Thursday, July 28, 2016

The Cuban economy goes into a tailspin

The Cuban economy goes into a tailspin
DIMAS CASTELLANOS | La Habana | 27 de Julio de 2016 - 20:54 CEST.

On 29 December, 2015 the Cuban president announced before the National
Assembly of the People's Power that "despite the impact of the
international economic crisis, exacerbated in our case by the effects of
the US blockade, maintained unchanged, and the external financial
constraints, which have worsened during the second half of the year, the
GDP grew 4% this year, which is undeniably a good result in the midst of
these circumstances."

Let's take a look at this. The drop in GDP between 1989 and 1993 was
34%. Recovering from this decline requires sustained annual growth of
7%. The measures implemented for that purpose to date have failed.
Between 2011 and 2014 the figure was 2.3%; in 2015, 4%; and during the
first half of 2016 the GDP actually fell 1%. According to these numbers,
we are not looking at a "good result," but rather the worsening of a
prolonged crisis; something similar to the tailspin aircraft go into
after they are hit.

Blaming the "blockade" and "external financial constraints," after the
measures taken by the US administration, is baseless for the following

Family remittances, which in 2011 hit 2.294 billion dollars, exceeded
3.13 billion in 2014, and in 2015 were estimated at about 3.99 billion.
In 2014 the export of technical services was worth over 8 billion dollars.
In 2015 tourism surpassed the 3.5 billion dollar mark, and a new record
was expected in 2016.
The biopharmaceutical industry saved the country more than 1.9 billion
dollars in imports.
As for traditional products, like nickel, Cuba's leading export, it
comes in at 1.1 billion dollars a year; while sugar in the 2014-2015
harvest weighed in at some 1.9 million tons and accounted for sales of
600 million dollars; and for the 2015-2016 harvest, which did not exceed
1.6 million tons, it will bring in about 150 million dollars more than
the previous one. Other items are not sufficient to explain the fall in
the GDP.

As for the "external financial constraints," renegotiations of debt,
including that owed to the Club de París – which forgave 8.5 billion of
11.1 billion dollars – have created a favorable environment with
creditors for the reintegration of Cuba into international economic

If family remittances and tourism have increased; if exported medical
services have not dropped; if the reduction in revenue from nickel and
sugar, either due to lower prices or productive inefficiency, cannot
explain the sudden reversal, then an analysis must address petroleum
among the possible causes. According to a Reuters cable on July 8, 2016,
the delivery of crude to the island dropped from 100,000 to 53,000
barrels per day. If so, as occurred in Soviet times, Cuba may have been
exporting a portion, which could explain the plummeting GDP.

Whatever the cause of the decline, what is the plan to deal with the
crisis? On July 8 General Raúl Castro told the National Assembly: "We
must reduce non-essential expenses of all kinds, foster a culture of
saving and the efficient use of available resources, concentrate
investments in activities that generate exports, replace imports, and
support the strengthening of our infrastructure, thereby ensuring the
sustainability of electricity generation and the improved use of energy
carriers. We must, in short, strive not to hinder, in any way, the
programs that ensure the nation's development."

Reducing costs, promoting a culture of saving, concentrating investments
in activities that generate revenue, replacing imports, etc., are
measures announced year after year, and which invariably fail. Thus,
what is new about this plan, if all its objectives have been missed,
over and over again?

Setting them again, while ignoring the root causes of the repeated
failure to attain them, demonstrates a lack of political will in a
scenario in which it is impossible to roll back the small reform
measures introduced, sever relations with the US again, find a new
sponsor, or erase Cubans' knowledge of the true causes of their troubles.

The Minister of the Economy and Planning, Marino Murillo Jorge,
proposed, inter alia, the following five measures:

- "If the problem we have is our liquidity capacity, the first thing we
must do is restrict payments in currency in the country ... administrate
the taking out of loans very carefully, to render the country's future
borrowing manageable ... and adjust our energy carriers' consumption ... "
- "As activity levels fall, wages in the business system will adjust to
production levels ... in the business system there is a lower average
salary estimated than what we anticipated in the plan ... "
- "With the currency that we have, what we must do is support what is
the raw material for the core business, or the spending entailed by the
main activity in each place ... because the amount of money that we are
going to give the bodies is nothing like what was envisaged in the plan
... "
- "We will have to work on looking for financing solutions in the medium
and long term, to definitively abandon the principle of making
short-term investments, because then the payment of debt is very fast,
and the debt is not paid with the return on the investment. "
- "Now, if you lower prices, and wages have more purchasing power, that
means that the physical quantities sold are greater, and to support
these purchase capabilities it has been necessary to buy 25,000 tons of
rice, 32,000 of peas, 82,000 of chicken, 36,000 of oil, and 3,800 of
dehydrated milk. "

The decrease in imports in order to avoid generating new debt will be
reflected in further production declines. The average salary, whose
insufficiency relative to the cost of living is a pronounced anomaly of
the Cuban model, will suffer a further decline, which will be reflected
in lower production, more corruption and criminal activities. Reducing
the amount of currency that the bodies will receive cannot be taken
advantage of on the world market because productive inefficiency makes
it necessary to use those savings to buy what we are unable to produce.

Although Raúl Castro stated that payment obligations are being met,
Murillo's words denote difficulties honoring commitments to creditors
after the renegotiation. The slight reduction in prices, aimed at
endowing the Cuban peso with greater purchasing power, without
productive backing, makes it is necessary to import more, when one of
the country's problems is, precisely, a lack of solvency. In short, five
insurmountable contradictions that augur the model's final collapse.

As the causes are not external, or circumstantial, but internal and
permanent, the analysis must take another course.

In July of 2007 General Raúl Castro acknowledged the shortcomings,
mistakes and bureaucratic and indolent attitudes illustrated by Cuban
fields infested with sicklebush, and argued that rising food prices on
the international market made it necessary to produce them in Cuba. In
2008 he emphatically stated: "We must make commit to our land! We must
make it produce! " Castro stated that food production was "a matter of
the utmost national security." However, the reform measures were, from
the very outset, subordinated to the dominance of State ownership,
socialist planning, the granting of rights to foreign entrepreneurs who
refuse to employ Cubans, and ideological orthodoxy: four of the culprits
behind the failure.

In March of 2012 Marino Murillo Jorge said that the Ministry of
Agriculture "has presented an unfavorable economic and financial status
for several years, which negatively affects business management," and
demonstrated that the actions and measures taken to date to reverse this
had been insufficient. In May of 2013 he stated: "The measures which for
decades have been implemented in order to manage the land have not led
to the necessary increase in production."

Practical experience and the science of economics have demonstrated that
people pursue certain goals, in accordance with their interests. The
loss of autonomy – which is to the economy what oxygen is to organisms –
together with statism, voluntarism, command and control methods, central
planning, the ineptitude of leaders and administrators, and producers
who lack incentives to produce, combine to spawn the inefficiency that
characterizes the Cuban economy, and have driven it to what appears to
be this, its final stage.

From 1% we are headed for 0%, and on to initiate a stage of negative
growth, which they are bound to call "special growth."

Source: The Cuban economy goes into a tailspin | Diario de Cuba -

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