Tourism conceals Cuba's dire problems

Tourism conceals Cuba's dire problems

By Mike Williams
Cox International Correspondent
Published on: 03/23/08

Havana, Cuba —- Less than two decades after its economy imploded with
the collapse of its Communist sponsor, the Soviet Union, Cuba has
rebuilt itself as a Caribbean vacation magnet that now draws more than 2
million visitors annually.

But while the $2 billion Cuba now earns annually from tourism has helped
rescue its moribund economy, experts say the Communist island faces a
daunting list of problems that leave it vulnerable.

Cuba's new president, Raul Castro, who took over the island's top post
in February after his brother, Fidel, retired due to illness, must
somehow reverse low productivity and wages, stop endemic pilfering,
unravel currency problems that are creating income inequalities and spur
farmers to grow enough food to feed the island's 11 million residents.

"It's a stagnant society," said Javier Corrales, a political scientist
at Amherst College. "Cuba is poorer now than it was before the
revolution in the late 1950s, and most economic indicators have not
reached the levels of the late 1980s before the collapse of the Soviet
Union."

That said, Cuba has made a remarkable recovery since the "Special
Period" in the early 1990s when the island lost an estimated $6 billion
in yearly Soviet subsidies and scarcity plagued the Cuban people.

Fidel Castro responded by turning to tourism. Slowly Cuba stumbled out
of the crisis, its economy stabilizing if not exactly prospering.

Despite the controversy, most American scholars agree the Cuban economy
is growing.

In addition to $2 billion in tourism earnings, the island has been
buoyed by high prices for nickel, earning another $2 billion there,
along with $400 million from sales of its world-famous cigars.

But other indicators are worrisome to outside economists. Cuban
residents depend on an estimated $800 million to $1 billion a year in
remittances from relatives abroad, primarily in the United States, while
the Cuban state appears to be replacing its old Soviet sponsor with a
generous new patron, Venezuela.

That country's socialist president, Hugo Chavez, sells 100,000 barrels
of oil to Cuba a day at $27 a barrel, providing a $2 billion annual
windfall for the Cubans, said Carmelo Mesa-Lago, an economist at the
University of Pittsburgh. Cuba repays Venezuela by sending about 30,000
medical and social workers to provide services to Chavez's impoverished
supporters.

Apparently hedging his bets, Raul Castro has inked trade deals with
China, Iran and Brazil, opening new lines of credit worth billions.

But even as Cuba has signed new deals with foreign countries, it has cut
back on partnerships with foreign firms. Some foreign companies have
complained bitterly about rules governing the hiring and payment of
workers and other red tape.

Cuban officials say they are reducing partnerships with smaller foreign
companies to concentrate on big players in essential sectors, primarily
deals with firms from Canada, China, India, Brazil and Venezuela to
exploit Cuba's nickel and offshore petroleum.

But even as it makes progress in these sectors, Cuba is hobbled by its
inability to feed itself. With its farm system beset by inefficiency and
poor incentives, Cuba last year imported $1.6 billion in food.

To address this problem, in recent months Raul Castro has settled
long-standing debts between the state and Cuban farmers, raised prices
for milk and beef, increased farm worker pay and exhorted growers to
plant more.

But even as he pushes these reforms, he's still dealing with the fallout
from a 2005 decision to drastically cut back the island's once-vital
sugar industry because of low world prices. Dozens of mills were
shuttered and about 150,000 sugar workers were thrown out of work.

While the Cubans claim they have been retrained and that national
unemployment is less than 2 percent, outside economists think the
numbers are two to three times higher.

Meanwhile, Cuba is experiencing a "brain drain," with skilled
professionals leaving the island if they can, or giving up jobs as
engineers or physicians making $15 a month to work in tourism, where
they can earn far more.

The scramble by Cubans to work in tourism highlights yet another
problem, Cuba's dual-currency system. Most Cubans are paid in regular
pesos, while those who work in tourism have access to the convertible
pesos tourists are required to use. The convertible pesos are worth 25
times more than regular pesos, creating huge income disparities and
smoldering resentments among the populace.

"Raul knows the dual currency needs to be eliminated," said Paolo
Spadoni, an economist at Rollins College in Winter Park, Fla. "The
income inequality is a big problem."

Yet another headache is pilfering and black market activity.

While all Cubans get free food rations from the state each month, the
handouts typically only last a week to 10 days. It's not surprising that
many people steal from their workplace and sell the items on the black
market, a practice so common that state-run companies reportedly factor
15 percent into their budgets to cover the losses.

"It's a real drag on the Cuban economy," Spadoni said. "It comes back to
the crucial issue of incentives. They have to address this, but so far
all they've done is call for more discipline, which won't solve the
problem."

FOREIGN PARTNERS

Tourism is Cuba's top industry, earning some $2 billion last year for
the Communist island. Many foreign firms have partnered with the Cuban
state in the sector, typically deals in which these companies manage
hotels. Among the top foreign tourism companies active in Cuba:

> SPAIN: NH Hotels, Sol Melia Hotels

> FRANCE: Accor Hotels

> JAMAICA: Super Clubs

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