Cuban economy – dwkcommentaries

Cuba’s Aging, Declining Population Continues

Cuba continues to experience low birth rates and an aging and declining population that were discussed in previous blog posts.[1]

The latest statistic on live births on the island is 116,333 for 2018, which was a 19% decline from 143,528 in 2000.[2] Now Cuba has one of the world’s lowest gross birth rates, 10.4 per thousand (compared to 33.4 per thousand registered in 1965). Coupling this with the island’s increasing life expectancy, Cuba is facing “a demographic time bomb.”

According to an author in Diario de Cuba, Elijah Love, “the social and economic conditions in Cuban society are the main obstacle to the growth of birth rates.”

In short, the low birth rate “demonstrates the failure of the Cuban economic system and the need to “return to a market economy system, in which productive capital and wealth, savings and investment, are the axes of the economic system.” This would include policies “aimed at effectively promoting economic growth, prosperity and the improvement of the standard of living of all Cubans, the accumulation of capital and wealth, savings and investment.”

This analysis surprisingly did not discuss the additional negative impact on Cuba’s population and economy of the emigration of younger Cubans seeking greater opportunities elsewhere.

However, on December 11, the Cuban Government announced that in April 2020 it would hold a conference in Havana about emigration. The stated purpose is to strengthen relations with the emigrants although the Government’s statement emphasized improving relations with Cubans born abroad and those “who do not have a position that is openly against the island’s government.”[3]

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[1] See these posts to dwkcommentaries.com: Projected Cuban Population: Stabilizing and Aging (Sept. 6, 2016); Cuba Addresses Its Aging and Declining Population (Oct. 17, 2016); Cuba’s Success and Problems with an Aging, Declining Population (Mar. 10, 2019).

[2] Love, A new policy is needed to reverse the birth crisis in Cuba, Diario de Cuba (Dec. 13, 2019).

[3] Cuban Government announces 4^th The Nation and Emigration Conference, On Cuba News (Dec. 12, 2019).

Cuba’s Negative Population Trends Continue

On May 10 Granma, the official newspaper of the Communist Party of Cuba, reported that for 2018 the country continued to have a declining and aging population.[1]

For the second consecutive year, Cuba registered a reduction of total population. For 2019 it was 11,432 with a total population of 11,209,628.

According to the National Office of Statistics and Information, this was due to the fourth lowest number of live births in the last 60 years and a net negative foreign emigration.

The only population segment to increase was those 60 years and older, now 20.4% (2,286,948) of the total population. This is good news in that people are living longer.

On the other hand, this government agency projects that in 2030 those 60 years and older will constitute 29.3% of the population while there will be “ a significant reduction in the economically active population, which will have a significant impact on various sectors of the economic and social life of the nation.” This will call for “an increase . . . in the demand for geriatric and gerontology services, in addition to those related to safety and social assistance.” And who will provide such services?

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[1] Peláez, Cuba Near the Threshold of a New Demographic Era? Granma (May 10, 2019). See also Cuba Addresses Its Declining and Aging Population, dwkcommentaries.com (Oct. 17, 2016); Cuba’s Success and Problems with an Aging, Declining Population, dwkcommentaries.com (Mar. 10, 2019.

Cuba Facing Shortages of Basic Foodstuffs and Other Products

In recent weeks Cuban shop shelves increasingly have been empty with scarcity of basic products such as eggs, flour and chicken, causing massive, hours-long queues for them whenever they come into stock.[1]

On May 10, in response, the Cuban government announced that it is launching widespread rationing of chicken, eggs, rice, beans and other basic products. Every Cuban receives a ration book that allows them to buy small quantities of these basic goods each month for payment equivalent to a few U.S. cents.

Cuba imports 60 to 70 percent of its food because of poor domestic output. Now such imports economically are more difficult due to a reduction in aid from its key ally Venezuela, lower Cuban exports and tightening of the U.S. embargo. Another reason for the current shortages is Cuban hoarding because of fear of products disappearing and speculators hoping to re-sell goods at higher prices in the black market.

Cuba’s Commerce Minister Betsy Díaz Velázquez said that the aim of these measures is “achieving equity in the distribution of some products” and was not rationing.

She also said that in March Cuba produced 900,000 fewer eggs than the 5.7 million needed daily to satisfy national demand. That deficit shrank to 600,000 by mid-April, she said. The production of pork, the most-consumed meat in Cuba and a normally affordable staple of most people’s diets, is hundreds of tons below target.

A Cuban small business owner said, “What the country needs to do is produce. Sufficient merchandise is what will lead to shorter lines.”

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[1] Reuters, Cuba to Ration More Products Due to Economic Crisis, U.S. Sanctions, N.Y. Times (May 10, 2019); Asssoc. Press, Cuba launches widespread rationing in face of crisis, Wash. Post (May 10, 2019); Measures for the purpose of fair distribution in the domestic market, Granma (May 10, 2019).

Cuba’s Current Dire Economic Situation

In the midst of the flurry of recent commentary about the new U.S. policies regarding Cuba, including this blog’s current exploration of the many facets of those policies, it is easy to ignore or forget Cuba’s very difficult current economic situation, which only will be made worse by these U.S. policies. Here is some information about that economy.[1]

According to the Associated Press, “After two decades of relative stability fueled by cheap Venezuelan oil, shortages of food and medicine have once again become a serious daily problem for millions of Cubans. A plunge in aid from Venezuela, the end of a medical services deal with Brazil and poor performances in sectors including nickel mining, sugar and tourism have left the communist state $1.5 billion in debt to the vendors that supply products ranging from frozen chicken to equipment for grinding grain into flour, according to former Economy Minister José Luis Rodríguez.”

“That economy is afflicted by deep inefficiency and corruption. Many state employees demand bribes to provide services to the public. Others spend only a few hours a day at their jobs, spending the rest of their time doing informal private work or selling supplies stolen from their office, warehouse or factory. Despite a highly educated and generally well-qualified workforce, Cuba’s industrial sector is dilapidated after decades of under-investment. The country produces little of value on the global market besides rum, tobacco and the professionals who earn billions for the government working as doctors, teachers or engineers in friendly third countries.”

“The agricultural sector is in shambles, requiring the country to import most of its food. Economy Minister Alejandro Gil said Saturday that Cuba would spend $5 billion on food and petroleum products this year.”

“Over the last 20 years, many of those billions came from Venezuela’s socialist government, which has deep ties to Cuba’s and sent nearly 100,000 barrels of oil daily for years. With Venezuela’s economic collapse, that has roughly halved, along with deep cutbacks in the economic relationship across the board. And the news has been bad in virtually every other sector of the Cuban economy. Nickel production has dropped from 72,530 metric tons in 2011 to 50,000 last year, according to Rodríguez, the former economics minister. The sugar harvest dropped nearly 44%, to a million tons. The number of tourists grew only 1%, with many coming on cruise ships, a relatively unprofitable type of visitor. Overall GDP growth has been stuck at 1% for the last three years.”

“Meanwhile, under agreements Castro struck to rehabilitate Cuba’s creditworthiness, the country is paying $2 billion in debt service to creditors such as Russia, Japan and the Paris Club.”

“Stores no longer routinely stock eggs, flour, chicken, cooking oil, rice, powdered milk and ground turkey, among other products. These basics disappear for days or weeks. Hours-long lines appear within minutes of trucks showing up with new supplies. Shelves are empty again within hours.”

“No one is starving in Cuba, but the shortages are so severe that ordinary Cubans and the country’s leaders are openly referring to the ‘special period,”’the years of economic devastation and deep suffering that followed the collapse of the Soviet Union, Cuba’s Cold War patron.”

“‘It’s not about returning to the harshest phase of the special period of the ’90s,’ Communist Party head Raul Castro said last week. ‘But we always have to be ready for the worst.’”

“Two days later, President Miguel Díaz-Canel said cutbacks were necessary because: ‘This harsh moment demands we set clearly defined priorities in order to not return to the worst moments of the special period.’’”

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[1] Assoc. Press, Shortages Hit Cuba, Raising Fears of New Economic Crisis, N.Y. Times (April 18, 2019).

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 (21^st 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.

Announcements of Cuba’s “Pillars of Management“ and Strategy for 2019

Cuba President Miguel Diaz recently announced what he called “Pillars of Management” and the Government’s strategic objectives for 2019.[1]

Pillars of Management

In September 2018 Diaz-Canel stated the following four “pillars” for future management of the country:

Respond to the mandate of the people and for the people by having responsible government officials account for their management to the people.
Establish a connection, debate and permanent dialogue with the people, especially when there are more complications.
Take into account that the solutions to these problems are very complex. Therefore, we always have to face each complexity with several alternative solutions.
Use social communication as a working tool.

Strategic Objectives for 2019

At the end of the year Diaz-Canel said that the Cuba Council of Ministers had adopted the following strategic objectives for 2019:

Disaggregate the 2019 Plan of the Economy in an orderly and agile manner, with the participation of the workers and their leaders.
Advance the process of computerization, not only with the fundamental leaders of the country in social networks, but with the updating of the websites of the agencies.
Continue to offer information to the media and start a television program to systematically address issues related to the government’s agenda.
Integrate universities in the search for solutions to the problems of the country and enhance the interaction between ministers and faculties.
Defend the ethics that should characterize the work of the leaders and the permanent contact with the people.
Maintain the atmosphere of order, harmony and cleanliness that must prevail in State institutions.
Comply with the regulations for the work of the non-state sector.
Support from all the institutions the broad legislative process that will be deployed after the approval of the new Constitution.
Strengthen the sources of tourism with the other sectors of the economy.
Encourage exports, including new sectors of the economy, while defending Cuba’s main economic and financial processes.
Prioritize, within the actions of the General Comptroller of the Republic and the National Auditing System, the follow-up of investments and exports, the substitution of imports and the productive linkages.
Establish as part of all audits, the use and destination of energy carriers, contracting, cost analysis, strengthening of accounting and the use of inventories.
Make the National Territorial Planning Scheme a working tool, which includes a score of policies aimed at the development of the country.
Develop a process for responding to the issues formulated by the people in the boards of directors of the Central State Administration Organisms and the Provincial Administration Councils.

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[1] Rivera, Government Management in Cuba: from pillars to strategy, Granma (Jan. 2, 2019).

Criticism of Cuba’s New Regulations for Private Enterprise

Cuba’s 126 pages of new regulations for private enterprise (cuentapropistas), which were published on July 10, have been criticized by U.S. economist Richard Feinberg, a professor at the University of California San Diego’s School of Global Policy and Strategy and a Fellow at the Brookings Institution. He calls them “the revenge of the bureaucrats,” who are jealous of those in the private sector who are making much more money than employees of struggling state enterprises.[1]

The new regulations contain details about potential violations, penalties and fines, oversight and performance requirements. For example, an operator of a private day-care facility must devote at least 21.5 square feet per child plus provide a detailed inventory of personal toiletry items.

These regulations also are designed to virtually guarantee that most private businesses will not grow beyond 20 employees. For example, once a private employer hires more than 20 employees, the 21^st employee must be paid six times the average wage for the first 20 employees.

In short, private enterprise is fine so long as they “don’t get too rich, diversify their businesses, open branches, try to evade taxes, resort to the black market, or provide too much competition to the state sector.” Indeed, a major motivation for the regulations is to halt growing inequities between ordinary Cubans and those in the private sector.

Moreover, the new regulations do not allow “for white-collar professionals to work for themselves, . . . private entrepreneurs to directly import for their businesses, and there is no recognition of their businesses as legal entities” and no provision for the creation of wholesale markets for the private sector.

These criticisms of the regulations were echoed in a recent Cuban public opinion poll carried out by the CubaData Project with a team of academics from Cuba, Mexico and Venezuela. 87.6% believe that Cuban professionals should be able to establish businesses and businesses within their professions. In addition, a high percentage of those surveyed believe other political parties should be permitted and that the election of the island’s president should be direct.[2]

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[1] Whitefield, New Cuba regulations for private enterprise on the island have a long list of don’ts, Miami Herald (Aug. 2, 2018). See these posts to dwkcommentaries.com: Cuba Announces New Regulations for Private Business (July 10, 2018); More Details on New Cuban Regulations for Private Business (July 11, 2018); Comment: Yet More Details on Cuba’s New Regulations for Private Business (July 13, 2018).

[2] Survey: Cubans want more autonomy for their business, political pluralism and elect president, Diario de Cuba (July 30, 2018).

Economists See Cuban Economy in Dire Straits

At this month’s annual meeting of the U.S.-based Center for the Study of the Cuban Economy, economists offered opinions on issues relating to the Cuban economy; currency unification and economic centralization.[1]

Currency Unification?

First, they asserted that it was highly unlikely the Cuban government this year would be able to achieve its long-hoped for unification of its two currencies: the Cuban Peso (CUP) , which is generally used by the Cuban population, and the Convertible Peso (CUC), which is used by tourists, foreign companies and some state enterprises and private entrepreneurs.

The Cuban Government and the Communist Party have long wanted to have such a unification. Indeed, last December, Raúl Castro, still the country’s president, said unification could not be delayed much longer.

Omar Everleny Pérez, a Cuban economist with the Centro Cristiano de Reflexión y Diálogo, Cárdenas, Cuba, said while “it will be impossible to achieve significant and sustainable improvement [in the economy] without currency reform,” it won’t happen this year. Why? Such unification is likely “to lead to higher inflation and hurt inefficient state enterprises that have essentially been subsidized by overly favorable exchange rates, even causing them to fail.” Such consequences might adversely affect voters in the upcoming referendum on the draft of a new constitution.

This opinion was shared by Dagoberto Valdés, of the Coexistence Studies Center, an independent think tank in Pinar del Río, Cuba. He said, “We think it [currency unification] could have a devastating economic impact, the strongest in 60 years of the revolution.”

Another person at the meeting, Luis Luis, a consultant and principal at International Research & Strategy Associates, agreed. He said it also would be difficult for Cuba to push through currency unification this year because it has very low international reserves. “They don’t have the reserves to have a currency that would be stable.” It could have been more easily done in 2010, when Cuba still had a huge subsidy from Venezuela and the economy was growing.

These thoughts were echoed by Rafael Romeu, president and chief executive of DevTech Systems and a former senior economist at the International Monetary Fund. He said, “The source of foreign transfers, Venezuela, is on the ropes.” Without Venezuelan subsidies, he said, “The fiscal balance of Cuba is deteriorating. There is a need to continue financing these yawning deficits, which also doesn’t augur well for currency reform.”

Also concurring with these opinions was Armando Linde, a retired IMF economist.

Decentralize the Economy?

Another topic at the meeting of the Association for the Study of the Cuban Economy was whether the existing centralization of the economy was a positive or negative factor.

Three economists– Omar Everleny Perez , Mario González-Corzo and Dagoberto Valdés–agreed that the reforms promoted since 2007 by then President Raul Castro have not yet rescued the economy.

Perez, of the Center for Economic Studies of Cuba, stated that economic development is impractical. One of the main hindrances to economic growth, in his opinion, is the current ” bureaucratic state business system,” its “high centralization of decisions” and “rigidity of plans”, with few incentives and still, today, without a “law of companies. ”

González-Corzo, Professor of Economics at Lehman College, City University of New York, highlighted that the last sugar harvest was the lowest in history (1,100,000 tons for 2017-2018) and that only 54 plants or factories of this sector are operational. The “decline” of the agricultural sector and the “inefficiency of a centralized and decapitalized sector” reduce the economic growth of the Caribbean country, he said, and added that the only road to recovery is the “expansion of private property, the freedom to contract and to choose production” and, in short, “deep structural changes.”

Valdés, of the Center for Convivencia Studies, described the Cuban economic situation as “critical” with shortages of food, medicines and housing continuing to “impact on everyday life” because of a “centralized” and “statist” economic model despite the fact that the” private sector has shown efficiency for creating new wealth.

Finally all there agreed that elimination of the dual currency was one of the “big problems” needing a solution without delay.

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[1] Whitefield, Cuba badly needs currency reform, but it won’t happen yet, economists say, Miami Herald (July 26, 2018); ASCE, Cuba: After Raúl? (July 26-28, 2018); Experts: The Cuban economy continues to be ‘strangled due to its high ‘centralization,’ Diario de Cuba (July 27, 2018). See the posts listed in the “Cuban Economy” section of List of Posts to dwkcommentaries—Topical: CUBA.

Cuba’s National Assembly Approves Draft Constitution

On July 22, Cuba’s National Assembly of Popular Power approved the draft of the new Cuba Constitution. It will now go to a period of “popular consultation, August 13-November 15, and afterwards to a national referendum. [1]

In a concluding address to this session, President Miguel Diaz-Canel said, “The behavior of the economy in the first . . .[half of the year] closes with 1.1 percent growth. A tense situation remains in finance, due to several factors. This situation forces us to ensure control measures in the 2018 Plan. To achieve this we must appeal to the maximum use and efficient use of available resources. In these circumstances, the effort must be multiplied.”

Previously the Cuban government had said the country “needs up to 7 percent annual growth to fully recover and develop from the collapse of former benefactor the Soviet Union, and more recently, Venezuela. The drop in revenues has led Cuba to postpone payments to many suppliers and joint venture partners over the last two years, the government has admitted. Diaz-Canel on Sunday called on the country to work harder to improve the economy and “gradually re-establish the financial credibility of the nation.”

Therefore, we “must draw up an objective and sustainable Plan for the Economy for 2019, but one that does not renounce economic growth.”

As noted in a prior post, the draft Constitution recognizes the right to private property.

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[1] No surprises, the National Assembly approves the Constitution Project of the Republic of Cuba, Diario de Cuba (July 22, 2018); Diaz-Canel: A Constitution that reflects today and the future of the Fatherland, Cubadebate (July 22, 2018); Semple, New Cuba Constitution, Recognizing Private Property, Approved by Lawmakers, N.Y. Times (July 22, 2018); Reuters, Cuba Economic Growth Weak, President Says, as Lawmakers Approve New Constitution, N.Y. Times (July 22, 2018).