CUBA’S ECONOMY SPUTTERS ON
Cuba is facing a severe economic crisis that has led to a dramatic drop in key exports and a trade deficit that is sucking precious dollars from the economy. Although much of Cuba’s trade information remains a state secret, it is possible in today’s world to gather data from Cuba’s trading partners and international trade organizations to present a somewhat complete picture of the nation’s economic situation.
The analysis confirms what any Cuban housewife or laborer has known: the economy has been in decline since 1996, the first year Cuba recorded substantial grwth after its loss of Soviet and Eastern European trade. That year the economy grew an estimated 5.6% over 1995, but it has slipped back with an estimated growth rate of just 0.5% in 1997. The GDP has decline some 60% since 1989. The main reason for the current economic crisis is the falling international prices for Cuba’s two biggest exports: sugar and nickel.
Cuba has attempted various programs to turn its economy around, but each has met with difficulties or outright failure. One recent attempt involved large-scale, high interest loans from European banks to purchase equipment and fertilizer to improve the sugar harvest. But with a subsequent drop in both the sugar harvest and sugar prices, compounded by interest rates between 15 and 25 percent from Spanish and Dutch banks, the sugar problem has worsened.
Even its tourism industry, popular with Canadians and Europeans, has slowed down. Tourism, a bigger dollar earner than sugar since 1997, has failed to grow as fast as had been hoped because of low profit margins for the Western operators of resort properties. Profit margins are not high enough.
In 1997, and 1998, Cuba had some new aspects in its trade. It has increased its sugar exports to Middle Eastern countries. Two of the four biggest purchasers of Cuban sugar-Egypt and Iran-are from the Middle East. Only Russia and China bought more. The U.S. suspects the sales to Iran are part of a larger trading relationship, which includes Cuban purchases of Iranian oil and Iranian purchases of Cuban biotechnology products and know-how. The fact that Iran does not show up in dollar terms as an importer indicates a barter arrangement.
One program that has worked is the loosening of laws regarding possession of dollars. With restrictions dropped on both sides of the straits of Florida, Cuban-Americans now sent $1 billion a year to their families in Cuba. Cuba is planning to convert much of its trade from the “hated’ dollar to the Euro, since much of its trade is with the EU and converting dollars to other currencies costs it more than $300 million dollars a year.
Food at farmers’ markets, which in 1995 and 1996 was substantial, is now
much less. There are increasing disparities between the rich and the
poor on the island, and corruption is at its peak. Cuba remains as the
second poorest country in Latin America.
A more specific analysis follows:
Oil and fuels represented 33 percent of Cuba’s imports in 1998. Cuba remains heavily dependent on oil from Russia. The imports from hard currency countries dropped from $166 millions in 1996, to $38 millions in 1998, a drop of almost 80%.
Sugar is its biggest problem, with a 25% drop in 1998. Cuba’s annual sugar harvest is now less than 3 million tons annually, compared to 7 million tons harvests in the 80’s.
The trade balance shows a deficit of $1.9 billion. This deficit is considered enormous for a dollar poor economy and equals 10 percent of GDP. Exports to Russia and Canada fell by 18% in 1998. Exports to China fell by 32% in 1998.Cuba’s tourist industry has grown slowly.
GDP has dropped some 60% since 1989.
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