The Cuban economy: Current Situation and Challenges.

Transcription

1 The Cuban economy: Current Situation and Challenges. Prof. Dr. MAURICIO DE MIRANDA PARRONDO, Ph. D. Professor Director Center for Pacific Rim Studies Pontificia Universidad Javeriana Cali, Colombia Hankuk University for Foreign Studies, Seoul, November 29th, 2017.

2 Content. General Data. Economic and Political System Background. Problems of the Cuban economy at the beginning of Raul Castro s Government. Updating the Cuban Socialism Some Current Problems of the Cuban Economy Main Economic Data Cuban Main Challenges.

3 Cuba is in the center of the Caribbean Sea. Territory: 109,884 km² Population: 11,239,224 Hab. (2016) Population Density: Hab/ km²(2016) Capital: Havana. Havana s Population: 2,130,081 Hab. (2016) Other important cities: Santiago de Cuba (510,161) Holguín (354,326) Camagüey (329,195) Santa Clara (245,470) Bayamo (238,227) Government System: One Party System (Communist) Territorial Division: 15 Provinces, 167 Municipalities and one Special Municipality President: Gen. Raúl Castro (younger brother of Fidel Castro, 86 years old)

4 Economic and Political Systems. Economic System: Centralized economy with some participation of private capital, especially in microenterprises. There are joint ventures with foreign capital and state capital. State owned enterprises (SOE s) are predominant in the Cuban economy and employ 71% of the entire workforce. SOE s have little operational autonomy and decision making. Private economic activities are highly restricted. Political System: One Party (Communist) government system. Other political parties are prohibited. There is no political recognition of the opposition. There is no balance of power. The Communist Party (CCP) controls all the activity of State administration, as well as the various existing social organizations, which must follow their guidelines.

5 Background. After the dissolution of the Socialist System and the Soviet Union, the Cuban economy contracted by 34%, between Cuba lost its main suppliers of fuel, machinery, intermediate goods, raw materials and consumer goods and industry and agriculture went into virtual paralysis. Crisis affected the population s standard of living, provoking waves of migration. Shortage of food, clothes and fuel. High level of inflation. Development of a dynamic dollarized underground market. Widening the gap between official exchange rate (1 USD= 1 CUP) and unofficial exchange rate (1 USD= 130 CUP) In response to the situation, the government introduced certain economic reforms between 1994 and 1996, introducing elements of market, which stabilized the macroeconomic situation but did not achieve a significant improvement in the population s standard of living. Between 1996 and 2006 there were no new important measures to make the economy more flexible. In 2006 Fidel Castro became ill and had to leave his official duties. In 2008 he was officially replaced by Raul Castro.

6 Problems of the Cuban economy at the beginning of Raul Castro s government. Weak incentives for the development of production. Salaries are not enough to guarantee the necessities of daily life. Deterioration of industrial and agricultural production capacity. Productive obsolescence. Limited sources of capital accumulation. Strong external dependence. Weak international integration. Deterioration of international liquidity. Low level of population s standards of living. Conditions of survival in daily life. Low capacity of effective demand. Deficiencies of centralized planning mechanisms, especially in microeconomic variables.

7 Main measures of economic policy in the context of the updating of the Cuban economic model after Distribution of idle state lands in private usufruct. Increased in authorized categories for self-employed workers. Authorization to sell houses and cars. More flexible migration regulations. New Law on the tax system. Creation of non-agricultural cooperatives was allowed. New Law of Foreign Investment. The 6 th Congress of CCP (2011) approved the Guidelines for Economic and Social Policy for the updating of Cuban Socialism. Five years later, only 21% of the 313 approved guidelines had been met. The 7 th Congress of CCP (2016) considered the implementation of the Guidelines for the period and the preparation of a National Plan for Economic and Social Development for Actually, both documents are not precise and it is especially difficult to develop an adequate plan for 2030, when the most elementary issues of daily life are not solved.

8 Some Problems of the Measures taken. Absence of a strategic approach to the reforms. What kind of economy should be developed? What kind of society should be built? The time of usufruct of lands (10 years) is not enough to stimulate large investments by the tenant. The self-employed activities allowed involve the use of medium and low-skilled work force and the self-employment in most professional activities is prohibited. The authorization to buy and sell houses and apartments has not led to the creation of a transparent real estate market. Certain migration restrictions have been maintained, especially for certain professional categories. No constitutional guarantees have been established for private property. Discretion of authorizations. Lack of transparency and high corruption.

9 Some Current Problems of the Cuban Economy. Insufficient and Distorted Economic Growth in Favor of the Social Services with little impact on the improvement of the quality of live of the population. Stagnation of Industrial and Agricultural Production. Limited Capacity of Effective Demand. The majority of the population receives income lower than their basic consumption needs. Limited sources of the accumulation of capital and insufficient financing. Cuba is not a member of the most important multilateral credit organizations and has not been able to attract enough Foreign Direct Investment. Deficient international integration: high external dependence, few options of exports (nickel, sugar, tobacco), main foreign earnings are professional services and tourism. Cuba needs to import a wide variety of goods, including fuels, food, raw materials and machinery. Low level of institutional credibility in relation to business. There are no constitutional guarantees for private property. There is no perception of government commitment to a process of reforms that makes the economy more flexible. Cuba does not appear in almost any of the rankings of competitiveness, institutional quality or facility for the development of business. Demographic Problems: Aging of the population, emigration of young professionals and trends to reduce the population in the long term.

10 Cuba: Annual Change in GDP, Aggregate Demand and Supply. Source: ONEI (2016) Statistical Yearbook. ONEI (2017) Economic and Social Overview ( )* Gross Domestic Product Personal Consumption N. A. 3.3* Public Consumption N. A. 1.6* Gross Fixed Capital Formation N. A. 3.5* Exports (Goods & Services) N. A. 5.1* Imports (Goods & Services) N. A. 3.8*

11 Cuba: Annual Change by Economic Activities ( ). Source: ONEI (2016); ONEI (2017) Agriculture, livestock, forestry 19,6 0,6 3,3-5,1 4,9 0,6 4,7 2,4 2,5-0,1 3,2 Fishing 1,7 1,4-44,0-24,1-13,3 5,8 5,5 1,7 3,1-0,8-7,9 Mining 4,0 3,2-3,3 7,2 1,7 2,0-2,3-0,7-2,2-3,3 0,6 Sugar Industry -3,4 15,8-1,4-13,1 5,2 7,4 7,8 4,3 17,8-19,4 1,5 Manufacturing 10,1 4,9 1,0 1,6 3,9 2,0 1,9-2,3 17,0-3,0 3,6 Electricity, gas & water 7,9 0,6 0,8-1,7 2,8 4,3 3,7 0,7 4,2-6,9 1,6 Construction -8,6 2,4 0,6-7,4-7,3 11,2 7,9-2,3 17,0-4,6 0,6 Trade -0,3-3,4 0,1 1,9 5,5 5,3 3,7 3,3 5,5 0,3 2,2 Hotels & restaurants 4,9 10,2 10,0 7,3 9,0 5,1 2,4 3,1 9,1 5,1 6,6 Transport & Communications 6,4 6,6 2,5 2,6 3,6 6,2 3,2 4,3 6,5 5,0 4,7 Financial intermediation 9,2 5,3 1,3 0,6 1,2 0,5 1,2 4,0 4,0 2,7 3,0 Public Administration 5,8 3,3 6,5 1,7 1,5-0,1 1,2-0,6-2,0 0,0 1,7 Science and Technology 10,0 24,4 10,7 7,4 7,8 7,2 4,0 0,0-2,7 2,1 6,9 Education 9,1 3,1 1,5 4,5-5,3-3,8-2,2-3,0-2,1-1,2 0,0 Public Health & Social Assistance 21,0 12,7 3,4 5,6 3,4 0,4 1,8 2,0 1,2-5,3 4,4

12 Cuban Main Challenges In 2018 a transition towards a generational change in the government must begin. When the historical leadership who led the Revolution do not exist, the new leaders can not maintain the current system without making profound political and economic changes. The rigidity of these system could make it collapse. Cuba has a labor force with a high level of education but the government must allow self-employment and entrepreneurship in economic activities that generate value and that provide both social benefits and better standard of living. It is necessary to adopt more deep economic reforms that stimulate the growth of FDI, industrial and agricultural production and exports. It is necessary that the Cuban economy be more flexible and open, without abandoning the main social achievements that even Cuba can exhibit. The main asset of Cuba is its highly educated population but with limited connectivity and limited access to new technology. The Trump government has opted for a setback in their relations with Cuba. This phenomenon could make the reintegration of Cuba in the main international financial organizations more difficult.

13 Muchas Gracias 대단히감사합니다. Thank You