Cuba at a glance: 2001-02 · COUNTRY REPORT Cuba August 2001 The Economist Intelligence Unit 15...

COUNTRY REPORT

Cuba

August 2001

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

Cuba at a glance: 2001-02OVERVIEWNo radical change in domestic politics is expected in the forecast period, aslong as Fidel Castro remains in good health. If Mr Castro were to leaveoffice, a collective leadership would probably fill the void, but the systemwould face a period of adaptation and heightened uncertainty. US-Cubanrelations will remain hostile, but pressure to ease sanctions will continue.Economic reform will be slow, with macroeconomic policy remainingcautious and priority given to basic needs. Growth will slip to 4.5% in 2001owing to tight finance, but as sugar production and terms of trade improveit will rise to over 5% in 2002. Inflation will be modest, but the dualexchange rate will persist. The current-account deficit will remain steady atunder 3% of GDP.

Key changes from last monthPolitical outlook• Since fainting in late June, Fidel Castro appears to have returned to health

and the question of succession has been clarified. Despite an announce-ment that US policy towards Cuba would be hardened, the USadministration has little scope to do so.

Economic policy outlook• Economic policy is unchanged. Fiscal targets reveal an intention to

continue to reduce subsidies to state enterprises, while the drive toimprove auditing has continued.

Economic forecast• The Economist Intelligence Unit’s economic forecast is unchanged. We

expect growth to accelerate in the second half of 2001, following dis-appointing growth of 3.6% in the first half, as the financing situationimproves.

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Cuba 1

EIU Country Report August 2001 © The Economist Intelligence Unit Limited 2001

Contents

3 Summary

4 Political structure

5 Economic structure5 Annual indicators

6 Outlook for 2001-026 Political forecast7 Economic policy outlook8 Economic forecast

11 The political scene

18 Economic policy

21 The domestic economy21 Economic trends22 Mining and energy24 Manufacturing25 Agriculture26 Tourism and other services

28 Foreign trade and payments

List of tables

8 International assumptions summary9 Forecast summary

18 Fiscal accounts22 GDP by sector, 200027 Tourist arrivals by origin, 200028 Main goods and services exports, 200029 Current account30 Capital account31 Hard currency debt stock

List of figures

9 Gross domestic product31 Composition of hard currency debt, 2000

Cuba 3


Summary

August 2001

No radical change in domestic politics is expected in the forecast period, aslong as Fidel Castro remains in good health. If Mr Castro were to leave office, acollective leadership would probably fill the void, but the system would face aperiod of adaptation and heightened uncertainty. US-Cuban relations willremain hostile, but pressure to ease sanctions will continue. Economic reformwill be slow, with macroeconomic policy remaining cautious and priority givento basic needs. Growth will slip to 4.5% in 2001 owing to tight finance, but assugar production and terms of trade improve it will rise to over 5% in 2002.Inflation will be modest, but the dual exchange rate will persist. The current-account deficit will remain steady at less than 3% of GDP.

Mr Castro’s brief collapse in June has sparked a succession discussion, andadded weight to a focus on youth. An ideological drive has been seen as abulwark against corruption, with neighbourhood groups and old militantsharnessed. US convictions of five Cuban spies have been condemned. Theinternal opposition has been subdued. US anti-Cuba policy has been inhibited,but the war of rhetoric has continued. European relations have improved, andCuba has been cultivating links in Latin America and beyond.

Fiscal data have been published, along with targets for spending restraint,decentralisation, improved auditing and productivity gains. Social spendinghas been increased to improve welfare services, but officials have sought toavoid raising expectations too far. Domestic bank lending has been expanded.

First-half GDP has disappointed, but Havana’s labour market has been tight.Central Bank data shows growth in 2000 led by mining and agriculture. Nickeland chrome production have hit record levels, but copper production endedthis quarter. The sugar harvest has disappointed, but non-sugar export cropshave increased. Oil output has risen, and although Brasoil has pulled out,Venezuelan interest has continued. First-half tourism results have beenencouraging, and further expansion plans have been announced. There has,however, been mixed news on tourism flight arrivals data. Progress has beenmade in telecommunications development.

Central Bank figures show strong trade growth in 2000. The structure ofexports has altered in 2001. A larger current-account deficit in 2000 wasfinanced by an increase in capital inflows. Bilateral finance arrangements haveinfluenced the direction of trade. Hard currency debt fell in 2000.

Editors: Emily Morris (editor); Martin Pickering (consulting editor)Editorial closing date: August 13th 2001

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] report: Full schedule on www.eiu.com/schedule

Outlook for 2001-02

The domestic economy

The political scene

Foreign trade andpayments

Economic policy

4 Cuba


Political structure

Republic of Cuba

Centralised political system, with close identification between the PCC and the state

President, currently Fidel Castro Ruz

The Council of Ministers is the highest executive body; its Executive Committee iscomposed of the president, the first vice-president and the vice-presidents of the Councilof Ministers

National Assembly of People’s Power; 601 members elected by direct ballot

A People’s Supreme Court oversees a system of regional tribunals; the Supreme Court isaccountable to the National Assembly

January 11th 1998 (provincial and national assemblies); next elections dueJanuary 2003

The organs of the state and the PCC are closely entwined and power devolves principallyfrom the Executive Committee of the Council of Ministers

Partido Comunista de Cuba (PCC)

President of the councils of state & ministers Fidel Castro RuzFirst vice-president Raúl Castro RuzVice-president Carlos Lage Dávila

President of the National Assembly Ricardo Alarcón de Quesada

Agriculture Alfredo Jordán MoralesArmed forces Raúl Castro RuzAudit & control Lina Pedraza RodríguezBasic industry Marcos Portal LeónCommunications & informatics Ignacio González PlanasCulture Abel Prieto JimenezEconomy & planning José Luis Rodríguez GarcíaFinance & prices Manuel Millares RodríguezFisheries Alfredo López ValdésForeign relations Felipe Pérez RoqueForeign investment & economic co-operation Marta Lomas MoralesForeign trade Raúl de la Nuez RamírezGovernment Ricardo Cabrisas RuízHealth Carlos Dotres MartínezLabour & social security Alfredo Morales CartayaLight industry Jesús Pérez OthonScience, technology & the environment Rosa Elena SimeónSteel & metallurgy Fernando Acosta SantanaSugar Ulises Rosales del ToroTourism Ibrahim Ferradaz GarcíaTransport Alvaro Pérez Morales

Francisco Soberón Valdés

Official name

Form of government

Head of state

The executive

National legislature

Legal system

National elections

National government

Main political organisation

Key ministers

Central Bank president

Cuba 5


Economic structure

Annual indicators

1996 1997 1998 1999 2000

GDP at market prices (Ps bn) 24.5 24.7 25.9 26.7 27.5

GDPa (US$ bn) 18.9b 19.8b 20.3b 22.1b 24.1b

Real GDP growth (%) 7.8 2.5 1.3 6.2 5.6

Consumer price inflation (av; %) –8.6 –1.4 2.8 –0.5 –2.6

Population (m) 11.0 11.1 11.1 11.2 11.2

Exports of goods fob (US$ m) 1,865.5 1,819.1 1,539.5 1,456.1 1,691.8

Imports of goods fob (US$ m) 3,656.5 3,852.6 4,222.0 4,365.4 4,864.8

Current-account balance (US$ m) –255.0 –297.7 –386.1 –461.8 –687.1

Total external debt (US$ bn) 11.3b 11.0b 12.1b 12.0b 11.9b

Debt-service ratio, paid (%) 20.9b 20.4b 21.7b 20.9b 21.2b

Official exchange ratec (av; Pc:US$) 1.00 1.00 1.00 1.00 1.00

Unofficial exchange rated (av; Ps:US$) 19.18 22.75 22.27 20.69 21.47

August 13th 2001 Ps22:US$1 (unofficial)

Origins of gross domestic product 2000b % of total

Agriculture & fisheries 7.6

Mining & quarrying 1.3

Construction 4.2

Electricity, gas & water supply 2.8

Manufacturing 29.0

Trade & services 55.2

GDP at factor cost 100.0

Principal exports fob 2000b US$ m Principal imports cif 1999 US$ m

Nickel 661 Consumer goods 1,016

Sugar 495 Intermediate goods 2,739

Tobacco 183 Capital goods 588

Seafood 95 Total 4,344

Main destinations of exports 1999e % of total Main origins of imports 1999e % of total

Russia 23.3 Spain 19.5

Netherlands 14.5 France 14.0

Canada 12.9 Canada 8.2

Spain 8.0 China 8.1

Egypt 3.7 Italy 7.7

a As there is no accepted exchange rate for conversion of local currency GDP to US dollar GDP, these EIU estimates are based on a series ofassumptions and are subject to a wide margin of error. b EIU estimates. c The fixed official exchange rate, which applies to commercialtransactions for accounting purposes, is Ps1:US$1. The convertible peso (Peso convertible, Pc) was introduced at this fixed rate in 1995. d A legalbut unofficial exchange rate for personal transactions only, introduced in 1995. e Based on IMF, Direction of Trade Statistics Yearbook.

6 Cuba


Outlook for 2001-02

Political forecast

The government’s nationalist rhetoric and mass mobilisations of the past yearsuggest that neither internal political reform nor a more conciliatory stancetowards the US are in prospect. There are no signs that the one-party politicalsystem, which has survived economic hardship and growing inequality in thepast decade, is in crisis. At the highest levels the leadership seems secure, whilethe internal opposition remains weak, divided and isolated. Authority iscentralised in the hands of the 75-year-old president, Fidel Castro, creatinguncertainty about the succession should his health fail. A new generation ofleaders is gaining experience, but uncertainty would be exacerbated if the USresponded to Mr Castro’s demise by stepping up attempts to destabilise theCuban government.

At the next congress of the ruling Partido Comunista de Cuba (PCC), due totake place in 2002, the party’s changing role will be discussed, as will efforts totackle economic crime and corruption. There will be high-profile trials andbroad-based efforts to tighten enforcement against illegal business activities,but these do not signal any fundamental changes to either the nature ofgovernance or the overall direction of policy. There is no sign that a morepluralist multiparty system is being considered either by the leadership or bythe party, and there is little evidence at present of a strong clamour for it fromthe population.

The president has great authority and has held power in Cuba’s centralisedpolitical system for over 40 years. Since his collapse in front of a rally in June,the official policy on succession has been clarified and likely members of a newruling team more clearly identified. When his heath does fail, the politicalsystem will be profoundly altered as new personalities and structures move intothe power vacuum. In the past few years a group of second-tier leaders hasemerged that could fill this gap with a collective leadership. The EconomistIntelligence Unit’s forecast is based on the assumption that Mr Castro willremain in power. If he does not, we believe the most likely scenario to be apeaceful transfer of power, which would produce little alteration in the shortrun, but could herald a shift towards a less centralised system. However,conflicts within the leadership would be possible and there would also be aheightened risk of attempted intervention by US-based Cuban exiles or eventhe US government, presenting the danger of violent conflict. Official USdocuments leaked after Mr Castro’s brief collapse confirm that contingencyplans include putting the US navy on alert, suggesting that the US anticipatesheightened tension, precipitated either by a refugee crisis or political upheavalin Cuba, or both.

Hostility between the Cuban and US governments has intensified since theinauguration of George W Bush, and we expect that diplomatic and legaldisputes will be aggravated by both presidents for domestic political reasons.The Bush administration’s nomination of staunch anti-Castro figures to several

Domestic politics

International relations

Cuba 7


key positions in the US administration—particularly Otto Reich as assistantsecretary of state for western hemispherical affairs—will be challenged in the USSenate, paralysing the US’s Cuba policy. Existing bilateral contacts will bethreatened, but the US government has little to gain by withdrawing its co-operation on the anti-drug and migration issues that serve its own interests orfrom the expanded cultural and person-to-person contacts designed to under-mine the authority of the Cuban government. Despite the US administration’spolitical debt to the Miami Cuban anti-Castro lobby, moves to tighten economicsanctions against Cuba will be constrained by the powerful free-trade lobbywithin the Republican party itself and international objections to the applicationof sanctions legislation to third-country businesses operating in Cuba. Mr Bush’sdecision to renew the four-year presidential veto of some critical clauses of theHelms-Burton legislation demonstrates his lack of room for manoeuvre.

Cuba will continue to cultivate political and economic relations with othercountries. Despite Mr Castro’s strident approach, which has brought somesetbacks over the past year, we expect these efforts to produce concrete resultsin terms of investment, trade and official co-operation.

Economic policy outlook

Economic reform will continue to be piecemeal and gradual, and will be con-ducted within the context of cautious macroeconomic management and thestrengthening of new regulatory capacity. The government remains firmlycommitted to maintaining a planned economy, but will continue to carry outenterprise restructuring and seek foreign business participation. Price reforms willbe piecemeal and gradual, and movement towards exchange-rate unification willbe slow. Our forecast assumes that the dual exchange rate, which creates seriousdistortions within the domestic economy, will persist until after the end of 2002.The pace of change will be inhibited by ideological resistance, the government’sconservatism and its commitment to containing unemployment.

Concerns about the social and political costs of economic reform will continueto be aired extensively in the government-controlled press and the assemblies ofofficial organisations, including the PCC at its congress in 2002. The politicalprocess will keep a check on the pace of change, although economic necessitywill continue to weigh in favour of some further market liberalisation. Reform ofstate enterprises, the development of financial institutions and the gradualtransformation of the structure of employment will be central concerns in theforecast period. The opening of the economy to foreign investment will remaintightly controlled, but foreign investors will continue to trickle in as theynegotiate their way to favourable agreements on an increasingly diverse range ofactivities with Cuba’s instinctively suspicious authorities. In the absence of anysignificant changes to US sanctions, Cuba will continue to develop economiclinks with other trade partners.

With restricted access to credit and a strong policy commitment to macro-economic stability, fiscal management will continue to be tight, with thecentral government deficit remaining under 3% of GDP. Priority will continue

Fiscal policy

Policy trends

8 Cuba


to be given to social spending and employment protection, while the realwages of public-sector workers will be restored only gradually to 1990 levelsthrough a continuation of general wage increases and the wider use ofincentive payments. The reduction of subsidies to state enterprises is a priority,as real state sector wages and public investment can only grow from theircurrent low level in line with reductions in the burden of subsidy. Efficiencygains led by the enterprise-restructuring process will help, but a reluctance tointroduce structural reform in agriculture will hinder progress. Gradualism willremain the hallmark of reform policy and progress will be slow.

Economic forecast

Cuba’s terms of trade deteriorated sharply in 2000 as higher oil import pricesoutweighed increases in prices for its main merchandise exports, sugar andnickel. In 2001-02 the terms of trade will tilt in Cuba’s favour, although thebeneficial effect of higher sugar prices and lower oil prices will be underminedby lower nickel prices. The strain on external finances caused by thedeterioration of the terms of trade in 2000 hindered growth in the first half of2001, but a gradual improvement in confidence of Cuban borrowers is likely toease the external constraint in the forecast period. We assume that USsanctions will remain intact until after 2002.

International assumptions summary(% unless otherwise indicated)

1999 2000 2001 2002

Real GDP growthWorld 3.6 4.6 2.7 3.6OECD 3.1 3.7 1.4 2.4EU 2.5 3.4 1.9 2.4

Exchange rates (av)US$: 1.07 0.92 0.88 0.96

Financial indicatorsUS$ 3-month commercial paper rate 5.18 6.32 4.04 4.75

Commodity pricesOil (Brent; US$/b) 17.9 28.5 26.6 26.1Sugar (US cents/lb) 6.3 8.2 9.2 8.9Nickel (US$/lb) 2.7 3.9 3.0 3.1

Regional aggregate GDP growth rates weighted using purchasing power parity exchange rates.

We expect the euro to fluctuate in value against the US dollar in 2001-02, butthese changes will have little net effect on the economy. Cuba denominatesmost of its exports in US dollars although buyers are all non-US, while most ofits imports, apart from oil, are priced in other currencies. A weaker US dollarwill reduce the purchasing power of earnings from commodity exports, butwill make tourism more competitive. It will also increase the US dollar value ofexternal debt, most of which is denominated in other currencies.

Lower world interest rates in 2001-02 will have only a marginal impact onCuban borrowing costs. Far more important will be the confidence of creditorsin the Cuban economy. The average rate of interest paid by borrowers for

International assumptions

Cuba 9


short-term commercial loans is high on account of the system’s lack oftransparency and the unfamiliarity of lenders with the Cuban market. Weexpect the cost of credit to ease in the forecast period in line with someprogress on the renegotiation of debt arrears and innovations in thestructuring of new debt. Economic sanctions make Cuba less vulnerable to theUS downturn, but a subsequent slowdown in other regions will hit theeconomy, particularly tourism.

External financing was tight at the start of 2001 because of high oil importprices and low sugar output: the 2000/01 harvest of 3.53m tonnes was downby 13% on the previous year. However, the financing situation will be eased byan improvement in Cuba’s terms of trade in the forecast period. This changewill allow growth to accelerate from under 5% in 2001 towards 6% in 2002.Investment will increase steadily and real disposable incomes will rise moregradually in line with productivity increases. The trend rate of growth intourism, which has been the main driver of GDP growth in the past five years,has slipped from an average of almost 20% per year in 1995-99 to 10% peryear, so GDP growth in the forecast period will be broader-based. Thereplacement of centralised state planning with more market-oriented resourceallocation through enterprise restructuring, financial sector reform and someprice adjustments will increase integration of the domestic and externaleconomies, raising efficiency from its current low level.

Forecast summary(% unless otherwise indicated)

1999a 2000a 2001b 2002b

Real GDP growth 6.2 5.6 4.5 5.5

Industrial production growth 6.4 5.6c 4.8 7.5

Gross agricultural production growth 10.4 11.6 2.0 5.0

Unemployment rate (year-end) 6.0 5.5 5.8 5.8

Consumer price inflation (year-end) –2.9 –2.3 0.1 1.0

Central government balance

(% of GDP) –2.4c –2.5c –2.7 –2.6

Exports of goods fob (US$ bn) 1.5 1.7 1.8 2.0

Imports of goods fob (US$ bn) 4.4 4.9 5.1 5.6

Current-account balance (US$ bn) –0.5 –0.7 –0.7 –0.7 % of GDP –2.1c –2.9c –2.5 –2.6

External debt (year-end; US$ bn) 12.0c 11.9c 11.9 11.8

Exchange rates Ps:US$ (av; official) 1.0 1.0 1.0 1.0 Ps:US$ (av; unofficial) 20.7 21.5 21.5 20.5

a Actual. b EIU forecasts. c EIU estimate.

We forecast that the balance of price movements in formal and informal, USdollar and domestic currency markets will bring moderate increases in averageconsumer prices in 2001-02. Although prices in the free markets will tend tofall, gradual rises in fixed state prices will increase the cost of living. On theassumption that the state will seek to restore the real value of wages by keepingthe rise in the cost of living below nominal wages growth, we expect year-endinflation to remain very low in 2001-02.

Inflation

Economic growth

10 Cuba


The official exchange rate remains at Ps1:US$1 and we assume that theunification of the exchange rate, with one rate for both personal and com-mercial transactions, will not take place in the forecast period. Althoughofficials have stated that unification would be desirable in the long run, thereis at present no indication that it is imminent. Instead, the authorities willcontrol the emission of domestic currency to allow the unofficial exchange rateto appreciate, bringing it closer to a purchasing power parity rate. We forecastthat the unofficial rate will appreciate slightly, from Ps22:US$1 in August 2001to Ps20:US$1 by end-2002. The enterprise sector is experimenting with the useof a separate conversion factor for accounting purposes, laying the foundationsfor the future unification of the exchange rate. Foreign investors, whose con-tracts are denominated in hard currency, are not directly affected by changes tothe unofficial exchange rate.

US sanctions remain largely intact, but trends in the external accounts willdepart from those of the past five years as the development of domesticimport-substituting production for some basic goods gradually begins to reduceCuba’s dependence on imports. The merchandise trade deficit will continue towiden, with both exports and imports rising, but continued growth in servicesexports, both tourism and other services, will keep the current-account deficitat around US$700m, under 3% of GDP.

Export earnings from sugar will remain under US$700m, around one-third oftotal merchandise exports, in the forecast period. In 2001 higher prices willoffset a fall in the volume of sugar exports, while in 2002 production will risebut lower prices will restrain earnings growth. We expect nickel production togrow at an annual rate of around 6%, but falling prices will keep earningsbelow those for 2000. Steady growth in non-traditionals will allow total goodsexport earnings to grow by 6-11% per year in 2001-02. Imports will be boostedby an increase in investment and input demands from tourism, but thecombination of savings arising from an oil deal with Venezuela and theincreased domestic production of crude oil and other import substitutes willmoderate the increase to keep import spending growth below 11%. Our fore-cast for tourism earnings assumes annual earnings growth of 10%, faster thanin 2000, but substantially below the average for the 1990s.

Progress towards agreement with the Paris Club over US$3.5bn in official debtthat has not been serviced since 1986 has been blocked by differences over thetreatment of Cuba’s debt to Russia and conditions for rescheduling. A finalagreement with the Paris Club is therefore unlikely in the near future, althoughwe expect some progress on debt talks over the forecast period. This, togetherwith some increase in foreign direct investment (FDI) inflows (mainly associatedwith minerals and infrastructure), will ease the external financing constraintslightly. Our forecast suggests that these factors will allow Cuba not only tofinance the current-account deficit, but also to begin to reduce its debt arrears in2001-02.

Exchange rates

External sector

Cuba 11


The political scene

Although there have been no serious political upheavals, President FidelCastro’s brief fainting spell at a public rally on June 23rd has had a profoundeffect on political life. It does not appear that the incident is a sign of anyserious deterioration in Mr Castro’s health: the day was exceptionally hot,with many others at the event reportedly also suffering heat exhaustion.Mr Castro returned to the platform after ten minutes and in the followingweeks carried out his functions as before. But nonetheless, the unprecedentedpublic sign of physical weakness raised the previously largely unspokenprospect of life without Mr Castro, Cuba’s leader since 1959. Mr Castro, whoturned 75 on August 13th, has been slowing down in recent years, and therehave been signs of physical weakness and memory lapses, but he has neverbefore collapsed in public. Since the event Mr Castro and the media,following his cue, have openly addressed the question of succession, andboth his supporters and enemies have sought to come to terms with theimplications of his eventual demise.

Although Mr Castro’s comments largely confirm expectations, they meritattention. He unequivocally confirmed his younger brother, Raúl, as hisimmediate short-term successor as president, as stipulated in the constitutionand as confirmed by the immediate reaction of his entourage. Raúl is not onlythe appointed official successor, as senior vice-president, he is also the obviousshort-term choice as replacement, as the only other leader with experience,authority, legitimacy and a power base—as chief-of-staff of the FuerzasArmadas Revolucionarias (FAR, the armed forces). Although he lacks hisbrother’s charisma and popular rapport, he is a skilled and astute politician,with a record for achieving a balance between continuity and reform. However,the president has also indicated the need to look to younger talent for thelonger term. This appears to have sidelined Ricardo Alarcón (64), who, aspresident of the National Assembly, had often been seen as the medium-termsuccessor, but his sidelining has not come as a surprise. In recent years a newable and trusted generation has been groomed for power, and has played anincreasingly significant role. Although those in this younger generation havenot demonstrated leadership qualities—indeed, to do so would be likely toundermine the trust conferred on them by Mr Castro—they have exercisedsome degree of autonomy. The most prominent members of this group areCarlos Lage (49), secretary to the council of ministers and effectively primeminister, but also overseer of the post-1993 economic reform programme, andFelipe Pérez Roque (36), a former student leader and aide to Mr Castro and nowforeign minister. Other, less high-profile figures include Marcos Portal,Francisco Soberón and José Luis Rodríguez, who have all participated in thedesign of Cuba’s economic transition strategy. Ulises Rosales del Toro and LinaPedraza, in the sugar and audit ministries respectively, have also been entrustedwith responsibilities considered to be of great strategic importance.

For some years now, Mr Castro has ceded many functions to this group ofyounger leaders, who not only devised and directed the recovery and reformprogramme of the 1990s but also masterminded efforts to ensure ideological

A fainting spell sparkssuccession discussion

12 Cuba


continuity and discipline. However, the public nature of the post-June 23rd dis-cussion has perhaps brought somewhat closer the time when Mr Castro actuallysteps down. Having withdrawn gradually to more of a figurehead role, he has keptfor himself only the overall decision-making authority for critical issues (especiallyforeign policy or reform), an overall legitimating function, and a freedom to leadthe many mass campaigns since 1997. Indeed, Mr Castro’s move towards afigurehead role may have accelerated lately, with a noticeable tendency for themedia to adopt a more adulatory tone towards Fidel, as he is known, with morereferences to his historical significance and talents. In a political culture alwaysstudiously avoiding a personality cult, this has engendered speculation that theground might be being prepared for his further withdrawal to a more formallyceremonial position. If so, then the incident of June 23rd may well have hastenedthat withdrawal, with positive implications for prospects for a smooth succession.

In light of the new significance of the question of succession, the publicity givento recent national gatherings of organisations representing young people is thusof more than just passing importance. Recent meetings that have enjoyed widepublicity have been a 150-strong national council of the Federación deEstudiantes Universitarios (FEU, the university students’ federation) inCienfuegos in mid-June; a May congress of the Federación de Estudiantes de laEnseñanza Media (FEEM, the secondary students’ organisation), which has anational congress due in January 2002; the national committee of the Unión deJóvenes Comunistas (UJC, the young communists) in mid-July; and the ThirdCongress (that is, the third since 1959) of the Pioneros (children’s organisation)on July 10th. The latter was attended by both Castro brothers.

The increased emphasis on youth in public statements, policies and rallies hasbeen more than just formulaic and perhaps reflects a significant shift inpriorities and influence. Not only have the leaders of the FEU and UJC madeprominent appearances at official events and been evidently influential indecision-making since January 2000, these organisations have also beenallotted significant tasks in national administration and labour mobilisation.New initiatives launched by youth organisations have also been given muchofficial media attention. These include the establishment of FEU-inspiredEscuelas de Trabajadores Sociales (schools of social workers), in an ambitiousproject to give young people rejected in the fierce competition for the highlyselective university system an opportunity to study to become social workers.The project is administered by the FEU and UJC, and has echoes of 1960s-stylecollective mobilisations. The students are trained to work with potentiallydisaffected urban youths (to date some 76,000 under-16s have been consultedin Havana) to encourage their involvement in the community and steer themaway from crime. Having done this work for several weeks, students areentitled to go to university for part-time study in a course of their choice.Other youth-focused projects include new colleges to provide intensive teachertraining (Escuelas Intensivas de Maestros) and information technology (IT)-based “youth centres”, the Joven Clubs, computer clubs to make IT training andopportunities available to all urban adolescents. Even if these ventures prove tobe of limited practical effectiveness, they fulfil important political and socialfunctions, which will help to shape a post-Castro political culture.

Focus on youth

Cuba 13


The fainting incident and resulting discussion of succession have addedmeaning to other political events. For example, the 2002 congress of thePartido Comunista de Cuba (PCC) is regarded as preparation for a futurewithout Mr Castro as ideological leader, and ongoing preliminary meetingsindicate the priorities within that process. The PCC’s drive to reinvigorateideologically, begun in 1998 and strengthened by the campaign around EliánGonzález in November 1999-June 2000, has been reinforced by a series of PCCprovincial committee meetings since the June 23rd incident. Issues of concernsuch as “social indiscipline”, “economic crime” and a perceived decline ofideological firmness and active commitment are all seen as having roots in theold “Soviet” years but exacerbated by the economic crisis of the early 1990sand subsequent reforms. There has also been increased attention by the partyand the media (especially the influential trade union weekly, Trabajadores) tothe current campaigns against corruption and, most recently, illegal use ofproperty, along with the identification of social problems, not least a perceiveddecline of collectivism, social solidarity and civic pride.

This drive to strengthen collectivism and stem anti-social behaviour has alsoencouraged continuing efforts to reinvigorate other mass organisations, apartfrom the PCC, which have become less active, to broaden participation in theideological effort. There appears to have been a rediscovery of the potential ofthe ubiquitous Comités de Defensa de la Revolución (CDRs, committees for thedefence of the revolution), many of which had become effectively defunct(having long lost their 1960s civil defence and political socialisation roles).Now, with their residual functions as neighbourhood groups guarding againstpetty crime and delinquency, the CDRs are regarded as key players in the driveagainst indiscipline. With rates of non-participation in the labour force havingrisen sharply in the 1990s (with the emergence of official unemployment andincreases in self-employment, early retirement and invalidity leave), the CDRsalso fulfil the need to strengthen participation based on area of residence ratherthan the workplace, which had formerly been the main forum. This imperativehas also given new importance to the Asociación de Combatientes de laRevolución Cubana (ACRC, the Association of ex-Combatants of theRevolution). The ACRCs are the mouthpieces of the many armed forces officerslaid off during the post-1991 military cutbacks, and provide a reservoir oflatent militant support for the government. Recognition of the central rolethey have been playing in reinvigorating CDRs is shown by the fact thatseveral major recent speeches by political leaders have been addressed to theirmeetings. The PCC has also moved to reorient its structure in order to extendits roots, which have traditionally been in the workplace, to the barrio(residential neighbourhood) level. Here, too, older Cubans with free time ontheir hands and a strong political commitment have played an important role.

The ideological offensive has also encouraged the revival of a campaigning styleand mass mobilisations on a nationalist theme, following the campaign over thecustody of Elián González in November 1999-June 2000. The latest example isthe mobilisation in response to a Florida court’s June 8th conviction of fiveCubans accused of spying. Having been relatively silent following the break-upof their ring—the “Wasp Network”—and their arrest in 1998, the Cuban media

Ideology seen as bulwarkagainst corruption

US convictions of “spies”are condemned

Neighbourhood groups andold militants are harnessed

14 Cuba


and leadership suddenly built a vociferous mass nationalist campaign followingthe Florida court’s ruling in support of the five, who have been identified asnational heroes. The Cuban authorities claim that far from threatening USnational security, the agents were working to undermine terrorist acts againstCuba being planned in the Miami community. While the campaign does nothave quite the proportions of the Elián campaign, it has nonetheless assumed asurprisingly high profile, dominating the media and generating rallies andmarches. This has led to speculation that it presages more significantdevelopments, perhaps a retaliatory clampdown on “US agents” in Cuba.However, while there have been incidents that might give rise to thisinterpretation—the arrest on June 21st of three armed infiltrators from theFlorida-based hardline Alpha 66 and Comando FX groups and the unusuallyharsh life sentence given to Sebino Serrano López on June 6th for smugglingillegal emigrants to Florida—it seems more likely that the campaign is either partof the wider mobilisation against US policy (see below), capitalising on themomentum generated in 2000, or is designed to distract attention from therecent disappointing news on the economic front (see The domestic economy).

The profile of Cuba’s small and divided illegal opposition groups has been lowin the past few months. This partly reflects a lack of opportunities for publicity(such as visits by foreign dignitaries, which attract a ready foreign pressaudience), but it is also probably because of the unfavourable domestic pol-itical climate. As with the Elián case, the emphasis on national unity in thecampaign for the five spies has created difficult conditions for dissidents whoare generally associated in the public mind with US-based anti-Castroorganisations. A new organisation for dissident journalists, the Asociación dePeriodistas Manuel Márquez Sterling, was formed on May 31st to raise theircollective profile, and an opposition party, the Partido de SolidaridadDemocrática (PSD) has decided to hold a national congress in Matanzas (on anunspecified date). However, neither move seems to indicate any improvementin these groups’ public acceptance or political importance. Dissidentjournalists’ domestic credibility is low, as their activities are concentrated onthe supply of bad-news stories for foreign consumption (with Radio Martí, aUS-government-backed anti-Castro radio station, the most importantcustomer). The PSD is only one very small group among many, and all effortsto join these groups into a coherent movement have so far failed. The fact thatthe PSD congress is to be held in Matanzas and a small group of dissidentdoctors who called for a new constitution on June 28th were based in Santiagomight indicate a shift of dissident activity away from Havana, but there isinsufficient evidence to draw any strong conclusions.

In addition, there has been little focus for international campaigns in defenceof political prisoners, as there have been no trials or arrests by the Cubanauthorities of high-profile figures in the past quarter. The decision by thepublic prosecutor on June 15th to reduce the sentence demanded for JoséGonzález Bridón, leader of the Confederación de Trabajadores Democráticos deCuba, a tiny independent trade union, received little coverage. Mr González’soffences could have given him a seven-year term, but he was sentenced insteadto two years.

The internal opposition issubdued

Cuba 15


The hostility between the Cuban and US governments has not abated. TheBush administration’s public anti-Castro statements have been influencedincreasingly by the Cuban-American lobby, but its hands have suddenly andunexpectedly been tied by the change in the balance of power in the USSenate, following the decision in May by a Republican senator, James Jeffords,to resign from his party. This has put a hold on the confirmation of all ofPresident George W Bush’s nominations for key Latin American posts (most ofwhom reflected the cold war style and many of whom were in his father’s andin the Reagan administration). The most significant delay (and possiblereversal) may be in the confirmation of Cuban-born Otto Reich as assistantsecretary of state for western hemispherical affairs, a controversial choice givenhis previous associations with the Iran-Contra affair and with the main anti-Castro lobby, the Cuban American National Foundation (CANF). AlthoughMr Bush has persisted with the nominations of Robert Noriega—a Nicaragua“veteran” and aide of Jesse Helms, co-sponsor of the controversial Helms-Burton sanctions law—as ambassador to the Organisation of American States(OAS), and of Mr Reich, Senate debates could delay these for up to a year andapproval may never be granted. This would be a serious blow to the new anti-Castro strategy.

The change in the balance of power in the US Congress has generated renewedmoves against the embargo. Anti-embargo Democrats (led by senatorChristopher Dodd) immediately responded to the new Senate balance bysubmitting proposals on June 12th—the Bridges to the Cuban People Bill—foran end to restrictions on travel, trade and credit. Although the bill willprobably not be passed by the US Senate, it reflects the political balance inCongress. The House of Representatives approved the bill with a 334-94majority, while a proposal to end all economic sanctions against Cuba wasdefeated by only a small margin, in a 227-201 vote. These congressionaldevelopments also reflect mounting business pressure against the use of tradesanctions in general, as illustrated by the participation of some 40 UScompanies in the annual US-Cuba Business Summit in Havana in June.

The Bush administration’s lack of room for manoeuvre on Cuba policy was alsoillustrated by the publication, on July 12th, of the regulations on permitted USsales to Cuba under compromise legislation passed in October 2000 (November2000, page 26). Their publication—which had been due in February—appearsto have been delayed on account of the US administration’s reluctance tofacilitate the loosening of sanctions passed under the previous administration(November 2000, pages 11, 26-27). On July 16th Mr Bush also reluctantlyrenewed the six-monthly presidential waiver of the enactment of Title III of theHelms-Burton Act, which allows US citizens to sue foreign companies fortrading in confiscated Cuban property. Despite pressure from the anti-Castrolobby, the potential cost to trade relations with the EU forced Mr Bush to signthe waiver to avoid confrontation.

With its room for strengthening anti-Cuban policy curtailed, the US admin-istration has been left to pursue largely cosmetic and rhetorical policies onCuba to placate the Cuban-American lobby. One such move came with theannouncement on July 13th that trade sanctions would be tightened, new

US anti-Cuba policy isinhibited

US and Cuba engage in warof rhetoric

16 Cuba


political and technical support would be given for the US-funded anti-CastroRadio Martí and TV Martí, and aid to the opposition in Cuba would beincreased. The proposed tightening of sanctions would not require new lawsbut rather greater enforcement of the existing, but much-breached, laws ontravel and remittances to Cuba; the nature and amount of assistance thatwould be committed for the other measures was not specified. However, thepromise of funds accords with the intention of a bill presented in June by MrHelms and senator Joseph Lieberman to grant US$100m in aid to anti-Castroactivists in Cuba. Mr Lieberman, the Democratic candidate for the vice-presidency in the November 2000 election in the US, is a prominent ally of theCANF, the most influential anti-Castro (and vehemently pro-sanctions) lobbygroup in the US. Mr Bush’s gesture appears to have calmed criticism of hisextension of the Helms-Burton waiver. At its annual conference in July, theCANF agreed to conduct research into foreign companies operating in Cubawith a view to using US sanctions legislation against them, and to set up a“transition committee” to stimulate opposition groups in preparation fortransition following the death of Mr Castro. There are reports that theorganisation, which appeared to have been revitalised by the election victoryof Mr Bush (after a serious setback following the Elián affair, which seriouslydamaged its public image in 2000), suffered an internal split in late July, but itis not yet clear how seriously this has damaged it.

Some additional irritants to US-Cuban relations include the decision in June ofthe state of Virginia’s appeals court to extend the much criticised 1966 CubanAdjustment Act (giving Cuban immigrants who arrive illegally uniqueresidency rights) to those arriving with false passports from a third country; thedenial of a visa to the Cuban National Assembly president, Ricardo Alarcón, tovisit Puerto Rico on June 2nd; and a claim by Bacardi to ownership of theHavana Club rum brand in the US. The US rhetorical hostility has beenmatched by Cuba. In addition to its campaign against espionage (see above),the Cuban government has continued to lambast the US administration forcontinuing economic sanctions, encouraging illegal emigration, and leadingthe process of globalisation in the interests of the powerful, with Mr Castrocondemning the Free-Trade Area of the Americas (FTAA) as the US “annexationof Latin America”. In late May Mr Castro unleashed a campaign in whichCuban schoolchildren were asked to write to Mr Bush correcting his faultyknowledge of the Cuban national hero, José Martí, following an erroridentified in a speech to an anti-Castro audience. In response to the Bacardiclaim to the Havana Club trademark he threatened to produce Bacardi andCoca Cola in Cuba. The US official obstruction of an attempt by a US non-governmental organisation (NGO), Pastors for Peace, to import Cuban ratpoison, Biorat, through Mexico, has also provided ammunition for anti-USdiatribes in the Cuban press.

Despite the clashes, bilateral US-Cuban contacts concerning practical issueshave continued. Co-operation in some areas has even improved, with restartedmigration talks proceeding satisfactorily on June 26th between Mr Alarcón andthe US deputy assistant secretary of state, William Brownfield. US immigrationauthorities returned 337 illegal migrants to Cuba in the first six months of2001 under the terms of the 1994 agreement. In addition, one potentially

Cuba 17


explosive issue—a possible “Elián-in-reverse” case—was defused on June 28thwhen the Cuban authorities allowed the departure for Florida of the childrenof a doctor, Leonel Córdova, who had defected while working in Zimbabwe afew months before.

Beyond relations with the US, developments in Cuban international relationshave been largely positive. After a series of public disagreements, relations withthe EU seem to have improved. On May 22nd France renewed a wheat-sugartrade deal; on May 31st the second German minister to visit in two months, theeconomy minister, Werner Mueller, indicated future co-operation; and on July13th the Cuban foreign minister, Felipe Pérez Roque, and his Belgiancounterpart agreed on funding and equipment in support of Cuban doctorsworking on medical aid projects in Africa. French assistance already supports asuccessful Cuban aid programme in Haiti, and other European countries,including the UK, are exploring possibilities for similar projects in Africa. Theswift improvement in relations with the UK after tensions over British supportin the April 2000 Geneva Human Rights Commission for a motion critical ofCuba (May 2001, pages 14-15) has been remarkable. A successful visit in June byBaroness Young, chair of a government-sponsored business promotion agency,the Cuba Initiative, was also heralded as a positive development by both the UKand Cuba. There have been suggestions that the EU may review its commonposition on Cuba, which conditions an increase in multilateral assistance ondemocratic reforms, although no formal discussions have begun. There alsoappears to have been some improvement in relations with east Europeancountries, despite their support for the anti-Castro opposition in Cuba.

Cuba has continued to develop its alternative anti-embargo strategy of buildingalliances with the developing world in Latin America and beyond. Relations withPanama have been strengthened through a trade co-operation pact signed onMay 21st, despite Cuban anger over Panama’s refusal to extradite three Cuban-American terrorists detained in December for a planned attempt on Mr Castro’slife (February 2001, pages 13-14). The Cuban government has co-operated withthe Colombian authorities by acting as broker in attempts to start peace talkswith the pro-Cuba guerrilla group, the Ejército de Liberación Nacional (ELN). Anagreement with Mexico on investment was signed on June 1st, and a monthlater Mr Alarcón held successful talks with the Mexican president, Vicente Fox,on bilateral ties, fuelling hopes for possible Mexican ventures in oil exploration.

An important part of this strategy has involved building commercial relationson the basis of close political or ideological ties with sympathetic allies. Here,the June agreement with Vietnam on agricultural co-operation and talks withChina on steel may presage some significant agreements. US press reports havespeculated about the prospect of greater military co-operation with former andcurrent socialist allies following a noticeable improvement in relations withRussia since December 2000 and military talks with both Russia and Chinasince January. The Cuban chief-of-staff, Alvaro López Meira, held high-leveltalks in Vietnam on June 20th and China on June 27th, and there have beenvisits to Cuba by the North Korean chief-of-staff and to Russia by a Cubanmilitary delegation.

European relationsimprove

Cultivating links in LatinAmerica and beyond

18 Cuba


Economic policy

There are no fiscal results published for the first half of 2001, but officialstatements confirm that policy is unchanged. In its annual report, produced inJune but publicly available only since July, the Banco Central de Cuba (BCC,the Central Bank) set out a central government deficit target of Ps779m for2001, compared with Ps699 in 2000, to remain within 3% of GDP. The overallplanned shift towards direct taxation and reduced spending on support forenterprises, which comes under the heading of “other current spending”,suggests a move to reduce the size of the central government as part of theprocess of economic decentralisation. The continuing process of enterprisereform is reflected in the decline in subsidies to cover enterprise losses, whichare set to fall by over one-half, and in an increase in enterprises’ profit taxcontributions. The modest growth in aportes, regarded as the equivalent ofshareholders’ dividends paid to the state as owner, also reflects anticipatedgrowth in enterprise profits.

Fiscal accounts(Ps m)

1999 2000 2001 Planned %Result Result Planned growth 2001

Total revenue 13,419 14,915 14,400 –3.5 Tax income 10,535 11,367 11,239 –1.1 Indirect taxes 6,336 6,732 6,260 –7.0 Circulation & sales taxes 5,786 6,131 5,650 –7.8 Taxes on public services 550 602 610 1.4 Direct taxes 4,199 4,634 4,979 7.4 of which: profits tax 1,333 1,535 1,727 12.5 employment tax 817 970 1,020 5.2 personal income tax 289 291 292 0.3 Non-tax income 2,884 3,549 3,161 –10.9 State enterprise aportesa 1,515 1,554 1,665 7.2 Other non-tax income 1,369 1,995 1,496 –25.0

Total expenditure 14,031 15,614 15,179 –2.8 Current spending 12,568 13,865 13,429 –3.1 Budgeted activity 8,354 9,243 10,080 9.1 Other current spending 4,214 4,622 3,349 –27.5 of which: subsidies for losses 770 586 280 –52.2 Investment 1,463 1,749 1750 0.1

Balance –612 –699 –779 11.5

a Dividends paid to the government.Source: Based on Banco Central de Cuba, Informe Económico 2000.

The creation of the Ministry of Auditing and Control (May 2000, page 11)serves the purpose of strengthening fiscal discipline, but also represents acorollary of the political campaign against corruption. The new ministry hasset out the requirements for other ministries and other state entities to submittheir accounts—including the accounts of all enterprises under their remit. Theclampdown on the illegal trading and use of housing has also continued. This

Plans for fiscal disciplineand decentralisation

Cuba 19


involves the confiscation of houses obtained illegally (some of which havethen been handed over to local community organisations for use as nurseryschools, maternity homes, old peoples’ homes, public libraries and computercentres) and prosecution of people found to have carried out building worksusing materials obtained on the black market.

The government has been implementing a broad plan to improve welfareprovision, and there are plans to strengthen it in the coming months,substantially increasing social expenditure. The 2001 budget includes a Ps270mincrease in education spending, Ps135m for public health and Ps60m for socialsecurity, as well as Ps78m for culture. This programme is associated with theimprovement of educational buildings in Havana, with plans to repair allbuildings and increase the number of classrooms by some 2,000 in the next 18months. Each secondary school classroom will have a television to provide alink to the series of broadcast classes initiated in 2000, and computers are to beinstalled in every school. The government hopes to improve educational andsocial services (and provide more employment) by increasing the number ofteachers trained and adding 4,000 new social workers (see The political scene).In July the authorities began the distribution of free food supplements forunderweight children.

The target for labour productivity growth in 2001 is 4.3%, compared with anannual average of 3.5% in the past five years. This seems modest for aneconomy that still has not recovered the level of GDP it had in 1990 (followinga contraction of 35% in the early 1990s) even though it is an improvement onthe 2.6% average annual productivity growth reported for the years 1960-89.The authorities plan to improve their method of calculating labour prod-uctivity as a means of obtaining a better measure of enterprise performance,but progress on productivity at the enterprise level continues to be constrainedby employment policy: enterprises are only allowed to shed employees as andwhen alternative employment can be found. This is particularly inhibiting therestructuring of enterprises in isolated areas, such as sugar mills. The slow paceof labour rationalisation is illustrated by published results from the programmeof enterprise reform known as perfeccionamiento empresarial: in the 133enterprises that have implemented the programme, only 3.4% of a total of113,580 employees have lost their jobs.

The creation of new jobs is clearly a priority, and an ambitious employmentprogramme has been outlined. It aims to reduce the rate of officialunemployment by 1.2-1.3 percentage points (from a year-end figure of 5.5%in 2000) in 2001 with the creation of around 173,000 new jobs over the year.The emphasis is to be on the eastern provinces, where unemployment ishighest. The local press reports that more than 9,000 new jobs were createdin the first six months of the year in Santiago de Cuba, Cuba’s second city atthe eastern end of the island. Perhaps in order to soak up workers shed in thesearch for improved productivity in the sugar sector, over 114,000 new jobsare planned in agricultural production in 2001, of which 60,000 will be inurban agriculture.

Productivity gains arehampered by labour policy

Social programme isprioritised

20 Cuba


An announcement in July that job applicants would no longer have to supplyemployers with a copy of their police records appears to be a symptom of theincrease in the number of people changing jobs. In making the announce-ment, the ministries of labour and justice explained that the move was inresponse to the overloading of the bureaucracy caused by the volume of jobapplications, which reached 400,000 in 2000.

As the economy has been recovering since 1995, there has been a need tomanage public expectations. While the authorities have emphasised improve-ments since the demoralising hardships of 1990-94, they have also sought toavoid raising expectations to unrealistic levels. Given that improvement canonly be gradual (unless US economic sanctions were suddenly lifted, which isunlikely), the balance has become more demanding in the past few months. Ithas been six years since recovery began, but a long-anticipated acceleration ingrowth has not materialised and widespread hardship persists. The authoritiesare now having to explain a slowdown in growth this year, in part because ofyet another disappointingly low sugar harvest. The return of power cuts sinceJune has compounded the impression that progress has stalled. Althoughdynamic growth in the retail sector suggests that average real incomes arerising strongly, many working in the state sector still lack access to sufficientbonuses or hard currency to participate. The frustrations of the large number ofpeople with only limited access to free-market or hard-currency shopping havecontinued to be vented in the national press, with commentaries on thecheating of consumers by retailers working in both public- and private-sectoroutlets. Offences noted include short-changing, cheating on weights andchanging price labels. Although these are very real frustrations, they are adiversion from the main problem, which is the still-low real purchasing powerof most Cuban incomes.

The aim of monetary policy continues to be to restrain monetary growth togradually strengthen the unofficial exchange rate. Although interest rates ondeposits have remained constant since they were introduced in April 2000(June 2000, page 19), savings are reported to be rising as the use of bankaccounts increases. As the financial system develops, the use of commercialcredit by the enterprise sector is growing rapidly from its small base. Thischange also reflects the decentralisation of the financial system, as enterprisesare weaned off reliance on state credits and forced to submit applications forfinance to banks, who allocate lending in the basis of commercial criteria.However, distortions arising from the dual exchange-rate system remain.Demand for hard-currency finance exceeds demand for domestic currency:lending to the enterprise sector in Cuban pesos is reported to have risen by13.4% in 2000, while hard currency lending was up by 39%, to US$2.1bn.

Containing expectations

Domestic lending grows

Cuba 21


The domestic economy

Economic trends

The Ministry of the Economy and Planning has announced that theeconomy grew by 3.6% in the first six months of 2001, compared with 7.8%in the first half of 2000. Performance in the first half of the year carriesweight of more than 50% in annual GDP because of the importance of sugar,which is harvested in the first half, and tourism, for which earnings in thefirst half of the year are higher than the second. Growth in the second half ofthe year would therefore need to be over 6.5% if the official target of 5% wereto be achieved. Official reports state that 14 of the 21 main branches of theeconomy grew in the first half, and that unemployment was continuing tofall, but the main disappointment was the sugar harvest (see Agriculture andForeign trade and payments). Indicators for tourism and mining and energyare also positive, and the steady recovery of manufacturing appears to havecontinued (see below).

Growth appears to have been constrained in the first half by restrictedavailability of foreign exchange, not only because of the shortfall in sugarproduction but also as a result of the increase in oil prices in 2000. With littleaccess to international capital markets, the Cuban economy has inevitablysuffered periodic foreign-exchange bottlenecks since the collapse of the SovietUnion, its main trading partner and source of finance, in 1990-91. However,anecdotal evidence suggests that non-sugar export growth (including tourism)and the steady reduction of oil import costs thanks to rising domestic oilproduction have improved conditions since the start of the year. The 5%growth target for 2001 could still be achievable if external conditions in thesecond half prove favourable (with a fall in oil prices or major improvement inaccess to credit), although the Economist Intelligence Unit’s forecast is slightlymore conservative, at 4.5% (see Outlook for 2001-02).

The acceleration of construction activity and structural changes in the eco-nomy are reflected in continued structural unemployment and skills shortagesin Havana. The local newspaper, Tribuna de la Habana, reported in May thatalthough some 45,000 people were seeking work in Havana, there wereunfilled vacancies in building trades (particularly masonry, carpentry andplumbing) as well as the new specialisms of computer technology andaccounting. There were 79,000 job vacancies registered in Havana in January-May but only 66,500 responses.

The annual economic report of the Banco Central de Cuba (BCC, the CentralBank) has been published, and the results for 2000 generally confirm previousannouncements: GDP growth was 5.6% (compared with 6.2% in 1999), whileofficial unemployment ended the year at 5.5%, down from 6% a year earlier.

Labour market in Havanais tight

Central Bank reports 2000sectoral growth

A disappointing first half

22 Cuba


GDP by sector, 2000Ps m, % change, Index,

constant 1981 prices year on year 1989=100

Agriculture & fisheries 1,253.0 11.6 65

Mining 212.7 14.4 173

Manufacturing 4,794.1 4.3 98

Electricity, gas & water 468.1 8.8 104

Construction 693.5 9.7 51

Trade, restaurants & hotels 3,551.3 5.4 69

Transport & communications 995.1 9.1 74

Financial, business & property services 670.7 5.3 115

Social & personal services 3,917.9 3.4 104

GDP 16,556.4 5.6 85

Sources: Banco Central de Cuba, Informe Económico 2000; Oficina Nacional de Estadísticas.

Sectoral growth data show the strong growth in mining (mainly nickel), thesteady but relatively slow growth of manufacturing and the acceleration inconstruction (from an average of 5.5% over the previous three years). Thegrowth and index figures for trade, restaurants and hotels are misleading,however, as the use of 1981 weights means that tourism is hugely under-weighted in the series. Tourism arrivals in 2000 were up by some 10% on anannual basis, and five and a half times their 1989 level. Weights within theagriculture category are also distorted by the use of 1981 as the base year, as thecontribution of sugar was very much greater at that time, with output aroundtwice the current level and prices about three times higher. However, sinceboth sugar and other agriculture benefited in 2000 from favourable weather inthe first half of the year, the growth figure for agriculture is a fair reflection ofoverall performance.

The report indicated an increase in average real incomes, thanks to an increasein average nominal incomes (to Ps359 a month) and a 2.3% fall in the retailprices index. There is no figure given in the Central Bank report for thepercentage increase in the average nominal income. The use of this indicator,which includes bonuses, replaces the previous practice of citing the averagebasic wage. According to official statements in the National Assembly inDecember 2000, the average wage had risen by over 10%, to Ps249 per month,in 2000.

Mining and energy

According to local press reports, oil production has continued to increase inthe year to date, although it is not clear whether it is growing fast enough toreach the target of a 25% increase in the year. In June the television stationTeleRebelde announced that Matanzas province planned to extract 1.8mtonnes of oil (36,150 barrels/day, or 45% of total expected domesticproduction) in 2001, 11% more than in 2000. Although the 2001 target isnot dependent on new discoveries, the announcement in June that Brazil’sstate oil firm, Petrôleo Brasileiro (Petrobras), was to end its explorations after

Oil output up but Brasoilpulls out

Real incomes boosted bydecline in average prices

Cuba 23


drilling a dry 13,000-ft well off the coast of north central Cuba, is a setback.Petrobras is the most important oil company to invest in Cuba (through ajoint venture with the Cuban state oil company, Cupet) since France’s Totalpulled out in the early 1990s. The company’s officials said the decision was“temporary” and that it was still interested in prospecting for oil in deep-water areas in the Gulf of Mexico.

At about US$25m per well, Cupet needs foreign partners to finance offshoreprospecting. By the end of 2000, 20 exploration contracts had been signed, butSpain’s Repsol YPF is the only company thus far to have contracted forexploration in Cuba’s 44,000-sq-mile deep-water territory in Gulf waters, firstopened to foreign investors in early 2000 (June 2000, page 20). In July Repsolannounced that it was to begin seismic studies in August.

Following an oil supply agreement signed between Cuba and Venezuela(November 2000, pages 27-28) there have been reports of continued dis-cussions involving the Venezuelan president, Hugo Chávez, over the possiblecompletion of a major Soviet-built oil refinery in Cienfuegos. A Russiancompany, Alfa, has also been linked with the discussions. In separate dis-cussions, sources in the Russian foreign ministry have been quoted as sayingthat, during a visit to Moscow in May, Mr Chávez discussed developingtrilateral co-operation with Cuba in the oil sphere. This might suggest apossibility of the resurrection of a 1978-90 agreement between the SovietUnion and Venezuela in which Venezuela delivered its oil to Cuba to coverMoscow’s obligations in exchange for the supply of oil by the Soviet Union toWestern Europe in order to meet Venezuelan obligations, intended to savefreight costs for both countries. The relationship between Mr Chávez and FidelCastro has outraged many of Mr Chávez’s domestic opponents, and it isunclear how much substance there is to reports in Venezuela that the amountof oil supplied to Cuba at preferential prices was less than originally agreed, orthat Cuba’s payments for the oil had been late. Neither the Venezuelan state oilcompany, Petróleos de Venezuela (Pdvsa), nor the Cuban importers haveofficially confirmed or refuted the reports.

The Ministry of Basic Industry, under its head, Marcos Portal, has successfullyattracted foreign investment to push production of nickel and cobalt to recordlevels. Mr Portal has announced that the target for 2001 is 75,000 tonnes, andresults announced by Canada’s Sherritt International Corporation, which hasinterests in a large plant in Moa, eastern Cuba, suggest that the target isachievable. Foreign investment has not only helped to increase output but hasalso introduced new technology to dramatically improve energy efficiency: sincethe early 1990s energy consumption per tonne has been reduced by almost 60%.

Chrome production is also expected to hit record levels in 2001, at 56,700tonnes, up from 56,320 tonnes in 1999. Of the total, over 70% is for export. Itappears that there is room for expansion, as the Cuban state company,CromoMoa, in the nickel-mining region of eastern Holguín province, has aplan eventually to boost output to 100,000 tonnes. According to unconfirmedreports, the company is receiving financing and technical assistance from anumber of unnamed European firms.

Nickel and chrome reachrecord levels

Venezuelan interest persists

24 Cuba


El Cobre in eastern Cuba, the oldest copper mine in the Americas, closed onJuly 16th, marking the end of copper production in Cuba. The mine, 20 kmfrom the eastern city of Santiago, opened in 1530, only 38 years after thearrival of Columbus. The closure was blamed on the declining yields of themine and plunging price of copper on the world market thanks to itsreplacement by new materials. Most of El Cobre’s equipment is to be used toextract gold from local mines. Of the 300 workers at the mine, 104 will beredeployed in a nearby gold field which will soon begin production.

Electricity blackouts were reported across the island in late June and early July,some of which lasted for three to four hours a day, shaking confidence that thehardships of the early 1990s were fading into history. An official statementpublished in the daily newspaper Granma on July 15th explained that thepower cuts resulted from a breakdown at the Antonio Guiteras power station inthe east of the island, and that it was being repaired “as rapidly as possible”.Officials explained that an increase in demand brought about by the use of airconditioners in the unusually hot summer weather had put strain on thesystem, but the problems highlight the precarious condition of much of theinfrastructure. Earlier this year Mr Portal outlined a development programmefor the electricity network, which includes US$1bn to be invested in new plantover the next few years. The recent completion of a high-voltage power trans-mission line between power plants in Matanzas and the east of Havana, whichis part of the programme, is expected to improve the reliability of the powersupply in the west of the country.

Manufacturing

Although manufacturing production increased by only 4.3% in 2000,compared with 7.1% in 1999, press reports on the industry are almostunremittingly positive. Manufacturing output remains marginally below its1989 level, and the recovery of the sector reflects gains made in achievingcompetitiveness in world markets and escape from the legacy of obsoletetechnology and trading patterns of the old Soviet bloc. It is also fulfilment ofthe promise that the boom in tourism would stimulate the rest of theeconomy, rather than dragging Cuba into tourism dependence. In an interviewwith Granma International in July, the minister of light industry, Jesus PérezOthón, emphasised the stimulus effect of tourism: sales to the tourismindustry, he said, had grown by 18% during the first six months of 2001.

Much of the increase in output has been assisted by foreign investment andexpertise, with the light industry sector now including 74 companies withforeign involvement. Of these, ten are joint ventures and the rest areinternational economic associations and co-operative production ventures.Upbeat reports from foreign investors include the June announcement byGianfranco Fantinel, an Italian winemaker who has set up a joint venture inCuba producing wine from imported Italian grapes, that he sold 800,000 bottlesin the domestic tourism market in 2000, up from 300,000 in his first year ofproduction in 1998. Cigar production, in partnership with foreign investors, isexpected to reach a record 170m in 2001, while a joint-venture producer of

Copper production ends

Light industry supplies totourism surge

Power cuts bring back badmemories

Cuba 25


bottled water for the domestic hard currency market has reported that in 2000 itstarted to export to other Caribbean islands. A new US$14.3m joint venture wasinaugurated by the German minister of the economy, Werner Mueller, on a visitto Havana in July to provide oxygen and other industrial gases, mainly to Cuba’swestern regions. The partners in the joint-venture company, OxiCuba, areMesser-Griesheim, a German company, and Gases Industriales de Cuba.

The Cuban pharmaceuticals industry, which received heavy investmentthroughout the worst years of the recession in 1990-93 in anticipation ofeventual high returns, is slowly gaining access to export markets as tests arecompleted. A Canadian company, YM BioSciences, announced in May thatTheraCIM, a Cuban drug it is marketing, had successfully regressed tumours inpatients with head and neck cancers, while Biomat, a specialised researchcentre at the University of Havana, announced that its range of health-relatedproducts is now being offered for sale internationally. The products includeadhesives for dental and veterinary use, a powder for bone reconstruction, andcomponents for dental prostheses and diagnostic media. One of Biomat’sproducts, Tisuacryl, for the hermetic sealing of wounds, is already registered inthe EU, Australia and Latin America.

Agriculture

The 2000/01 sugar harvest finally ended in late June, and at only 3.53m tonneswas the third smallest in 50 years and more than 10% below the 1999/2000crop. The harvest was slowed first by drought in 2000, then by unusuallyheavy rains during the harvest. In late July the minister for sugar, Ulises Rosalesdel Toro, announced an official prediction for the 2001/02 harvest of 4mtonnes. Although the 2000/01 harvest period was extended, more cane was leftin the field than usual because of heavy rains. This should increase the yield in2001/02, although the ministry insists that the policy is to continue to increasethe amount of cane left for the following harvests for several more years, so thefull benefit is not expected until after 2002. Mr Rosales del Toro alsoannounced that the acreage of land under sugar cultivation would be increasedto achieve the bigger harvest, suggesting that despite low international pricesthere is no drive to rationalise the sector.

Cuba’s two other main export crops, citrus fruit and tobacco, do not appear tohave been as adversely affected by the unusual weather. Heavy rain during theharvest season has helped to boost production of citrus fruits, reported to havereached record levels in the Jagüey Grande area of Matanzas province, whichproduces more than half of the island’s citrus. The plantations produced500,000 tonnes in the 2000/01 season, 80,000 tonnes more than the previousyear. In Ciego de Avila province the production of organic grapefruit juice hasbegun, and there are plans for development and certification of other organiccrops, including orange juice, honey and coffee. The 2000/01 tobacco crop, ataround 40,000 tonnes, is similar to the 2000 level, but there was an increase inhigh-quality wrapper leaf required to produce cigars for export. Industrysources also report that humidity conditions are better than last year,

Pharmaceutical productslaunched for export

Poor final results for sugar

Non-sugar export cropsappear robust

26 Cuba


promising improved curing of the tobacco leaf, and that greater efficiency hadincreased the yield per hectare, particularly in the central tobacco growingregions. This has been attributed to recent investments and to reforms in thesector, including adjustments to farm gate prices to improve incentives.

Tourism and other services

Figures released at the beginning of July show a 10.7% increase in foreigntourist visitors in the first half of 2001. This is the same growth rate as thatreported for 2000, and if this is maintained until the end of the year thetarget of 2m visitors will be within reach. However, no data on tourismrevenue was given, and it is slow growth in this figure that has been causingconcern. In 2000 gross tourism revenue rose by only 2%, to US$1.94bn,although the Central Bank reports that if revenue from tourism-relatedservices are included, the 2000 total rises to US$2.34bn, an 8% increase onthe 1999 figure. It is not clear how the latter measure, which had not beenpublished before, was calculated.

The tourism minister, Ibrahim Ferradaz, in an outline of the strategic plan forthe industry, appeared to indicate a downward revision to growth forecastswhen he announced that the number of hotel rooms would double by 2005 toaccommodate 3m visitors; at the start of the year the official visitor targetnumber for 2005 was 3.5m (May 2001, page 25). The target for 2010, previouslygiven as 5m-6m, is now given as 4.6m-6.2m. New deals signed in the pastquarter include: a Cuban-Spanish joint venture to build a new resort on theborder of Havana and Matanzas provinces; a project (signed between Cubancompany Cubanacán and the Spanish companies Sol Melía and Bahia delDuque) to build five hotels, two 18-hole golf courses and a marina; and a dealbetween the Spanish group Globalian, the Mallorca-based Blau Hotels andanother Cuban company, Gran Caribe, to open three or four hotels in Cuba. A£250,000 (US$360,000) contract with the UK Professional Golfers’ Associationto design a new championship course for Eastern Cuba is also under discussion.

Infrastructure development continues with the completion of the upgrading ofAbel Santamaría international airport in Santa Clara, central Cuba. The airportwill serve the new developments on offshore keys off the northern coast of VillaClara province. Cruise capacity will also be increased when a second cruise-shipterminal opens in Havana before the end of 2001. There are also plans to expandthe existing terminal in Old Havana to accommodate five cruise ships ratherthan four. Cubanco, a joint-venture company that currently operates cruiseterminals in Havana, Santiago de Cuba and the Isla de la Juventud, is alsoconstructing a fourth terminal at Cienfuegos, on the south coast of the island.Cuba is currently included as a port of call by 11 cruise ships, and 100,000 cruise-ship passengers are expected this year, compared with 76,464 in 2000.

Although US tourism to Cuba is officially prohibited by US law, the Cubanforeign minister, Felipe Perez Roque, revealed that 120,000 Cuban Americansand 80,000 US citizens of non-Cuban origin visited Cuba in 2000, making the USthird behind Canada and Germany as the source of visitors. Travellers from the

First-half tourism resultsare encouraging

Expansion plansannounced

The US is an importantsource of visitors

Cuba 27


US are required to obtain a licence from the US Treasury to certify that their visitfalls into one of the exempt categories (apart from visits to relatives this includescultural, academic and press purposes). Many tourists travel illegally throughthird countries, at risk of prosecution on their return to the US.

Tourist arrivals by origin, 2000

% change,‘000 visitors year on year

Canada 308 11.5

Germany 203 11.6

US 200 n/a

Italy 176 9.1

Spain 153 4.1

Sources: Destinos magazine; Ministry of Tourism.

The Central Bank report reveals that the number of air passenger journeysprovided by the Cuban national aircraft fleet fell from 1.7m in 1999 to 1.5m in2000, suggesting that Cuban airlines are losing out to foreign competition.Difficulties in raising finance and high fuel prices may have contributed to thedecline. A flight-sharing agreement between Cuba’s main international carrier,Cubana, and the second-largest Spanish airline, Spanair, provides Cubana witha relatively inexpensive mechanism for expansion of services. The director ofSpanair, Luis Dans, has said the company is also considering setting up a hubin Havana, from which its flights would offer co-ordinated departures to otherdestinations in the region. While the capacity of flights from Spain continuesto grow, a shortage of scheduled flights is hampering expansion of Cubantourism from the UK. British Airways announced in May that it would dis-continue its twice-weekly flight from London Gatwick to Havana from May2002 as part of its shift away from the tourist market towards business travel.Although a luxury holiday company, Kuoni, announced two weeks later that ithad arranged a weekly charter with Monarch Airlines to take one of the vacantGatwick slots starting from April, that still leaves one less weekly flight.

A national programme for information technology (IT) training and develop-ment ranges from initiatives to ensure universal access—with the opening ofcomputer clubs (see The political scene) and installation of solar panels to drivecomputers in 1,994 rural schools to ensure that all primary schools have newPentium computers by mid-2002—to the formation of joint ventures todigitalise Cuba’s broadcasting infrastructure. BBC Technology, a profitmakingarm of the British public broadcasting service, the BBC, has been in discussionswith Cuban counterparts over a possible contract for the digitalisation project,but unconfirmed reports at the end of July indicated that fear of possiblereprisals in the lucrative US market had deterred it. A Canadian privatecompany, Finline Technologies, has formed a joint venture with Cuba’snational telecommunications carrier, Empresa de Telecomunicaciones de Cuba(Etecsa), to handle all international telephone traffic to and from Cuba. In itsannual report for 2000, the capital value of Etecsa, which is a joint venturewith Amsterdam-based Stet International Netherlands (a subsidiary of TelecomItalia), was given as US$1.44bn, compared with US$422.33m in 2000.

Mixed news of developmentof tourism flights

Progress in telecomsdevelopment

28 Cuba


Foreign trade and payments

In its recently released annual report on the Cuban economy, the BancoCentral de Cuba (BCC, the Central Bank) provides the most detailed break-down of the external accounts available. In its 2000 report, current-accountand capital account flows are outlined, but there are significant gaps in thedata. On merchandise trade, the report confirms a widening of the deficit toUS$3.2bn, from US$2.9bn in 1999, as a 16.2% jump in exports was outweighedby an 11.4% increase in import spending from a higher base. Details of thecomposition of merchandise trade are sparse, but the information suggests thatthe widening of the deficit was mainly caused by the deterioration in Cuba’sterms of trade during the year. Import spending was up by less than US$500m,the amount calculated as the extra cost of fuel imports arising from theincrease in the world market price of oil, implying that import volumes wereflat. On the export side, the report gives a breakdown only in terms ofpercentages of total trade inflows, without giving the denominator. EconomistIntelligence Unit estimates based on the available data on merchandise tradetotals, tourism earnings and trade ratios show a decline in sugar earnings as aresult of lower prices, a surge in nickel earnings thanks to higher prices, and adownturn tobacco earnings resulting from the effects of drought on tobaccoproduction. Some of the trends are in line with previous reports (May 2001,pages 27-28), although a fall in fish earnings has not been highlighted inofficial statements, and the overall trade figures do not closely matchpreliminary official figures offered earlier in the year.

Main goods and services exports, 2000% changea % of total

US$ ma year on year 2000

Nickel & other minerals 661 80.3 13.0Sugar & sugar derivatives 495 –1.8 10.4Tobacco products 183 –33.3 3.8Fish & fish products 95 –25.7 2.1Tourism 1,952 2.7 41.0

a EIU estimates.Source: Banco Central de Cuba, Informe Económico 2000.

Price trends in the first half of 2001 look set to lift sugar earnings and restoresugar to its traditional position as Cuba’s biggest merchandise export earner,despite the smaller harvest (see Agriculture). Officials have estimated thatdespite a 14% decline in sugar export volumes, earnings will be up by 38% in2001. Nickel earnings, in contrast, have declined despite rising production (seeMining and energy) because of falling world nickel prices. For tobaccoproducts, announcements to date suggest that earnings are expected to grow.Although the number of cigars sold in the first six months of 2001—53m—isless than half the 118m sold in the whole of 2000, Habanos, the joint venturethat handles most of Cuba’s worldwide cigar sales, has expressed confidencethat sales will accelerate in the second half of the year to exceed the record1999 level of 146m units. The company is expanding its international network

Central Bank reports ontrade totals

Exports structure alteringin 2001

Cuba 29


of direct retail outlets: having added 15 shops in 2000, it plans to open anotherten in 2001 to bring the total to 98. The largest market for Cuban cigars isSpain (with 38% of the total), followed by France and the tourist market withinCuba (10% each), and Germany and the UK (5% each).

The deterioration in Cuba’s merchandise trade balance in 2000 was partly offsetby an increase in the services surplus, but the damage to tourism earnings causedby the strength of the US dollar dampened net services growth. Higher short-term commercial borrowing thanks to high oil prices contributed to an increasein interest payments and resulted in a widening of the income deficit,outstripping the increase in current transfers. The resultant current-accountdeficit of US$687m is estimated by the BCC to represent 2.5% of GDP, althoughour estimate of dollar GDP puts the ratio at 2.9%. With no accepted exchangerate for conversion, there is no simple way to calculate dollar GDP.

Current account(US$ m)

1999 2000

Merchandise exports 1,456.1 1,691.8

Merchandise imports 4,365.4 4,864.8

Merchandise trade balance –2,909.3 –3,173.0

Services balance 2,162.7 2,336.5

Incomes balance –514.1 –693.0

Net current transfers 798.9 842.4

Current-account balance –461.8 –687.1

Source: Banco Central de Cuba, Informe Económico 2000.

Although it reflects a deterioration in the terms of trade, the larger currentaccount deficit also affirms an improvement in Cuba’s external position. Themain constraint on the Cuban economy since the collapse of the Soviet bloc in1990-91 has been the lack of access to international finance. This has beenpartly because of Cuba’s poor risk rating, resulting from the suspension ofrepayments on its debt in 1986, and partly because of US sanctions, which notonly forbid lending to Cuba by US banks and their subsidiaries, but also createthe threat of legal action against other lenders from third countries. In 1990-93international reserves were depleted, and capital inflows since then haveaveraged only around US$400m per year, creating supply bottlenecks becauseof insufficient finance to cover import needs. Cuba’s ability to secure finance tocover the extra costs of oil in 2000, rather than be forced to slash non-oilimports, marks significant progress on this front. Data on capital inflows aresparse, but indicate that in 2000 there was a sharp increase in foreign directinvestment (FDI) and additional short-term finance. FDI flows into Cuba arevery lumpy, as there are only a small number of transactions in each year. In2000 the purchase by Altadis (a Franco-Spanish company) of a 50% share ofHabanos, the international distributor of Cuban cigars, will have accounted formost of the inflows in this category. Progress in gaining access to short-termfinance is shown by the increase in the “other net capital inflows” entry.However, interest rates on short-term borrowing, despite securitisation, arehigh, and it is a stated policy objective to seek more long-term credit lines. The

Current-account deficit upin 2000

Capital inflows increase

30 Cuba


negative net flows of other medium- and long-term capital may reflect Cuba’scontinued difficulties in gaining access to long-term lending, although thefigure does not show inflows separately: an increase in repayments during theyear could have caused the negative figure even if inflows had grown.

Capital account(US$ m)

1999 2000

Total net capital inflows 484.9 716.5 Net medium- & long-term 209.9 347.3 Direct investments 178.2 399.9 Other medium- & long-term 31.7 –52.6 Other net capital inflows 275.0 369.2

Change in international reserves (– indicates increase) –23.1 –29.4

Source: Banco Central de Cuba, Informe Económico 2000.

The pattern of Cuba’s trade is substantially determined by the availability ofbilateral finance arrangements, since multilateral public and private lending islargely blocked by US sanctions. The diversity of Cuba’s trade is confirmed bythe Central Bank report, and the pattern largely reflects the existence ofbilateral financing agreements. Only two countries have a share of over 10%—Venezuela (with 13.9%) and Spain (13.4%)—followed by Canada, China,Russia and Mexico. Trade with Venezuela almost doubled in 2000 thanks to theoil supply deal (see Mining and energy).

Cuban direction-of-trade data often differs from that compiled by the IMF inits standard Direction of Trade annual and monthly series, as many of the com-panies trading with Cuba route transactions through third countries in anattempt to avoid attracting the attention of US authorities. One of the favouredthird countries used for the export of goods to Cuba is Panama: its Colón Free-Trade Zone was the source of imports of some US$260m in 2000. Somepayment delays experienced in 2000 came to light in July when a Panamaniancompany, Eberhard Transamerica Group (ETG), announced an agreement withits Cuban importers of a new repayments schedule. The company sellsUS$70m-80m in goods to Cuba a year, including BMW, Mercedes-Benz andVolvo vehicles, and has provided financing for sugar harvests. An agreementfor repayment of a US$20m debt to Chilean fishing companies has also beensigned, to secure imports of Chilean canned mackerel. These two agreements,though relatively small, suggest some improvement in the payments situationafter the crunch at the start of the year caused by the shortfall in the sugarharvest and high oil prices. The positive effects of a further agreement withFrance, to increase government-backed export credit guarantees from US$160mto US$170m, will be compounded by France’s offer to increase the proportionof medium- and long-term credits.

The level of Cuba’s total debt and debt obligations are key factors indetermining the willingness of lenders to take on Cuban risk. The CentralBank’s report notes that in 2000 the total hard currency debt stock declined byUS$117m. Exchange-rate adjustments, according to our estimates, would havereduced the debt by some US$300m, but this still means that during the year

Central Bank publishesdebt figures

Bilateral finance setsdirection of trade

Cuba 31


the underlying net stock of debt rose only modestly. Of new credits issued in2000, the report notes that 60% were from private creditors and only 40%from official sources.

Hard currency debt stock(US$ m; year-end)

1999 2000a

Official bilateral 5,736.9 5,668.9 Government-government lending 1,639.9 1,836.9 Development loans 204.2 254.4 Export credits with government guarantee 3,892.8 3,577.6

Official multilateral 16.5 16.9

Financial institutions 3,456.0 3,269.5 Bank loans 3,187.1 2,942.1 Bilateral & consortium medium- & long-term 1,908.7 1,701.3 Short-term 1,278.4 1,240.8 Import credits 268.9 327.4

Suppliers credits 1,845.2 1,984.7

Others 23.4 21.3

Total debt 11,078.0 10,961.3

a Preliminary.Source: Banco Central de Cuba, Informe Económico 2000.

For the first time since 1997, the bank’s report gives a debt arrears/debt stockratio. Debt outstanding since a moratorium on hard currency debt servicingwas announced during the global debt crisis in 1986 has been the subject ofdiscussions with the Paris and London Clubs, as well as bilateral negotiationsover the past few years. The interest arrears/debt stock ratio given is 19%,which gives a total of US$2.1bn, while total arrears (principal and interest) aregiven as US$8.2bn. The report also provides debt/exports and debt/GDP ratios,of 251% and 39.7% respectively. However, there is no debt-service ratio given.

Cuba at a glance: 2001-02 · COUNTRY REPORT Cuba August 2001 The Economist Intelligence Unit 15...

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