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

The end of the USSR, a major subsidiser 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 saviour 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 centre 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 this 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 brink of recession, given that there could be a negative quarter. Although the Cuban government puts its economic goal for this year at 1%, its 1.5% target for 2019 may have been off by as much as one percentage point (international organisations, in any case, cannot audit Cuba's accounts); moreover, the elements contributing to the economic performance have worsened.

Growing economic difficulties have generated fears among Cubans of a return to the 'special period', as the 1990s were known when the dissolution of the USSR left the island without the massive financial aid assistance provided by Moscow. That time of special hardship was superseded by the financial aid that from 2002 onwards began to arrive from Hugo Chávez's Venezuela. It was the Venezuelan collapse that prompted Raúl Castro to seek salvation through rapprochement with the Obama Administration, but the Trump Administration's new restrictive measures have left Havana with no prospects.

Cubans have begun to suffer shortages of basic products such as medicines and food, and long, endless queues are once again appearing in the Cuban capital. The Economics has been stagnant since 2014: although there was a clear upturn the following year, 2016 saw a contraction, which the government put at 0.9% of GDP, meaning it had 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. Dependence on Venezuela is comparatively less and is also decreasing due to the severe crisis in that country. Venezuela's financial aid , basically by sending oil in exchange for the attendance of doctors, sports trainers and other staff, for which Caracas also pays, accounted for 22% of Cuba's GDP in 2013; by 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 Venezuela's financial aid has been decreasing, Caracas' contributions continue to be important, so any further erosion of this aid would have an effect on Cuba's Economics . The 100,000 barrels of oil per day that Venezuela has been sending to Cuba for many years has recently been reduced to around 60,000 barrels. 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 doctors abroad

Venezuela's out-of-control inflation could force a reduction in the payment Venezuela makes for the services provided on Venezuelan soil by staff Cubans. Carmelo Mesa-Lago, an economist specialising in Cuba, points out that Venezuela, which purchases 75% of this professional Cuban 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 make further cuts. 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 goal of 5 million tourists

The expectations opened on subject for tourism with the increase in travel from the US due to the facilities provided by President Obama have been frustrated by the restrictions again imposed by his successor. issue In 2018 there was a drop of 4.7 million tourists to 4.7 million, a figure that fell by 10% in 2019 to 4.3 million. Although the government says it expects an increase in 2020, it has stopped setting goal as a target 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 from tourism (those who arrive by plane tend to spend more during their stay).

Moderate exports

Export revenues could improve, but neither production nor prices look set to increase significantly. Nickel production has been rather stagnant and sugar production is recovering from its all-time low in 2017-2018.

Remittances will continue to flow

The restrictive measures imposed by the Trump Administration on remittances arriving in Cuba from the US, which are the majority, do not seem likely to affect their amount, as the established limit remains above the amount of most remittances. As a study by The Havana Consulting Group indicates, the current average amount sent is between 180 and 220 dollars per transaction, and as 95 per cent 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 force last October, is not reached. In addition, the study states that 45% of remittances to Cuba arrive through informal channels. In 2018, Cuba received 3,691 million dollars, a figure that practically doubles if non-cash remittances are taken into account.

Insufficient foreign investment

source Remittances should play an important role in boosting the national Economics , and in fact since the economic opening of 2010 they have functioned as an income source similar to foreign investment, as they were behind the start-up of many "cuentapropista" businesses. These self-employed businesses reached 535,000 workers in 2016, according to official statistics, but the stagnation in the growth of tourism is putting this 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 the special zone of the port of Mariel attractive and the added difficulties from the US with the entry into force in 2019 of degree scroll fourth of the Helms-Burton Act, which encourages the presentation of lawsuits for the assets expropriated during the Cuban revolution, dampens the island's investment attractiveness.

DECENTRALISATION, BUT TIMID OPENING

The problem of the inefficiency of Cuba's Economics is largely due to its model centralisation, 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 levels of savings, indebtedness and insufficient export revenues. Cuba's foreign debt between 1958 and 2017 multiplied by 190 times. And there is a difficult situation for the emergence of the private sector.

The island needs new structural economic reforms by the government, and 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 under a communist government. For its own geopolitical interests, Washington should take care that its pressure measures do not drive the island into the arms of China and Russia.

Raúl Castro's successor as president, Miguel Díaz-Canel, and his appointed prime minister, Manuel Marrero, have announced the beginning of a process of economic decentralisation this year that will give greater autonomy to state-owned companies. 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 , as the reforms promised by Castro have been a very timid opening, not particularly transformative.