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National
Industry Under the slogan
"Socialism or Death," the Cuban Government continues to proclaim Cuba a
socialist or communist nation with an economy organized under
Marxist-Leninist precepts. Most means of production are owned and run by the
government. About 75% of the labor force is employed directly by the state.
Responsibility for running the economy and for economic policy rests with
the Council of State, although the government has devolved some authority to
ministries and enterprises in recent years.
Minimal public services are provided by the state, either free of charge or
for nominal fees. Access to education generally is adequate, but urban
housing and medical facilities have deteriorated, as has transportation.
In 1997, the Cuban Government created the Cuban Central Bank to play a role
in monetary policy similar to that of a central bank in a market economy.
The National Bank of Cuba continued as a commercial bank, and the Cuban
Government is creating additional commercial banks. Some foreign banks have
begun limited operations in Cuba.
The major sectors of the Cuban economy are tourism, nickel mining, and
agriculture, especially sugar and tobacco. Sugar, long the mainstay of the
Cuban economy, was surpassed by tourism in the late 1990s as the main source
of foreign exchange. Remittances from abroad, estimated at $500 - 800
million annually, are a major source of income in Cuba, and help sustain
many families. An estimated 40% of the population have access to dollars.
The Cuban Government stopped producing its annual statistical survey on the
Cuban economy in 1990.
The Cuban Government defaulted on most of its international debt in 1986,
and remains outside of international financial institutions such as the
World Bank. To finance imports, the government relies heavily on short-term
loans. Because of its poor credit rating, an $11 billion hard currency debt,
and the risks associated with Cuban investment, interest rates have
reportedly been as high as 22%.
The Cuban economy suffered a 35% decline in gross domestic product between
1989 and 1993 because of the loss of Soviet subsidies. In October 1990,
Castro announced that Cuba had entered a "special period in time of peace"
and that the economy would function as if in time of war until the crisis
had passed. Most goods are now rationed, and many previously imported from
the Soviet Union simply have disappeared.
Economic growth resumed in the mid-1990s after the Cuban Government launched
a concerted program to attract foreign tourism and investment. The Cuban
Government estimated growth in 1997 at 2.5%. Estimated per capita income in
1997 was $1,540. Living conditions in 1998 are well below the 1990 level.
To deal with the severe shortages brought on by the end of Soviet subsidies
and the failure of socialist economic policies, the Cuban Government in the
mid-1990s permitted Cubans to offer certain services privately under strict
government regulation and scrutiny. It appears that employment in this
sector peaked in 1996 at around 206,000 and fell in 1997 to about 170,000.
In 1997, the Cuban Government introduced heavy taxes on this sector which
forced many out of business. In 1994, the government introduced agricultural
markets at which state and private farmers could sell at market prices what
they have produced above the quota required by the state. This has helped to
alleviate grave food shortages and nutritional problems.
A popular example of this kind of venture has been small restaurants in
private homes, known as "paladares." These seek to serve international
visitors, but are subject to rules limiting employment of anyone outside of
the owner's immediate family and forbidding sales of lobster or shrimp. Such
rules are frequently violated, but restaurants and other entities are often
closed for minor infractions.
While continuing to limit private investment by Cuban citizens, the Cuban
Government is actively courting international investment. It has attracted
investment from Canada, Italy, the United Kingdom, Mexico, Spain, France,
and other countries. Foreign entities cannot own 100% of the equity of an
investment, and must include a Cuban Government entity as a majority partner
in the venture. Estimates of the amount of international investment paid in
vary widely, but it is thought to be between $1.1 billion to $1.4 billion
since 1990.
Cuban officials said early in 1998, there were a total of 332 joint
ventures. Many of these are loans or contracts for management, supplies or
services, normally not considered equity investment in Western economies.
Nevertheless, Cuban officials said in early 1998, that they intend to be
more selective in the investment they permit in Cuba. Investors are
constrained by the U.S. Cuban Liberty and Democratic Solidarity Act (also
known as the Libertad or Helms-Burton Act) which provides for sanctions for
those who "traffic" in property expropriated from U.S. citizens. As of March
1998, 15 executives of three foreign companies have been excluded from entry
into the U.S. Over a dozen companies had pulled out of Cuba or altered their
plans to invest there due to the threat of action under the Libertad Act.
Tourism, a top Cuban official said, is the "heart of the economy." The Cuban
Government is stressing its beaches and has actively encouraged sex tourism
to attract Europeans, Canadians, and Latin Americans. Cuban officials expect
1.4 million tourists in 1998, an increase of 20% over 1997. The Cuban
Government forecasts 1998 gross revenue from tourism as $1.8 billion.
In 1993, the Cuban Government made it legal for its people to possess and
use the U.S. dollar. Since then, the dollar has become the major currency in
use. Many businesses, including many run by the Cuban Government, and
individuals do not accept Cuban pesos.
Those with access to dollars can purchase imported goods at government-run
dollar stores that are not accessible to average Cubans with pesos who must
shop in understocked peso stores. Thus, those jobs that can earn dollar tips
from foreign tourists and business travelers have become highly desirable.
It is not uncommon to meet skilled doctors, teachers, engineers, and
scientists working in restaurants or as taxi drivers.
Sugar remains an important part of the Cuban economy, with large amounts of
land, labor, and other resources dedicated to its production. Sugar
production in 1989 was over 8 million tons, but fell to about 3.5 million
tons in the 1994-1995 sugar harvest, one of the worst on record. With
increased fertilizers and management attention, the 1995-1996 harvest
improved, according to official Cuban estimates, to about 4.4 million tons.
Cuba was unable to sustain this level of output, however, and the 1996-1997
harvest declined. The threat of U.S. actions against those who finance the
sugar harvest--where there are extensive numbers of confiscated
properties--had a major impact on the 1996-97 harvest. Prospects for future
harvests are considered poor unless the Cuban Government undertakes
substantial reform of the sugar industry, something it has not been willing
to do.
Cuba is not a party to the Nuclear Non-Proliferation Treaty (NPT). It signed
the Treaty of Tlatelolco, a Latin American regional non-proliferation
regime, but has not ratified the treaty and brought it into force. Cuba has
entered into an agreement with the IAEA to apply safeguards to individual
nuclear facilities, including the partially completed Juragua nuclear power
plant. The reactors that would be installed are of the VVER-400 type, an
advanced model of the Soviet pressurized water reactor. There are serious
concerns about the safety of the plant. However, since the plant does not
appear to be economically viable, no international investors have been
willing to provide funds for completion of the facility.
Cuban failure to launch serious economic reforms has led to the development
of a large black market and growing corruption. |
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