The importance of information about History of Cuba Fifth part

The importance of information about History of Cuba Fifth part

  • The importance of information about History of Cuba Fifth part

  • supplies are scarce. In addition, some educational facilities have been abandoned or converted to other uses because of the declining number of students. The government has also taken steps to reduce university enrollments. The Social Safety Net The extensive and generous social safety net developed by socialist Cuba is currently incapable of providing the protec[1]tion for which it was designed: government financial resources have contracted dramatically. Left to its own domestic resources, Cuba can no longer afford to extend extremely lib[1]eral social and economic benefits. These include, aside from full employment, generous social entitlements, such as early retirement (at age sixty for men, and fifty-five for women) and a broad array of partially or wholly subsidized social services, such as meals in government-owned cafeterias and public transportation. An extreme example of such entitlements was described by the Cuban Workers Federation (Central de Traba[1]jadores de Cuba-CTC) in 1996, when it announced that 38 percent of all workers managed to obtain a disability certificate in 1995 entitling them to retire and receive a pension. Many of these “retirees” are known to then engage in informal sector economic activities or to seek employment in state enterprises other than the one from which they retired. Demographic trends further aggravate the erosion of the safety net. As was indicated earlier, Cuba’s population is aging rapidly, and as the number of elderly increases, the demands placed on the social safety net grow apace. Employment Policies Cuba’s employment situation is at the crux of the economic crisis. According to United Nations Economic Commission for Latin America and the Caribbean (ECLAC-see Glossary) esti[1]mates, in 1996 Cuba had an equivalent unemployment rate (combined unemployment and underemployment (see Glos[1]sary) rates) of 34 percent, which translates into the need to cre[1]ate 1 million new jobs. The government has responded to the crisis by expanding unemployment benefits, shifting urban labor to the countryside, and reassigning and re-training sur[1]plus workers. Because the government lacks sufficient financial resources, these adjustment mechanisms have been unable to prevent a brutal contraction in real income for the average Cuban worker (see Labor, ch. 3). 151 Cuba: A Country Study Remittances and Closer Bonds with the Emigre Community The economic crisis has intensified and in many cases reawakened family bonds severed by decades of emigration. The emigre community has responded generously to the plea for assistance received from relatives in Cuba, even when fami[1]lies had not been in contact for many years. Cuban families abroad are remitting hundreds of millions of dollars (up to US$500 million annually, although ECLAC claims the figure may be as high as US$800 million) in assistance, including food and medicines. To facilitate the inflow of remittances, previous restrictive measures imposed by the Cuban government have been lifted. These measures extend to the easing of visa proce[1]dures as a means to encourage emigrant visits. Among the most decisive measure was the 1993 decision to decriminalize the holding of United States dollars and to authorize the free circu[1]lation of United States currency. Closer ties between Cubans at home and abroad have impor[1]tant social implications. They chip away at the ideological and political cleavages separating Cuban families, and thereby lead to the questioning of the official stigmatization of those who left for ideological or material reasons. Second, and perhaps most important, remittance inflows have substantially modified the country’s pattern of income distribution and granted a measure of economic freedom to families formerly totally dependent on the state. The latter fact has curbed the power of the state, particularly given the fact that a few dollars are the peso equivalent of the average monthly salary. The regressive effects of remittances are substantial given that not all families have access to them. Families without close relatives abroad are excluded, including those belonging to social categories underrepresented in the emigration stream, such as Cubans of Mrican descent (see Attracting Foreign Investment and Remit[1]tances, ch. 3). Tourism In response to government policies to promote interna[1]tional tourism, millions of foreign tourists have traveled to Cuba since the early 1990s. If current trends persist, the annual number offoreign tourists visiting Cuba will rise to as many as 2 million annually-more than 1.6 million tourists visited in 1999-by the beginning of the twenty-first century, as com[1]pared with 270,000 in 1989 (see Tourism, ch. 3). This develop[1]152 The Society and Its Environment ment, together with the dollarization of the domestic economy, will further accelerate a process of social change in a country that up to the late 1980s was largely, although not completely, isolated from outside influences. This impact is already evident in numerous ways. The arrival of hundreds of thousands of foreign tourists has led to charges of “tourism apartheid,” or the discrimination to which Cubans without dollars are subjected by not being able to pay for services available only in tourist facilities, such as hotels and nightclubs. Like foreign remittances, tourism also contributes to increases in income differentials. Workers in the foreign tourist sector have access to dollars (in tips and other compensation) and other goods not available to workers in other economic sectors. Foreign tourists, through their life[1]styles and behaviors, such as consumerism, provide alternative role models at variance with those of socialism. They also pro[1]vide a conduit for news from the outside world. The culture of service in the tourism sector, essential if the industry is to pros[1]per, to some extent is inimical to egalitarian socialist principles. With hundreds of thousands offoreign visitors present, it is no longer wise for the government to openly suppress social and political dissent. Tourism, by contributing to a more relaxed social environment, will force the government, albeit reluc[1]tantly, to tolerate alternative behaviors that challenge conform[1]ist socialist norms. Tourism and the poverty associated with the economic crisis have contributed to the resurgence of several social ills that had presumably been eradicated under socialism. Prostitution is endemic, particularly in tourist areas, and until recently the government has been unable or unwilling to stop it, despite some high-visibility attempts to do so. Many prostitutes are young, well-educated women (and men) who practice the ancient trade to feed families or purchase expensive (by Cuban standards) and coveted foreign goods in dollar-only stores. Sex[1]ually suggestive advertisements in Europe and South America lure tourists seeking amorous adventures while enjoying afford[1]able vacation packages. In early 1999, the authorities took dras[1]tic measures to remove prostitutes from the streets of Havana and from important tourist resorts. The measures included the institutionalization of repeat offenders, forcing young prosti[1]tutes from the interior of the country to return to their places of origin, and reeducation plans. To what extent these policies will be effective, however, remains to be seen because the eco[1]153 Cuba: A Country Study nomic conditions behind prostitution have not changed, nor are they likely to change in the near future. Petty crime, as well as a rising trend of violent crime, much of it targeting foreign visitors, is a cause of concern (see Crime and Punishment, ch. 5). Drug use is on the increase as well, although its incidence is still low. The allegiance of the people to the socialist state is gravely compromised by these develop[1]ments. They are indicative of the implosion of the implicit cra[1]dle-to-grave social bargain promised and delivered by the once[1]subsidized socialist government. Outlook Any reasonable observer must forecast that profound social changes are in store for Cuba. Four decades of social engineer[1]ing designed to create a society populated by men and women schooled in Marxist-Leninist principles and committed to internationalist solidarity were rattled by the disintegration of the communist world. The austere social environment created by the Revolution, including many of its social welfare institu[1]tions, managed to function relatively well as long as Cuba’s inef[1]ficient economy was sheltered from outside shocks, and costly health, education, and safety-net programs could be sustained with external financial transfers. In this context, the educa[1]tional system and highly structured mass organizations con[1]veyed ideological messages whose credibility was enhanced by socialist Cuba’s ability to construct an equitable, if totalitarian, society. These social achievements had an important symbolic value in legitimizing socialist Cuba’s policies, even providing a veneer ofjustification for its totalitarian excesses. Repressing competing worldviews, whether in the political, economic, social, or religious realms, was feasible in a totalitarian state that controlled practically all aspects of the country’s life. Out[1]side influences were contained in a Cuba only partially open to the outside world; the permanent exile option, often employed on a massive scale, was used to rid the country of those citizens most unhappy with government policies. The context is vastly different today. Whether the leadership wants it or not, Cuba must open to the world. Foreign values and influences are coming into Cuba in the form of interna[1]tional tourism; with the tourists come the demonstration effects of consumer societies and a growing appetite for mate[1]rial well-being, as well as more tolerant social and political atti[1]tudes. As this happens and as the distribution of income 154 The Society and Its Environment becomes more unequal, socioeconomic differentials can only increase and alternative ideological viewpoints become more widespread. Past ideological messages are as irrelevant today as they are impractical. The socialist government is no longer able to deliver on its social-compact promises of equity and uni[1]versal access to quality social services. It is difficult to predict the long-term consequences of these developments. The Cuban people show many signs of restlessness, ideological exhaustion, and the search for viable individual alternatives. The only thing certain is that social relations and Cuba’s social fabric in the early twenty-first century will be vastly different from those dreamed of and partially achieved by the revolu[1]tionary leadership in the 1970s and 1980s. * * * The literature on Cuba is vast and growing, in Spanish as well as in English and other languages. Much of it touches on the country’s social history and contemporary social conditions up to the early 1990s. Among the most comprehensive and authoritative references is the journal Cuban Studies/Estudios Cubanos, published since 1970 by the University of Pittsburgh Press. Also replete with information is Cuba in Transition (avail[1]able on the Internet at http://www.ascecuba.org) , the pro[1]ceedings of the annual meeting of the Association for the Study of the Cuban Economy, published since 1991. Aside from books on specific topics published by university and academic presses, edited collections (with varying ideological tinges) are available. They focus on different facets of Cuban affairs, dat[1]ing back to the 1960s, and cover developments since the early 1990s. Of particular note are the ten editions of Cuban Commu[1]nism, a comprehensive compilation of essays culled from many sources and edited by Irving Louis Horowitz. Many of the excellent studies conducted over the years about Cuba’s social situation do not capture the reality of the country since the early 1990s given the drastic changes that have occurred. But important sources that could be consulted on the evolution of different facets of social life in Cuba include Juan Clark’s Mito y realidad, Julie Feinsilver’s Healing the Masses, and Julie Marie Bunck’s Fidel Castro and the Questfor a Revolutionary Culture in Cuba. One noted source dealing with contemporary Cuba, but with a major emphasis on economics, is La economia cubana: Reformas estructurales y desempeiio en los 1.~.~ Cuba: A Country Study noventa, a study sponsored by the Economic Commission for Latin America and the Caribbean (ECLAC) and published in 1997 by the Fondo de Cultura Econ6mica in Mexico City. Among major American newspapers, the most extensive Cuban coverage is provided by the Miami Herald, in particular by its Spanish-language version, El Nuevo Herald. Excellent but more sporadic coverage can also be found in other major national newspapers, such as the New York Times and the Wash[1]ington Post, both (like the Miami Herald and other newspapers) accessible through the Internet. Internet readers have at their reach a wealth of additional information on Cuba that can be located in various Web pages and associated links. Selected web pages range from those of Florida-produced Cuba Free Press and Cuba Press, which offer accounts of daily life provided by inde[1]pendent, and often persecuted, journalists in Cuba, to English[1]language versions of official Cuban newspapers, such as the daily Granma, Cuba’s most important newspaper, and the weekly Granma International [Havana]. Equally important sources of news on Cuba are the various international news agencies, such as the Associated Press and Cuba’s own official news agency, Prensa Latina. These news agencies can also be accessed through the Internet. (For further information and complete citations, see Bibliography.) 156 Chapter 3. The Economy Havana’s main train station, 1999 Courtesy Maria M. Alonso NEARLY FOUR DECADES SINCE the triumph of the Revolu[1]tion of 1959, the Cuban economy remains based on agricul[1]ture, notwithstanding the rhetoric of Cuba’s government. Sugar remains the mainstay of the economy, the largest employer, and the main generator of net export revenues (see Key Economic Sectors, this ch.). The tourism industry grew rapidly in the 1990s, however, spurred by foreign investment in the form ofjoint ventures. By the late 1990s, gross revenue gen[1]erated by tourism had surpassed that earned by sugar. Net reve[1]nues generated by tourism are only about one-third of gross revenue, however, reflecting the high import content of activi[1]ties of this industry. Cuba remains nominally a centrally planned economy (see Glossary), and the Cuban government controls the bulk of the productive resources of the nation. By the 1980s, however, some economic activities for private gain existed. Such activi[1]ties included agriculture (private farmers owned a small por[1]tion of the island’s agricultural land) ; the sale of some personal services; and, for a period in the early 1980s, farmers’ markets and artisan markets. In addition, black market (see Glossary) operations were illegally conducted outside of state control. Other illegal activities with economic consequences included unauthorized use of government resources and corruption. During the 1990s, Cuba faced perhaps its most serious eco[1]nomic crisis of the twentieth century. The crisis was triggered by the breakup of economic and trade relations with East Euro[1]pean countries and the Soviet Union as these countries aban[1]doned socialism and began their transition to market economies. The results have been devastating for Cuba and for the Cuban people: a contraction in national product of one[1]third to one-half between 1989 and 1993, a fall in exports by 79 percent and imports by 75 percent, a tripling of the budget def[1]icit, and sharp declines in the standard ofliving of the popula[1]tion. The economic crisis of the 1990s, and the austerity measures put in place to try to overcome it, are referred to by the Cuban government as the “special period in peacetime” (periodo especial en tiempo de paz; hereafter Special Period-see Glossary) . In the summer of 1993, faced with a badly deteriorating eco[1]nomic picture, the Cuban government began to take steps to 159 Cuba: A Country Study liberalize certain areas of the economy, attract foreign invest[1]ment by offering tax holidays and other incentives to foreign investors, and attain some measure of macroeconomic stabili[1]zation. The pace of reforms slowed down in 1995, although the National Assembly of People’s Power (Asamblea Nacional del Poder Popular-ANPP; hereafter, National Assembly) passed a tax code and Foreign Investment Decree-Law 77 that year. Law 77 clarifies the concept of private property and provides a legal basis for transferring state property to joint ventures estab[1]lished with foreign partners. Law 77 also authorizes 100 per[1]cent foreign ownership of investments, simplifies the screening offoreign investment, and explicitly allows foreign investment in real estate. In 1996 the National Assembly passed legislation to create free-trade zones and in 1997 a bill to reform the banking sys[1]tem. Far from being a well-articulated set of reforms to liberal[1]ize the Cuban economy and make it more efficient and productive, the reforms were opportunistic measures to ease the economic crisis and maintain the Cuban government and the Communist Party of Cuba (Partido Comunista de Cuba[1]PCC) in political control. Modest positive economic growth during 1994-98 arrested the economic deterioration experi[1]enced over the first half of the 1990s, but did not result in a sig[1]nificant improvement in the standard of living of the population. Several of the reform measures implemented in the 1990s stimulated economic activity outside of the control of the state. These reform measures included the decriminalization of the holding and use of foreign currencies, the breakup of state farms and their reinstitution as cooperatives, the authorization of self-employment, the reestablishment of agricultural and artisan markets, the decentralization of foreign trade, and the creation of semiautonomous corporations. By 1998 about one[1]quarter of the Cuban labor force was engaged in activities out[1]side of the state sector, compared with about 5 percent in 1989. Attraction of foreign investment was one of the bright spots of the Cuban economy in the 1990s, although the levels of incoming investment were very small in comparison with the foreign support that was lost as a result of the change in eco[1]nomic and trade relations with the former Soviet Union and the socialist countries of Eastern Europe. The impact on invest[1]ment of the Helms-Burton Act (see Glossary), adopted by the United States in 1996, is difficult to ascertain given the secrecy 160 The Economy with which the Cuban government deals with foreign invest[1]ment information. Cuba has had great difficulties in borrowing funds in inter[1]national markets since it suspended service on its convertible currency (see Glossary) on July 1, 1986. As a result, the island has had to rely on short-term loans at very high interest rates. At the end of 1998, Cuba’s convertible currency debt amounted to more than US$11.2 billion. In addition, Cuba has a substantial debt with the former Soviet Union (this debt has been assumed by Russia) and with East European nations denominated in rubles. Very little is known about the magni[1]tude of this debt or the exchange rate at which it is to be con[1]verted to either pesos or dollars for purposes of repayment. In the second half of the 1990s, foreign remittances-the funds that Cuban individuals and families receive from rela[1]tives and friends living abroad-became the lifeline of the external sector of the Cuban economy. The Cuban govern[1]ment adopted policies that facilitate the use of remittances by Cuban citizens and encourage relatives and friends abroad to increase remittance levels. These policies include permitting Cuban citizens to hold foreign currencies, establish stores where such currencies can be used, and set up a system of exchange houses to facilitate conversion into domestic cur[1]rency. According to Cuban official sources, foreign remittances amounted to 820 million pesos in 1998 (for value of the peso[1]see Glossary) . Performance of the Economy Background Buffered by economic assistance from the Soviet Union and other socialist countries, the Cuban economy showed positive economic growth in the 1970s and 1980s. According to official statistics, the global social product (GSP-see Glossary), a broad, Soviet-style measure of the economy under Cuba’s Mate[1]rial Product System (MPS-see Glossary), grew at an average annual rate of 7.5 percent during the first half of the 1970s and 3.5 percent during the second half. In 1972 Cuba became a member of the Council for Mutual Economic Assistance (CMEA; also known as Comecon-see Glossary), the organiza[1]tion that promoted and guided trade and economic coopera[1]tion among the socialist countries. In that same year, Cuba and the Soviet Union formalized a system of preferential prices[1]1 fll Cuba: A Country Study that is, higher than world market prices-for Cuban sugar exports that would result in very large price subsidies for the island throughout the 1970s and 1980s. In the first half of the 1980s, socialist Cuba recorded its strongest economic performance, with GSP growing at an aver[1]age annual rate of 7.2 percent. Economic growth slowed dur[1]ing the second half of the 1980s, when GSP growth rates of 1.2 percent in 1986, -3.9 percent in 1987, 2.2 percent in 1988, and 1.1 percent in 1989 were recorded. During this period, Cuba was engaged in the “rectification process of errors and negative tendencies” (proceso de rectificaci6n de errores y tendencias negati[1]vas-see Glossary) and began to face a tightening of its eco[1]nomic relations with the Soviet Union under former president Mikhail Gorbachev’s policy of economic and governmental reform (perestroika). In late September 1990, Fidel Castro Ruz (president, 1976- ) announced that the country had entered a Special Period. He likened the economic situation-sharply reduced levels of imports of fuel, food, raw materials, machinery, and spare parts-to what would have ensued from the imposition of an air and naval blockade in a war situation. Surviving this Special Period would require emergency measures similar to those called for in a war setting. Indeed, in the 1990s Cuba has faced its most serious economic crisis in the twentieth century. The events that triggered Cuba’s economic crisis are undoubtedly related to the shift in trade and economic rela[1]tions with the former socialist countries that began in 1989 as these economic partners abandoned central planning and began their transition toward market economies. In the late 1980s, East European countries and the former Soviet Union purchased 85 percent of Cuba’s exports, provided a like share of imports, and were the main source of the island’s develop[1]ment financing. The disappearance of the socialist regimes in Eastern Europe and the former Soviet Union, and these coun[1]tries’ demand that henceforth trade relations be conducted using convertible currencies and following normal commercial practices, meant that the economic support that the socialist community had given Cuba for nearly three decades vanished almost overnight. External sector shocks triggered the economic crisis of the 1990s, but they alone are not responsible for its occurrence, severity, or length. The underlying causes of the crisis are the well-known inefficiencies of centrally planned economies, com[1]1fi2 The Economy pounded by distortions created by massive inflows of resources from the socialist bloc and the leadership’s refusal to under[1]take the necessary political and economic reforms. The Economic Crisis of the 1990s Official information on the performance of the Cuban econ[1]omy during the 1990s remains scanty. The official statistical yearbook, Anuario estadistico, which was published annually dur[1]ing the 1970s and 1980s, ceased publication with the issue for 1989 and did not appear again until the issue for 1996, under the auspices of the newly formed National Statistical Office (Oficina Nacional de Estadisticas-ONE). Beginning in August 1995, the Cuban National Bank (Banco Nacional de Cuba[1]BNC) and its successor, the Cuban Central Bank (Banco Cen[1]tral de Cuba-BCC), have published annual reports on the performance of the Cuban economy that include some statisti[1]cal information. The national product statistics in the BNC, BCC, and ONE reports follow the System of National Accounts (SNA-see Glossary), a different methodology than was used by socialist Cuba through the early 1990s, thereby making long[1]term comparisons impossible. In mid-1997, the Economic Commission for Latin America and the Caribbean (ECLAC-see Glossary) of the United Nations released a comprehensive study of the Cuban economy prepared with the cooperation of the Cuban government. A statistical annex to this report-reportedly based on informa[1]tion provided by Cuban government statistical agencies-pro[1]vides economic data not published directly by the Cuban authorities. Using information contained in the BNC, BCC, ONE, and ECLAC reports, analysts may be able to gauge the depth and breadth of the economic crisis of the 1990s. National Product Mter falling freely since 1989-by 3 percent in 1990, 11 per[1]cent in 1991, 12 percent in 1992, and 15 percent in 1993-the Cuban economy apparently hit bottom around mid-1994. The gross domestic product (GDP-see Glossary) at constant prices of 1981 was about 12.8 billion pesos in 1993,35 percent lower than in 1989 (see Table 5, Appendix). According to official statistics, the GDP grew by 0.7 percent in 1994,2.5 percent in 1995,7.8 percent in 1996, 2.5 percent in 1997, and 1.2 percent in 1998. As had been the practice in the 1990s, Cuba has not provided detailed statistics to support 163 Cuba: A Country Study reported growth rates. Experts on the Cuban economy have raised fundamental questions about the reliability of Cuban economic statistics for 1996 and, by extension, about those for other years and more broadly about the Cuban system of national accounts. If the official statistics are taken at face value, the cumulative CDP growth rate over the 1993-98 period is about 16 percent, compared with a contraction of 35 percent between 1989 and 1993. Foreign Trade Cuban merchandise exports in 1993 amounted to less than l.2 billion pesos, 79 percent lower than the nearly 5.4 billion pesos recorded in 1989 (see Foreign Economic Relations, this ch.; table 6, Appendix). Over the same period, merchandise imports fell from 8.1 billion pesos to slightly more than 2.0 bil[1]lion pesos, or by 75 percent. Exports began to recover in 1994, rising to about l.3 billion pesos in 1994, l.5 billion pesos in 1995, and l.9 billion pesos in 1996, then falling to l.8 billion pesos in 1997 and 1.4 billion pesos in 1998. Meanwhile, imports were 2.0 billion pesos in 1994, 2.9 billion pesos in 1995,3.6 billion pesos in 1996, 4.0 billion pesos in 1997, and 4.2 billion pesos in 1998. In 1998 exports and imports were still substantially lower than in 1989, by 73 percent and 49 percent, respectively. State Budget During the crisis, the nation’s budget deficit nearly tripled, deteriorating from 1.4 billion pesos in 1989 to nearly 5.1 billion pesos in 1993 (see table 7, Appendix). In 1993 the budget defi[1]cit amounted to more than 30 percent ofthe CDP. Shortages of consumer products in the state distribution system, coupled with low (officially set) prices for basic consumption goods, the lack of a tax system, and government policies of continuing to pay a portion (60 percent) of salaries to idle workers, led to a sharp rise of monetary balances in the hands of the popula[1]tion. These balances grew from about 4 billion pesos in 1989 to 1l.4 billion pesos in 1993. The government’s budget deficit fell to the pre-crisis level of -l.6 billion pesos in 1994, -766 million pesos in 1995, -570 mil[1]lion pesos in 1996, -459 million pesos in 1997, and -560 million pesos in 1998. Meanwhile, monetary balances in the hands of the population declined to 9.9 billion pesos in 1994 and 9.3 bil[1]164 The Economy lion pesos in 1995, but rose again in 1996 to 9.5 billion pesos and reached 9.7 billion pesos in 1998. Performance ofEconomic Sectars The economic crisis affected nearly all sectors of the econ[1]omy. As discussed above, GDP fell by 35 percent during 1989­ 93, according to official statistics. However, the performance of several key sectors of the economy was significantly worse: out[1]put of the construction sector fell by 71.4 percent, agriculture by 51.9 percent, transportation by 45.8 percent, commerce by 43.0 percent, and manufacturing by 36.5 percent. The down[1]turn of the construction industry was attributed to a sharp con[1]traction in domestic investment and shortages of construction materials; nonsugar agriculture was adversely affected by the lack of imported inputs-for example, fertilizers, pesticides, and spare parts for machinery-and of manpower to cultivate the land and harvest crops. Sugar production, still the mainstay of the economy and the most significant source of export reve[1]nue in the early 1990s, fell from 7.3 million tons in 1989 to 4.1 million tons in 1993, or by 43.8 percent, contributing to the decline in the output of the manufacturing sector. Nickel pro[1]duction declined by 35.2 percent. By 1995, however, the manu[1]facturing sector had increased its share of GDP by 2 percent, to 27 percent (see fig. 4). Two bright spots for the Cuban economy during the gloomy 1989-93 period were the oil and tourism industries. Domestic oil production for the first time exceeded 1 million tons in 1993. Between 1989 and 1993, the number of international tourists visiting the island jumped from 300,000 to 546,000 per[1]sons, and gross income from tourism increased more than fourfold (from 166 to 720 million pesos) . Population consumption of food, consumer durables (see Glossary), and nondurables, such as vegetables, dropped sharply in the early 1990s, with rationing reinstated for a wide range of staple food, personal hygiene, and clothing items. Moreover, monthly rationing allowances were trimmed back so that the typical household could satisfy only about two weeks of its consumption needs through the rationing system. The cut[1]backs forced most consumers to turn to more expensive alter[1]natives-especially the very active black market-and affected, in particular, consumption levels of pensioners. Electricity shortages and blackouts became commonplace, and public transportation was cut back sharply. The availability and quality 165 Cuba: A Country Study FY 1995 – GDP 13,184.5 million pesos (at 1981 prices) TRANSPORT (INCLUDING COMMUNICATIONS AND CONSTRUCTION FINANCE SERVICES WAREHOUSING) (INCLUDING BUSINESS 5.7% TRADE (INCLUDING AND REAL ESTATE) HOTELS AND 3.7% RESTAURANTS) 22.6% COMMUNITY, PERSONAL, —­ 3.1% AND SOCIAL ­ MINING AND SERVICES QUARRYING 26.9% 1.2% AGRICULTURE, FISHING, FORESTRY, MANUFACTURING AND HUNTING 27.0% ELECTRICITY, 6.9% GAS, AND WATER 2.9% Source: Based on information from Banco Nacional de Cuba, Infanne economico 1995, Havana, August 1995, Appendix A. Figure 4. Gross Domestic Product (GDP) by Sector, 1995 of public health and education services, two of the most lauded accomplishments of Fidel Castro’s government, also declined severely. Economic Reforms Far from an articulated and comprehensive blueprint to transform the economic system into a market-oriented one, the reform measures taken to date represent a survival strategy[1]modest, opportunistic measures that seek to allow the govern[1]ment and the PCC to cope with the economic crisis and remain in power. In the summer of 1993, Cuba took steps to liberalize certain areas of the domestic economy and to attract foreign 166 The Economy resources. A second set of initiatives, including stabilization measures, was implemented in May 1994 together with a sweep[1]ing law, Decree-Law 149, against “improper enrichment.” In mid-1995, however, Fidel Castro vowed not to abandon Cuba’s socialist principles and Marxist-Leninist convictions. Subsequently, the pace of change slowed down as the govern[1]ment postponed implementation of enterprise-restructuring measures that would inevitably have resulted in the shutdown ofinefficient plants and increased unemployment. In March 1996, Raul Castro Ruz, the minister of defense and vice president, strongly criticized some of the economic changes that had been implemented. He lashed out at foreign influences associated with the international tourism industry and the wealth acquired by individuals engaged in legal forms of self-employment, and called for renewed ideological vigor in defense of communism. Raul Castro’s broadside squelched an incipient domestic dialogue on reforms centered on the work ofseveral Cuban economists. Stabilizing the Economy Cuba’s macroeconomic situation in the early 1990s was dis[1]mal. The country had a very large government budget deficit, very high levels of repressed inflation (manifested through physical shortages and rampant black markets), and large cash balances in the hands of the population. To address these problems, Cuba took a number of actions to introduce fiscal discipline, including reducing government expenditures, increasing revenues, and reforming the tax system. Meeting in early May 1994, the National Assembly adopted a resolution calling for strict discipline in the implementation of the budget law and for reductions in expenditures and increases in revenues at all levels of government. On the expenditures side, the National Assembly directed the execu[1]tive to take concrete steps to reduce subsidies to loss-making enterprises, stimulate personal savings, increase revenue collec[1]tion through increases in prices of nonessential goods and some services, and develop a comprehensive tax system that would be equitable, foster production and work effort, and raise sufficient revenue to balance the state budget. A reorgani[1]zation of the central state administration reduced the number of entities from fifty to thirty-two, eliminating altogether 984 organizational units, such as departments, sections, and direc[1]torates, and reducing personnel and administrative expenses. 167 Cuba: A Country Study On the revenue side, the Executive Committee of the Coun[1]cil of Ministers decreed increases in the prices of cigarettes and alcoholic beverages, gasoline, electricity, and public transporta[1]tion, and in the rates for sending mail and telegrams; elimi[1]nated subsidies to workplace cafeterias; and imposed a charge for services formerly provided free, such as school lunches, some medications, and attendance at sports and cultural events. Assessing fees on self-employed workers is a new source of government revenue. The results of the implementation of austerity measures in 1994-95 were sharp reductions in the budget deficit and in the amount of currency in circulation. All areas of government expenditure were subject to cuts, particularly subsidies to enterprises. The budget deficit in 1994 was 1.6 billion pesos, 50 percent lower than the projected deficit of 3.2 billion pesos. For 1995 the budget deficit was anticipated at 1 billion pesos, but the actual deficit was 766 million pesos, and it was 570 mil[1]lion pesos in 1996,459 million pesos in 1997, and 560 million pesos in 1998. The budget deficit as a share of GDP was 39.5 percent in 1993, 12.6 percent in 1994, 5.8 percent in 1995,4.0 percent in 1996, 3.1 percent in 1997, and 3.8 percent in 1998. Currency in circulation fell from 11.0 billion pesos at the end of 1993 to 9.9 billion pesos at the end of 1994, or by 10 per[1]cent, as a result of increased savings and price increases. Cash holdings were 9.5 billion pesos in 1995,9.4 billion pesos in 1997, and 9.7 billion pesos in 1998. In August 1994, the National Assembly approved a new and very broad tax code, to be implemented gradually beginning in October 1994. The new system levies taxes on the income of enterprises, including joint ventures with foreign investors, as well as on the value of assets owned; earned income; sales; con[1]sumption of products, such as cigarettes, alcoholic beverages, domestic electric appliances, and other luxury goods; public services, such as electricity, water and sewer, telephone, tele[1]grams, transportation, restaurants, and lodging; real estate holdings; gasoline- or draft animal-powered transportation vehicles; transfer of property, including inheritances; public documents issued; payrolls; and use of natural resources. The law also provides for employer contributions to social security, user fees on roads (tolls) and airport services, and charges for advertising of products or services. Implementation of the law has been gradual, with personal income taxes, user fees on air[1]168 A pedicab and its driver in Havana A knife sharpener plying his trade on a Havana street Courtesy Danielle Hayes, United Nations Development Programme port services, and charges on advertising becoming effective in October 1994 and the rest since 1995. Stimulating Production Cuba took some tentative steps to liberalize selected sectors of the economy to stimulate production. The most significant such steps were those related to the liberalization of self[1]employment, agricultural production and sales, and the decen[1]tralization of foreign trade. Concern about the possibility that economic liberalization measures would bring about the enrichment of some individuals prompted the adoption, in March 1994, of Decree-Law 149 (effective that May) to facili[1]tate the prosecution of”profiteers.” In September 1993, the Cuban government authorized self[1]employment in more than 100 occupations, primarily those related to transportation, home repair, and personal services. It took this long overdue measure in order to legitimize a booming black market for personal services and handicraft production and to absorb the large number of workers unem[1]ployed and underemployed because of the idling of their work[1]places. 169 Cuba: A Country Study However, under Decree-Law 186, restrictions on self-employ[1]ment remain quite severe. Professionals with a university degree cannot become self-employed in the occupation for which they were trained; moreover, physicians, dentists, teach[1]ers, professors, and researchers are not allowed to engage in self-employment because education and public health services continue to be supplied by the state. Even with regard to the occupations where self-employment is allowed, restrictions apply: the self-employed have to request a license, cannot hire others, have to pay fees and taxes to the government, and are limited on how they sell the goods or service they produce. In October 1993, the state expanded the list of occupations ame[1]nable to self-employment by twenty occupations. InJune 1995, it designated additional occupations for self-employment, bringing the number of authorized occupations to 140; in July 1995, the Ministry of Labor authorized university graduates to become self-employed, provided the occupations they per[1]formed differed from those for which they were trained-for example, an engineer could be self-employed as a messenger or a taxi driver. Shortly after self-employment was authorized, there was an explosion of home restaurants-commonly called paladares (see Glossary)-set up pursuant to the provisions of the law that authorized self-employment related to food preparation. Most of the home restaurants were modest operations and pro[1]vided relatively simple staple foods, but some were fancy and charged high prices. The government first banned home res[1]taurants, arguing that they were inconsistent with the autho[1]rized forms of self-employment, but in 1995 it reversed course and explicitly authorized them, provided they sat twelve or fewer customers and complied with a stiff schedule of monthly fees. At the end of 1995, approximately 208,000 workers had been authorized to engage in self-employment, less than 5 per[1]cent of the economically active population of 4.5 million work[1]ers and about one-fifth of the estimated 1 million workers who would be subject to dismissals in an overall rationalization of state enterprises. New fees and taxes-pursuant to the 1994 tax code-began to be charged to the self-employed effective February 1, 1996. Fees paid by self-employed taxi drivers jumped from 100 to 400 pesos per month, manicurists from 60 to 100 pesos, hair dress[1]ers from 90 to 200 pesos, and paladares charging prices in domestic currency (pesos) to 800 pesos per month. The new 170 The Economy progressive income tax system levied taxes of 10 percent on annual incomes up to 2,400 pesos and 50 percent on annual incomes exceeding 60,000 pesos. By January 1998, the number of self-employed had fallen to about 160,000, from about 209,000 in March 1996, and reportedly has continued to fall. In September 1993, the Council of State approved breaking up state farms into a new form of agricultural cooperatives, the Basic Units of Cooperative Production (Unidades Basicas de Producci6n Cooperativa-UBPC). The UBPCs have the use of the land they work for an indefinite period of time, own the output they produce, have the ability to sell their output to the state through the state procurement system or through other means, have the authority to contract and pay for the technical and material resources they use, have their own bank accounts and buy necessary inputs on credit, and are able to elect their own management, which must report to its members periodi[1]cally. The UBPCs also have to pay taxes. The rationale for the policy change was that the shift from state farms to coopera[1]tives would give workers greater incentives to increase produc[1]tion with the least expenditure of material resources. In essence, the UBPCs operate as production cooperatives within each state farm, breaking up the larger estates and creat[1]ing smaller units that compete with one another. Workers of former state farms shift from being wage workers in the employ of the state to being cooperative members, with their earnings connected to the profitability of their units. Cooperatives are able, within some constraints, to make decisions regarding how they use their land. They are permitted to set aside some land for growing agricultural products and raise livestock to meet their own consumption needs. In early May 1994, the Council of State adopted a broad stat[1]ute that would allow confiscation of assets and income of indi[1]viduals who had obtained them through “improper enrichment” (enriquecimiento indebido). This law grants the gov[1]ernment sweeping powers to confiscate cash, goods, and assets of individuals found guilty of “profiteering” and provides for retroactive application of sanctions against this offense. Sei[1]zures ordered by the Office of the National Prosecutor in “improper enrichment” cases are not appealable. In late September 1994, Cuba authorized agricultural mar[1]kets (agros-see Glossary), locations at which producers of selected agricultural products can sell a portion of their output at prices set by demand and supply. Before an agricultural pro[1]171 Cuba: A Country Study ducer-private farmer, cooperative member, or even state enterprise-can sell his or her output in the new markets, sales obligations to the state procurement system (acopio–see Glos[1]sary) must be met. Participants in the agricultural markets would also have to pay a fee to participate and a tax on sales conducted. In most respects, the agricultural markets autho[1]rized in September 1994 are similar to the farmers’ free mar[1]kets (mercados libres campesinos) that were in operation during 1980-86 and scuttled during rectification. In October 1994, following on the establishment of agricul[1]tural markets, the Cuban government announced that it would also allow the free sale of a wide range of consumer products through a network of artisan and manufactured products mar[1]kets. The new markets could be used by artisans to sell handi[1]crafts and also by the government to dispose of inventories of manufactured goods and surplus products made by state enter[1]prises. These markets resemble very closely the artisan markets that were in operation during 1980-86 and eliminated during rectification. Prior to the 1990s, Cuban foreign trade was a state monop[1]oly, based on Article 18 of the socialist constitution of 1976, which decrees that “foreign trade is the exclusive function of the state.” Cuban foreign trade institutions mirrored those of the Soviet Union and East European socialist nations: exports were conducted by specialized enterprises of the Ministry of Foreign Trade; imports were primarily the responsibility of the State Committee for Technical and Material Supply (Comite Estatal de Abastecimiento Tecnico-Material-CEATM). Among the reforms to the constitution implemented in 1992 was a reformulation of Article 18 that eliminated the state monopoly over the conduct of foreign trade, and shifted the role of the state to directing and controlling foreign trade. Cuba has created various foreign trade corporations that oper[1]ate largely independently of the state. Examples are Acemex, S.A., a private shipping company registered in Liechtenstein; Diplomatic Corps Service Company (Empresa para Prestaci6n de Servicios al Cuerpo Diplomatico-Cubalse), which imports consumer goods for the diplomatic corps and foreign techni[1]cians residing in Cuba and exports beverages, tobacco, leather goods, and foodstuffs; Havana Tourism Company (Havanatur); International Tourism and Trade Corporation (Corporaci6n de Turismo y Comercio Internacional-Cubanacan), a tourist agency; the military-owned tourism company Gaviota; the Pan[1]172 An artisan maThet on Cathedml Plaza (La Plaza de la Catedml) in Havana, 1997 The Agricultuml MaThet (Mercado Agropecuario) in Havana, 1997 Courtesy MaTh P. Sullivan 173 Cuba: A Country Study ama-based Import-Export Company (Compania Importadora[1]Exportadora-Cimex); Union of Caribbean Construction Enterprises (Union de Empresas de Construccion del Caribe[1]Uneca); and International Financial Bank (Banco Financiero Internacional-BFI), a commercial bank that promotes Cuban exports and banking relations. Cuba has also experimented with the establishment of quasi-private companies called sociedades anonimas (S.A.), stock companies controlled by gov[1]ernment loyalists. Cuba’s sociedades anonimas have considerable autonomy from the state. Many organizations that produce goods and services are also permitted to import and export, with many working on the basis of self-financing arrangements using convertible currency. The slight economic recovery registered in 1994 was report[1]edly fed by sharp growth in the manufacturing sector (7.6 per[1]cent) and in the electricity industry (4.4 percent). Cuba reported a growth rate of 2.5 percent for 1995, 7.8 percent for 1996,2.5 percent for 1997, and l.2 percent for 1998. Unfortu[1]nately, the requisite data and information on methodology to confirm aggregate growth trends are not available. Data on detailed physical output data, product prices adjusted for infla[1]tion, and the relative importance of each product within a sec[1]tor and within the economy at large are also not available. The fragmentary data that are available raise some questions. For example, the recovery of the manufacturing sector suggested by the official statistics is incongruent with the poor perfor[1]mance of the sugar industry, a principal component of that sec[1]tor. With the exception of nickel-where foreign investment has played a key role-manufactured products showed output in 1998 below the level reached in 1989. Agricultural production continued to decline despite the breakup of state farms and creation of the UBPCs. By the end of 1994, the state had distributed the bulk of agricultural land to the UBPCs, retaining only 25 percent. Unable to obtain nec[1]essary inputs, the UBPCs struggled to adjust to their new inde[1]pendent status after being part of large enterprises and accustomed to extensive use of mechanization, fertilizers, and pesticides; most of the 1,500 sugarcane UBPCs were unprofit[1]able in 1994. Overall, the agricultural sector has continued to perform poorly. By 1997 production of tubers, plantains, corn, and beans had reached or exceeded 1989 levels, but other agricul[1]tural products, such as vegetables, rice, citrus, other fruits, 174 The Economy tobacco, eggs, and milk were still below the level reached in 1989 (see table 8, Appendix). The agricultural markets reportedly got off to a good start, quickly increasing the amount and variety of produce available to the public, although at very high prices. According to a 1998 Cuban survey, the origin of produce sold through the farmers’ free markets was as follows: private farmers, 60 percent of meats and 50 percent of all other products; state sector, 39 per[1]cent and 51 percent, respectively; and cooperatives (including the UBPCs), 0.2 percent and 8.3 percent, respectively. Prices in farmers’ markets continue to be very high and unaffordable to the average Cuban consumer. The average monthly salary of workers in the state sector was 203 pesos in 1998 and 1997, and 200 pesos in 1996. Meanwhile, prices in agricultural markets in La Habana (hereafter, Havana) in August 1998 were 4.50 pesos for a pound of rice, 10 to 12 pesos for a pound of beans, 2 pesos for one egg, and 23 to 25 pesos for a pound of pork. Attracting Foreign Investment and Remittances To ease severe external-sector pressures, Cuba has taken a number ofsteps to reform its foreign sector. Cuba’s main inter[1]est has been to attract foreign resources-primarily in the form of remittances and foreign investment-that can help reacti[1]vate its economy. In the summer of 1993, Cuba decriminalized the holding and use of convertible currency (mostly United States dollars) by Cuban citizens. The government also created special stores at which Cuban citizens holding convertible currencies can shop and obtain items that are not available to Cubans holding pesos. In addition, the government liberalized travel to the island by relatives and friends of Cuban citizens. The intent of the measures was to stimulate convertible currency remittances to Cuban citizens from family and friends living abroad, mostly in the United States, and to reduce the importance of a very active convertible currency black market. Other complementary steps have been taken to accommo[1]date the needs of citizens holding convertible currencies. In September 1995, the BNC for the first time began to accept from the population deposits denominated in convertible cur[1]rency and offered to pay interest on such savings also in con[1]vertible currency. And in mid-October 1995, the government created Exchange Houses (Casas de Cambio-Cadeca), at Cuba: A Country Study which Cuban citizens can buy and sell foreign currencies at rates close to those prevailing in the black market. In December 1994, Cuba announced the creation of a new currency, the convertible peso (peso convertible–see Glossary), that would gradually replace the United States dollar and other foreign currencies within the island. The convertible peso, val[1]ued at par with the United States dollar, would eventually be the currency used in the tourism sector and in outlets autho[1]rized since mid-1993 to sell goods for foreign currencies. Incentive payments to workers of certain key industries that generate hard currency-for example, tourism, oil extraction and tobacco-are now made in convertible pesos rather than in foreign currencies, as had been the practice. Cuba first passed legislation allowing foreign investment on the island-mostly in the form ofjoint ventures-in February 1982. This innovation generated very little interest among Western investors until the 1990s, when Cuba began an aggres[1]sive campaign to attract foreign capital. In 1992 the National Assembly passed a number of amendments to the 1976 consti[1]tution clarifying the concept of private property and providing a legal basis for transferring state property to joint ventures with foreign partners. One of the areas in which Cuba has been particularly active in seeking foreign investment has been mining. In December 1994, the National Assembly passed a new Mining Law, which became effective in January 1995, aimed at encouraging for[1]eign investment in exploration and production of oil and min[1]erals. In the 1990s, mining has received a boost from foreign joint ventures, primarily with Canadian investors (see Mining, this ch.). To institutionalize the “irreversibility” of the opening to for[1]eign investment, in September 1995 the National Assembly adopted Foreign Investment Law 77, which codifies the de facto rules under which joint ventures had been operating and introduces some changes to the legal framework for foreign investment. The law guarantees that investors in Cuba will be protected from expropriation, except for “public utility or social interest”; will be able to sell shares of investment to the state or to a third party, depending on the initial agreement; and will be able to fully transfer profits abroad. The new law for the first time permits lOO-percent foreign ownership of invest[1]ments, up from the 49 percent allowed by the earlier statute. Similarly, the new law simplifies the screening offoreign invest[1]176 The Economy ment practiced by Cuba, explicitly allows foreign investments in real estate, and authorizes the establishment of free-trade zones. However, the 1995 Foreign Investment Law does not change regulations that ban joint ventures from directly hiring Cuban citizens as employees. Such hiring continues to be car[1]ried out by an entity of the Cuban government with power to select, hire, and fire employees, powers that individual joint ventures do not have. Complementing the September 1995 Foreign Investment Law, the Council of State passed legislation inJune 1996 creat[1]ing export-processing zones, that is, free-trade zones and indus[1]trial parks (zonas francas y parques industriales). Investors settling in the free-trade zones are subject to a special and more benefi[1]cial regime regarding customs, banking, taxes, labor, migra[1]tion, public order, and foreign trade. Specifically, investments in free-trade zones are exempt from tariffs (see Glossary) and other levies on imports and are also exempt from taxes for a twelve-year period. Regulations establishing an official registry of export-processing zone operators and investors and issuing special customs regulations applicable to foreign investments locating in the zones were issued in October 1996. Since 1960, when the private banks were nationalized, the BNC has operated as both a central bank (see Glossary) and a commercial bank, arranging short- and long-term credits, financing investments and operations with other countries, and acting as a clearing and payments center. Under a centrally planned system, the BNC’s main function was financing the implementation of the national economic plan as reflected in the national budget. In 1984 the BFI was created to operate solely with convertible currencies and to support the activities offoreign investors. In response to the perception by foreign investors that the financial sector was not sufficiently developed, Cuba has taken a number of steps to allow more choice. In 1994 Cuba granted a license to ING Bank of Holland to operate on the island, the first foreign bank to be so permitted since 1960. In 1995 similar licenses were issued to the General Society of France (Societe Generale de France) and to the Sabadell Bank (Banco Sabadell) of Spain. Other foreign banks have also been allowed to establish representative offices in Cuba. Moreover, in order to expand the number offinancial services available to foreign investors and semiautonomous enterprises, the BNC created the New Banking Group (Grupo Nueva Banca-GNB), a hold[1]177 Cuba: A Country Study ing company, to supervise the operations of Cuba’s reformed financial sector. The network of new financial institutions under the GNB’s supervision includes, in addition to the already mentioned Cadeca and BFI, the Agro-Industrial and Commercial Bank (Banco Agro-Industrial y Comercial), which provides commercial banking services to farmers and coopera[1]tives; the International Bank of Commerce (Banco Internacio[1]nal de Comercio S.A.-BICSA), a merchant bank that, like the BFI, provides trade finance to Cuban institutions and arranges financing transactions with overseas lenders; the Investment Bank (Banco de Inversiones), which provides medium- and long-term development finance; the Metropolitan Bank (Banco Metropolitano), which caters to diplomats and other private customers; the National Financier (Financiera Nacio[1]nal-FINSA), an export-import bank that provides short-term finance for Cuban enterprises; and the People’s Savings Bank (Banco Popular de Ahorro) , which provides retail banking. In May 1997, the Council of State finally passed long[1]expected legislation to reform the banking system. Decree-Law 172 established the BCC (Cuban Central Bank) as an autono[1]mous and independent entity and assigned to it the traditional central banking functions. The BNC, which, as mentioned above, had performed central and commercial banking func[1]tions since 1960, continued to operate, but its role was rele[1]gated to commercial banking. Decree-Law 173, also passed in May 1997, set out the legal framework for registration and operation of commercial banks and financial institutions under the supervision of the BCC. As a result of its dollarization policies, Cuba de facto adopted a dual currency system that has introduced severe ine[1]qualities on the island. Citizens with access to foreign currency (dollars)-because they receive remittances from family or friends abroad, tips in the tourism sector, or bonuses paid by the government in hard currency to stimulate production of exportables-have access to goods and services not available to those citizens without it. In the second half of the 1990s, remit[1]tances became a very significant source of foreign currency to Cuba (see Foreign Economic Relations, this ch.). According to government officials, 231 joint ventures had been created as of the end of May 1995. By the end of 1998, the number ofjoint ventures had increased to 345. There are no reliable statistics on the amount offoreign investment that has actually flowed into the Cuban economy. Cuban government 178 The Economy officials have used the figure of about US$2.1 billion for the 1985-95 period, a figure that may overstate actual investment. Although small when compared with the volume of resources that flowed into Cuba from the former Soviet Union and East[1]ern Europe, incoming foreign investment has had a salutary effect on the island’s economy: it has eased somewhat Cuba’s very severe shortage of international financing, provided access to new technology, financed imports of raw materials and equipment that have kept workers at their jobs, and cre[1]ated markets for exports that otherwise would not have been available to domestic entities. Structure of the Economy Background Since the early 1960s, Cuba’s official economy has been organized along the lines of the socialist, centrally planned model. In addition to central economic planning, some of the elements of this model, common to the former Soviet Union and other centrally planned economies, are as follows: govern[1]ment control over the bulk of the economic resources of the country, especially major industries, foreign trade, banking, and usually commerce and land; and state regulation and sub[1]ordination of a highly circumscribed private sector. With the collapse of economic and commercial relations with the former Soviet Union and East European socialist countries, application of the central planning model in Cuba began to break down. Institutions created to support central planning and economic and trade relations with socialist coun[1]tries, such as the Central Planning Board Qunta Central de Planificaci6n-Juceplan), became obsolete and began to undergo a process of transformation and adjustment to the new economic reality. Additional space has been created for the nonstate sector through the expansion of the number of occupations suitable for self-employment, the conversion of state farms into cooperatives, and the reinstatement offarmers’ markets. At a rhetorical level, economic policies pursued by Cuba’s socialist government have supported industrialization and diversification of the economy away from sugar. The reality is that Cuba continues to be primarily an agricultural country, and sugar remains the mainstay of the economy, its largest employer, and primary net generator of export revenue. 179 Cuba: A Country Study Cuba’s specialization in sugar and other basic commodities was formalized through its participation in the CMEA (Council for Mutual Economic Assistance), within which the island was assigned the role ofsupplier of raw materials to other members of that organization. In the 1990s, Cuba focused its efforts on reviving its sugar industry, increasing nonsugar agricultural production, and stimulating development of its tourism and biotechnology industries. The record so far has been mixed, with the sugar industry continuing to perform poorly and food production also lagging behind. The tourism industry has been the focus of a significant number ofjoint ventures with foreign enter[1]prises and has become a major contributor to economic activ[1]ity, particularly the generation of convertible currency. Key Economic Sectors Agriculture In 1997 Cuba had 6,686,700 heCtares of agricultural land, of which 3,701,400 hectares were cultivated. However, the culti[1]vated land suffers from various degrees ofsoil degradation (see Topography and Drainage, ch. 2). In 1997 the state directly controlled 24.4 percent of the agricultural land and the non[1]state sector, 75.6 percent. The nonstate sector includes the newly formed UBPCs, the former state farms converted to cooperatives. The UBPCs alone accounted for 47.0 percent of cultivated land. In addition to sugarcane, state enterprises and UBPCs specialize in the production of rice, citrus, coffee, and tobacco, as well as livestock. In addition to UBPCs, nonstate actors include Agricultural-Livestock Cooperatives (Cooperati[1]vas de Producci6n Agropecuaria-CPA), Credit and Services Cooperatives (Cooperativas de Creditos y Servicios-CCS), and individual farmers. A large portion of the nation’s industrial capacity and agri[1]cultural lands are devoted to sugar production. During the 1975-87 period, the sugar industry was the largest recipient of investment resources, averaging about 20 percent of manufac[1]turing investment. Similarly, investments in sugar agriculture took about one-third of overall agricultural investment during this same period. By the mid-1990s, Cuba’s sugar industrial complex com[1]prised 156 sugar mills; seventeen refineries; more than fifty plants producing derivatives, such as pulp and paper made 180 A frrtilefarrning valle)’ near Havana Courtesy Suzanne Petrie Sugarcane wm}{CiS in Carnagiiry Province Courte,I)’ DanieUe Hayes, United Nations Development Programme 181 Cuba: A Country Study from bagasse (that is, stalks and leaves that remain after sugar[1]cane is ground for sugar production), bagasse boards, ethanol, rum, yeast, and wax; electric-power generation plants; mechan[1]ical shops that produce parts for the sugar industrial facilities and manage their maintenance; an extensive internal transpor[1]tation network; and eight export shipping terminals capable of handling sugar in bulk. Although many of the sugar mills date from the 1920s, most of them have been thoroughly over[1]hauled. A large sugar industry such as Cuba’s requires prodigious volumes of cane as inputs into the industrial process. Assuming an industrial yield of 11 percent-roughly the average yield obtained in Cuba in 1950-80-means that the agricultural sec[1]tor must deliver 100 tons of sugarcane to mills to produce eleven tons of raw sugar. The timely delivery of such large amounts of sugarcane to mills requires very close coordination between agricultural and industrial sectors: the sugarcane must both be ground at a time when its sucrose content is highest and enter the mills in a steady flow to avoid costly (in terms of energy consumption) shutdowns. Socialist Cuba has experimented with different forms of organization to manage the sugar process. Three of these orga[1]nizational methods have included totally separate agricultural and industrial enterprises controlled by different ministries, joint management of agricultural and industrial activities under a single Ministry of the Sugar Industry, and agroindus[1]trial complexes, where both sets of activities are coordinated by one management team. However, these organizational changes have not been able to resolve the agricultural bottlenecks that have plagued the Cuban sugar industry. In 1989 nearly 2.0 million hectares were devoted to sugar[1]cane cultivation, with the state sector accounting for more than 1.9 million hectares and the nonstate sector for less than 100,000 hectares. That is, 53 percent of cultivated land in that year was devoted to sugarcane production. It is also clear from the above data that sugarcane production was skewed toward the state sector, with the nonstate sector controlling less than 5 percent of sugarcane lands. In 1997, 1.8 million hectares, or 48 percent of cultivated land, was devoted to sugarcane produc[1]tion. Implementation of the 1959 Agrarian Reform Law and sub[1]sequent confiscatory laws with respect to the sugar industry resulted in the expropriation of large amounts of land con[1]182 The Economy trolled by sugar mills. These lands were first organized as coop[1]eratives and in 1962 converted into state farms. In state farms, agricultural workers were essentially wage earners, with no involvement in management decisions. Sugarcane state farms were unwieldy and notorious for their low productivity and fail[1]ure to meet production targets. In part to try to improve their management and performance, state farms were broken up and converted into smaller UBPCs in September 1993. Cuba has made significant gains in harvesting its sugarcane crop through mechanical means. Cutting and loading sugar[1]cane by hand is exhausting and dangerous work. Cuba’s social[1]ist government has made a sustained effort to mechanize these tasks and has been largely successful, thereby freeing a signifi[1]cant number of workers to participate in other economic activ[1]ities. By the end of the 1980s, about 70 percent of harvested sugarcane was cut by mechanical harvesters, and almost 100 percent was loaded mechanically (generally using front load[1]ers). Although mechanization of the harvest has eliminated the problem of shortages of cane cutters, it has created new problems, such as increased extraneous matter entering sugar mills (which lowers yield and often results in equipment break[1]downs) and higher demand for fuel and spare parts for the equipment. Consistent with its plan to expand sugar production to about 11 million tons per year by 1990 and 13 to 14 million tons per year by 2000, in the 1980s Cuba began to build new sugar[1]grinding capacity. At least seven new mills (of a planned fif[1]teen) were built, each capable of producing about 100,000 tons of sugar in a 150-day zajra (harvest). However, production fell behind schedule during the late 1980s, averaging about 7.5 million tons per annum during 1985-89. Then the crisis of the 1990s took a heavier toll on the industry. At first, production fell gradually, from 8.1 million tons in 1989 to 8.0 in 1990, 7.6 in 1991, and 7.0 in 1992, but then fell precipitously to 4.1 in 1993, 3.9 in 1994, and 3.3 in 1995 (the lowest output in fifty years). Production recovered somewhat in 1996, when 4.4 mil[1]lion tons were produced, but slumped again to 4.2 million tons in 1997 and 3.2 million tons in 1998 (see table 9, Appendix). In addition to sugarcane, Cuba produces a broad range of other agricultural products, among them roots and tubers, veg[1]etables, grains, beans, citrus, plantain and bananas, tropical fruits, coffee, tobacco, livestock, and forest products. No statis[1]tics on the relative importance of each of these products (in 183 Cuba: A Country Study terms of value) within the nonsugar agricultural sector are available. Other important segments of the nonsugar agricul[1]ture sector in terms of land area devoted to cultivation in 1997 are rice (6.1 percent of total area); pastures (9.9 percent); cof[1]fee (3.8 percent); beans, bananas, and plantains (3.3 percent); and citrus (2.5 percent). Most of the output of the nonsugar agricultural sector is consumed domestically, but some prod[1]ucts-for example, tobacco and citrus-are significant genera[1]tors of export revenue. The cattle-raising industry, seriously affected by the collapse of trade with the former Soviet bloc, has suffered from pro[1]longed neglect. Its problems began after 1959 when govern[1]ment experts, relying on genetics and artificial insemination, introduced a radical change into the composition of the herd, which previously consisted primarily of Cebu and Criollo breeds. The new breeds produce more milk but are less resis[1]tant to the tropical climate and require greater attention and expenditures. By the beginning of the 1970s, the national herd declined by one-quarter, and by 1997 there were only 0.42 head of cattle per capita, close to the lowest figure on record in the twentieth century. Cuba’s agriculture relies heavily on the use of imported inputs and of mechanized equipment. Shortages of imported fertilizers, herbicides, pesticides, fuels, and spare parts for equipment have taken a heavy toll on agricultural production. Nonsugar producers have been seriously affected. Output of key agricultural products was lower in 1993 than in 1989: tubers by 17 percent, vegetables by 36 percent, grains by 61 percent, beans by 38 percent, citrus by 22 percent, eggs by 46 percent, and milk by 66 percent. At the same time that produc[1]tion slumped, sharp reductions in food imports gave rise to severe food shortages. The government responded by institut[1]ing an ambitious food production program that had as its objective securing increases in the output of staple foods and becoming self-sufficient in food production. Although the food program has failed to achieve most of its objectives, by 1997 food production had improved in nearly all categories over 1993, although production levels of many commodities remained below levels in 1989. To increase the domestic rice yield, the government in 1996, for the first time in decades, began to encourage the planting of small rice pads (known officially as “popular rice”) by individual farms. This practice, 184 The Economy which was widespread before 1959, was almost eradicated in subsequent years. In accordance with the national acopio procurement system instituted in 1962 and covering all agricultural products, non[1]state producers are required to sell certain volumes of their output to the state. Statistics on the contribution by nonstate producers to acopio in 1980 provide insights into the range of agricultural commodities produced in the nonstate sector. Thus, the latter producers contributed 6.5 percent of the rice, 57.9 percent of the papayas, and 87.7 percent of the green pep[1]pers procured by the state, suggesting that the nonstate sector specialized in fruits and vegetables. The breakup of state farms and the creation of the UBPCs in September 1993 have expanded considerably the role of the nonstate agricultural sector. By 1997 the 1,567 UBPCs controlled 3 million hectares of land (37 percent of Cuba’s state and private land not dedi[1]cated to sugarcane) and employed almost 122,000 workers, 114,000 of whom are members and the rest contracted labor[1]ers. Manufacturing In 1986, the most recent year for which these data are avail[1]able, Cuba’s manufacturing sector consisted of 827 enterprises, employing 726,000 workers. The size of the enterprises varied significantly, with twenty-six having more than 4,000 workers each, nineteen between 3,001 and 4,000 workers, ninety-three between 2,001 and 3,000 workers, 190 between 1,001 and 2,000 workers, and 499 up to 1,000 workers. Industries with the larg[1]est number of enterprises manufactured nonelectrical machin[1]ery (150 enterprises), sugar (148 enterprises), and foodstuffs (145 enterprises). The majority (nineteen out of twenty-six) of the largest manufacturing plants, that is, those employing more than 4,000 workers, were part of the sugar industry; other industries having plants with more than 4,000 workers were textiles (three), mining and nonferrous metallurgy (one), apparel (one), fishing (one), and beverages and tobacco (one). In addition to the sugar and nickel mining industries, the most significant contributors to national product in 1989 within the manufacturing sector were the following industries: beverages and tobacco, foodstuffs, nonelectrical machinery, chemical, electricity generation, and construction materials. Enterprises producing beverages and foodstuffs are under the 185 Cuba: A Country Study control of the Ministry of Foodstuffs Industry. Among the most important products of this industry are dairy products, pro[1]cessed meats and fruits, beverages and liquors (including rum and beer), and bakery products. The nonelectrical machinery industry produces a range of outputs, from transportation equipment for the railroads to consumer products such as metal pots and pans; however, it is also heavily geared to supply[1]ing and servicing the sugar industry, including producing Soviet-designed KTP mechanical harvesters and equipment for sugar mills. The chemical industry specializes in the produc[1]tion offertilizers and rubber and plastic products. Cement pro[1]duction dominates the construction materials industry. During the economic crisis, the manufacturing sector was affected severely. Over the 1989-93 period, production fell as follows: steel, down 69 percent; cotton yarn, 85 percent; tex[1]tiles, 77 percent; pasta, 75 percent; lard, 99 percent; powdered milk, 75 percent; cement, 74 percent; crushed stone, 85 per[1]cent; and cement blocks, 74 percent. Although production of most manufactured products improved in the second half of the 1990s, production levels in 1998 of key manufactured prod[1]ucts were below 1989 levels, with the exception of nickel, oxy[1]gen gas, canned meats, and soft drinks. Mining Metal commodities produced in Cuba include chromite, cobalt, copper, crude steel, and nickel (see fig. 5). Other non[1]fuel industrial mineral products include cement, gypsum, lime, ammonia, salt, silica sand, and sulfur. Nickel is the most impor[1]tant metal to the Cuban economy and the export sector. In 1998 Cuba was the eighth leading producer of nickel in the world, producing about 4 percent of total primary nickel pro[1]duction. Cuba’s nickel reserves, among the largest in the world, are concentrated in the northeastern region of the country, around the town of Moa in Holguin Province, and consist pri[1]marily of laterites in which nickel is mixed with other metals such as iron, chrome, and cobalt. The Moa-Baracoa massif is not only the site of the country’~ largest reserves of nickel and cobalt, but also of considerable deposits of chromite. In the 1990s, Cuba’s nickel-processing industry consisted of three plants: the Comandante Rene Ramos Latour plant, located in Nicaro, which began operations in 1943 and pro[1]duces nickel oxide; the Comandante Pedro Soto Alba plant, located in Moa Bay, which began operations in 1959 and pro[1]186 50 ‘/ Cari66ean Sea N A r—————————————————~I~~ LasTunas~ A ….”‘ 9I{prtft J’Ltfantic Of Ocean “,,,,~,,,*,,, :Jv{ei(jco .&0­ –‘ :…. -\ , ,y\o<‘

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