Wednesday, April 25, 2012

Cuba sees the writing on the wall

Cuba sees the writing on the wall
Martin Hutchinson
Reuters Breakingviews
Last updated Tuesday, Apr. 24, 2012 8:15PM EDT

Cuba has unveiled a Hugo Chavez hedge: economic reform. A senior
Communist Party official says the island nation plans to shift nearly 50
per cent of output to the "non-state" sector. As its last rich patron,
the Venezuelan President, battles cancer, Cuban President Raul Castro
may finally see the writing on the wall. If he can successfully reduce
the state's role in the economy and relax restrictions on capitalist
activities, the country's future won't be North Korea or even Vietnam –
but rather Turkey.

Cuba's GDP isn't easy to pin down. The World Bank and IMF don't publish
figures for it, though the CIA estimates the output at a substantial
$9,900 (U.S.) per capita, based on purchasing power parity with real
growth of 1.5 per cent. All that tourism, tobacco and sugar generates
more per person than in some emerging markets like Vietnam, which is
growing faster but whose comparable economic output rate is just $3,400.
Cuba even beats China, whose GDP per capita is estimated by the IMF at

And despite rating near the very bottom with North Korea on the Heritage
Foundation's Index of Economic Freedom, Cuba scores comparatively well
on Transparency International's Corruption Perceptions Index, where it
ranks 61st, ahead of South Africa and all four BRIC nations. That means
in at least some ways Cuba is somewhat further along than either China
or Vietnam were when they began their moves toward free-market systems.

Mr. Chavez may be the catalyst for Havana to push things along even
more. A new Venezuelan regime, whether Mr. Chavez succumbs to poor
health or a more business-friendly opposition, risks jeopardizing Cuba's
cheap supply of oil. It may only be worth some 2 per cent of GDP,
according to Breakingviews estimates.

Market liberalization, on the other hand, could lead to more tourism.
Better trade relations for Cuba with the United States also would make
it more like Turkey's ties to the European Union. Given that Turkey is
50 per cent richer than Cuba on a GDP per capita basis, Mr. Castro might
find that, in the long run, free markets pay better than sugar-daddies.

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