
91
98
9
19
95
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
( %)
EXTERNAL SECTOR
Foreign Trade: Goods and Services
-2000
0
2000
4000
6000
8000
10000
12000
2000 2001 2002 2003 2004 2005 2006
Exports Imports Balance
Trade of Goods
2448,4
9357,4
-6909,0-8000
-6000
-4000
-2000
0
2000
4000
6000
8000
10000
12000
2000 2001 2002 2003 2004 2005 2006
Million USD
Exports of Goods
Imports of Goods
Balance
Exports of Goods StructureExports of Goods Structure
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 1994 2004
Others
Agriculture
Fishing
Tobacco
Mining
Sugar
Exports of Services
2643,6 2571,5 2450,32978,3
3932,8
6864,97283,7
0
1000
2000
3000
4000
5000
6000
7000
8000
2000 2001 2002 2003 2004 2005 2006
USD Million
90
10
36
64
30
70
0%
20%
40%
60%
80%
100%
1989 2003 2005
Structure of Cuban Exports
Goods Services
Current Account(million USD)
-800
-600
-400
-200
0
200
400
1999 2000 2001 2002 2003 2004 2005
PERFORMANCE OF FDIPERFORMANCE OF FDI
MMUSDMMUSD
407407 403403 342342 313313Active Joint Active Joint VenturesVentures 123123 170170 258258 210 210 330330306306 3733736262 392392 258
0
500
1000
1500
2000
2500
3000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Sales Exports Dividends for the country
Reinforcement of the social content of the economic policy
Improvement of the free educational system in all levels
Refurbishment, expansion and retooling of the free healthcare system
Increases of wages, pensions and social assistance
MAIN CURRENT CHALLENGES
• The low productivity prevailing in some manufacturing sectors and most of the agriculture
• An increase of petty and mid corruption
• Critical condition of dwellings, transportation, and part of the infrastructure
• The need to eliminate the dual currency system introduced to face the crisis
Economic Policy Measures to face these challenges
To increase the productivity in manufacturing and agriculture:
• The government has deepened the restructuring of state companies, emphasizing on accounting, control and discipline
• Cooperatives and other flexible schemes are being extended in agriculture
• State companies, cooperatives and private producers have been granted state financing
• Foreign investment has been allowed and promoted in particular areas.
To face corruption:
• A partial re-centralization has taken place in most sectors
• Foreign exchange controls re-established
• Approval is now required for high-value import transactions
• Revenues of state companies were concentrated in a single account at the central bank.
To face the critical condition of infra-
structure, dwelling and transportation:
• Program to build 70,000 houses and
refurbish 150,000 per year.
• Gradual recovery of transportation
• Energy revolution
• Investments in highways, water pipelines,
ports
To move towards currency unification:
• US dollar withdrawn from the domestic economy
• Gradual revaluation of the two Cuban currencies
The prevalence of State Property in most relevant economic sectors has been confirmed as the main strategic economic policy principle of the Cuban Government.