After 50 years, Cuba's economy still isn't self-sufficient

Posted on Tuesday, 12.23.08
After 50 years, Cuba's economy still isn't self-sufficient
Fifty years after the Cuban revolution, the island nation still has not
been able to break the ties of dependency.
BY MIMI WHITEFIELD
mwhitefield@MiamiHerald.com

Three weeks after Cuban revolutionaries claimed victory, Fidel Castro
declared that the island wanted not only political freedom but also
freedom from an economic system that at the time was intertwined with
the United States.

It was Cuban sugar that Americans stirred into their morning coffee and
U.S. industrial and consumer goods that steamed to the island.

Castro called Cuba a ''colony of the United States'' -- and made it
clear he wanted to break with old ways. But over the past five decades,
Cuba has traded a sugar quota and trade and investment dependence on the
United States for massive handouts from the former Soviet Union and,
now, for big subsidies from oil-rich Venezuela.

''You have 50 years of the revolution, and, despite all the subsidies,
Cuba has been incapable of changing the structure of the economy to be
self-sufficient,'' said Carmelo Mesa-Lago, professor emeritus of
economics at the University of Pittsburgh.

In the early years following their Jan. 1, 1959, triumph, Castro and his
followers set out to create a ''new man,'' who would respond to moral
incentives rather than the profit motive.

But through the years, especially when times have been tough, Havana has
invited back foreign investors, allowed self-employment, legalized and
then prohibited the American greenback and courted foreign tourists who
were shunned for most of the 1960s and 1970s. In 1968, a mere 3,000
tourists -- mostly Eastern Europeans -- visited Cuba. This year, Cuba is
expected to host a record 2.34 million visitors.

''Cuba has had an awful economic policy, which has changed every four or
five years -- but always within the economic parameters of socialism,''
said Mesa-Lago.

Jorge Piñon, an energy fellow at the University of Miami's Center for
Hemispheric Policy, said the problem isn't so much Cuba's centralized
economic model as ``inefficiency and lack of strategic planning. Instead
of setting the basic umbrella policy for the economy and bringing in the
experts for day-to-day operations, Fidel Castro has always wanted to
micro-manage.''

Sugar is a case in point.

In 1970, Castro staked the honor of the revolution on achieving a
10-million-ton sugar harvest. Cuba managed a record 8.53 million tons
but the huge mobilization of workers to bring in the cane disrupted
other economic goals.

Then in 2002, Cuba announced that it was closing 71 of its 156 sugar
mills and laying off 90,000 sugar workers. By 2006, Cuba was once again
trying to increase sugar production.

Even though Fidel Castro's younger brother, Raúl, succeeded him as
president in February, the elder Castro still casts a long shadow over
Cuban policy.

Here's a short list of some of the most significant events that have
shaped the economy since the revolution:

• Expropriation of U.S. property: In 1959, five U.S. sugar companies
controlled more than two million acres in Cuba and foreigners owned
about 75 percent of arable land. The first agrarian reform law announced
in May 1959 put limits on private land holdings. What remained was
distributed to landless peasants. Over the next year, Cuba nationalized
U.S.-owned oil companies, banks, industries and other businesses.

• The embargo: As political, diplomatic and economic relations with Cuba
continued to deteriorate, the Eisenhower administration imposed a
partial trade embargo against Cuba on Oct. 19, 1960, prohibiting all
U.S. exports except food, medicine and medical supplies and a few other
things requiring special licenses. But Cuban imports -- including sugar
-- were allowed. In 1961, President Kennedy cut the Cuban sugar quota to
zero but it wasn't until 1962, after the Bay of Pigs invasion of the
previous fall, that Kennedy announced a total embargo of Cuba would begin.

Although the embargo has remained tight, it has been modified through
the years to include the export of U.S. food products and medicine to
Cuba as well as the import of Cuban art and music to the United States.

• The special relationship with the Soviet Union: Cuba signed its first
major trade agreement with the former Soviet Union in February 1960. For
decades, the Soviet Union was Cuba's staunch ally and buffered its
economy. It bought its sugar and nickel at high preferential prices,
provided technicians for its industries, forgave trade deficits and sold
oil to Cuba at cheap, fixed prices.

Mesa-Lago estimates Soviet net subsidies to Cuba from 1960 to 1990 at
$64.5 billion. Now, he said, Venezuelan President Hugo Chávez has taken
the Soviet Union's place with an oil subsidy he estimates hit $2.5
billion in 2007. Mesa-Lago said Cuba also is highly compensated for the
doctors, nurses and teachers it sends to Venezuela.

• The end of the Soviet era in Cuba: In 1989, with political upheavals
in Europe, the old Soviet-led trading bloc began to fall apart. That was
bad news for Cuba, which depended on the Soviet Union for about 85
percent of its trade.

By 1992, Soviet oil shipments had shrunk from a peak of about 13 million
tons annually to four million to six million tons. By that November,
Cuba said it had lost some 75 percent of its foreign trade. Rather than
a gradual weaning away from the special relationship with the Soviets as
Cuba had hoped, the change was abrupt and devastating.

Cuba was oil-starved, its streets dark, its vehicles idled and its
people hungry during the early 1990s, known as ``the special period in a
time of peace.''

Then a slow process of reform began as Cuba scoured the world for new
trading partners and sources of revenue. It opened to foreign
investment, put more emphasis on food production, allowed limited
self-employment and farmers' markets, legalized the dollar and put out
the welcome sign for tourists.

Despite help from Venezuela and Cuban-American remittances, analysts say
the quality of life for the average Cuban is still below 1989 levels,
and its social welfare model emphasizing education and access to
healthcare has eroded in the intervening two decades. The gap between
the haves and have-nots that the revolution worked hard to close has
widened, said Mesa-Lago.

• Cuba under Raúl Castro: ''It's clear that Raúl Castro has made many
accurate and clear diagnoses of Cuba's economic problems'' since
becoming president and allowed the official Cuban press to make
criticisms, said Phil Peters, a Lexington Institute vice president who
studies international economic programs. ``But Cuba, in a sense, is
between two presidents as we are now. Some of the momentum [for reform]
has stopped as Fidel's health has improved.''

So while there's been a lot of discussion, there hasn't been much action
except in agriculture, which was hit hard by hurricanes this year. Cuba
recently began distributing more land to private farmers and raised the
prices the government will pay them for beef, milk, potatoes and other
products.

''I think what Cuba is doing in agriculture is showing positive
results,'' said Peters, who visited Cuba earlier this month. But, he
said, ``It's very clear that to solve its economic problems, Cuba needs
policies that will stimulate growth, create more jobs and generate
growth in personal income.''

http://www.miamiherald.com/1374/v-fullstory/story/824031.html