Cuba in a trance

Financial restrictions and fuel import problems have greatly slowed down the economy more than expected. The memory of darker periods returns.

Reduced oil imports from Venezuela have made it necessary to adopt measures to cut down on electricity consumption.

Storm clouds are again piling up over Cuba’s economy. The government is taking urgent measures, some linked to power cuts, which accentuate the memory of the dramatic times of the so-called Special Period. The affinity of some causes in time going into trances among each other does the rest. But President Raúl Castro does not admit comparisons with the crisis of those years. And present official policies are certainly different from those in the 1990s.

At the start of that decade, Cuban leader Fidel Castro proposed a strategy centred on resistance, after admitting in person the temporary impossibility of building socialism in this country. With the disappearance of the Soviet Union and the collapse of socialism in Eastern Europe, Cuba suddenly had lost almost all the allies that sustained 80 per cent of its foreign trade and the supply of almost all the oil it consumed. The most acute recession was inevitable.


The contraction in the supply of fuel from Cuba’s principal trade partner, Venezuela this time, is repeated among the problems that have slowed down the economy in 2016: it barely grew 1 per cent in the first semester and it is difficult it will achieve the already meagre 2 per cent previewed for the year. The analogy is evident, though Caracas represents today less than what Moscow meant more than two decades ago for Cuba’s trade, development and finances.

The Cuban economy only grew 1 per cent in the first semester due to less export incomes than those previewed and other financial restrictions.
The Cuban economy only grew 1 per cent in the first semester due to less export incomes than those previewed and other financial restrictions.


Raúl Castro mentioned to the National Assembly of People Power a few days ago “the intensification of foreign financial restrictions” as the cause for the poor growth in the first half of the year. He referred to the “non-fulfilment of export incomes together with the restrictions some of our principal trade partners are facing due to the drop in oil prices.”


A few days before Parliament met, the government implemented a group of measures to reduce the consumption of electricity in the second semester. Judging by the comments made by Murillo (*) to the MPs, the general cut in electricity expenses will be 6 per cent, though in some areas of the economy it will reach 50 per cent, at least in the summer.


Raúl Castro does not rule out a worsening of the economic difficulties, but this time the authorities have set out to elude the power cuts that punished the residential sector in the 1990s. The National Electricity Union (UNE) has reiterated in the press that there exist conditions to avoid them. It has also said that it can back the total power consumption in industries and prioritised sectors.


The government’s goal is a strategy with three objectives to which it renounced in the 1990s when it was forced to postpone development aspirations to resist in the face of the crisis. Now it aims to maintain the services vital to the population, the domestic financial balance and the Cuban peso’s purchasing power – through the backing of the retail mercantile circulation -, and the investments in development. “In short, the question is to not stop, in the least, the programmes that guarantee the development of the nation,” the president said to the MPs.


According to information given in Parliament, in 2016 the country could stop executing 17 per cent of the year’s investment plan, but the Economy Ministry is confident to even thus achieve a greater amount than what was done in 2015. Of the total of 6.51 billion pesos, 4.535 billion are for programmes and strategic sectors.

Tourism remains as one of principal means of support of the rest of the economy.
Tourism remains as one of principal means of support of the rest of the economy.


Despite the financial pressures, the government is very cautiously manoeuvring in the face of the option of accepting credits to compensate for the liquidity deficit in hard currency. It is managing with great care that alternative “so that our debt does not increase in the upcoming years,” Murillo said. The authorities evidently do not want to lose the ground it has gained with the renegotiation of debts with other countries.


However, Raúl Castro recognised the existence of “delays in the current payments to suppliers,” but reiterated the will to recover the pending due date.


Other multiple differences exist between the current scenario of the Cuban economy and that of the 1990s. Today Cuba produces almost half of the fuels it consumes and, despite experiencing losses in export incomes this year due to the drop in nickel prices and the sugar industry’s non-fulfilment, it has sectors that continue being strong.


Tourism, practically non-existent when the Special Period began, has been experiencing a strong growth for several years and its forecasts are optimistic. The reception of visitors and the consistent interest of foreign investors in that sector are encouraged by one of the most important changes of the present: the United States’ position toward the largest of the Caribbean nations.


When a severe economic recession broke out in Cuba in the 1990s, Washington approved successive acts – the Torricelli and Helms-Burton – to strengthen even more the economic blockade on the neighbouring Caribbean country and to stifle it definitively. Two and a half decades later, it opted for changing its strategy.


After the reestablishment of diplomatic relations between the two countries, the White House is striving to open spaces for cultural, commercial and financial rapprochement, and the U.S. companies have started operating in key sectors of the Cuban economy, like the hotel industry, cruises and air travel. In Congress, meanwhile, there is an intense battle before each legislative initiative to relax the blockade.


In March, before his historic visit to Havana, President Barack Obama promised to eliminate the regulation that forbids Cuba’s use of the dollar in its international transactions. But four months later the Cuban government claims it has not been able to make cash payments or deposits in that currency. That ban continues among the regulations that most taxes the Cuban economy when operating in foreign markets.


In any case, the change of policy and discourse of the United States toward Cuba is favouring a greater trade rapprochement of third country governments and companies. The opportunities from abroad are increasing at a faster rate than the real possibility of this country, with an undercapitalised industry, to take advantage of them. (2016)


(*) Marino Murillo, replaced, after the Parliament meeting that concluded on July 8, by Ricardo Cabrisas as economy and planning minister, though he conserves his posts of government vice present and head of the Implementation and Development Standing Committee.

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