Economy of Cuba

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The Cuban Government continues to adhere to socialist principles in organizing its state-controlled economy. Most of the means of production are owned and run by the government and about 75 percent of the labour force is employed by the state. The state under the durable leadership of Fidel Castro plays the primary role in the domestic economy and controls practically all foreign trade.

The Cuban economy is still recovering from a decline in gross domestic product of at least 35 percent between 1989 and 1993 due to the loss of Soviet subsidies. The government has undertaken several reforms in recent years to stem excess liquidity, increase labour incentives, and alleviate serious shortages of food, consumer goods, and services. To alleviate the economic crisis, the government introduced a few market-oriented reforms including opening to tourism, allowing foreign investment, legalizing the US dollar, and authorizing self-employment for some 150 occupations. These measures resulted in modest economic growth; the official statistics, however, are deficient and as a result provide an incomplete measure of Cuba's real economic situation. The liberalized agricultural markets introduced in October 1994, at which state and private farmers sell above-quota production at unrestricted prices, have broadened legal consumption alternatives and reduced black market prices.

Government efforts to lower subsidies to unprofitable enterprises and to shrink the money supply caused the semi-official exchange rate for the Cuban peso to move from a peak of 120 to the dollar in the summer of 1994 to 21 to the dollar by yearend 1999. Living conditions in 1999 remained well below the 1989 level. New taxes introduced in 1996 have helped drive down the number of self-employed workers from 208,000 in January 1996.

Havana announced in 1995 that GDP declined by 35% during 1989-93, the result of lost Soviet aid and domestic inefficiencies. The drop in GDP apparently halted in 1994, when Cuba reported 0.7% growth, followed by increases of 2.5% in 1995 and 7.8% in 1996. Growth slowed again in 1997 and 1998 to 2.5% and 1.2% respectively. Growth recovered again in 1999 with a 6.2% increase in GDP, due to the continued growth of tourism. Central control is complicated by the existence of the informal economy, much of which is denominated in dollars. Living standards for the average (dollar less) Cuban remain at a depressed level compared with 1990.

In the mid 1990s tourism surpassed sugar, long the mainstay of the Cuban economy, as the primary source of foreign exchange. Tourism figures prominently in the Cuban Government's plans for development, and a top official cast it as the "heart of the economy." Havana devotes significant resources to building new tourist facilities and renovating historic structures for use in the tourism sector. Cuban officials estimate roughly 1.6 million tourists visited Cuba in 1999 with about $1.9 billion (1.9 G$) in gross revenues. The official projections for 2000 are only slightly higher than in 1999. Independent analysts and journalists partially attributed low numbers in January to Y2K concerns.

Sugar remains an important part of the Cuban economy with large amounts of land, labour, and other resources dedicated to the industry. Sugar production in 1989 was over 8 million tons, but fell to about 3.5 million tons in the 1994-95 harvest, one of the lowest on record. With increased fertilizers and management attention, subsequent harvests have improved but remain well below the 1989 level. Prospects for regaining that level of output are poor unless the Cuban Government undertakes substantial reform of the sugar industry, something it has been reluctant to do.

To help keep the economy afloat, Havana actively courts foreign investment, which often takes the form of joint ventures with the Cuban Government holding half of the equity, management contracts for tourism facilities, or financing for the sugar harvest. Cuban officials said in early 1998 that there were a total of 332 joint ventures. Many of these are loans or contracts for management, supplies, or services normally not considered equity investment in Western economies. Investors are constrained by the U.S.-Cuban Liberty and Democratic Solidarity Act which provides sanctions for those who "traffic" in property expropriated from U.S. citizens. As of March 1998, 15 executives of three foreign companies have been excluded from entry into the United States. Over a dozen companies have pulled out of Cuba or altered their plans to invest there due to the threat of action under the Libertad Act.

In 1993 the Cuban Government made it legal for its people to possess and use the U.S. dollar, nicknamed fula. Since then, the dollar has become the major currency in use. To capture the hard currency flowing into the island through tourism and remittances - estimated at $500-800 million annually - the government has set up state-run "dollar stores" throughout Cuba that sell 'luxury' food, household, and clothing items, compared with basic necessities, which are still bought using the Cuban peso. The gap in the standard of living has widened between those with access to dollars and those without. Jobs that can earn dollar salaries or tips from foreign businesses and tourists have become highly desirable. It is common to meet doctors, engineers, scientists, and other professionals working in restaurants or as taxi drivers.

However, in response to stricter economic sanctions by the US, the Cuban government decided in October 2004 to remove the American dollar from circulation. In its place, the Cuban convertible peso will be used, which although not internationally traded, has a value pegged to that of the dollar. However, a 10% fine, or surcharge, is levied for conversions from US dollars to the convertible peso, to discourage their entry to the country; this fine does not apply to other currencies, so it acts as an encouragement to tourists to bring currencies like Euros, pounds sterling or Canadian dollars into the country. Indeed, an increasing number of areas rich in tourism now also accept Euros directly for many transactions.

To provide jobs for workers laid off due to the economic crisis, furnish services the government was having difficulty providing, and to try to bring some forms of black market activity into legal - and therefore controllable - channels, Havana in 1993 legalized self-employment for some 150 occupations. The government tightly controls the small private sector, which has fluctuated in size from 150,000 to 209,000, by regulating and taxing it. For example, owners of small private restaurants (paladares) can seat no more than 12 people and can only employ family members to help with the work. Set monthly fees must be paid regardless of income earned and frequent inspections yield stiff fines when any of the many self-employment regulations are violated. Rather than expanding private sector opportunities, in recent years, the government has been attempting to squeeze more of these private sector entrepreneurs out of business and back to the public sector. Many have opted to enter the informal economy or black market.

Cuba's precarious economic position is complicated by the high price it must pay for foreign financing. The Cuban Government defaulted on most of its international debt in 1986 and does not have access to credit from international financial institutions like the World Bank, which means Havana must rely heavily on short-term loans to finance imports, chiefly food and fuel. Because of its poor credit rating, and $11 billion hard currency debt, and the risks associated with Cuban investment, interest rates have reportedly been as high as 22 percent.

The good relations of Cuba and Chávez's Venezuela have resulted in agreements that Venezuela provides cheap oil and Cuba sends "missions" of their doctors to improve the Venezuelan health system.

Statistics

GDP: purchasing power parity - $32.13 billion (2003 est.)

GDP - real growth rate: 2.6% (2003 est.)

GDP - per capita: purchasing power parity - $2,900 (2003 est.)

GDP - composition by sector:
agriculture: 5.5%
industry: 26.9%
services: 67.6% (2003 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 4.1% (2003 est.)

Labour force: 4.58 million economically active population
note: state sector 78%, non-state sector 22% (2003 est.)

Labour force - by occupation: agriculture 24%, industry 25%, services 51%

Unemployment rate: 2.3% (official figure, 2004)

Budget:
revenues: $17.21 billion
expenditures: $18.28 billion, including capital expenditures of $NA (2003 est.)

Industries: sugar, petroleum, food, tobacco, textiles, chemicals, paper and wood products, metals (particularly nickel), cement, fertilizers, consumer goods, agricultural machinery

Industrial production growth rate: 2.4% (2003 est.)

Electricity - production: 14,380 GWh (2003)

Electricity - production by source:
fossil fuel: 89.52%
hydro: 0.65%
nuclear: 0%
other: 9.83% (1998)

Electricity - consumption: 13.38 TWh (2003)

Electricity - exports: 0 kWh (2003)

Electricity - imports: 0 kWh (2003)

Agriculture - products: sugarcane, tobacco, citrus, coffee, rice, potatoes, beans; livestock

Exports: $1.467 billion (f.o.b., 2003 est.)

Exports - commodities: sugar, nickel, tobacco, shellfish, medical products, citrus, coffee

Exports - partners: Netherlands 21.6%, Canada 17.6%, Russia 10.8%, Spain 8.6%, China 7.2% (2003 est.)

Imports: $4.531 billion f.o.b. (2003 est.)

Imports - commodities: petroleum, food, machinery, chemicals

Imports - partners: Spain 16.3%, Venezuela 12.3%, Italy 8.4%, USA 8.3%, China 7.5%, Canada 5.3%, Mexico 5.2%, France 4.8% (2003 est.)

Debt - external: $12.52 billion (convertible currency); another $15 billion owed to Russia (2003 est.)

Economic aid - recipient: $68.2 million (1997 est.)

Currency: 1 Cuban peso (Cu$) = 100 centavos

Exchange rates: Cuban pesos (Cu$) per US$1 - 1.0000 (nonconvertible, official rate, linked to the US dollar)

Fiscal year: calendar year

See also

• Cuba, the cow Ubre Blanca
• United States embargo against Cuba

External links

• What Castro wants (http://archives.cnn.com/2002/ALLPOLITICS/05/20/time.letter/index.html)- Time Story about the U.S. embargo.

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