Che's Economic Failure

Monday, October 15, 2007
Che's Economic Failure

Ernesto "Che" Guevara helped destroy Cuba's economy, including its key
sugar industry, experts say.

BY CHRONICLE STAFF

Shortly after the revolution, as Fidel Castro was wounding up one of his
many long speeches to a large throng of supporters in Havana, he asked:
"Are there any economists here?" Ernesto "Che" Guevara raised his hand
and Fidel immediately proclaimed: "Comrade Che, you are the new
president of Cuba's National Bank!' After the meeting, Fidel sought out
Che and said: "Che, I didn't know you were an economist?". Che looked
shocked and then muttered: "Economist? I thought you said Communist!"

So goes an old Cuban joke to illustrate part of the reason why Cuba's
economy went into a dramatic free fall after Che, an Argentine-born
radical physician, was named National Bank president in November 1959,
succeeding Felipe Pazos, Castro's first central bank president.

Che is credited with having had a significant influence on Fidel
Castro's radical policies after the 1959 revolution, including
restricting human rights and centralizing the economy at the expense of
private and U.S. companies.

Today, he is credited with inspiring Latin American presidents like Hugo
Chavez of Venezuela, Evo Morales of Bolivia, Rafael Correa of Ecuador
and Daniel Ortega of Nicaragua. Last week, the world marked the 40th
anniversary of Che's death. Latin Business Chronicle took a closer look
at his economic record.

RATIONING AND EXPROPRIATIONS

"His main "achievements" were the repressed inflation that led to
rationing and the expropriation of all private banks," says Jorge
Salazar-Carrillo, a professor of economics at Florida International
University.

Jaime Suchlicki, the director of the Institute for Cuban and
Cuban-American Studies at the University of Miami, also is critical of
Che's achievements. "As President of the Central Bank, a subject he
knew little about, Guevara was best known for his disrespectful actions
against the Cubans," he says.

One example: he signed all currency with his nickname "Che," not with
his full name. That was, Suchlicki points out, "a gesture some thought
cute, but most saw as a disdainful action toward the Cubans."

Che's monetary policies did not exactly instill confidence in the
markets. "Under his stewardship the Cuban currency deteriorated against
the U.S. dollar," Suchlicki says.

SUGAR DISASTER

In February 1961, Che was named Cuba's first industry minister.
Formally, Che headed up the department of industrialization at INRA,
which became a de facto industry ministry. INRA was the institution
from where Fidel initially ran Cuba. As Minister of Industries Che did
little to enhance the economic development of Cuba or to foster the
island's industrial potential, Suchlicki argues.

"As the first Minister of Industry the promises were to make Cuba the
leading industrial power in Latin America, vying with the European
countries," Salazar-Carrillo says. "To achieve this he proposed
renouncing "the yoke of the American sugar quota". This decimated the
Cuban sugar industry. The rest was destroyed by his insistence on moral
incentives."

Che's policy played a key role in the disastrous sugar harvest of 1963 -
Cuba's worst since World War II.

NATIONALIZATIONS AND LOSSES

Che also helped Fidel with the 1960 nationalizations of 36 US-owned
sugar mills, two oil refineries, two utility companies and two nickel
companies. Companies affected included Shell, Standard Oil, Esso and ITT.

In a move eerily reminiscent of Daniel Ortega today (see Nicaragua
Confiscation Illegal, Unsafe), Che had ordered Esso, Texaco and Shell to
start processing 900,000 tons of Soviet petroleum arriving regularly
aboard Russian tankers, according to Time magazine. "The oil companies,
whom Cuba owes $60 million for previous shipments from Venezuela,
refused," the magazine wrote in June 1960 article that included some
praise of the leftist firebrand (see The Marxist Neighbor).

All in all, the nationalizations cost companies and individuals some
total $1.8 billion in 1960 dollars, according to US government
estimates. In Latin America, Che-inspired policies have led to losses of
$1.3 trillion, according to Martin Hutchison of breakingviews.com. He
arrived at that figure by estimating that without the legend of Che, the
Latin American annual growth rate might have been one percentage point
faster in the past four decades.

Concludes Suchlicki: "He implemented policies to confiscate foreign and
domestic businesses and industries [and] his policies fostered
uncertainty in the business community and led to great misery for the
Cuban people."

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