Economist Critiques Cuban Economy

Carmelo Mesa-Lago, a professor emeritus of economics and Latin American studies at the University of Pittsburgh and the author of 45 books on Cuba, recently delivered his critique of the Cuban economy in the New York Times.[1]

He opens with the assertion, “For the past 60 years, Cuba has been unable to finance its imports with its own exports and generate appropriate, sustainable growth without substantial aid and subsidies from a foreign nation. This is the longstanding legacy of Cuba’s socialist economy.” These foreign nations were Spain in the colonial era, the U.S. (circa 1903 -1958), the Soviet Union (circa 1959-1988) and Venezuela (21st century). Yet “despite the staggering foreign aid subsidies it has received, [Cuba’s] . . . economic performance has been dismal.”

“In the past seven years, growth has been a third of the officially set figure needed for adequate and sustainable growth, while investment has been one third of the required rate. Industrial, mining and sugar production are well below 1989 levels, and the production of 11 out of 13 key agricultural and fishing products has declined. Cuba is now facing its worst economic crisis since the 1990s.”

According to Mesa-Lago, “Cuba’s woes are a result of the inefficient economic model of centralized planning, state enterprises and agricultural collectivization its leaders have pursued despite the failure of these models worldwide. In his decade in power, President Raúl Castro tried to face his brother Fidel’s legacy of economic disaster head on by enacting a series of market-oriented economic structural reforms. He also opened the door to foreign investment, but so far, the amount materialized has been one-fifth of the goal set by the leadership for sustainable development.”

Although Cuba has adopted some reforms to allow some private enterprise, Mesa-Lago says Cuba needs “to accelerate and deepen reforms. China and Vietnam’s market socialism model under Communist Party rule could provide a way forward.”

If such reforms are carried out and foreign investors are allowed to hire and pay a full salary directly to their employees, he concludes, “there will be a significant improvement in the economy and the government can undertake the desperately needed monetary unification that will attract more investment and eliminate the economic distortions that plague the economy.”

As noted in a recent post to this blog, the Cuban economy also faces the challenges of an aging, declining population with the latter being caused, in part, by the limited opportunities for economic success, especially for younger Cubans. [2]

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[1] Mesa-Lago, Cuba Can Move From Foreign Economic Dependence, N.Y. Times (Mar. 28, 2019).

[2] See also posts listed in the “Cuban Economy” section of List of Posts to dwkcommentaries—Topical: CUBA.

 

Is Cuba Concealing Bad Economic Data? 

The Cuban government  has not yet released 2016 data on the country’s gross domestic product, exports, money supply and debt even though in June-July 2017 it did release other statistical information. The government even failed to respond to a Reuters question in January 2018 as to when this 2016 information would be released. [1]

Many speculate that this omission is deliberate to facilitate the Cuban government’s claims in late December 2017 that the economy grew in 2017 by 1.6%[2] when Moody’s and the Economist’s Intelligence Unit had projected that the Cuban recession continued in 2017, while the Economic Commission for Latin America and the Caribbean (ECLAC) had projected Cuba would have for 2017 an anemic growth of 0.5%.

“The abnormal delay in macroeconomic indicators for 2016 casts doubt on the official estimate of GDP growth in 2017,” said Carmelo Mesa-Lago , professor emeritus of economics at the University of Pittsburgh and author of numerous books on Cuba’s economy. This opinion was echoed by an anonymous Cuban economist, who said, “Whenever things are bad the response from the government is to hide information.”

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[1] Frank, Cuban economy even more opaque as data omitted from 2016 accounts, Reuters (Jan. 15, 2018); Havana omits economic data in its 2016 accounts, Diario de Cuba (Jan. 15, 2018); ONE, 2016 Statistical Yearbook of Cuba.

[2]  Cabrisas: The Economy grew 1.6% despite ‘adverse situations,’ Diario de Cuba (Dec. 21, 2017).

A New Travel Warning for Americans Traveling to Cuba 

 Last Wednesday (September 13), the U.S. State Department issued a warning about Americans traveling to Cuba that was discussed in an earlier post.

On September 18, the Department updated its Cuba Travel Warning after Hurricane Irma had hit and damaged the island.[1] It stated the following:

  • “The Department of State advises U.S. citizens to carefully consider the risks of travel to Cuba while Hurricane Irma recovery efforts are underway.  Major roads are now open in Havana and power and water service has been restored in most of the city, but some parts of the country may be without power and running water. North central Cuba suffered severe damage and should be avoided until further notice. On September 6, the Department authorized the voluntary departure of U.S. government employees and their family members due to Hurricane Irma.”
  • “Travelers should apprise family and friends in the United States of their whereabouts, and keep in close contact with their travel agency, hotel staff, and local officials.”
  • “U.S. citizens in Cuba in need of emergency assistance should contact the Embassy by telephone at +53- 5280-5791 or the Department of State at 1-202-501-4444. At this time, U.S. citizens should not attempt to go to the U.S. Embassy in Havana as it suffered severe flood damage.”

Meanwhile the Cuban government announced that it would help its citizens recover from Hurricane Irma’s devastating swipe at its north coast and rebuild their homes. The plan would have the government finance 50 percent of the cost of construction materials for such rebuilding. Defense councils will certify the extent of damages and the resources necessary to make repairs.[2]

For homes that collapsed or lost their entire roofs, the state will take over interest payments. Defense councils also will consider subsidies for victims whose incomes are too low to purchase all the required construction materials, and those who still owe money on previous construction loans may be granted subsidies.

Hurricane Irma will have a major negative effect on Cuba’s economy. Economist Carmelo Mesa-Lago, a professor emeritus at the University of Pittsburgh, is convinced that GDP will decline over the last six months of this year. Another Cuban economist, Pavel Vidal, who is a professor at Javeriana University in Colombia, thought the hurricane damage “may pump up inflation” and cause ‘financial complications.”

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[1] U.S. State Dep’t, Cuba Travel Warning (Sept. 18, 2017); Rosenberg, US warns would-be Cuban travelers: consider the risks following Hurricane Irma, Miami Herald (Sept. 18, 2017)

[2] Information for the population, Granma (Sept. 18, 2017); Whitefield & Torres, Cuba announces program to repair Irma-damages homes as experts assess damage to economy, Miami Herald (Sept. 18, 2017).

Cuban Entrepreneurs Express Frustration and Confidence

A recent study based on interviews of 80 Cuban entrepreneurs found seemingly contradictory results.[1]

There was frustration. As expressed by the Miami Herald, “Like entrepreneurs in any country, Cuban entrepreneurs want more access to resources and fewer bureaucratic obstacles to expand and reinvest in their businesses.”

There also was optimism. Said the author of the study, Cuban-born economist Carmelo Mesa Lago, there was a “very high level of reinvestment that the self-employed engage in. Most, including those renting apartments and houses, reinvest.” The study also found a “high degree of satisfaction expressed by those who have decided to start a private business in Cuba, which has allowed them to gain autonomy and live better than those who depend on state wages.”

With virtual unanimity, the entrepreneurs complained about “the level of state interference” or over-regulations plus high prices for supplies, the absence of a wholesale market and high taxes.

The study looked at four segments of the so-called “non-state sector” of the Cuban economy: (1) the self-employed; (2) farmers who use state-owned parcels; (3) corredores   (brokers) of home sales as well as buyers and sellers of private homes; and (4) workers of non-farm production and service cooperatives. Another sector–owners of private restaurants known as paladares—was not included because, says Lago, they do not want to attract attention to their business.

The study– oces del cambio en el sector no estatal cubano (Voices of Change in the Cuban Non-State Sector)—is published by the Ibero-American publishing house.

Conclusion

This study confirms the existence of a thriving non-state sector of the Cuban economy, contrary to the Senate testimony of the new U.S. Ambassador to the U.N., Nikki Haley, as mentioned in a recent post.

The study also confirms the unsurprising difficulties and challenges the Cuban government faces in creating a mixed economy. Indeed, as covered in an earlier post, Raúl Castro in his role as the leader of the Communist Party of Cuba at its Party Congress last year stressed those difficulties and challenges while also acknowledging the essential and important contributions of the non-state sector for the Cuban economy.

Finally the study confirms the need for the U.S. to support the further development and success of this sector by continuing and enhancing the U.S. normalizing of relations with Cuba, especially the enabling of U.S. remittances to those on the island and thereby constituting a major source of capital for this sector. This very point has been emphasized by Engage Cuba, a U.S. coalition, in its lobbying of the new Trump Administration.[2]

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[1] Gámez-Torres, Cuban entrepreneurs dream big, but the government gets in their way, Miami Herald (Jan. 26, 2017).

[2] U.S. and Cuba’s Efforts To Continue Normalization, dwkcommentaries.com (Dec. 9, 2016); Lobbying the Incoming Trump Administration To Continue Normalization with Cuba, dwkcommentaries.com (Jan. 18, 2017); Engage Cuba.

Cuba Faces Economic Challenges  

Cuba is facing economic challenges. First, certain economists are projecting difficult economic times for 2017.[1] Second, ordinary Cubans already are facing difficulties finding basic foodstuffs.[2]

Carmelo Mesa-Lago, an economist and professor emeritus at the University of Pittsburgh, said, “The short-term prospects are not good.” If in 2015 Cuban GDP (Gross Domestic Product) grew 4.4%, “projections [for 2016] are of stagnation or slight decline, and a far greater fall next year.”

He said the economic reforms initiated by Raúl Castro are positive, but that they are “extremely slow. We are now in 2016, nine years since reforms began in 2007, and there have been tangible effects on the economy,” but there is a “need to find quick and accurate solutions . . . [to] accelerate the pace of the key changes.” For example, Mesa-Largo said, the development of the non-state sector “authorized only . . . generally unskilled jobs, [with] extremely low productivity.”

The other economist, Omar Everleny Pérez Villanueva, stated the Cuban economy will only grow an estimated 0.4% in 2016 and decline -2.0% in 2017. “Cuba must make major changes in its economy to rapidly overcome its structural problems in 2017.” He believes it is necessary for Cuba to develop small and medium enterprises, increase wages, allow foreign investment and accept portfolio investments (with the issuance of fixed income securities (bonds) and equity (shares)).”

On a personal level, ordinary Cubans have great difficulty in finding food to eat, due in part to increased competition for food supplies to feed the increasing number of foreign tourists who can pay more for food.

A U.S. journalist reports that the tourists’ “surging demand for food has caused] ripple effects. . . .Tourists are quite literally eating Cuba’s lunch. . . . [G]oods that Cubans have long relied on are going to well-heeled tourists and the hundreds of private restaurants that cater to them, leading to soaring prices and empty shelves. . . . Without supplies to match the increased appetite, some foods have become so expensive that even basic staples are becoming unaffordable for regular Cubans. . . . Rising prices for staples like onions and peppers, or for modest luxuries like pineapples and limes, have left many unable to afford them. Beer and soda can be hard to find, often snapped up in bulk by restaurants.”

To meet this immediate need for more food in Cuba, this blog has proposed that Cuba impose a requirement that all arriving airlines and cruise ships deliver to the Cuban government set quantities of certain foodstuffs.

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[1] The economic challenges of the island by 2017 according to two experts, Diario de Cuba (Dec. 13, 2016)

[2] Ahmed, Cuba’s Sure in Tourism Keeps Food Off Residents’ Plates, N.Y. Times (Dec. 8, 2016); Severson, For Cuban Home Cooks, Ingenuity and Luck Are Key Ingredients, N.Y. Times (May 17, 2016).