Cuban Restructuring: The Economic Risks

Emily MorrisCUNY Colloquium:

Economic Transformation in CubaMay 21st 2012

11

Economic risks

1. Unemployment the cost of higher productivity?

2. Monetary instability prices, exchange rate

3. Fiscal crisis loss of capacity for social protection?

4. Stagnation is Cuba stuck?

22

3

Actualización in perspective:Growth performance

19901992

19941996

19982000

20022004

20062008

2010-15.0

-10.0

-5.0

-

5.0

10.0

15.0

Real

GD

P gr

owth

, %

Crisis &instability

Stabilisation & recovery

Boom �̶ and

its limits

An achievement, but not a success

Unemployment:the cost of higher productivity?

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0

20

40

60

80

100

120

140

160

Real GDP EmploymentAverage productivity per worker

Inde

x, 1

990

= 10

0

Disguised unemploymentas survival strategy

Job creation through growth

Over-full employment?

SubsidisedUnderemployment?

4Low risk: official policy commitment employment subsidy

Monetary instability: prices

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0

50

100

150

200

250

300

350

Cost of living ? Nominal average wage Average real wage ?

Inde

x, 1

990=

100

Shortages& rations:sharinghunger

Stabilization &recovery:

improvement

Inflation low

BUTprices

controlled & realwages

low

5Low risk: price liberalisation slow due to public fears

Monetary instability: exchange rate

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.20

US$:CUP

Black marketrate collapse= sharedhardship

unorthodoxstabilisation

andlegalisation

CUP:CUP stableBut

gulf between‘official’

and‘Cadeca’

rates

6Low risk of exchange rate collapse – but is appreciation needed?

Monetary imbalance: exchange rate

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0

10

20

30

40

50

60

US$100 as multiple of average monthly wage at Cadeca rate

Black marketrate collapse=US$privilege

Stabilisationand

legalisation

CUP stableBUT

stillvery

weak

7Fragmented economy: official & unofficial prices, wages, exchange rates

8

Fiscal crisis:loss of capacity for social protection?

19901992

19941996

19982000

20022004

20062008

2010

-40

-20

0

20

40

60

80

100

Spending Revenue Balance

% o

f GD

P

Big Government;monetiseddeficit

Fiscal rectitude

Spending surge&

readjustment:The institutional test

Low risk of fiscal crisis: commitment, institution-building

9

Stagnation:is the Cuban economy stuck?

• Unemployment: low risk - high commitment to full employmentslow productivity growth = bad for growth

• Inflation: low risk - fear of rising cost of living distorted prices persist = bad for growth

• Fiscal crisis: low risk - discipline and high taxes squeeze on public and private investment = bad for

growth• So where is growth coming from??

Disruption is necessary; can it be managed?

Cuban Restructuring: The Economic Risks

Managing risk:an evolutionary-institutional process

emily.morris@sas.ac.uk

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