The island faces the most serious economic crisis in twenty years: Venezuela's collapse and Trump's pressure highlight Havana's immobility

The end of the USSR, a major subsidizer of the Castro regime, did not lead Havana to the economic and political opening that took place in most of the former communist bloc. After a time of severe hardship in the 1990s, known as the "special peacetime period", Cuba got another savior in Venezuela, thus avoiding the necessary reforms. Today, the Venezuelan collapse and the pressure being exerted by Washington once again highlight Havana's unwillingness to change, as it faces another "special period", less intense, but equally painful for the Cuban people.

▲ Street in the historic center of Havana [Pixabay].

article / Patricia Urdánoz

agreement Cuba's Economics could have closed 2019 with a growth of barely 0.5% of GDP and could repeat that same poor performance in 2020, according to estimates by ECLAC, the UN Economic Commission for Latin America and the Caribbean. These are figures that place the island on the verge of recession, given that there could be a negative quarter. Although the Cuban government places its economic goal for this year at 1%, its bet of 1.5% for 2019 may have been off by up to one percentage point (international organizations, in any case, cannot audit Cuba's accounts); moreover, the elements contributing to the economic performance have worsened.

The growing economic difficulties have generated fear among Cubans about a return to the "special period", as it is known in the 1990's when the dissolution of the USSR left the island without the massive financial aid provided by Moscow. That moment of special hardships was overcome with the financial aid that from 2002 onwards began to arrive from Hugo Chavez's Venezuela. The Venezuelan collapse was what encouraged Raul Castro to seek salvation through rapprochement with the Obama Administration, but the new restrictive measures of the Trump Administration have left Havana without prospects.

Cubans have begun to suffer shortages of basic products such as medicines and food, and long and endless queues are once again appearing in the Cuban capital. The Economics has been stagnant since 2014: although the following year there was a clear upturn, in 2016 there was a contraction, which the Government set at 0.9% of GDP, which meant having fallen into recession for the first time since the "special period", twenty years ago.

Although it is unlikely that Cuba will reach the dramatic figures of much of the 1990s, when the island's Economics contracted by approximately 35%, some estimates, reported by the Wall Street Journal, consider that if Venezuela were to completely cancel its financial aid there could be a contraction of 8% or 10%.

Before the "special period" the island was 82% dependent on the Soviet Union. Venezuela's dependence is comparatively lower and is also decreasing due to the serious crisis in that country. The Venezuelan financial aid , basically by sending oil in exchange for the attendance of doctors, sports coaches and other staff, for which Caracas also pays, accounted for 22% of Cuba's GDP in 2013; in 2017 it had fallen to 8.5%.

The economic outlook, in any case, is not good and a worsening in several areas is to be expected for 2020, which will at least prolong the stagnation.

Venezuelan oil, now in Russian hands

Although the Venezuelan financial aid has been decreasing, the contributions from Caracas continue to be important, so any further erosion of that aid would have an effect on the Cuban Economics . The 100,000 barrels per day of oil that Venezuela has been sending to Cuba for many years has recently been reduced to about 60,000 barrels per day. A further reduction is not to be expected, but the control of PDVSA's production that Russia is acquiring leaves the regime of Nicolás Maduro less room for political control over oil.

Fewer physicians abroad

The uncontrolled inflation suffered by Venezuela could force to reduce the payment that this country provides for the services rendered on Venezuelan soil by staff Cubans. Carmelo Mesa-Lago, an economist specialized in Cuba, points out that Venezuela, which purchases 75% of that Cuban professional service abroad (an important means of access to hard currency), has already reduced its purchases by 23% between 2014 and 2017 and could be forced to a further cut. Havana, on the other hand, stopped making cash in 2019 with the doctors it had stationed in Brazil and the same will happen in 2020 with those in Bolivia, after political changes in those countries forced their return to the island.

Below the goal of 5 million tourists

The expectations opened in subject tourism with the increase in travel from the US due to the facilities that President Obama was giving have been frustrated by the restrictions again imposed by his successor. In 2018 there was a decrease of issue tourists, which was 4.7 million, and figure that in 2019 fell by 10% to 4.3 million. Although the government says it expects an increase in 2020, it has stopped putting itself as goal to reach 5 million tourists. The limitation already imposed by Trump in 2018 on US-based cruise travel is followed by the recently announced limitation on direct flights, which could affect the income left by tourism (those who arrive by plane tend to spend more during their stay).

Moderate exports

Export revenues could improve, but neither production nor price looks set to experience a significant increase. Nickel production has been rather stagnant and sugar production is recovering from its all-time low recorded in 2017-2018.

Remittances will continue to flow

The restrictive measures imposed by the Trump Administration on remittances coming to Cuba from the U.S., which are the majority, do not seem to affect their amount, since the established limit remains above the amount of most of the shipments. As indicated in a study by The Havana Consulting Group, the current average remittance amount is between 180 and 220 dollars per transaction, and since 95% of Cubans who send remittances to their relatives on the island do so once a month, the limit of 1,000 dollars per quarter imposed by Washington, which came into effect last October, is not reached. In addition, the study specifies that 45% of remittances to Cuba arrive through informal channels. In 2018, Cuba received $3.691 billion, a figure that practically doubles if non-cash remittances are taken into account.

Insufficient foreign investment

Remittances should play an important role in boosting the national Economics , and in fact since the economic opening of 2010 they functioned as an income source similar to foreign investment, as they were behind the start-up of many "self-employed" businesses. Those self-employed businesses reached 535,000 workers in 2016, according to official statistics, but the stagnation in tourism growth is putting that private activity in difficulties. The Havana Consulting Group study concludes that "unlike most Latin American countries, the Cuban government does not take advantage of the potential of remittances as a way to attract investment capital to the country." Foreign direct investment, in any case, has been increasing, but the slowness in making attractive the special zone of the port of Mariel and the added difficulties from the US with the implementation in 2019 of the fourth degree scroll of the Helms-Burton Act, which encourages the presentation of lawsuits for the assets expropriated during the Cuban revolution, dampens the investment attractiveness of the island.

DECENTRALIZATION, BUT TIMID OPENING

The problem of inefficiency of the Cuban Economics is largely caused by its centralization model , which creates shortages for consumers and great uncertainty for businesses. Along with other burdens that the country has carried since its beginnings, such as corruption, illegalities, low savings, indebtedness and insufficient export revenues. Cuba's foreign debt between 1958 and 2017 multiplied by 190. And there is a difficult situation for the emergence of the private sector.

The island needs new structural economic reforms by the government; it would also be interesting to follow the economic strategies of countries such as Vietnam and China, which have known how to open up to the international market starting from a communist government. For its part, Washington, for its own geopolitical interests, should take care that its pressure measures do not drive the island into the arms of China and Russia.

Raul Castro's successor as president of the country, Miguel Diaz-Canel, and the prime minister appointed by him, Manuel Marrero, have announced for this year the beginning of a process of economic decentralization that will give greater autonomy to state enterprises. It remains to be seen whether progress will actually be made along these lines and whether this will increase the efficiency of Cuba's Economics , since the reforms promised by Castro have meant a very timid opening, not particularly transforming.