Cuba's economic challenges

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By Luiz Bernardo Pericás* 

The Cuban economy is going through a delicate moment, even though it has more conditions for recovery today than during the so-called “special period”, in the last decade of the last century. The timeframe for restoring the island's financial health, however, is still uncertain, and will depend, on the one hand, on changes (even if partial) in the international scenario and, on the other hand, on the increase in government policies and investments in some strategic areas. . Extrinsic and intrinsic reasons, therefore, contribute to the slowdown and retraction of the country's economic indices: issues related to low productivity and labor efficiency, deficit in investments, insufficient revenue derived from exports and the persistence of bureaucracy, as well as the tightening of the blockade driven by the United States are some of the problems recognized by local authorities. 

With an average growth of 1,77% in the last five years, Cuba, however, has a wide range of commercial partners (such as the European Union and China), receives significant foreign exchange contributions from abroad (especially money sent by family members, such as those who live in Florida, for example; in 2017, it was US$ 3,5 billion in this modality) and has strengthened the tourism sector (which currently has 70 rooms available). In the case of external remittances, these increased by 143% between 2008 and 2017. As regards the tourist area, the increase was 117% in the interregnum 2007-2017, and even with a slight decrease in that last year, from the measures strict measures adopted by Washington, began to show signs of reactivation in the second half of 2018. 

The intensification of US sanctions since 2017 has undoubtedly contributed to shaping the current complicated context. That year, it was decided that its citizens could no longer stay in hotels or attend restaurants managed by the FAR. Then, punishments for foreign banks that carried out operations with the island were expanded. And in 2019, the White House authorized exiles living in the US to file lawsuits in court to try to retake properties that had been expropriated after the triumph of the revolution. To top it off, President Donald Trump recently announced a ban on cruise travel and all flights from the United States to Cuba, with the exception of those heading to Havana. That is, companies such as Jet Blue and American Airlines to Santa Clara, Holguín and Camagüey, as of December 10, will not be authorized to operate on these routes. The Bureau of Industry and Security (BIS) of the US Treasury Department also released, in October, new measures related to the purchase of products with US components and the leasing of aircraft and vessels to state-owned companies in the Caribbean nation. The restrictions are related, especially, to the acquisition of articles that have more than 10% of components from that country, with the purpose of making it difficult to export or re-export different items to the island (until recently, this percentage was 25%, which allowed so that Havana could acquire a larger quantity of goods). The regulation also limits the export of goods to upgrade the telecommunications infrastructure, creating obstacles for the further advancement of this sector. To top it off, the US has decided to restrict the sending of dollars, transfers and monetary donations through its banking institutions. 

It is worth remembering that in 2017 the island experienced a prolonged drought, followed by Hurricane Irma, facts that resulted in damage estimated at 9% of GDP. While in 2018 the local economy had a growth of 1,1%, a forecast by Cepal, from last August, indicates that in 2019, it will probably be only 0,5%, a very unsatisfactory figure, but similar to the expected index for the rest of Latin America and the Caribbean. 

It is worth remembering that the country's birth rate is one of the lowest in the hemisphere and that its inhabitants are gradually aging, which will increasingly force the government to increase its spending to ensure the well-being of this portion of the population, an age group that tends to increase significantly in the coming years, while the number of citizens, in general, will decrease at a constant pace (the life expectancy of women there is 80,4 years, and that of men, 76,5, XNUMX years). If Cuba wants to preserve and consolidate its social conquests, it will necessarily have to increase the contributions directed to the elderly (who require special care) and at the same time maintain a satisfactory standard of services for the rest of its residents. 

One cannot forget that the country imports most of the food it consumes. It is fundamental, therefore, to deal with this issue as a matter of urgency. Among some emergency measures to try to solve the problem of shortage of certain foodstuffs are eight projects to encourage the endogenous production of pork and chicken meat, in addition to encouraging the promotion of agriculture in urban areas and restraining the sale and distribution of specific goods. In the latter case, it is a case of controlled rationing, which was enacted in May of this year: the sale of foodstuffs such as rice, beans and eggs, for example, was subject to occasional intervention and provisional of the State, being limited to prevent the population from stocking these items at home, as well as to implement a more harmonious distribution among all Cubans. Even the sugar harvest in 2018 proved to be unsatisfactory, reaching just one million tons. The salary increase in 2019, in turn, was a relevant initiative (prices, however, remain too high for most workers), in addition to the gradual expansion of the private sector, with approximately 590 thousand account.      

The energy area has also been a constant concern for the authorities in Havana. It is true that dependence on oil imports has been reduced (around 40% of domestic consumption is currently produced nationally). Still, the crisis in Venezuela undoubtedly affected the island greatly in this regard. If Caracas shipped 105 barrels a day in 2012, that number dropped to 47 barrels a day in 2019. Not to mention the export of services provided by doctors, teachers and dentists to the Bolivarian Republic, which has seen a sharp reduction in recent times. After all, 75% of these professionals' services were contracted by that South American nation (the end of the Mais Médicos program, in Brazil, was also a hard blow for the Cuban government, with an estimated loss of revenue of US$ 332 million). At the peak of the relationship between Caracas and Havana, in 2012, aid, subsidies and investments from Venezuela amounted to 11% of the island's GDP. 

The fact is that the rationing and restricted use of fuel, mainly from September, led Cuba to prioritize the distribution of groceries and public transport. Non-essential sectors had to slow down their activities and the production levels of some industries were reduced, so as not to coincide with the times of higher energy consumption and to avoid blackouts. Even universities are being affected, closing their doors on certain days of the week, reducing the number of classes and shortening their daily opening hours. 

It must be recognized, however, that there was an important joint effort by different branches of government to carry out a plan of a circumstantial to allow, as far as possible, to mitigate this situation. In September, the Minister of Mines and Energy, Raúl García Barreiro, guaranteed the distribution of liquefied petroleum gas (LPG) to 1,7 million consumers, as well as the supply of natural gas. In this way, the disposal of fuel for thermoelectric plants and for internal combustion engines was not impaired (nor for homes, which, in this case, consume 60% of the energy). The Minister of Economy and Planning, Alejandro Gil Fernández, in turn, pointed out that diesel (responsible for 10% of the country's daytime generation) should be prioritized in the displacement of passengers and cargo. And the Minister of Transport, Eduardo Rodríguez Dávila, defined as the main lines of the policy in his area, to favor the use of railroads; ensure the mobility of fuels, food and export products; maintain communication with the Isle of Youth; preserve activity levels in ports; keep the basic family food basket; give preference to medical care; redesign urban public transport lines at peak times; and undertake coordinated work with cuentapropistas and cooperatives to protect services, among other measures. 

The government also decided to open exchange offices and allow the sale of imported items in state establishments in exchange for dollars and foreign hard currencies, through the use of cards (which can receive transfers from abroad, without paying taxes), preserving the circulation of the Cuban peso (CUP) and convertible peso (CUC) in everyday transactions. Monetary unification is still being discussed.      

Relations with some international partners, moreover, look promising for the next period. In November 2018, Cuba and Russia signed several agreements, including those aimed at modernizing the electricity and steel sector, rail transport and oil exploration. With Beijing, in the previous year, Havana had signed agreements in the areas of tourism, cyber security projects and renewable energy. By the way, Cuba has paid special attention to this last item. By 2030, electricity consumption from sources such as wind farms (“Herradura 1 and 2”, in Las Tunas, for example, with 54 turbines generating electricity using Chinese technology) and photovoltaic devices (the Centro de Estudio de Tecnologías Energéticas Renewables, from the Technological University of Havana José Antonio Echeverría, has been engaged in research on the subject), as well as biomass from sugarcane and small hydroelectric plants, should reach 24%. 

In the case of solar panels, in 2016, only 0,15% of the energy consumed came from this source. In the following year, production was 1% of the total generated. And in 2019, so far, depending on the source, it has been between 1,15% and 2,4% of the total (at the end of 2018, the country already had 151.980 megawatt hours synchronized with the national electrical system, the equivalent of saving 32.873 tons of fuel). It is still little, but there is a clear interest in expanding the sector. The most recent projects in this regard are the Cárdenas I photovoltaic park, the result of a partnership between the International Renewable Energy Agency (Irena) and the Abu Dhabi Fund for Development (ADFD), which has an installed capacity of 3,75 MW (which may send power to 7.000 homes); the solar park in the Mariel Special Development Zone, executed by the British Mariel Solar SA; and the one built by the German company EFF Solar SA, which should provide five megawatts in the province of Mayabeque. At the moment, there are 65 parks already concluded and another 15 under construction, which could increase the installed power by 42 megawatts. 

All of this is only possible because the population has full confidence in the President of the Councils of State and Ministers, Miguel Díaz-Canel, who has been extremely transparent in relation to the current situation (clearly presenting to the public all the recent problems and pointing out daring solutions to overcome adversities), while at the same time placing himself as an obstinate defender of national sovereignty. Cubans, therefore, fully support their leaders. The broad debates on the new Constitution and its massive approval only show the vitality of the democratic channels built and perfected over the years by the revolution (although they are different from those applied in other countries in the region) and indicate the active participation of citizens in discussions on the directions of the nation. Cuba will never return to a puppet position for the United States. The island has gone through other difficult times throughout its history and has always overcome all difficulties. It won't be any different this time. Cuba will resist. 

* Luiz Bernardo Pericas is Professor of Contemporary History at USP.

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