Monday, March 24, 2008

Cuban Economy: Status Quo 

Up to 1990 the Cuban economy was heavily subsidised by the Soviet Union and the Comecon (Eastern Block) - basically sugar for fuel.

When the Soviet Union collapsed in 1990, Cuba enters the so-called Special Period:
When the Soviet Union collapsed in 1990, the impact on the Cuban economy was devastating. Cuba lost approximately 80% of its imports, 80% of its exports and its Gross Domestic Product dropped by 34%. Along with food and medicines that were imported, half of the oil it used came from the USSR and all oil imports trickled to a mere 10% of previous amounts. Before this, Cuba had been re-exporting any Soviet oil it did not consume to other nations for profit (becoming Cuba's second largest export product before 1990). Once Soviet imports fell, Cuba faced a net deficit of oil, resulting in a need to reduce domestic consumption by 20% over the course of two years. The effect was felt immediately; dependent on fossil fuels to operate, transportation, industrial and agricultural systems were paralyzed. There were extensive losses of productivity in both Cuban agriculture — which was dominated by modern industrial tractors, combines, and harvesters, all of which required oil to run — and in Cuban industrial capacity.
The period radically transformed Cuban society and the economy, as it necessitated the successful introduction of sustainable agriculture, decreased use of automobiles, and overhauled industry, health, and diet countrywide.

In most countries, social programs are the first things to get cut during times of economic hardship. Before the Special Period, Cuba had three Universities and tuition costs were covered by the government. During this crisis, education continued to be tuition-free and to assist in reducing the cost of transportation, additional universities were opened bringing the number to fifty, spread throughout various municipalities.

Cuba’s focus on prevention and health has earned the small nation a world-wide reputation and teams of doctors have been sent throughout the globe to train and assist particularly during natural disasters. Cuba has only 2% of the total population of Latin America but has 12% of all its doctors. Of special note is the fact that 60% of the doctors in Cuba are women. The practice still continues where each community has a doctor that is assigned to it and lives in that area. Even during the Special Period, medical care continued to be subsidized by the state.

Note by author: A lot of discussions even now ends with these arguments, as Michael already said " ... so the people I talked with were actually quite happy with their situation ("We don't earn much, but as opposed to other countries education and health care is for free!" ) and couldn't see that people in developed countries who are considered as dirt poor have a way higher living standard ..."

BTW, what does "health care is free" really mean? As I told you in my previous post, I was now 3 weeks in the hospital, 2 weeks of this in intensive care. And I have to pay not one Eurocent, so it was for free. Of course I have to pay for health insurance in Austria about 5.1 % of my income (in pension). And I am not going into more details of the Austrian health system here.

As the country began to recover more visibly from the shock of the implosion of their economic underpinning, Castro gradually told the Cuban people that this "Special Period" was over; that it had succeeded in generally maintaining the long life expectancies and health statistics of the nation — figures roughly equivalent to those enjoyed in the United States — and that the country was therefore (relatively) prosperous once again.

Cubans suffered a great deal during the decade referred to as the Special Period and are still living under a lower standard than they were before 1991. This period forced Cuba to change from a nation of consumers--dependent on external oil sources--to a more sustainable economy based on meeting basic needs and conservation. Despite the fact that Cuba is a poor country (the average annual gross domestic product is $3,500), and may not be viewed as “successful” by Western standards, the average life span is higher than in the U.S. and the infant mortality rate is lower than the US. Their literacy rate is higher and their citizens have free medical and educational opportunities.

Policies were drawn up to satisfy the growing tourist markets of Canada and Europe with an aim to replace Cuba's reliance on the sugar industry and gain much needed foreign currency rapidly. A new Ministry of Tourism was created in 1994, and the Cuban state invested heavily in tourist facilities. Between 1990 and 2000, more than $3.5 billion was invested in the tourist industry. The number of rooms available to international tourists grew from 12,000 to 35,000, and the country received a total of 10 million visitors over that period. By 1995 the industry had surpassed sugar as Cuba's chief earner.

Today, Cuba welcomes travelers from around the world, and especially Canada, Germany, the United Kingdom, Spain, Italy, France , but also Argentina, Chile and Mexico. In recent years, more than 600,000 Canadians, 200,000 British, and 114,000 Germans have visited Cuba annually. Each year, thousands of Americans visit Cuba, even though the official U.S. trade policy usually does not permit travel there. According to TIME Magazine (May 11, 2007), 20,000 to 30,000 Americans illegally travel to Cuba every year (in my opinion even more). Americans usually reach Cuba via flights from Toronto, Montreal, Vancouver or Cancun. Cuban immigration officers do not stamp U.S. passports so Americans can keep their private visits, private.

Foreign investment in the Cuban tourism sector has increased steadily since the tourism drive. This has been made possible due to constitutional changes to Cuba's socialist command economy, to allow for the recognition of foreign held capital.

By the late 1990s, twenty five joint foreign and domestic venture companies were working within Cuba's tourist industry. Foreign investors and hoteliers from market based economies have found that Cuba's centralized economy and bureaucracy has created particular staffing issues and higher costs then normal. An additional factor cited by foreign investors is the degree of state involvement at the executive level, which is far higher than average.

Here we have to mention now the two Cuban currencies: the Peso or national peso (where the Cubans are making their living on and the Convertible Peso (CUC$), which is the money for the tourists.

From 1993 until 2004, the Cuban currency was split between the Cuban peso (the currency Cuban citizens are paid in and used for staples and non-luxury items) and the U.S. dollar in combination with the convertible peso, which was used for tourism and for luxury items.

On November 8, 2004, the Cuban government withdrew the U.S. dollar from circulation citing the need to retaliate against further U.S. sanctions. After a grace period ending on November 14, 2004, a 10% surcharge began to be imposed when converting U.S. dollars into convertible pesos. The change was announced some weeks beforehand and was extended by the aforementioned grace period (it has been claimed this was because the amounts of US dollars being exchanged were more than anticipated). This measure helped the Cuban government collect much needed hard currency.

In the joint ventures mentioned above, the salary of the Cubans is paid by the foreign company to the Cuban state in CUC$ and then given to the workers by the Cuban state in national pesos. But of course this not 100% and you should especially consider the tips. E.g. in the hotel Varadero, although all inclusive, some people gave 1 CUC$ tip per drink.

Two parallel economies and societies quickly emerged, their demarcation line was represented by access to the CUC$. Those having access to CUC$ through contact with the lucrative tourist industry suddenly found themselves at a distinct financial advantage over professional, medical, educational, industrial and agricultural workers.

Bar staff, hotel receptionists and taxi drivers became the coveted occupations in urban Cuba, and by 2006, permission to operate a private taxi cab service could cost up to $500 in bribes. Musicians have also found a radical shift in their economic status. El Nuevo Herald reported that the 400 CUC$ a month one band percussionist receives in tips performing to tourists in Old Havana is more than 30 times what he would receive from the Cuban government for the same work.

So a lot of the famous educational and medical staff in Cuba is now working in hotels carrying luggage for tourists.

How long can Cuba sustain this two parallel economies and what are the options in the future? I will try to do this in my next post.

I did also not talk about the political impacts in Cuba since 1990, the development of the trinity - Che Guevara as Jesus Crist Superstar Fidel Castro as godfather now in pension and the country lead by the holy ghost Raul.

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