Recent Trends
Rafael Romeu
Jorge F. Pérez-López
Carmelo Mesa-Lago
Latin American Program
Edited by José Raúl Perales
Woodrow Wilson Center Reports on the Americas • #28
The Cuban
Economy:
The Cuban Economy:
Recent Trends
Latin American Program
The Cuban Economy:
Recent Trends
by
Rafael Romeu
Jorge F. Pérez-López
Carmelo Mesa-Lago
Edited by José Raúl Perales
July 2011
Woodrow Wilson International Center for Scholars
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contents
Introduction
José Raúl Perales
1
Inferring Quarterly Real Gross Domestic
Product Growth in Cuba During the Global
Financial Crisis
Rafael Romeu
The Global Financial Crisis and Cuba’s
External Sector
Jorge F. Pérez-López
Social Services in Cuba:
Antecedents, Quality, Financial
Sustainability, and Policies for the Future
Carmelo Mesa-Lago
| vii |
7
31
51
Introduction
Woodrow Wilson
José R aúl Perales
Latin A merican P rogram
International Center for Scholars
C
uba’s economy is embarking on one of the most sweeping transformations it has encountered since the Revolution began in
1959. With a single announcement on September 13, 2010, the
government of Raúl Castro began a process of laying off 500,000 state
workers, who will now be able to work independently in one of 168 areas
designated for self-employment, or join any of the foreign companies
slowly making their way to Cuba’s private sector.1 This announcement
comes on top of a series of decisions that have begun to transform Cuba’s
economic landscape. Among these decisions are leadership and strategic
changes in government ministries involved in economic affairs, new
99-year land leases for private tourism projects, the establishment of
cooperatives in the service and retail sectors, the possible introduction
of micro-finance, and multiple deals with foreign companies for exploitation of Cuba’s suspected vast oil reserves.
Beyond their intended economic effects, such far-reaching measures
have introduced two rare and distinct features to contemporary Cuban
society. First of which is economic expectation. Some of Raúl Castro’s bold
policy decisions are in fact the realization of successive and incremental
calls for action he has made since assuming power in 2006 on issues including Cuba’s economic inefficiencies, the need to reform the state apparatus,
and the impossibility of Cuba being “the only country in the world where
Workers employed by foreign companies in Cuba are not private sector employees in the classical sense as the Cuban government still determines their salaries
and other benefits, including health and retirement programs. Economic reforms
announced by the Cuban government so far have left the status of these “private
sector” workers untouched.
1
|1|
José Raúl Perales
you can live without working.”2 The economic future of the island took
center stage at the VI Congress of the Cuban Communist Party held in
April 2011; however, notwithstanding the intense debate and approval of
more than 300 guidelines, the Cuban government is just beginning to
take concrete steps capable of addressing the deep problems plaguing the
Cuban economy.
The second element is uncertainty. Throughout the Cuban Revolution,
even in the gravest of economic difficulties, the state provided all Cubans
with employment, housing, and a variety of social services. Though imperfect, these provisions acted as a sort of social guarantee on which people
built expectations about survivability and adaptability to economic circumstances. The nature of the current crisis, and the sweeping response
from the Raúl Castro government, has changed this. Notwithstanding the
considerable number of individuals who have applied for business licenses, most people, now grappling with paying rent, taxes, and other costs
associated with private activity, express a certain sense of anguish that the
Cuban state will no longer provide for their most basic needs.3 The end of
state paternalism, to use Raúl Castro’s own words, augurs a process of social
adaptability that will bear political consequences as the state demands more
entrepreneurialism from the citizenry. Far from implying a radical change
in the socialist system of government, the anticipated changes have led to
comparisons with other socialist countries like China and Vietnam that
have successfully combined a market economy with strong state control
of the market. Whether this is the direction in which Cuba’s reforms are
headed is a matter of speculation, as are many other aspects of the recent
economic announcements.
This is not Cuba’s first serious effort at economic reforms. During the
Special Period, a time of brutal economic adjustments following the collapse of the Soviet bloc in 1991, the government of Fidel Castro allowed
a degree of private economic activity through enterprises such as the now
famous paladares small, family-run, privately owned restaurants, and small
farmer cooperatives and markets. Such measures were designed to correct
Speech by General Raúl Castro Ruz in the Fifth Ordinary Session Period of the
VII Legislature of the National Assembly of the Popular Power, Convention Palace,
Havana, August 1, 2010.
3
“As Fidel Castro and his Cuban Revolution Fade, Is Cuba Rising?,” Christian
Science Monitor vol. 30 (1), November 29, 2010.
2
|2|
Introduction
(“rectify,” in official parlance) the existing socialist system rather than make
fundamental changes in its structure or the underlying concepts guiding
Cuba’s socialist economic system. The current wave of economic reforms,
however, is significantly more ambitious, addressing both how goods and
services are produced as well as how companies and business operate, in
what amounts to a fundamental rethinking of the role of the state in the
Cuban economy. These reforms come at a time of deep concerns about
the viability of revolutionary Cuba’s economy. In a recent interview Fidel
Castro controversially stated that “the Cuban model doesn’t even work for
us anymore.”4 At the same time, the nation is experiencing severe disruptions in social and other services and growing concerns about the effects
of the international economy on the import bill for food and energy, and
current account balances.
This publication examines the contemporary state of Cuba’s economy at a
time of great transformation. Using econometric and other macroeconomic
analysis tools, its authors have taken advantage of the recent availability of official economic statistics to offer new insights into longstanding questions about
Cuba’s economic behavior. These essays compliment recent works by Cuban
economists published by the Latin American Program, analyzing the behavior of Cuba’s foreign sector, the dilemmas of monetary policy (in particular
the two-currency system), and the state of Cuba’s agriculture. These papers
are available in electronic format on the Latin American Program’s website,
www.wilsoncenter.org/cuba.
In his chapter on domestic economic growth in Cuba, Rafael Romeu
addresses one of the fundamental problems in studying economic conditions in Cuba: the absence of reliable data to measure the real behavior of
the Cuban gross domestic product (GDP). Romeu contends that this challenge can be overcome through econometric techniques that control for
possible biases in official Cuban statistics and bridge gaps in the publication
of official economic data. Romeu designed such an econometric model to
produce what he terms a “nowcast” of Cuba’s quarterly economic growth
statistics. Using this alternative tool, Romeu demonstrates that the 2009
global financial crisis had a much wider impact on Cuba’s economic output
than official statistics indicate, evidenced by the divergence between the
negative growth outcome for 2009 and the mild positive growth claimed
Jeffrey Goldberg, “Fidel, ‘Cuban Model Doesn’t Even Work for Us Anymore,’’
The Atlantic Monthly, September 8, 2010.
4
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José Raúl Perales
by the Cuban government. Additionally, long-term changes from recession
to growth appear smoother in Romeu’s analysis than in official Cuban
reports, while the long-term prospects for real economic growth appear
dimmer in Romeu’s alternative version of GDP calculation. Jorge PérezLópez’s contribution examines the reaction of Cuba’s external sector to
the global economic crisis. In spite of the fact that Cuba has not published
balance of payments (BOP) statistics for several years, Pérez-López applies a
BOP framework to explain both the impact of the crisis on Cuba’s external
sector — including capital account, services and merchandise trade, and
transfers — and the relationship between the consequences of the crisis
and the economic trends experienced for several years before the global
downturn. Noting the prolonged decline of merchandise trade, the rapid
surge in service exports, and the country’s severe liquidity crisis, PérezLópez concludes that BOP restrictions pose structural limitations on the
Cuban economy’s ability to grow. Moreover, Cuba’s increasing reliance
on imports in order to produce tradable merchandise has only been mildly
offset by the recent surge in service exports, the sustainability of which
remains hard to predict.
In his analysis of Cuba’s famed social services, Carmelo Mesa-Lago
offers a sobering long-term view of one of the Revolution’s most important purported achievements. Declaring the evolution of social policy and
social services in Cuba from the onset of the Revolution in 1959, MesaLago explains the system’s steady deterioration following the end of the
Cold War and the collapse of the Soviet Union. Describing the current
scenario as unsustainable, Mesa-Lago makes policy recommendations to
improve the system’s financial viability and quality. Recognizing the dramatic challenges confronting Cuba’s economy, Mesa-Lago suggests a wide
range of solutions. On health, the government, he proposes, should focus
on a more rational use of medication and medical services and adapt the
country’s health system to meet the needs of a rapidly aging population.
For education, he suggests that the Cuban authorities emphasize career
choices geared to meet the island’s developmental needs, while allowing
non-state and official universities to co-exist. On the issue of pensions
Mesa-Lago suggests streamlining the existing system while introducing a
new one for younger workers; on housing, given Cuba’s dramatic housing
problems, he recommends radical reforms to allow individuals to repair
and buy houses, including the use of remittance money for such purposes.
|4|
Introduction
Finally, on social assistance, Mesa-Lago recommends increased flexibility
to reduce the rationing system and create a wider social net, while allowing
churches and other assistance groups to receive foreign aid.
I am grateful to Lisa Hartland and Adam Drolet, of The George
Washington University, and Adam Stubits, of the Latin American
Program, for their able assistance in the editing of this publication. I
am also grateful to The Christopher Reynolds Foundation and the Ford
Foundation for their generous support of the Latin American Program’s
work on Cuba’s economy.
|5|
Inferring Quarterly Real
Gross Domestic Product
Growth in Cuba During the
Global Financial Crisis
R afael Romeu1
Introduction2
One of the most fascinating aspects surrounding the subjects of economics
and public policy in Cuba over the last half-century is the limited positive
analysis carried out by policymakers and analysts on either side of the
Cuban shoreline. There appears to be a broad consensus among at least the
published discussions and analyses of economics and public policy in Cuba
that the language of facts and figures is less relevant and less utilized than
political rhetoric. This is unfortunate, as during this period, the rest of
Latin America and the Caribbean has made great strides in modernizing its
analysis and reporting of economic conditions. 3 This progress has been
Fiscal Affairs Department, International Monetary Fund. The views expressed
herein are those of the author and do not necessarily represent those of the IMF or
IMF policy.
2
The Cuba-specific GDP issues in this study draw from a companion study
(joint with with Philip Liu, International Monetary Fund, 2010) published in the
XX Proceedings of the Annual Meetings of the Association for the Study of the
Cuban Economy.
3
A crude but simple indication of this disparity is a comparison of the top five
downloaded articles on a search of “Cuba” in the Social Science Research Network
with almost any other country in the region. The five most downloaded papers
on “Dominican Republic,” for example, include papers on public debt, tax evasion, price stability, fiscal sustainability, and modeling investment (the same broad
pattern holds for Brazil, Mexico, Argentina, and others in the region). For Cuba,
the top five papers include research on the ideology of globalization, three studies
broadly relating to comparisons of alternative global trade and financial systems
with the current system/IMF, and a study of U.S. policy towards Cuba. Similar
contrasts appear in Google scholar, even including searches limited to Business,
Administration, Finance, and Economics publications.
1
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Rafael Romeu
well received — the public consciousness has, by and large, increased its
scrutiny of economic policymakers as its economic literacy has grown.4
The lack of positive analysis on the Cuban economy can, to some extent,
be attributed to difficulties in accessing reliable data sources. 5 Nevertheless,
as this study hopes to show, these difficulties are not insurmountable, and
given the dearth of existing empirical work, accessing these data would
make such a contribution all the more valuable. And yet, organizations
such as the Association for the Study of the Cuban Economy (ASCE) and
the University of Havana’s Center for the Study of the Cuban Economy
(CEEC) are rare islands of dispassionate empirical analysis in the sea of
rhetoric surrounding the political economy of Cuba. This chapter hopes
to contribute to this small but growing body of empirical work with an
analysis of quarterly Gross Domestic Product (GDP) growth in Cuba.
The quarterly forecast, or “nowcast,” of Cuban GDP presented in this
chapter attempts to address two existing problems with the GDP data
For example, Argentina, Brazil, Chile, Mexico, Peru, Costa Rica, El Salvador,
Guatemala, Honduras, Nicaragua, and Panama produce either monthly GDP or a
monthly activity indicator, and countries such as Brazil, Chile, Colombia, Mexico,
and Peru are heavily scrutinized by private sector analysts involved in their various
public and private market issuances. Standard and Poor rated 26 countries in Latin
America in April of 2010, with Chile receiving the highest rating in the region
(A+/AA) and Ecuador the lowest (CCC+). Consensus Forecasts, a vendor that
summarizes existing country forecasts, published detailed forecasts of 24 private
sector analysts for Argentina, and for Brazil (17), Chile (16), Mexico (20), Venezuela
(17), Colombia (13), and Peru (15) as well as summary coverage of Bolivia, Costa
Rica, Dominican Republic, Ecuador, Panama, Paraguay, Uruguay, El Salvador,
Guatemala, Honduras, and Nicaragua. The 2009 public opinion survey of Latin
America published by Chile-based Latinobarómetro found that economic problems
such as unemployment or inflation are the highest concern for half of the population of Latin America. None of these sources cover Cuba.
5
Cuba’s withdrawal from the IMF in the early 1960s ended regular article IV consultations, and there is very limited coverage of Cuba in IMF and World Bank databases. UN ECLAC maintains notable though also limited coverage of the Cuban
economy, as does the UN Statistics Division; recently, data comparability problems
have arisen with Cuba in the UNDP Human Development Report. The Economist
Intelligence Unit (EIU) attempts broad annual coverage of economic aggregates;
commercial vendors such as Haver analytics, do not cover Cuba; and there is very
little private sector market coverage, as it is generally considered exotic debt. The
Office of National Statistics of Cuba has recently increased its regular data publications, but long-term historical data is limited.
4
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Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
published by Cuba’s National Statistics Office (ONE). The first is an issue
of timeliness — Cuban GDP is published only at the annual frequency. To
address this, the chapter incorporates existing nowcasting models which
bring annual data to the quarterly frequency based on economic indicators
released at higher frequencies. For example, imports or tourist arrivals
data, which are available at the monthly frequency, are thought to reflect
contemporaneous economic activity in Cuba. Hence, these can serve as
a basis for interpolating quarterly GDP for the nowcasting algorithm.
Nonetheless, this is largely an “off the shelf ” application of existing work—
the value added comes in combining this methodology with the second
contribution in this chapter.
The second contribution relates to the appropriateness of the Cuban GDP
series itself. The nowcasting algorithm presented here summarizes indicators
that reflect contemporaneous economic conditions. However, to the extent
that the official annual GDP series for Cuba is mismeasured or biased, the
summary indicators of the true quarterly economic conditions may not fit
well with the potentially biased annual series. The resulting quarterly series
could either reflect a poor fit, or the intrinsic bias in the official annual GDP
series, or likely both. No statistical methodology can hope to produce a quarterly GDP that does not in some way reflect the shortcomings of the annual
GDP series from which it is interpolated. Hence the framework presented
here addresses potential statistical difficulties in the Cuban annual real GDP
series by creating an imputed alternative GDP series based on official data
which attempts to correct for potential statistical biases.
The actual bias this alternative GDP series attempts to address relates to
the weighting of services in the overall GDP and the resulting calculation
of real GDP growth. By 2009, services accounted for over 80 percent of
GDP in Cuba, a rate exceeding that of the United States (approximately 77
percent) and of the average of Latin American economies (where services
usually account for between 50 and 70 percent of GDP). Hence, measurement difficulties inherent to service sectors are present in a larger portion
of the growth calculation of Cuba’s annual GDP. Moreover, to the extent
that a potential structural measurement problem exists as a consequence of
this “overweighting” of services, GDP growth may be biased.6
See Perez-Lopez and Mesa Lago (1985), Perez-Lopez and Mesa Lago (2007), and
Vidal (2010) for a discussion of Cuban GDP growth and the impact of the weighting of services.
6
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Rafael Romeu
Having created an alternative real GDP, the study presents two quarterly
imputed GDP series for Cuba: the first based on official data, and the second
based on the alternative real GDP. The study then compares the estimated
quarterly paths for both the past decade and the immediate future that result
from the nowcasting based both on the official and alternative GDP series.
The results suggest that the output gap stemming from the global financial
crisis is much wider in the nowcast based on the alternative GDP. The alternative GDP nowcast also shows negative overall GDP growth in 2009 in
Cuba, in contrast to low but positive growth reported in the official figures.
The transitions from recession to expansion over the past 15 years appear
smoother in the alternative GDP nowcast. The swings from recession to
expansion estimated from the official GDP nowcast appear rather abrupt,
with changes in the one-year change in the estimated output gap exceeding
four percent on multiple occasions throughout the sample period. Finally, the
growth forecast based on official figures recovers faster and sustains a higher
rate in the projection period as compared to the alternative GDP forecast,
which shows a stagnant profile for future real GDP growth.
This chapter seeks first to present the methodology employed, drawing
liberally from the companion piece on nowcasting, discuss the potential
bias in official GDP data, present the alternative GDP series, and the
associated nowcasting results, and finally advance certain conclusions.
M ethodology and R esults
Official A nnual GDP
based on the
The nowcasting algorithm employed here draws liberally from in Liu and
Romeu (2010). 7 Caribbean countries, the study argues, are particularly
well-suited for interpolating quarterly GDP from monthly or quarterly
indicators because of characteristics inherent to these countries (particularly the Bahamas and Cuba), such as geographic proximity to the United
States and a heavy proportion of trade in intermediate and consumer goods,
among others.
The nowcasting algorithm employs a Dynamic Factor Model (DFM) to
summarize the information contained in dozens of monthly indicators. The
7
See also Liu, Matheson, and Romeu (2010) for nowcasting in the Western
Hemisphere, and Matheson (2010) for the IMF Research Department
nowcasting model.
| 10 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
model produces a handful of common factors that capture the common
movement of the seasonally-adjusted changes in the short-term indicators.
As these indicators are released at different intervals, an initial DFM is estimated on the balanced part of the unbalanced dataset. This initial factor
model allows the algorithm to “fill in” missing observations backwards
and forwards in time. Hence the algorithm takes advantage of all the observed data and overcomes the “rugged edge” that naturally arises from
the asynchronous release of new data.
The algorithm then employs the Kalman filter recursively to re-estimate
the DFM on the balanced dataset which now includes estimated observations, until the model converges and changes in the estimates are minimal.
Finally, the estimated factors are used to predict quarterly GDP using the
method established in Chow and Lin (1971) to interpolate a quarterly series
from annual data.
The Dynamic Factor Model
Assume that the n×1 vector of weakly stationary time series Xt has the
following factor representation:
v
Xt = Ft + et and et ~N(0, ∑)
(1)
Where Ft is a k×1 vector of common factors that drive the joint evolution of all variables and et is the idiosyncratic component associated with
each observed time series, which is assumed to be normally distributed
with zero mean and variance covariance ∑. Forni et al (2000) and Stock
and Watson (2002) show that the common factors in equation (1) can be
consistently estimated by principal components. To complete the specification of the DFM, the common factors are assumed to follow a VAR(p)
process such that:
Ft = A(L)Ft-1 + But and ut ~N(0, Iq)
(2)
Where A(L) is an p order matrix polynomial B, is a k×q matrix of full
rank q, and ut is a vector of uncorrelated white noise shocks.8 In the model,
we assume three common factors (k), two pervasive common shocks (q),
and two lags for the VAR.
th
The uncorrelated white noise restriction is shown to help improve the forecasting
performance of the DFM.
8
| 11 |
Rafael Romeu
The DFM described in equations (1) and (2) is estimated using the twostep procedure described in Giannone et al (2008). First, based on the balanced data panel, estimate the common factors using principle components and
the VAR coefficients using OLS. Next, given the initial parameter estimates,
apply the Kalman filter to the entire data set (including missing observations)
and re-estimate the factors. For missing observations, the implicit signal
extraction process of the filter will place no weight on that variable in the
computation of the factors in time t. Finally, we fill in the missing observations using the estimated factors (via equation (1)). These steps are repeated
until there is no further change to the estimated factors.
To map the annual GDP into quarterly series, we use the interpolation
method developed by Chow and Lin (1971). The method assumes that it
is possible to write the unobserved quarterly GDP series (yt ) as a linear
stochastic function of some observed quarterly indicators. In this case, we
use the estimated common factors (Ft ) from the DFM such that:
yt = ßFt + vt
(3)
Where ß1 is a k×1 vector of parameters and vt is vector of stochastic
disturbances with covariance matrix ∏. Let yt* be the observed T annual
values of GDP, and C be an T×4T aggregation matrix that converts quarterly series into its annual values. The annual and quarterly series can be
expressed as yt*= Cyt , or
yt*= CßFt +Cyt
(4)
Although equation (3) cannot be directly estimated, estimates of
its parameters can be obtained from equation (4) using generalized
least squares (GLS). Define Ft = CFt , the GLS estimator is given by
߈ = [yt* '(C∏C')-1yt*] -1 yt*' (C∏C') -1Ft. Using from the GLS regression, one
can obtain the estimates of quarterly GDP series such that:
-1 * ˆ *
ˆ
yˆt = ßFt+∏C'(C∏C')
(yt - ßFt ) (5)
yt* can be decomposed into two components: i) the conditional expectation of quarterly GDP (yt) given the common factors (Ft ); and ii) the
redistribution of the annual prediction error into quarterly prediction
errors. The second component ensures the aggregated quarterly series
coincides with the observed annual series. Lastly, we substitute the forecast of the common factors into equation (5) to obtain the forecast of
quarterly GDP.
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Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
DFM Estimation based on Official Annual GDP
To get a feel for the summary of the monthly and quarterly data provided by the DFM, Table 1 presents the seasonally adjusted one-quarter growth rate for approximately 4 dozen (out of 77 total) of the series that serve to interpolate quarterly activity in Cuba. The last row,
which gives the median of the growth rates, is a crude summary of the
overall thrust of growth in the indicators; demonstrating a slowdown
in 2008–09 relative to the prior period followed by a recovery and a
renewed slowdown in 2010. Figure 1 shows the estimated nowcast of
quarterly GDP along with three key indicators of economic activity in
Cuba: tourist arrivals (bottom left), imports (top right), and nickel prices
(bottom right).
Based on the official data, the nowcast shows a pronounced and rapid
decline in output in 2008–09, however, quarterly estimated real GDP
growth just barely becomes negative. The subsequent recovery slowed
somewhat in 2010, but the quarterly growth forecast is projected to return
to five percent in annualized rates for the period shown. Coinciding with
the slowdown shown in the official data-based nowcast is a sharp and prolonged decline in the growth of imports and nickel prices. Robust growth
in tourism (even during the crisis) is also notable in the graph, though the
extent of this sector’s countercyclical impact on real GDP during the crisis
is limited by declines in real revenues.9
Imputing
an
A lternative A nnual GDP
Prior work has identified a potential bias in Cuba’s official real GDP series
stemming from the very high weight of services in overall GDP.10 This
section describes the potential bias in terms of Cuba’s weighting of services
in GDP relative to other countries in the region. The weight of services
of the closest regional comparator to Cuba — the Dominican Republic
See Romeu and Wolfe (2010) on how the transmission of the global financial crisis
to the tourism sector affected Cuba and the rest of the industry in Latin America
and the Caribbean.
10
Sánchez & Cahill (1998) employ similar factor modeling for studying the issue
of real per-captia GDP levels, and take up the issue of measurement problems in
the Cuba data, alongside the aforementioned Perez-Lopez and Mesa Lago (1985),
Perez-Lopez and Mesa Lago (2007), and Vidal (2010).
9
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Rafael Romeu
Table 1: Seasonally Adjusted One-quarter Change in
GDP Indicators
2000–07
2008
2009
Seas. Adj., Venezuela, imports from Cuba
-0.8
17.9
-0.4
2009 Q4
Seas. Adj., Venezuela, exports to Cuba
-4.2
3.4
0.9
7.8
9.5
Seas. Adj., WORLD, imports from Cuba
4.5
-8.7
6.8
12.2
11.6
Seas. Adj., ARG, imports from Cuba
-0.3
-7.5
14.6
206.1
75.3
Seas. Adj., BRA, imports from Cuba
-3.5
27.3
-14.5
-21.8
89.9
Seas. Adj., CAN, imports from Cuba
3.4
-22.0
8.1
31.9
5.4
Seas. Adj., CHN, imports from Cuba
9.7
-3.1
13.2
29.1
14.9
-18.9
2010 Q1
32.7
Seas. Adj., EU, imports from Cuba
-0.7
-4.3
7.1
-22.0
-3.3
Seas. Adj., JPN, imports from Cuba
-7.9
-18.8
24.6
88.7
-42.2
Seas. Adj., MEX, imports from Cuba
3.6
57.7
-51.2
-105.7
-2873.8
Seas. Adj., RUS, imports from Cuba
-17.1
-6.6
-6.7
-9.5
-4.8
Seas. Adj., WORLD, exports to Cuba
1.4
1.0
-10.3
18.2
15.4
259.8
Seas. Adj., ARG, exports to Cuba
5.6
3.0
-18.9
-40.6
Seas. Adj., BRA, exports to Cuba
5.9
5.8
-28.2
-40.4
31.0
Seas. Adj., CAN, exports to Cuba
3.9
-2.1
-25.0
-16.3
99.3
Seas. Adj., CHN, exports to Cuba
4.7
5.5
-16.4
-11.1
137.8
Seas. Adj., EU, exports to Cuba
2.0
5.2
-12.6
11.5
0.6
Seas. Adj., JPN, exports to Cuba
5.3
-22.2
-14.0
-25.4
6.2
Seas. Adj., MEX, exports to Cuba
1.3
13.8
5.4
16.6
3.3
Seas. Adj., RUS, exports to Cuba
4.4
-20.3
61.5
590.5
-70.2
Seas. Adj., USA, exports to Cuba
11.3
6.9
-7.6
4.5
-11.6
Seas. Adj., Arrivals, total
2.4
1.2
2.3
4.7
-1.2
Seas. Adj., Price Coffee Colombian
-1.0
0.2
5.4
5.9
4.6
Seas. Adj., Price Sugar Raw Cane World
fob (Cents/Lb)
1.6
3.2
20.8
18.8
2.1
Seas. Adj., Dominican Republic Tourist
Arrivals Rest Of The World
-2.9
2.4
-12.9
56.6
16.1
Seas. Adj., US Tourism: US Citizen Air
Traffic to Mexico (NSA, Units)
1.8
-0.1
0.6
0.8
2.6
Seas. Adj., US Tourism: US Citizen Air
Traffic to the Caribbean (NSA, Units)
0.1
-3.7
1.7
0.8
-1.3
Seas. Adj., CPI-U: Miami-Fort Lauderdale,
FL (NSA, 1982-84=100)
0.8
1.1
0.0
1.1
-0.0
Seas. Adj., CPI-W: Miami-Fort Lauderdale,
FL (NSA, 1982-84=100)
0.9
1.2
0.0
1.3
0.3
Seas. Adj., Cushing OK West Texas
Intermediate Spot Price FOB ($/Barrel)
4.8
-0.3
13.1
31.8
9.8
| 14 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
Seas. Adj., Copper, High Grade: COMEX
Spot Price ($/Lb)
3.9
-8.8
19.7
33.2
10.3
Seas. Adj., Cash Price: Soybeans, Number 1
Yellow, Central Illinois ($/bushel)
1.8
0.9
1.1
2.1
-11.5
Seas. Adj., Gold, Handy & Harman Base
Price ($/Troy Oz)
2.5
-0.3
9.9
11.3
-2.5
Seas. Adj., KR-CRB Spot Commodity Price
Index: Metals (1967=100)
2.5
-8.4
16.2
18.0
10.0
Seas. Adj., KR-CRB Spot Commodity Price
Index: Raw Industrials (1967=100)
1.3
-4.0
9.3
11.0
7.2
Seas. Adj., KR-CRB Spot Commodity Price
Index: Foodstuffs (1967=100)
1.5
1.9
-0.3
16.1
4.5
Seas. Adj., KR-CRB Spot Commodity Price
Index: Fats and Oils (1967=100)
3.1
0.3
4.1
13.7
7.6
Seas. Adj., KR-CRB Spot Commodity Price
Index: Livestock and Products (1967=100)
2.2
1.9
3.3
12.2
14.0
Seas. Adj., Prices Received by Farmers: All
Crops (1990-92=100)
1.3
3.5
-3.0
8.3
-2.1
Seas. Adj., Spain: Foreign Trade Prices:
Exports (NSA, 2000=100)
0.7
0.1
-2.4
0.8
1.9
Seas. Adj., Spain: Foreign Trade Prices:
Imports (NSA, 2000=100)
0.7
1.0
-2.8
0.4
4.3
Seas. Adj., PPI: Finished Consumer Goods
excluding Foods (NSA, 1982=100)
1.0
2.4
0.4
3.7
2.8
Seas. Adj., PPI: Finished Consumer Foods
(NSA, 1982=100)
0.7
2.0
-0.4
2.1
2.5
Seas. Adj., Synthetic Euro calculated using
1997 GDP weights (US$/Euro)
1.3
-0.6
3.1
3.9
-5.0
Seas. Adj., Dominican Republic: Workers'
Remittances (NSA, Mil.US$)
1.4
-0.1
-1.0
-5.0
0.0
Seas. Adj., Dominican Republic: Tourist
Arrivals: Non-Residents (NSA, Persons)
0.8
-2.6
2.8
4.1
-0.8
Seas. Adj., Dominican Republic: Tourist
Arrivals: Canada (NSA, Persons)
4.1
0.3
0.1
0.1
1.5
Seas. Adj., Dominican Republic: Tourist
Arrivals: South America (NSA, Persons)
0.8
-0.5
10.8
32.5
-6.8
-0.1
-2.7
0.3
3.5
-0.6
Seas. Adj., Max Wind SpeedMPH
0.8
2.0
-2.0
-3.9
2.5
Seas. Adj., Max Gust SpeedMPH
-4.0
-2.0
-2.4
-4.2
5.5
Seas. Adj., Fog=1 Fog-Rain=2 Rain=3 RainThunderstorm=4 Thunderstorm=5
3.9
-2.0
5.4
17.5
28.3
Seas. Adj., PrecipitationIn
0.2
0.3
0.3
0.3
0.4
1.4
0.3
0.4
4.1
2.8
Seas. Adj., Dominican Republic: Tourist
Arrivals: Europe (NSA, Persons)
Median of all indicators
Source: GTA, Haver, ONE, Country authorities, NOAA, BIS, DX Data.
Note: The median one-quarter seasonally adjusted change in the variable is shown for the
period in the header.
| 15 |
Rafael Romeu
Figure 1: Official Data Based Nowcast and Four
Underlying Series
31.10.2010 Off Quarterly GDP Growth
Imports from the World
20
200
10
100
0
0
n Actual YY
n Model projection
n Confidence bands
-10
-20
1990:1
100
1995:1
2000:1
2005:1
-100
2010:1
Total Arrivals to Cuba
-200
1990:1
100
1995:1
2000:1
2005:1
2010:1
Metals Commodity Prices
50
50
0
0
-50
-50
-100
1990:1
-100
1995:1
2000:1
2005:1
2010:1
-150
1990:1
1995:1
2000:1
2005:1
2010:1
Source: ONE, Cuba, Central Bank of the Dominican Republic, Cuba; Author’s estimates.
Note: The charts reports annual GDP growth and quarterly estimated growth (dark thick
line) in the upper left panel (nowcast), imports by Cuba from the world (upper right), tourist
arrivals to Cuba (bottom left) and metals commodity prices (bottom right). All indicators in
seasonally adjusted quarterly growth rates, GDP in annual or annualized seasonally adjusted
quarterly growth rates.
— is then used to reweight the real GDP growth rates for each sector
of the Cuban economy, so as to match the overall weight of services in
the Dominican Republic. Given the data limitations, this methodology
represents a transparent and effective (albeit crude) way of producing an
alternative GDP series to address this potential bias. Clearly, caveats are
necessary when interpreting the results, as this simple alternative series is a
second-best approach to the various statistical difficulties outlined in prior
| 16 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
Figure 2: Service Sector in Percent of GDP for Latin America
and the Caribbean
0.9
Services as proportion of GDP
Sub-regional
average
0.8
0.7
Regional average
0.6
0.5
0.4
0.3
0.2
0.1
0
BR UY SR AR PY CL PE VE EC CO BO GY
MX
PA CR GT HN SV NI BZ
SM LC BB KN DO JM PR
CU
Source: Country authorities, CIA World Factbook.
Note: The bars are the share of services in GDP; the lines are the sub-regional average
of services.
work. Optimally, these difficulties would be addressed via a transparent
harmonization of the Cuban statistical compilation procedures; this alternative series is presented in detail.
Figure 2 presents services as a share of GDP for countries in Latin
America and the Caribbean by sub-region, with Cuba isolated on the
right. The weight of Cuba’s services in total GDP (approximately 80
percent) is higher than all but 3 of the 28 countries presented, Panama
(which has the canal) and two very small Caribbean island countries
(St. Lucia and St. Martin). Cuba is well above the regional average, the
sub-regional average for the Caribbean, as well as the percent of services in similar Caribbean economies, including Jamaica, the Dominican
Republic, and Puerto Rico. The figure suggests Cuba is an outlier in
terms of weighting its services.
Table 2 compares the real GDP for Cuba to that of the Dominican
Republic by share of each sector, broken down according to the official
sectoral classification used by Cuban authorities. At a broad level, the sectors that Cuban authorities classify as “basic” services (water, electricity
| 17 |
Rafael Romeu
Table 2: Real GDP Shares, Cuba, and the Dominican
Republic, Average 1997–2009
Cuba
Dominican Republic
100.0
100.0
22.2
43.6
Agriculture, cattle, forestry
4.8
8.3
Fishing
0.4
-
Mining
0.8
0.7
Sugar
1.0
0.5
14.0
24.3
Import rights
1.3
9.9
Basic Services
41.5
39.8
Electricity, gas, water
1.7
1.6
Construction
6.1
4.8
19.7
9.0
Hotels and restaurants
5.1
7.0
Transport, storage, communication
9.0
17.3
36.2
16.6
Financial intermediation
2.8
0.7
Entreprenurial services, real estate
3.5
5.9
Public administration and security
3.6
1.3
Scientific research
0.4
-
Education
8.3
1.1
12.4
1.5
Sports and cultural services
3.2
-
Other communal services
2.1
6.1
Gross Domestic Product
Goods
Manufacturing (excl. sugar)
Commerce, small repairs
Other Services
Publich health and social services
Source: GTA, Haver, ONE, Country authorities, NOAA, BIS, DX Data.
Note: The median one-quarter seasonally adjusted change in the variable is shown for the
period in the header.
| 18 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
provisioning, tourism, construction, etc.) are highly comparable across
economies, which is not surprising given the significant structural similarities. Notable differences can be seen in goods production and
what Cuban authorities classify as “other” services. Low goods production in Cuba, as a percentage of total GDP, is compensated for by
production of “other” services, specifically education, health, and sports
services (financial intermediation, real estate, etc. which also fall under
“other” services are below the level of the Dominican Republic). Table
3 compares the evolution of GDP shares since 1997 between the two
countries. The share of basic services in Cuba has been stable over this
period, while in the Dominican Republic it experienced growth. In
Cuba, the share of goods production has declined throughout the period by nearly double the rate of decline observed for the Dominican
Republic. 11 The share of other services increased for Cuba, largely
as a result of two discreet jumps in 2004–05, while the Dominican
Republic experienced a decline.12
Table 4 shows real GDP growth in Cuba and the Dominican Republic
for the years 1997–2009. It is notable that during every one of the 5 years
of negative goods production growth in Cuba, “other” services grew by
significant amounts, as much as 25 percent in 2005. In 2009 (the lowest
year of goods production in this period), the 4 percent increase in “other”
services more than offset the 3.6 percent decline in goods production.
Table 5 shows each Sector’s annual and total contribution to growth.
During this period, Cuba’s GDP grew approximately 85 percent in total,
of which approximately 8 percent is attributable to more goods production
in the economy, and of which over half (45 of the 85 percent increase in
GDP) is due to increased production of “other” services within Cuban
borders. Hence, according to the official statistics, real economic activity
The discreet jumps in growth during this period broadly coincide with a change
in the methodology of national accounts in Cuba, as discussed in Perez-Lopez and
Mesa Lago (2007).
12
A sometimes mentioned explanation is the expansion of medical and other
social services abroad, specifically to Venezuela. GDP, however, is a measure of a
country’s market value of all final goods and services made within the borders of a
country in a year, and hence difficulties arise with this explanation. In any event,
reconciling alternative explanations as to the source and compatibility of such revisions and how these would enter conventional national accounting is beyond the
scope of this study.
11
| 19 |
Rafael Romeu
Table 3: Sectoral Shares of Total Real GDP, Cuba and the
Dominican Republic
Cuba
Goods
Dominican Republic
Services
Basic
Goods
Other
Services
Basic
Other
46.6
34.8
18.6
Share of Real GDP
1997
27.6
40.3
32.1
1998
1999
26.4
41.8
31.8
46.9
35.3
17.8
26.8
41.4
31.8
46.5
36.4
17.0
16.7
2000
27.0
42.0
31.0
47.2
36.0
2001
25.8
42.8
31.4
45.6
37.4
17.0
2002
25.5
42.7
31.8
44.8
38.4
16.8
2003
24.5
43.6
31.9
43.8
37.8
18.3
2004
23.8
41.6
34.5
43.8
37.6
18.6
2005
21.2
40.1
38.7
44.1
39.4
16.6
2006
19.6
43.4
37.0
43.5
40.6
15.9
2007
20.2
40.6
39.2
43.4
41.2
15.4
2008
20.2
39.5
40.3
42.2
42.7
15.1
2009
19.2
39.5
41.3
41.7
42.8
15.4
Source: ONE, Cuba, Central Bank of the Dominican Republic.
Note: GDP growth, contribution to growth, and shares are presented for the Dominican
Republic, and Cuba. For the Dominican Republic, sectoral real GDP is reclassified into the
three main categories used by the Cuban authorities (Goods, Basic Services, and Other Services).
in Cuba was approximately 40 percent greater in 2010 than in 1997 due
expanded production in the areas of medicine, sports, and education
services during this period. During this same period, the Dominican
Republic doubled its real GDP, due largely to growth in basic services and
goods production.
Figure 3 shows the reweighted Cuban annual GDP intended to address
the potential bias towards “other” services described above. The observed
Cuban real GDP growth rates for the three broad sectors (Goods, Basic and
Other Services Production) are reweighted so that the broad sectors shown
in Table 2 match the weights for the Dominican Republic shown in Table
2. Aggregate GDP growth for the imputed series for Cuba is the sum of
these three sectors using the Dominican Republic weights. Figure 3 shows
| 20 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
Table 4: Real GDP Growth in Cuba and the
Dominican Republic
Cuba
Goods
Dominican Republic
Services
Basic
Goods
Other
Services
Basic
Other
10.0
2.8
Annual Growth
1997
0.9
1.2
3.2
8.7
1998
-2.3
6.1
1.2
7.8
8.5
2.2
1999
8.1
5.2
6.4
5.8
10.2
2.1
2000
6.4
7.4
2.9
7.3
4.5
3.7
2001
-2.5
4.1
3.3
-1.8
5.7
3.6
2002
0.2
1.0
3.0
4.0
8.5
4.5
2003
-2.0
3.9
2.1
-2.4
-1.7
8.8
2004
4.9
3.0
16.6
1.3
0.6
2.9
2005
-1.0
7.1
24.5
9.9
14.5
-2.9
2006
3.7
21.2
7.2
9.2
14.2
6.1
2007
10.3
0.4
13.7
8.1
10.0
5.5
2008
4.3
1.3
6.9
2.4
9.2
3.0
2009
-3.6
1.2
4.0
2.4
3.7
5.6
Source: ONE, Cuba, Central Bank of the Dominican Republic.
Note: GDP growth, contribution to growth, and shares are presented for the Dominican
Republic and Cuba. For the Dominican Republic, sectoral real GDP is reclassified into the three
main categories used by the Cuban authorities (Goods, Basic Services, and Other Services).
the divergence between the official and imputed series growing around the
mid 2000s. Moreover, the imputed series and the Dominican Republic real
GDP growth series seem to move in parallel, which implies that Cuba’s imputed GDP grows at the same rate as that of the Dominican Republic. This
is no small feat, as the Dominican Republic is one of the fastest growing
economies in the Western Hemisphere and recorded the highest official real
GDP growth rate during the 2009 global financial crisis.
Nonetheless, Figure 4 shows that the official real GDP growth series
for Cuba grew even faster, with double digit growth around the period of
the statistical revisions in 2004–06. Moreover, the imputed series shows
negative overall growth for Cuba in 2009 — with lower growth than after
the 2001–02 global recession, while the official growth shows the impact of
| 21 |
Rafael Romeu
Table 5: Contribution to Growth by Sector, Cuba and the
Dominican Republic
Cuba
Goods
Dominican Republic
Services
Basic
Goods
Other
Services
Basic
Other
Annual Contribution to Growth
1997
0.2
0.5
1.0
4.0
3.4
0.5
1998
-0.6
1999
2.1
2.5
0.4
3.6
3.0
0.4
2.2
2.0
2.7
3.6
0.4
2000
1.7
3.0
2001
-0.7
1.7
0.9
3.4
1.6
0.6
1.0
-0.9
2.1
2002
0.0
0.4
0.6
0.9
1.8
3.2
0.8
2003
-0.5
1.7
0.7
-1.1
-0.7
1.5
2004
1.2
1.3
5.3
0.6
0.2
0.5
2005
-0.2
3.0
8.5
4.3
5.5
-0.5
2006
0.8
8.5
2.8
4.1
5.6
1.0
2007
2.0
0.2
5.1
3.5
4.1
0.9
2008
0.9
0.5
2.7
1.0
3.8
0.5
2009
-0.7
0.5
1.6
1.0
1.6
0.8
Total
8.2
33.4
45.7
38.3
52.6
11.7
Source: ONE, Cuba, Central Bank of the Dominican Republic.
Note: GDP growth, contribution to growth, and shares are presented for the Dominican
Republic and Cuba. For the Dominican Republic, sectoral real GDP is reclassified into the three
main categories used by the Cuban authorities (Goods, Basic Services, and Other Services).
the global crisis of 2009 on growth approximately equal to that of 2001–02.
Figure 5 shows the output gap for the official and imputed real GDP series
for Cuba.13 The output gap resulting from the official GDP series is choppy — swings in the output gap of approximately five percentage points
of GDP occur in 5 of the 13 years (1999, 2002, 2005, 2008). The entire
span from 1995–2006 shows a negative output gap except for one year
(2000) based on the official real GDP series. While this is to some extent
plausible given the deep recession in the early 1990s, it is surprising given
The output gap is the difference between observed and potential real GDP as
a percentage of potential. Potential, or trend GDP, is calculated as the Hodrick
Prescott filtered trend.
13
| 22 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
Figure 3: Annual GDP for the Dominican Republic and Cuba,
Official and Imputed
220
Real GDP (1996=100)
196
172
148
n Cuba, reported
n Cuba, imputed
n Dom. rep.
124
100
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: ONE, Cuba, Central Bank of the Dominican Republic.
Note: GDP growth is presented for Cuba. Total GDP growth in Cuba is calculated in two
ways, first (labeled “reported”), using the national definition, and second (labeled “imputed”), summing sector GDP growth rates after reweighting each sector based on the weights
from the Dominican Republic.
the very high growth rates reported in Table 4 for 2004–05, and low levels
of investment reported in other studies.14
Figure 6 compares the quarterly nowcast based on the official data with
the nowcast resulting from the imputed alternative GDP discussed above.
A striking difference is the growing gap between the two forecasts, despite
using the same underlying quarterly indicators. A forecast based on the
official GDP predicts a mild recession with growth resuming at healthy
albeit slightly lower levels than those experienced prior to the onset of the
crisis in 2010. A forecast based on the alternative GDP shows essentially
zero growth going forward for Cuba. This is confirmed in Figure 7, which
compares the quarterly real (seasonally adjusted, annualized) growth rates
based on the official and alternative annual real GDP series. While both
nowcasts reflect the recession and the size of the quarterly negative growth
14
Because it implies either a very large initial output gap, or that trend or potential
output could be growing without investment, which is documented in Di Bella and
Wolfe (2008).
| 23 |
Rafael Romeu
Figure 4: Comparison of Official and Imputed GDP Growth
for Cuba
15
Real GDP Growth (in percent)
11
n Cuba, reported
n Cuba, imputed
7
3
-1
-5
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: ONE, Cuba, Central Bank of the Dominican Republic.
Note: GDP growth is presented for Cuba. Total GDP growth in Cuba is calculated in two
ways, first (labeled “reported”), using the national definition, and second (labeled “imputed”), summing sector GDP growth rates after reweighting each sector based on the weights
from the Dominican Republic.
is approximately equal, the alternative series shows a prolonged recession
with a slow recovery and relapse into negative growth in 2010. In the
projection period, the alternative series shows very low growth while the
official series-based nowcast forecasts a steady recovery to approximately
five percent growth.
Finally, Figure 8 shows the alternative annual GDP growth series (black)
graphed against the quarterly estimated growth rates (gray), with 95 percent confidence bands in projection period. The figure shows the greater
information gained from a quarterly real GDP series relative to annual
GDP. The quarterly data reveals a deeper and longer recession in the early
1900s than the annual series would suggest. Moreover, periods of sustained
negative growth following the two global crises in the decade ending in
2010 are largely missed by the annual data. Finally, the projection suggests
five percent growth at the upper band and a return to negative growth at
the lower band for the forecast period.
| 24 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
Figure 5: Annual Imputed and Official Real GDP and
Output Gap
Official GDP
Output gap (bars, left, in percent of potential)
Real GDP levels and Potential Real GDP (lines, right)
50
40
4
30
20
0
10
-4
0
n GDPO_GAP
nGDPO
n GDPO_HP
-8
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
50
Alternative GDP
40
30
4
20
0
10
-4
0
n GDPA_GAP
nGDPO
n GDPA_HP
-8
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
Source: ONE, Cuba, Central Bank of the Dominican Republic, Cuba; Author’s estimates.
Note: Annual real output gap (bars, left, in percent of potential real GDP) is graphed against
observed and potential real GDP levels for the official GDP data in the top panel, and the
alternative imputed data based on sectoral GDP weights from the Dominican Republic in the
bottom panel.
| 25 |
Rafael Romeu
Figure 6: Comparing Official and Alternative Real GDP
in Levels
300
275
Real GDP (1980=100)
250
Quarterly Nowcast of GDP in Levels
n Official
n Alternative
225
200
175
150
125
100
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: ONE, Cuba, Central Bank of the Dominican Republic, Cuba; Author’s estimates.
Note: Quaterly (Seasonally adjusted annualized rate) growth of GDP is shown for official and
imputed real Cuban GDP. Alternative GDP is imputed by reweighting sectoral GDP growth
using weights from the Dominican Republic.
Conclusions
This chapter introduces a framework for describing the state of the
economy in Cuba through a transparent, data-driven framework that
yields real, seasonally adjusted GDP growth. This framework attempts
to address two potential problems with the official annual real GDP
figures published by the Cuban Office of National Statistics. First,
the potential for a bias in the weighting of what Cuban authorities
call “other” services, specifically, the provision of education, health,
and sports services. This is addressed by reweighting the official data
provided by Cuban authorities with GDP sector weights from a comparable regional economy — the Dominican Republic. The second
problem is that of timeliness. Annual releases of real GDP data are
insufficient for a timely assessment of the state of the economy for any
country, making it difficult for policymakers and economic agents
| 26 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
Figure 7: Comparing Official and Alternative Quarterly
GDP Growth
15
Annualized One-quarter SA Growth
Quarterly Nowcast of GDP Growth
10
5
n Official
n Alternative
0
-5
-10
-15
-20
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: ONE, Cuba, Central Bank of the Dominican Republic, Cuba; Author’s estimates.
Note: Quaterly (Seasonally adjusted annualized rate) growth of GDP is shown for official and
imputed real Cuban GDP. Alternative GDP is imputed by reweighting sectoral GDP growth
using weights from the Dominican Republic.
to make informed decisions. The proposed framework combines the
proposed alternative real GDP series with a nowcasting econometric
methodology to estimate a quarterly real GDP series that is timely, can
be updated on an ongoing basis, and attempts to correct for potential
biases in the official data.
The alternative real GDP based quarterly growth rates presented exhibit
a number of characteristics that seem reasonable and comparable to other
countries, and are not present in the quarterly estimates based on the official GDP series. For example, transitions from recessions to expansions in
the Cuban economy look smoother and more plausible in the alternative
estimated quarterly real GDP growth rates. Recessions are shown both
after the global downturn in 2001–02, and again in 2009, consistent with
recessions in neighboring countries during the same periods. Finally, the
forecast suggests a sluggish recovery, the result of which will be very low
growth rates in the near future for Cuba.
| 27 |
Rafael Romeu
Figure 8: Imputed and Official GDP, Annual and
Quarterly Growth
Cuba quarterly GDP growth from DFM
15
10
5
0
-5
-10
n Actual YoY
n Model Projection
-15
-20
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: ONE, Cuba, Central Bank of the Dominican Republic, Cuba; Author’s estimates.
Note: The two charts report annual GDP growth (black line) and quarterly estimated growth
(gray line) with 95 percent confidence bands in projection period. The top panel growth
rates and estimated quarterly growth based on official growth. The bottom shows imputed
annual GDP growth based on reweighting sectoral GDP growth using weights from the
Dominican Republic.
R eferences
Chow, G & Lin, A., 1971, “Best linear unbiased interpolation, distribution, and
extrapolation of time series by related series,” The Review of Economics and Statistics,
vol.53, pages 372–375.
Di Bella, G. & A. Wolfe, 2009, “Challenges for Economic Measurement and
Policies in a Bimonetary Economy,” Cuba in Transition, Vol. XIX, Association
for the Study of the Cuban Economy, http://lanic.utexas.edu/project/asce/pdfs/
volume19/.
Forni, M., Hallin, M., Lippi, M., & Reichlin, L., 2000, “The Generalized
Dynamic-Factor Model: Identification and Estimation,” The Review of Economics
and Statistics, vol. 82, pages 540–554.
| 28 |
Inferring Quarterly Real Gross Domestic Product Growth
in Cuba During the Global Financial Crisis
Giannone, D., L. Reichlin, & D. Small, 2008, “Nowcasting: The real-time informational content of macroeconomic data,” Journal of Monetary Economics, vol. 55(4),
pp. 665–676.
Liu, P. and R. Romeu, 2010, “Extracting quarterly GDP from Annual: Bahamas
and Cuba,” Cuba in Transition, Vol. XX, Association for the Study of the Cuban
Economy, forthcoming.
Mesa-Lago, C. & J. Pérez-López, 1985, “Study of Cuba’s Material Product System,
Its Conversion to the System of National Accounts, and Estimation of Gross
Domestic Product per Capita and Growth Rates,” World Bank Staff Working Papers
No. 770 (Washington: World Bank).
Perez-Lopez, J. & C. Mesa Lago, 2009, “Cuban GDP Statistics Under the Special
Period: Discontinuities, Obfuscation, and Puzzles,” Cuba in Transition, Vol. XIX,
Association for the Study of the Cuban Economy, http://lanic.utexas.edu/project/
asce/pdfs/volume19/.
Romeu and Wolfe, 2010, “Recession and Policy Transmission to International
Tourism: Does Expanded Travel to Cuba Offset Crisis Spillovers?” IMF Working
paper, forthcoming.
Sánchez, N. & M. Cahill, 1998, “The Strengths and Weaknesses of Factor Analysis
in Predicting Cuban GDP,” Cuba in Transition, Vol. VIII, Association for the Study
of the Cuban Economy, pp. 273–288, http://lanic.utexas.edu/la/cb/cuba/asce/
cuba8/32sanchez.pdf.
Stock, J. & Watson, M., 2002, “Macroeconomic Forecasting Using Diffusion
Indexes,” Journal of Business & Economic Statistics, vol. 20, pages 147–62.
Vidal, P., 2010, “Cuban Economic Policy Under the Raúl Castro Governmet,”
Institute of Developing Economies of the Japan External Trade Organization,
http://www.ide.go.jp/Japanese/Publish/Download/Report/2009/pdf/2009_408_
ch2.pdf.
| 29 |
The Global Financial Crisis and
Cuba’s External Sector
Jorge F. Pérez-L ópez
T
he financial crisis that buffeted the world economies beginning
in 2008 stemmed from liquidity shortfalls in the U.S. banking
system. Interdependent financial markets quickly transmitted what was a U.S. liquidity problem across borders creating a veritable global crisis deemed the most severe since the Great Depression
in the 1930s. Global GDP in 2009 declined by an estimated 2.1 percent, world trade shrank by 11.6 percent, and the flow of capital to developing countries slowed considerably.1 Although by mid-2010 most of
the world’s economies had again resumed positive growth, the negative
effects of the crisis still lingered in the form of slower growth, foreign
trade flows that had not fully returned to pre-crisis levels, and high
unemployment rates.
The financial crisis took its toll on the economies of Latin America, and
Cuba was no exception. According to statistics compiled by the Economic
Commission for Latin America and the Caribbean of the United Nations
(ECLAC), in 2009 the GDP of the countries of Latin America and the
Caribbean declined by 1.9 percent.2 The primary channels for the transmission of the crisis to Latin America were: (1) a decline in worker remittances
to the region; (2) a contraction of world trade, particularly of manufactured
goods and services exported by some Latin American countries; and (3) the
World Bank, Global Economic Prospects: Fiscal Headwinds and Recovery. Washington:
World Bank, Summer 2010.
2
ECLAC, Estudio Económico de América Latina y el Caribe 2009–2010. Santiago,
ECLAC, Julio de 2010.
1
| 31 |
Jorge F. Pérez-López
drying up of external financing (loans, bonds, foreign investment).3 ECLAC
predicted that the region’s GDP would grow by 5.2 percent in 20104 as a
result of a solid demand for Latin American and Caribbean goods in Asia,
a slight improvement of the U.S. economy (affecting both remittances and
imports from the region), recovery of the tourism industry, and countercyclical policy actions taken by the Latin American nations.5
Several scholars have analyzed aspects of the impact of the global economic crisis on the Cuban economy, prospects for the future, and policy
options.6 This paper aims to update some of these earlier studies, focusing
attention on the impact of the crisis on the country’s external sector. The
first section of the paper reviews Cuba’s recent economic performance and
actions taken by the Cuban government to address imbalances intensified
José Antonio Ocampo, “Impactos de la crisis financiera mundial sobre América
Latina,” Revista CEPAL, 97 (Abril 2009). To elaborate on these factors: (1) the
Multilateral Investment Fund, Inter-American Development Bank, Remittances
to Latin America and the Caribbean in 2009: The Impact of the Global Financial Crisis
(Washington, IDB, 2010) estimates that remittances to Latin America and the
Caribbean declined by 15% in 2009; (2) the World Trade Organization (WTO),
World Trade Report 2010 (Geneva, WTO, July 2010), has reported that world trade
in 2009 declined by 12.2% in volume terms, the largest decline in over 70 years;
exports from South and Central America (including the Caribbean) fell by 5.7% and
imports by 16.3%.
4
ECLAC, Estudio Económico de América Latina y el Caribe 2009–2010.
5
For a summary of policy initiatives to deal with the financial crisis in the areas of
(1) monetary policy; (2) fiscal policy; (3) exchange rate and trade policy; (4) sectoral
policies; (5) labor and social policies; and (6) multilateral financing, see CEPAL,
La reacción de los gobiernos de las Américas frente a la crisis internacional: una presentación
sintética de las medidas de política anunciadas hasta el 31 de diciembre de 2009 (Santiago,
enero 2010). The study notes (p. 22) that there was no information on measures
specifically designed by Cuba to combat the crisis.
6
See, e.g., Pavel Vidal Alejandro, “La disyuntiva actual de la política económica
cubana,” Economic Press Service, 18 (30 de septiembre de 2008), https://www.
nodo50.org/cubasigloxxi/economia/vidal_311008.pdf; Luis R. Luis, “Cuban
External Finances and the Global Economic Crisis,” Cuba in Transition—Volume
19. Washington: Association for the Study of the Cuban Economy, 2009; Lorenzo
L. Pérez, “The Impact of the Global Financial and Economic Crisis on Cuba,”
Cuba in Transition—Volume 19. Washington: Association for the Study of the
Cuban Economy, 2009; and Carmelo Mesa-Lago, “La veleta económica cubana:
Huracanes internos, crisis mundial y perspectivas con Obama,” Encuentro, no. 51/52
(invierno/primavera 2009).
3
| 32 |
The Global Financial Crisis and Cuba’s External Sector
by the crisis. The second section attempts to examine the behavior of the
external sector during the crisis using the balance of payments (BOP)
framework. It should be noted that Cuba has not published BOP statistics
for several years and therefore analysis based on current statistics is not
possible. The paper ends with some general conclusions regarding the
prospects for the external sector and the constraints that it places on Cuba’s
growth performance.
R ecent Cuban Economic Growth
and the
Crisis
On the heels of China-like official GDP growth rates of 11.2 percent in
2005, 12.1 percent in 2006, and 7.3 percent in 2007,7 Cuba recorded a 4.1
percent growth rate in 2008. Although a faster growth rate had been projected, economic performance was adversely affected by natural causes —
hurricanes that wreaked havoc with the agricultural sector, transportation
and communication infrastructure, and the housing stock — and unfavorable developments in the terms of trade. International prices soared for
key commodity imports such as food and oil (in mid-2008 prices of basic
foodstuffs reached a 30-year high with oil peaking at a historical $150 per
barrel), while prices fell sharply for Cuba’s key commodity export, nickel
(from a historical high of about $50,000 per ton in 2007 to about $15,000
per ton in 2008).8 Caught in a credit crunch, Cuba advised creditors in
Japan, Germany, France, and China that it would need to reschedule some
of its debt payments due in 2008; moreover, in the second half of the year,
For a critical analysis of recent Cuban GDP statistics and a discussion of the
methodological “innovations” that Cuba has made that might be responsible
for at least a portion of the very impressive macroeconomic results see Jorge
Pérez-López and Carmelo Mesa-Lago, “Cuban GDP Statistics Under the Special
Period: Discontinuities, Obfuscation, and Puzzles,” Cuba in Transition—Volume 19.
Washington: Association for the Study of the Cuban Economy, 2009.
8
United Nations Conference on Trade and Development, Recent developments in
key commodity markets: trends and challenges. New York: United Nations (12 January
2010). With regard to the international price of nickel, Minister of Basic Industries
Yadira García has been quoted as stating at the end of 2008 that it fell from $53,000
to $9,000 per ton; the value of Cuban nickel exports in 2008 were approximately
$552 million compared to $2,700 million in 2007. See “Los ingresos por la exportación de níquel cayeron drásticamente,” Cubaencuentro (December 26, 2008), http://
www.cubaencuentro.com/cuba/noticias/los-ingresos-por-la-exportacion.
7
| 33 |
Jorge F. Pérez-López
foreign businessmen ( joint venture partners, commercial distributors of
imported goods and services) reported delays and slowdowns in payments
from state entities.9
For 2009, Cuban authorities projected a GDP growth rate of 6 percent, a
slight improvement over the previous year. Then-Minister of Economics and
Planning José Luis Rodríguez reported to the National Assembly of People’s
Power in December 2008 that 2009 would be a challenging year, as “international economic perspectives for 2009 were even more complex than those
faced in the current year [2008] as an economic crisis of great dimension was
deepening.”10 As the year 2009 progressed and the global economic crisis
intensified, Cuban economic officials revised down growth projections, first
to 2.5 percent at mid-year and then to 1.7 percent.11 For the year 2009 as a
whole GDP grew by 1.4 percent according to official statistics.12
An uncharacteristically well-documented article in Juventud Rebelde
published in mid-2009 set out the breadth and seriousness of the economic
situation through interviews with government officials and academic economists.13 Vice Minister of Economics and Planning Vázquez-Roque addressed
the overall reduction in the country’s foreign income flows that adversely
affected liquidity and the ability to meet international obligations. Many
adjustments to the economic plan were being made to curb consumption
Marc Frank, “Financial crisis one more woe for beleaguered Cuba,” Havana,
Reuters (October 3, 2008); “Global crisis, storms hit Cuba finances,” Havana,
Reuters (December 17, 2008). See also Patricia Grogg, “’Impossible to Escape
Impact’ of Crisis—Experts,” Havana, IPS (October 22, 2008).
10
José Luis Rodríguez, Presentación a la Asamblea Nacional del Poder Popular del
Informe sobre los Resultados Económicos del 2008 y los Lineamientos del Plan
Económico y Social para el 2009, http://www.cubagob.cu/des_eco/mep/informe_
resultados2008.htm.
11
ECLAC, “Cuba,” in Preliminary Overview of the Economies of Latin America and the
Caribbean 2009, p. 121.
12
“Diputados aprueban presupuesto y planes para el 2010,” Agencia Cubana de
Noticias, Diciembre 20, 2009, http://www.ain.cu/2009/diciembre/diciembre20iggasamblea.htm. In early March 2009, as part of a realignment of cabinet posts,
Marino Murillo Jorge replaced José Luis Rodríguez as Minister of Economics and
Planning.
13
Yailin Orta Rivera, “Especialistas y funcionarios cubanos analizan cómo la Isla
puede enfrentar la crisis mundial,” Juventud Rebelde (21 de junio de 2009), http://
www.juventudrebelde.cu/cuba/2009-06-21/especialistas-y-funcionarios-cubanos.
9
| 34 |
The Global Financial Crisis and Cuba’s External Sector
(e.g., reducing electricity generation to save on fuel imports) and to limit
investments strictly to those of highest priority. Economist Pérez Villanueva
focused on the erosion of the terms of trade for merchandise exports and
the weakening of demand for services exports, coupled with a slowdown of
international tourism and a reduction in remittances. Economist Marquetti
highlighted the global contraction of international credit and the importance
of short-term credits to finance international commerce. Lack of credit,
several interviewees agreed, can be disastrous for the economy as factories
close down because imported raw materials cannot be financed. Policy actions suggested by Cuban economists and government officials to address the
crisis included the oft-repeated calls to increase productivity and efficiency,
increase production of exportables, conserve electricity (and energy more
generally), and increase food production.
As liquidity problems grew, the Cuban government put measures in
place to restrain hard currency outflows. Cuba slashed imports of a range
of consumer, intermediate, and capital goods, and called on workers to
work harder and to do more with less. The country also juggled its credit
portfolio, seeking to restructure some deals, delaying payments to creditors, and restricting transfers by foreign companies operating in the island,
including joint ventures. An estimated $1 billion in the accounts of some
600 companies in Cuban banking institutions was frozen in early 2009.14
According to official Cuban statistics, in 2009 merchandise trade turnover
(sum of exports and imports) fell by 34.1 percent, while exports tumbled by
21.4 percent and imports by 37.4 percent.15 Exports generated by the mining
industry declined (in value terms) by over 41 percent from 2008 and by nearly
60 percent compared to 2007; exports fell across all categories — sugar industry, fisheries, tobacco, agriculture, and miscellaneous products. One of the very
few export bright spots was medicines and pharmaceutical products, whose
Marc Frank, “Cuban payments crisis goes on, businesses in limbo,” Havana,
Reuters ( June 23, 2010). See also Juan O. Tamayo, “Cuba faced worst economic
crisis in ’09,” The Miami Herald ( January 1, 2010). For efforts by foreign governments to lobby for payment on behalf of their citizens see, “Los gobiernos extranjeros, bajo presión por los cientos de millones de dólares congelados en la isla,”
Cubaencuentro (November 11, 2009), http://www.cubaencuentro.com/es/layout/
set/simple/cuba/noticias/los-gobiernos-extranjeros.
15
Oficina Nacional de Estadísticas, Sector Externo en Cifras—Cuba 2009. ONE,
Junio 2010.
14
| 35 |
Jorge F. Pérez-López
exports in value terms rose by nearly 78 percent, to about $520 million,
more than twice the $226 million generated by the sugar industry as a
whole. Imports of capital goods and intermediate goods (the latter includes
raw materials) were slashed by roughly the same 39 percent. Even imports from Cuba’s closest allies suffered substantial declines: imports from
Venezuela fell by 42 percent and from China by nearly 21 percent. Imports
from the United States (nearly all food products) fell by 30 percent.
Approximately 2.43 million tourists visited Cuba in 2009, generating
$1,926 million in revenues for the island. However, while the number of
tourist arrivals increased by 3.5 percent compared with 2008, revenue decreased by 7.9 percent,16 suggesting that Cuba might have lowered prices
of tourism offerings to attract volume.
The Impact
of the
Crisis
on the
External Sector
The main transmission mechanisms from the global economic crisis to
Cuba were: (1) international market prices of the main commodities that
Cuba exports and imports; (2) foreign demand for Cuban services like
tourism and professional services exports (i.e., services provided abroad
by Cuban professionals); (3) fluctuations in the flow of remittances; (4)
availability of foreign bank credit; and (5) international environment for
external debt rescheduling.17 The balance of payments (BOP), a set of accounts that records all monetary transactions between a country and the
rest of the world, would be the most appropriate framework for examining
the impact of the financial crisis on Cuba’s external sector. However, as will
be discussed below, this is particularly challenging because of the paucity
and lack of timeliness of Cuba’s BOP statistics.
The BOP scheme has two principal divisions or accounts: (1) the current
account, which shows the net amount a country is earning and spending
from trade of goods and services (exports — imports), factor income (payments made to foreign investors) and other cash transfers (remittances,
foreign aid); and (2) the capital and financial accounts, which record the
net change in ownership of foreign assets, including loans and foreign
investment, and reserves. Cuba has not published comprehensive balance
16
17
Tourism statistics are from Anuario estadístico de Cuba 2009.
Pérez, “The Impact of the Global Financial and Economic Crisis on Cuba,” p. 118.
| 36 |
The Global Financial Crisis and Cuba’s External Sector
Table 1: Cuban Balance of Payments (millions of dollars)
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
I. Current Acount
Balance
392.4
461.8
696.2
605.3
343.0
20.0
116.0
140.2
215.0
488.0
Good exports
FOB
540.2
456.1
675.3
621.9
421.7
671.0
180.0
369.3
167.0
830.0
Goods imports
FOB
229.0
365.4
795.6
469.0
810.0
245.0
098.0
604.3
498.0
083.0
Goods trade
balance
688.8
909.3
120.4
847.1
388.3
574.0
918.0
235.0
331.0
253.0
Service Exports
592.1
854.7
114.1
571.1
450.3
979.0
450.0
550.0
667.0
192.0
Service Imports
660.0
692.0
808.1
640.0
625.0
650.0
740.0
175.0
211.0
292.0
Goods and
services trade
balance
756.7
746.6
814.4
916.0
563.0
245.0
208.0
140.0
125.0
647.0
Income balance
448.7
514.1
622.2
502.2
600.0
650.0
650.0
633/2
618/0
960.0
Current transfers
blance
813.0
798.9
740.4
812.9
820.0
915.0
974.0
367.2
277.7
199.0
II. Capital
account balance
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
III. Financial
account balance
409.9
484.9
805.4
594.5
300.0
200.0
800.0
-
-
-
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
V. Global Balance
17.0
23.1
109.2
10.8
43.0
220.0
916.0
-
-
-
VI. Reserves and
Relted Items
17.0
23.1
109.2
10.8
43.0
220.0
916.0
-
-
-
Reserve assets
17.0
23.1
109.2
10.8
43.0
220.0
916.0
-
-
-
IV. Errors and
ommisions
Source: CEPALSTAT, September 2010
| 37 |
Jorge F. Pérez-López
of payments statistics including both the current account and the capital/
financial account since 2001.18 Thus, the most recent issue of the official
statistical yearbook, Anuario Estadistico de Cuba 2009, contains information on selected items of the current account through 2007 but does not
contain any information on the capital/financial accounts. Partially filling
this gap, ECLAC has published summary BOP statistics presumably on the
basis of information provided by Cuba’s Oficina Nacional de Estadísticas
(ONE); these statistics, for the period 1998–2007, are given in Table 1. This
section of the paper relies on the BOP statistics published by ECLAC.
Because Cuba uses at least three different currencies,19 there is considerable uncertainty about which currency is used by the Cuban government
in its external accounts. While the Anuario and other official statistical
publications report external sector statistics in pesos, international organizations (such as ECLAC) report the same figures in U.S. dollars. This
chapter follows this convention and use pesos and dollars interchangeably
in its discussions of Cuban BOP and other foreign sector statistics.
Current Account
and its
Components
Merchandise Trade: Rows 2–4 of Table 1 present data on Cuban goods
or merchandise exports, imports,20 and trade balance (value of exports
minus value of imports) for the period 1998–2007. Trade in goods was in
deficit during every year of the reference period. In 2006, Cuba’s traded
goods deficit peaked at nearly $6.3 billion, a new record. Based on preliminary data, the traded goods deficit in 2007 was estimated by ECLAC at
The statistical yearbooks for 2002 and 2003, for example, repeat the same BOP
data that appeared in the 2001 yearbook, namely BOP statistics for 1997–2001.
19
As of 2010, the following currencies were used in Cuba: (1) the Cuban peso (CP),
the official currency, which is not freely exchanged in international markets for
other currencies; (2) the convertible Cuban peso (CUC), a currency created in 1994
that is exchangeable in international markets and was originally valued at par with
the U.S. dollar; and (3) the U.S. dollar (USD), whose circulation in the island was
legalized in 1993; although the USD has been devalued vis-à-vis the CUC and a fee
to exchange USD is charged by the government, the USD remains highly sought
by the population as a store of value.
20
Following BOP statistics conventions, the value of imports is shown with a
negative sign.
18
| 38 |
The Global Financial Crisis and Cuba’s External Sector
Table 2: Cuban Merchandise Trade, 2001–2009
(million pesos)
Exports
Imports
Trade Balance
1998
1512.9
4229.0
-2716.1
1999
1496.0
4391.3
-2895.3
2000
1676.2
4843.3
-3167.1
2001
1622.0
4851.3
-3229.3
2002
1421.7
4188.1
-2766.4
2003
1688.0
4672.8
-2984.8
2004
2332.1
5615.2
-3283.1
2005
2159.4
7604.3
-5444.9
2006
2924.6
9497.9
-6573.3
2007
3685.7
10079.2
-6393.5
2008
3664.2
14234.1
-10569.9
2009
2879.0
8909.5
-6030.5
Source: Oficina Nacional de Estadísticas, Sector Externo en Cifras: Cuba 2009
(La Habana, 2010).
over $6.2 billion. More recent official Cuban statistics (see Table 2) have
revised the traded goods deficit for 2007 to nearly $6.4 billion and indicated that it rose to a new record of $10.6 billion in 2008, falling to
$6.0 billion in 2009 when exports and imports fell sharply as a result of
the crisis.
With the break-up of the Socialist community in the early 1990s and
the loss of preferential trade relations with the Soviet Union (particularly
price subsidies for sugar and ample oil supplies with guaranteed financing),
Cuba’s foreign trade suffered a heavy blow: the value of Cuba’s exported
goods fell from $5.4 billion in 1990 to $1.1 billion in 1993, nearly 80 percent; over the same period, the value of imported goods shrunk from $7.4
to $2.0 billion, or 73 percent. Although merchandise exports and imports
have recovered since then, as of 2009 Cuban merchandise exports, about
$2.9 billion, were still about half of the pre-crisis level ($6.0 billion in 1985),
and not until 2006 did imports surpass the $8.0 billion recorded in that
same year.
| 39 |
Jorge F. Pérez-López
The commodity and partner country composition of goods trade has
changed significantly in the last decade. There was a sharp decline in
sugar’s contribution to exports21 and nickel displaced sugar as the main
export commodity. In 2009, Cuba’s top-five goods export markets —
Venezuela, China, Canada, Netherlands, and Spain, in that order —
took close to two-thirds of Cuba’s exports. Canada and the Netherlands
held these positions in large part because they are the primary outlets for Cuban mineral exports, predominantly nickel. Venezuela and
China have emerged as significant markets for Cuban exported goods,
in line with the strengthening of Cuba’s diplomatic relations with
these nations.
Imports of intermediate goods (which include oil) dominate the Cuban
import basket, accounting for about two-thirds of the total value of imports.
The top-five sources of Cuban imported goods in 2009 — Venezuela,
China, Spain, the United States, and Canada, in that order — accounted for
about 64 percent of total imports. Venezuela is Cuba’s top supplier of imported goods primarily because of oil shipments.22 In recent years, about three
quarters of Cuba’s imports of consumer goods have consisted of food-stuffs
reflecting the poor performance of the agricultural sector. These include
cereals (such as wheat, which is not cultivated in the island because of climatic reasons), but also a range of other food products that can be produced
domestically such as rice, milk, chicken, meat, beans, and so on. The role of
the United States — a country that maintains a trade embargo on the island
— among Cuba’s top-five suppliers of imported goods and key supplier
Sugar exports fell from an average of nearly $500 million during 1988–2001 to a
low of $150 million in 2005, and rose to about $200–$225 million in 2006–2009.
In the latter year, sugar accounted for about 8% of Cuban merchandise exports, a
remarkable drop from the 80–85% share it held during the second half of the 1980s
(when the Soviet Union paid above-market prices for Cuban sugar), clearly showing
the decline of Cuba’s flagship industry of the nineteenth and twentieth centuries.
22
Since the mid-1990s, Venezuela has been the main source of Cuban oil imports,
a position formalized in a cooperation agreement (Acuerdo Integral de Cooperación)
signed in October 2000 by Presidents Castro and Chávez. Venezuela committed to
supply Cuba with 53,000 barrels per day (b/d) of oil and oil products under favorable financing terms in exchange for Cuban technical support and assistance in the
areas of education, public health, sports, and scientific research. In December 2004,
the two sides revised the agreement and increased the guaranteed oil supply level
under concessional terms to 90,000 b/d.
21
| 40 |
The Global Financial Crisis and Cuba’s External Sector
of foodstuffs is notable. Cuba’s rapid growth of imported goods from
China has been financed by a series of credits extended by China to Cuba
since 2004 to purchase Chinese goods such as electro-domestic appliances (particularly rice cookers, refrigerators), electronic products (particularly television receivers), and transportation equipment (particularly buses for local and inter-provincial transportation). As is discussed
below, Chinese credits dried up in 2009, heavily affecting imports from
that country.
Services trade: Rows 5–6 of Table 1 present data on Cuban services
exports and imports. It is evident from these data that throughout the period 1998–2007, Cuban services exports substantially exceeded imports, so
that Cuba consistently recorded positive balances (surpluses) in the services
account. The services surplus was in the range of $2–$3 billion during 1998–
2004, but rose to over $6 billion in 2005 and nearly $8 billion in 2007.
Despite the strong performance of the services sector, the goods and
services trade balance (Row 7) was in deficit during 1998–2004 (although
following a declining trend) because of the large traded goods deficit, but
turned positive in 2005–2007. The value of services exports in these years
were: $6.6 billion in 2005, $6.7 billion in 2006, and $8.2 billion in 2007. In
2007, the merchandise and services trade balance recorded a $1,647 billion
surplus, compared to — $916 million (deficit) in 2001, a truly remarkable
balance of payments turnaround.23
It is very difficult to analyze the performance of the traded services sector since Cuba does not publish disaggregated statistics on either exports or
imports of services, with the exception of tourism. Table 2 compares Cuban
official statistics on gross tourism income during 2000–2009 with the value
of total services exports. From 2000 to 2003, gross tourism income accounted for 65–70 percent of the value of services exports; this share fell to 33
percent in 2005, 30 percent in 2006 and 24 percent in 2007 (the calculation
cannot be carried out for 2008 and 2009 because data on the value of services
exports is not available), as exports of professional services boomed.
The large jump in the value of Cuban services exports beginning in
2005 coincides with Cuba’s emergence as a significant “seller” of health and
other professional services in Venezuela and in other countries. One source
23
See Jorge F. Pérez-López, “Cuba’s Wondrous Balance of Payments Turnaround,”
forthcoming in Cuba Today and the Road Ahead (Center for Inter-American Policy
and Research, Tulane University, forthcoming).
| 41 |
Jorge F. Pérez-López
Table 3: Cuban Services Exports and Tourism Revenue
(million dollars)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Services
exports
3114
2571
2450
2979
3450
6550
6667
8192
-
-
Tourism
revenue
1948
1849
1789
1999
1915
2150
1969
1982
2090
1926
Tourism/
services
exports
(%)
62.6
71.6
72.2
67.1
55.5
32.8
29.5
24.2
-
-
Source: ONE, Anuario Estadistico de Cuba 2009 and earlier issues.
has estimated that in 2006, Cuban medical services exports amounted to
some $2.3 billion;24 another source refers to estimates of overall professional services valued at around $2.4 billion in 2005, with the bulk of such
exports being medical services exports to Venezuela.25
There is virtually no information on how Cuban services exports
are priced. However, for the last several years Cuba has been valuing
medical and social services at “market prices” when computing its
national accounts an approach that is not consistent with international
Julie Feinsilver, “Médicos por petróleo,” Nueva Sociedad, 216 ( July–August 2008),
p. 121, quoting an estimate attributed to a report issued by the Indian Embassy in
La Habana posted on the internet. See also Feinsilver, “Cuba’s Health Politics At
Home and Abroad,” in Morbid Symptoms: Health Under Capitalism: Socialist Register
2010, edited by Leo Panitch and Colin Leys (London: Merlin Press, 2009).
25
Julie Feinsilver, “La diplomacia médica cubana,” citing estimates by The
Economist Intelligence Unit. These estimates are also used by José Félix Oletta, “La
Misión Barrio Adentro, Objetivos Más Allá de la Salud,” Cuba in Transition—Volume
17 (Washington: Association for the Study of the Cuban Economy, 2007).
24
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The Global Financial Crisis and Cuba’s External Sector
national income accounting methodology.26 This methodological change
has resulted in a much larger contribution of the services sector to the
national economy and to faster growth rates. This is a critical research
area, where more detailed information from the Cuban government or
its trading partners would be necessary to ascertain the methodology
underlying the pricing of Cuban health, education, and other exported
services to Venezuela and elsewhere.
Income: The factor income sub-account (Row 8) records employee
compensation paid to non-resident workers and investment income receipts
on external financial assets and liabilities, including on foreign direct investment and portfolio investment. The income sub-account was reportedly
in deficit for the entire period 1998–2007 during which time the income
sub-account reported a deficit that hovered around $550–$660 million,
rising to $960 million in 2007. It is not unreasonable to assume that the
net outflows of income recorded in Table 1 represent profits and payments
to foreign direct investment partners (joint venture partners). As has been
discussed above, Cuba froze payments to joint venture partners in 2008.
Current transfers: Net transfers (Table 1, row 9) were in the range
of $800 million to $1 billion over the period 1998–2004, according to
ECLAC, but declined to a negative $367 million in 2005, a positive $278
million in 2006, and a negative $199 million in 2007.
Cuba does not publish disaggregated data on current transfers but, for the
period 1996–1998, ECLAC provided data on three components of current
transfers: (1) donations, (2) remittances, and (3) other transfers.27 During
this period, remittances represented about 85 percent of current transfers.
Although there is considerable disagreement over the size of cash remittances
to Cuba, it has been estimated that they were $500–$600 million per annum
during the second half of the 1990s and may have exceeded $1 billion per
26
See, e.g., Jorge F. Pérez-López, “Cuba 2005: The ‘Alice in Wonderland’
Economy,” FOCALPoint ( January–February 2006). See also Jorge F. PérezLópez and Carmelo Mesa-Lago, “Cuba’s GDP Statistics Under the Special
Period: Discontinuities, Obfuscation and Puzzles,” Cuba in Transition—Volume 19
(Washington: Association for the Study of the Cuban Economy, 2009).
27
ECLAC, La economía cubana: Reformas estructurales y desempeño en los noventa
(Mexico: Fondo de Cultura Económica, 2000), Table 30.
| 43 |
Jorge F. Pérez-López
annum in the early 2000s. 28 Cuba does not publish statistics on the value of
donations that it receives from abroad or makes to foreign countries but statistics from the Development Assistance Committee of the Organization for
Economic Cooperation and Development suggest Cuba received an average
of $60 million per annum in 1990–99. Since 2000, donations have ranged
from $56 million in 2000 to $127 million in 2008, confirming that donations
have represented a relatively small share of current transfers.
There is no explanation for the sudden drop in net current transfers in
2005–2007, although a new set of restrictions on travel and remittances to
Cuba imposed by the U.S. government in June 2004 was likely a contributing factor.29 While these restrictions could have resulted in a decline in
family remittances from the United States, they cannot explain the huge
drop in current transfers beginning in 2005 and particularly the fact that the
transfers turned negative in 2005 and 2007. One possibility may be that Cuba
began to account for foreign assistance that it provides free of charge to other
countries, but there is no statistical information to buttress this conjecture. In
April 2009, the Obama Administration removed the bulk of U.S. restrictions
on travel and remittances to Cuba by Cuban-Americans.30
Capital
and
Financial Accounts
The capital and financial accounts counterbalance the current account, recording flows of capital and financial assets that support the economy and
the production of goods and services. ECLAC does not provide information
on the capital account but it does provide summary statistics on the financial
account (Table 1, Row 10). The financial account balance data in Table 1
suggest that Cuba had modest access to foreign financing during the period
1998–2004; foreign financial flows rose as high as about $800 million in 2000
and 2004. Again, because information on the components of the financial
See Jorge F. Pérez-López and Sergio Díaz-Briquets, “Remittances to Cuba: A
Survey of Methods and Estimates,”Cuba in Transition—Volume 15 (Washington:
Association for the Study of the Cuban Economy, 2005).
29
For a description of the measures see, e.g., Mark P. Sullivan, Cuba: Issues for the
110th Congress (updated September 24, 2008), Congressional Research Service.
30
See http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reaching-out-tothe-Cuban-people/.
28
| 44 |
The Global Financial Crisis and Cuba’s External Sector
Table 4: Cuban Official External Active Debt, 2004–2007
(millions of dollars)
Total
Short Term
Medium and Long Term
2007
Total debt
8,908
1,982
6,926
Government credits
4,360
645
3,894
Bank credits
1,862
756
1,109
Supplier credits
2,507
581
1,926
5,846
2006
Total debt
7,794
1,947
Government credits
3,945
734
3,212
Bank credits
1,371
318
1,054
Supplier credits
2,477
896
1,581
Total debt
5,898
922
4,976
Government credits
2,787
261
2,526
Bank credits
1,147
346
801
Supplier credits
1,964
314
1,649
Total debt
5,806
1,579
4,227
Government credits
2,573
798
1,775
Bank credits
1,312
424
888
Supplier credits
1,921
357
1,564
2005
2004
Note: In addition to the active debt indicated above, Cuba has reported an “inactive” debt
(deuda inmobilizada) of some $7.6 billion in 2007. This debt, which has not been the subject
of renegotiation since 1986, is mostly (60 percent) official debt with Paris Club creditors.
Sources: ONE, Anuario estadístico de Cuba 2009 and earlier issues.
account is not available, it is not possible to say very much about the behavior
of external financing. Two key areas for Cuba within the financial account
are: (1) foreign loans and credits; and (2) foreign investment.
Cuba does not publish statistics on flows of foreign capital — loans,
credits, and other financial sector transactions. Statistics published in the
statistical yearbook (see Table 4) refer only to the stock of foreign debt and
are not up to date (the 2009 issue of the yearbook contains hard currency
foreign debt statistics for 2004–2007 only). Moreover, the information on
the terms of the debt is very sparse.
| 45 |
Jorge F. Pérez-López
Official statistics on flows of foreign investment were published for a
certain time as part of Cuba’s balance of payments statistics. For 1993–2001
— the only time period for which these data were published — annual
investment flows fluctuated significantly, from $563.4 million in 1994 to
only $4.7 million in 1995.31 Since around 2004, Cuban foreign investment
activity has been dominated by projects with Venezuela and China, primarily in sectors such as oil exploration and refining, mining, tourism,
biotechnology, and electronics.
EXTERNAL SECTOR AND ECONOMIC
GROWTH PROSPECTS
Cuba’s external sector has undergone significant changes in the last decade
or so. The product composition and structure of Cuban foreign trade
have changed significantly. Merchandise trade has been eclipsed by very
fast-growing services trade. Within merchandise trade, there has been a
rearrangement of key export and import commodities, with sugar relinquishing its long-standing leading role among exports to nickel and biotechnology products. Finally, the structure of merchandise trade by partners
has also changed, with a new set of trading partners — led by Venezuela
and China — coming to the fore. The data reviewed in this paper suggest
that Cuba has continued to run significant traded goods deficits, and that
the size of these deficits has risen in recent years.
Cuban statistics on services trade are essentially non-existent. What
little data are available indicate that Cuba has run substantial services trade
surpluses, particularly since 2005, that offset goods trade deficits and even
resulted in positive balances in the overall goods and services trade account
in some years. There are many questions about the composition and valuation of services exports which will not be answered until underlying
data are released by Cuba or by the partner countries.
Speaking at the end of 2009, Minister of Economics and Planning
Marino Murillo predicted that 2010 would be another difficult year for
the economy, and this has turned out to be the case. Economic growth
Official balance of payments data from Anuario estadístico de Cuba 2002 (La
Habana: Oficina Nacional de Estadísticas, 2003) and earlier issues.
31
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The Global Financial Crisis and Cuba’s External Sector
for 2010 was forecast at 1.9 percent,32 slightly higher than the 1.4 percent
realized in 2009.33 While there have been some movements in commodity prices favoring Cuba in the first half of 201034 and remittances have
reportedly risen to about $1.2 billion,35 there has been little relief for the
economy at large. Foreign business accounts remain frozen; in fact, in
March 2010 Cuba offered foreign businesses 2 percent interest per annum
over five years on frozen accounts,36 in essence turning the frozen assets
into credits. With a large and unstable non-performing debt, Cuba has
very limited access to international credit markets save for credits from
“friendly” governments.37
A small island economy with limited natural resources, Cuba has traditionally relied on imports of intermediate and capital goods to generate
national wealth. Foreign exchange is essential to finance such imports
and, to the extent that exports do not generate sufficient levels of foreign
exchange, foreign capital and financial flows must close the gap. Thus,
balance of payments (foreign exchange) restrictions limit the growth of
“Castro reajusta economía cubana para 2010,”Havana, AFP (21 December 2009).
According to official statistics.
34
International prices of nickel recovered to about $21,000 per ton in January–
August 2010, 43% higher than the average price of $14,700 per ton in 2009; over a
like period, international prices of key Cuban imports oil and food rose by 12% and
2%, respectively. Note that in 2009 the international price of sugar was 18.2 cents
per pound and 19.3 cents per pound in the first 8 months of 2010, very favorable
prices for sugar exporters. Cuba is not able to take advantage of the high prices of
sugar as it has dismantled its sugar industry and barely produces sufficient sugar to
meet domestic demand and make some insignificant exports. Commodity price
information from World Bank Commodity Pink Sheet, http://siteresources.worldbank.org/INTDAILYPROSPECTS/Resources/Pnk_0910.pdf.
35
Esteban Israel, “U.S. relatives could spur new Cuba businesses,” Havana, Reuters
(September 23, 2010).
36
Marc Frank, “Cuba offers payback plan for frozen bank accounts,” Havana,
Reuters (March 2, 1010).
37
Luis, “The Impact of the Global Financial and Economic Crisis on Cuba.”
32
33
| 47 |
Jorge F. Pérez-López
the Cuban economy.38 Estimates of Cuba’s income elasticity of demand for
imports for the period 1950–2005 — as calculated by Vidal Alejandro —
indicate that such elasticity has been rising since about 2000 and reached a
near historical high in 2005.39 This means that Cuba’s reliance on imports
to generate output, maintain productive employment, and feed general
economic growth has been deepening. Vidal Alejandro further argues that
a number of structural factors have slowed the growth of Cuban exports,
investment, and GDP: (1) expansion of services sectors while other sectors
such as agriculture and industry lag behind; (2) lack of diversity in the export offerings of the country, as exports of services are key in maintaining
equilibrium in the balance of payments; (3) low multiplier for exports of
services; and (4) low productivity in the state sector, as structural reforms
to promote productivity have not been carried out. Since 2004 the interaction of these factors has led to a growth pattern heavily influenced by
exports of professional services in the context of an open economy with a
small domestic market heavy dependence on imports, and costly foreign
sanctions that affect financing.
There is no question that the growth in services exports in recent years has
had a favorable impact on the current account of the balance of payments and
essentially lifted the foreign exchange constraint. The longer term question is
whether such strong export performance by the external sector could persist
should underlying political circumstances change and Cuba had to offer
such services to other customers absent preferential arrangements. In fact,
economists Martín Fernández and Torres Pérez have fittingly described an
imponderable circumstance that is likely to affect the behavior of the external
sector and of Cuban GDP growth in the years to come:
See, e.g., Juan Carlos Moreno-Brid, “Crecimiento económico y escasez de divisas,” in CEPAL, La economia cubana: Reformas estructurales y desempeño en los noventa
(México: Fondo de Cultura Económica, 2000), 238–248; Guadalupe FugarolasUde, Isis Mañalich Gálves, and David Matesanz López, “Empirical Evidence of
the Balance of Payments Constrained Growth in Cuba: The Effect of Commercial
Regimes since 1960,” MPRA Paper No. 6993, Munich Personal RePEc Archive
(February 2008); and Pavel Vidal Alejandro and Annia Fundora Fernández,
“Relación comercio-crecimiento en Cuba: Estimación con el filtro de Kalman,”
Revista de la CEPAL, 94 (April 2008).
39
Pavel Vidal Alejandro, “El PIB Cubano y el Sector Externo,” paper presented at
Evento XX Aniversario del CEEC, Seminario sobre Economía Cubana y Gerencia
Empresarial, La aHabana, May 27–29, 2009.
38
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The Global Financial Crisis and Cuba’s External Sector
“The growing dynamism of the tertiary [services] sector in our
country is framed within a system of privileged bilateral relations
with Venezuela and China, that is, in a context where there exist,
to some extent, special conditions regarding supply and financing.
The possibility of taking advantage of this opportunity and to
penetrate other markets requires additional coordinated actions
regarding services exports to meet competitive conditions present
in international markets.”40
40
Mariana Martín Fernández and Ricardo Torres Pérez, “La Economia de
Servicios,” Cuba Siglo XXI, no. 75 (April 2007), at http://www.nodo50.org/
cubasigloXXI/economia/martinf_310307.pdf.
| 49 |
Social Services in Cuba:
Antecedents, Quality, Financial
Sustainability, and Policies
for the Future1
Carmelo M esa-Lago
Distinguished Service P rofessor Emeritus of Economics and
Latin A merican Studies, University of Pittsburgh
M
ost experts on Cuba judge the universalization of free social services in education, health care, and social security pensions as
some of the most important achievements of the revolution, while
housing marks one of its most serious social problems. This paper integrates,
systematizes, expands, and updates several of the author’s previous works (some
published in Cuba) on social services; summarizes their impressive progress
between 1959 and the 1990s crisis that caused their deterioration; estimates
their costs in 2009 and increasing trend; analyzes their complete or partial
recovery from 1994 to 2009; evaluates their long-term financial sustainability;
and proposes policies to improve their financial viability and quality. Eight
tables—all elaborated for this paper—are based on official data from Cuba’s
National Statistics Office (Oficina Nacional de Estadística de Cuba—ONE) and
compare the situation in 1989, the year before the severe crisis that followed
the collapse of the socialist camp, with that in 2009; some tables exhibit the
complete 2000–2009 series to better detect the trends.
I. A ntecedents: Boom and Bust
Social Services, 1959–1995
of
This section (based on Mesa-Lago 1994, 2000, 2007) summarizes the notable advances in Cuban social services between the triumph of the revolution, in 1959 and when the collapse of socialism in the USSR and
Eastern Europe in 1989 resulting in the acute economic and social crisis in the island officially labeled the “Special Period in Time of Peace.”
The original version of this chapter was published in Spanish: “Cincuenta Años de
Servicios Sociales en Cuba,” Revista Temas (Havana), No. 64 (October–December),
2010. This version has been considerably updated and expanded.
1
| 51 |
Carmelo Mesa-Lago
In 1989, Cuba was ahead of Latin America in almost all social indicators, except for housing, an achievement made possible by the Cuban
government’s commitment and substantial and generous aid from the
USSR: US $65 billion granted between 1960 and 1990, 60.5 percent of
which was in donations and non-repayable price subsidies and 39.5 percent
in loans, of which Cuba paid back only US $500 million. The end of the
economic aid and dramatic reduction in commerce with the disappeared
socialist camp, preceded by errors and frequent changes in Cuban economic
policies, caused a 78 percent decrease in real (adjusted for inflation) social
expenditures per inhabitant in 1989–1993. Even with a partial recovery in
1998, said expenditures were 40 percent below their 1989 level, and with
few exceptions all social indicators deteriorated.
1. Education
Between 1959 and 1989, Cuba constantly progressed in this area: illiteracy
decreased from 21 percent to 4 percent,2 and the disparity between urban
and rural areas was reduced noticeably (in 1958 illiteracy was 41.7 percent
and 11.6 percent, respectively). Primary school enrollment became universal,
whereas enrollment in secondary education increased from 20 percent to 88
percent, and pursuit of post-secondary education increased from 3 percent
to 23 percent. The educational system is totally owned, managed, and financed by the government which also trains, hires, and pays all personnel.
Educational services are free, and private teaching is prohibited.
The crisis of the early 1990s harmed education. Between 1989
and 1997, the state education budget was cut 38 percent in real pesos,
which caused severe scarcity in books, pencils, and paper; a cut in investment and maintenance of infrastructure; wear and tear of equipment; reduction in school transportation and food; and widespread deterioration in the quality of services. Between 1989 and
1994–1995, primary school enrollment decreased slightly, but secondary school enrollment fell from 88 percent to 74.5 percent, and that
of university education from 23 percent to 12 percent. The decline in secondary
The government alleged that the 1961 literacy campaign cut illiteracy to 3.9%,
but the 1970 census showed that it was 12.9%; even so, it was a substantial reduction
from the 23.6% illiteracy rate recorded in the 1953 census, the latest taken before
the revolution.
2
| 52 |
Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
school enrollment was due to difficulties in transportation, cuts in school
meals, and the diminished importance of diplomas at that level. The halving in
university enrollment resulted from the difficulties that graduates faced in
finding employment in the state sector, which also paid very low salaries.
Prior to 1989, university professors and physicians were at the peak of the
salary pyramid and teachers earned adequate salaries but, afterwards, small
private farmers and transportation providers, self-employed workers and
owners of family restaurants (paladares) jumped to the top of the wage
scale. Many professionals abandoned their occupations in search of jobs in
“mixed” enterprises with foreign capital that paid a tiny part of wages in
hard-currency, in the tourism sector that offered hard-currency tips, and
in the small private sector or the informal black market where earnings
were much higher. Self-employed work authorized in 1993 was banned
for university graduates.
2. Health Care
Before 1959, Cuba had a public health system relatively highly developed
in urban areas where there was an extensive network of healthcare cooperatives and mutual-aid providers, which explains why the island health
indicators at the time were among the best in Latin America. However,
rural indicators were significantly inferior, and the country lacked a social
insurance health-care program, as was common in most of the region. In
1961, the state expropriated all private healthcare facilities, cooperatives,
and mutual-aid organizations, and banned the private practice of medicine.
A new nationally integrated public healthcare system with universal and
free access was established (virtually unique in the region) that substantially
reduced the gaps in facilities, personnel, and quality of services between
urban and rural areas. It also built a large number of hospitals particularly
in rural areas,3 launched an immunization campaign against contagious
diseases, and trained a massive number of physicians and other healthcare
professionals at free public universities and with scholarships that included lodging and food for students lacking resources. However, the public
system demands a large capital investment because it emphasizes hospitals,
equipment, and physicians. The family doctor program created in 1984,
In 1959–1989, the number of rural hospitals jumped from 1 to 70, while the total
number of hospitals only increased from 230 to 264.
3
| 53 |
Carmelo Mesa-Lago
while providing patients with greater local access to primary care and
personalized services, is very costly.
The revolution’s health care policy was successful during its first three
decades. In 1959–1989, the number of physicians increased from 9.2 to 33
per 10,000 inhabitants, hospital beds from 4.2 to 5.3 per 1,000 inhabitants,
and real expenditures per inhabitant by 162 percent. Infant mortality decreased from 33.4 to 11.1 per 1,000 born alive, maternal mortality shrank
from 125.3 to 26.1 per 100,000 births, and mortality of the population
aged 65 and above declined from 52.9 to 46.3 per 1,000 in this age group.
Most contagious diseases were eliminated, but the incidence of chickenpox,
venereal diseases (including AIDS), and hepatitis, as well as diarrhea and
acute reparatory diseases, increased.
The 1990s crisis almost totally halted imports of medical supplies, spare
parts, medicines, and chemical inputs previously supplied by the socialist
camp. In 1989–1993/95, several health indicators suffered a severe deterioration: maternal mortality increased from 26.1 to 65.2 per 100,000 and the elderly mortality from 48.4 to 55.7 per 1,000. Most eradicated diseases did not
reappear, but those that previously showed a growing trend increased even
more notably (hepatitis, venereal disease, chickenpox, diarrheic, and acute
respiratory diseases), while tuberculosis reappeared and rose fast. However,
the ratio of physicians per 10,000 inhabitants jumped from 33 to 51.8, the
highest in Latin America, hospital beds augmented from 5.3 to 6 per 1,000,
and infant mortality was reduced from 11.1 to 9.4 per 1,000, the lowest in
the region. Notwithstanding, these achievements caused a financial bleeding
and resources were irrationally allocated: a) the costly training of physicians
continued even though many of them abandoned the profession or were sent
abroad; b) number of hospital beds kept increasing, but their national occupation average fell from 83.9 percent to 71.3 percent (56 percent in pediatric
hospitals and 48 percent in neonatal ones) while the already high national
average of hospital stay rose from 9.9 to 10.4 days; and c) the effort to reduce
the already quite low infant mortality persisted, investing scarce resources4
As infant mortality declines, the effort to further decrease it becomes more difficult and costly, requiring sonograms to detect congenital problems, special care
of and nutrition for pregnant women, and the use of abortions when the fetus
presents serious risks. Cuba has the highest abortion rate in the region, explaining
in part the contradiction between the fall in infant mortality and the increase in
maternal mortality.
4
| 54 |
Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
that were urgently required to meet pressing basic needs such as repairing
the severely deteriorated potable water and sewerage infrastructure or the
immunization of the population.5
In addition to the collapse of the socialist camp, other factors explain
the healthcare deterioration. Real expenditures per inhabitant were cut
75 percent in 1989–1993, and in 1999 they were still 21 percent below
the 1989 level. The reduced budget and the drastic decrease in imports
generated an acute lack of medicines, spare parts, laboratory analysis inputs, anesthesia, etc. The decline in electricity generation affected pumps
and the water supply, decreased service hours, and considerably dwindled
water treatment and its potable quality, all of which unleashed an increase
in infectious diseases such as acute diarrhea and hepatitis. The lack of prophylactics and increased prostitution caused a boost in venereal diseases,
while the reduction in immunization resulted in a swell in chickenpox and
tuberculosis. Food shortages and cuts in the food ration quotas expanded
malnutrition from 5 percent to 13 percent, and the lack of vitamins caused
a blindness epidemic. The efficacy of family doctors (half of all physicians)
declined because they lacked essential medicines and other basic inputs.
Members of the armed forces and state security, as well as top government and communist party officials, belong to a different health services
network. In the 1990s, a distinct program was created to serve foreigners
paying in hard currency. Both programs provide higher quality services
than the general health care system available to the population.
3. Social Security Pensions
Early in the revolution, the government unified 54 existing social insurance
pension programs for old-age, disability, and survivors; standardized their
entitlement conditions; appropriated their funds; and centralized their management. Coverage increased from 63 percent to 91 percent of the labor
force. Small farmers with private land, self-employed workers, and unpaid
family members lacked mandatory coverage but could join voluntarily. In
1989 the Cuban pension system was among the widest in coverage, most
generous, and costliest in Latin America due to a number of factors: a) retirement ages were very low, 55 for women and 60 for men; b) the average
In 1989–1995, the percentage of the immunized population decreased 56% for
tuberculosis, 50% for tetanus, 45% for typhoid, and 27% for poliomyelitis.
5
| 55 |
Carmelo Mesa-Lago
retirement span was the longest in Latin America at 20 years for men and
26 for women; c) workers did not contribute to the system, and state enterprises paid only 12 percent of a worker’s salary; and d) although meager,
pensions were supplemented by a social protection network of subsidized
prices for rationed consumer goods, free health care services, free or lowrent housing, and inexpensive public services such as electricity, gas, water,
and transportation.
The armed forces and state-security personnel are covered by a separate,
more generous pension program than the general system that protects the
rest of the labor force. A man who enters the army at age 17 can retire after
25 years of service and receive a pension equal to 100 percent of his last year’s
salary during an average retirement period of 37 years. In 1995, the cost of
armed-forces pensions was equal to the total deficit accumulated by the
general pension system that covers the large majority of the labor force.
The economic crisis of the 1990s undermined the positive features of the
pension system. The percentage of workers in the private sector increased
from 4 percent to 15 percent of the labor force in 1989–2001, resulting in
fewer people receiving mandatory coverage. Self-employed workers and
small private farmers who voluntarily affiliated paid 10 percent of their
earnings, a very heavy burden (twice of what one fifth of salaried workers
contribute) and a disincentive for affiliation. The tax law of 1994 required
private-sector workers to pay contributions to the pension system was
initially suspended for socio-political reasons to be gradually implemented later on. Only salaried workers under the Sistema de Perfeccionamiento
Empresarial (Enterprise Improvement System), which operated in 20 percent
of all enterprises, paid about 5 percent of their wages as contributions.
4. Housing
The 1960 urban reform law expropriated rental properties not occupied
by the owner, abolished mortgages, and gave renters the right to purchase
the dwelling with monthly payments to the state over a 20-year period.
This law eventually assured most of the population ownership of the house
in which they lived, while the rest of the population paid rent equivalent
to 10 percent of their salary. But, several state policies had adverse effects:
a) the state monopoly on building dwellings during most of the revolution (even in stages when individual construction was allowed), together
| 56 |
Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
with the lack of credit, considerably restricts present-day construction; b)
the obstacles to purchase construction materials such as severe and longstanding shortages imposed on renters and owners cause severe difficulties
to home maintenance (owners cannot mortgage their homes or use them
as collateral for loans for repair costs); c) the centralized state agency in
charge of house repairs has been incapable of carrying out its functions;
and d) the prohibition on the buying and selling of houses and apartments
only permits bartering or exchanges (permutas) and is accompanied by a
cumbersome bureaucratic process plagued with corruption is an additional
impediment. These ill-conceived policies, as well as the growth in population, have provoked a growing housing deficit because the number of
dwellings built has been less than the number destroyed through poor for
lack of maintenance or serious damage caused by hurricanes.
In the period 1959–1963, the government constructed an adequate
amount of dwellings, but its number decreased to one third in 1964–1971.
The annual number of state housing built rose in the 1970s but was
unable to compensate for the destruction of the existing stock. In 1980,
individuals were authorized to construct their own houses and the total
number built in that decade reached a historical high, but the housing
law of 1988 toughened building and exchange rules, halted the sale of
construction materials to the population, reinforced the state’s role, and
established tough penalties for violations. The housing construction goals
in the three five-year periods between 1976 and 1990 were 45 percent
unfulfilled. The economic crisis of the 1990s caused a large drop in
construction-material production in 1990–2001: 59 percent in cement,
64 percent in cinderblocks, 71 percent in sand and stones, and 73 percent
in bricks. The 1988 law and the crisis reduced the percentage of houses
built by individuals in 1990–2002 to a third of the number built in the
1980s. Dwellings built fell from 6 units per 1,000 inhabitants in the
1980s to 2.8 units in the first half of the 1990s, significantly expanding
the housing deficit.
5. Social Assistance
Social assistance protects various vulnerable groups: the elderly, the disabled, single mothers, parents dependent on workers deceased, pensioners with low benefits, and workers without the right to a pension. The
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Carmelo Mesa-Lago
government has never published poverty statistics and, until the crisis,
claimed that poverty had been eradicated. An academic study, however,
estimated that the urban population “at risk of having a basic need uncovered” (a euphemism for poverty) rose from 6.3 percent to 14.7 percent in
1988–1996, while in Havana the proportion grew from 4.3 percent to 20.1
percent. The “at risk” population was predominantly comprised of women,
the elderly, Afro-Cubans, migrants from the eastern provinces, those having
only a primary school education or living in homes with six or more people,
and the unemployed (Espina 2008). Despite the increase in poverty, the average social assistance real benefit decreased 29 percent in 1989–1994—the
worst stage of the crisis—and averaged 0.6 percent of GDP in 1990–2001,
the lowest proportion among all social services. The average monthly social
assistance pension in 2002 was only 40 pesos, grossly insufficient to purchase
one day of food in non-rationed markets.
II. Current Cost
of
Social Services
in
Cuba
Within Latin America, Cuba allocates the highest percentage of its state
budget and GDP to social services: health care, education, social security
pensions, housing, and social assistance. In 2009 the total cost of social
services represented 54.9 percent of total state budget current expenditures
and 37 percent of GDP (Table 1); costs increased from 25.6 percent to 54.9
percent of the state budget in 1990–2009. Trends in the shares of social
services within the total budget have varied and reflect the following fluctuations: a decline in education due to the fall in the birth rate, a jump in
health care and increase in social security pensions caused by population
aging, a decrease in housing that had always received a low priority, and a
raise and decline in social assistance despite an expansion of poverty.
The above is an outcome of the financial commitment of the revolution
to expand social protection of the population, but raises two crucial questions: 1) what have been the recent performance and the current quality of
social services, and 2) does the current economic system have the capacity
to sustain said services in the long-term? Sections III, IV and V try to answer these questions, while section VI suggests policies to improve social
services and make them more financially sustainable.
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
Table 1: Social Services Expenditures as a Percentage of
State Budget Current Expenditures and of GDP in 2009
Social Service
Expenditures
% of state budget current
expenditures (2009)
% of GDP (2009)
Education
21.6
14.5
Health
15.8
10.6
Social Security Pensions
11.2
7.6
Housing
4.1
2.8
Social Assistance
2.2
1.5
54.9
37.0
Total
Source: Based on ONE 2010.
III. Performance and Quality
Services in the 21st Century
of
Social
Parallel to the economic recovery, starting in 1995 most social indicators
improved and, by the end of 2008, had recovered or surpassed the 1989
levels. But various indicators still lagged, and official figures for others were
debatable. Measuring the quality of social services is a difficult task, but
abundant evidence indicates deterioration.
1. Education
In 2005, the rate of adult literacy was 99.8 percent, primary school enrollment
97 percent, and secondary school enrollment 87 percent, the highest in the
region, but stagnant or inferior vis-à-vis Cuba’s 1989 levels (UNDP 2007).6
Higher education enrollment in the 2009/10 school year leapt 128 percent over
the 1989/90 year, an impressive advance partly resulting from the “Battle of
Ideas” program launched by President Fidel Castro in 2003. Nevertheless, disaggregating enrollment by discipline showed remarkable differences between
1989/90 and 2009/10 school years: the humanities and social sciences jumped
2,875 percent, education 1,118 percent, economics 207 percent and medicine
153 percent, whereas agronomy and technical fields only grew 43 percent and
UNESCO (2008) gives for 2006 a rate of 97% for primary school and 87% for
secondary school.
6
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Carmelo Mesa-Lago
Table 2: University Enrollment in School Years 1989/90 and
2009/10
1989/90
2009/10
Percent
of total
5,095
150,326
27.2
2,850
Education
15,529
189,069
34.2
1,118
Medicine
37,305
94,649
17.1
153
Economics
18,789
57,836
10.4
207
Technical Sciences
29,819
42,773
7.7
43
Agronomy
11,606
14,394
2.6
24
6,399
4,441
0.8
-30
242,366
553,488
100.0
128
Disciplines
Humanities and Social Sciences
Natural Sciences and Mathematics
Total b
2009/10%
of 1989/90
Sources: Mesa-Lago 2005; ONE 2010.
Excludes physical education and art.
a
24 percent respectively, and natural sciences and mathematics fell 30 percent,
which will have an adverse effect on development (Table 2).7
In 2003–2004 the number of universities soared from 17 at the national
level to 732 universities mainly located in municipalities, and the number
of professors rose 83 percent. Half of the new students were learning from
home (a distancia) in socio-cultural fields, social work, and teaching, while
others were pensioners enrolled at “popular universities” (universidades populares). The massification of higher education carried the risk that students
lacked the necessary foundation, would not work diligently, would perform
poorly, or abandon their studies. It also posed important questions: how was
it possible to increase the number of universities 43-fold in one year, the
number of professors by 83 percent, and enrollment by 56 percent? What
type of training did the 44,000 newly hired professors receive? What was
the quality of the new programs? Where did the officially reported 300,000
graduates find productive employment?
Former Higher Education Minister Juan Vela said that: “there are depressed fields
of study… that are necessary for the scientific development of the country” (EFE
July 17, 2008).
7
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
Instead of the reported 300,000 graduates, only 74,845 finished their
studies in 2009/10. The proportion between the number of graduates and
students enrolled by discipline varies: only 5.4 percent of student enrolled
in humanities and social sciences programs graduated compared with a
12.6 percent in technical fields and 13.7 percent in natural sciences and
mathematics (based on ONE 2010). Between 17 percent to 30 percent of
students drop out, including more than 21,000 enrolled in pre-university
and polytechnic institutes (Espinosa 2008; Granma, November 3, 2008).
The experiment of massive and rapid graduation of social workers (included
in the humanities and social sciences) failed and enrollment declined 87 percent
between 2006/07 and 2007/08 (ONE 2008a). Despite the enormous increase
in education graduates,8 the Ministry of Education reported in June 2008 a
deficit of 8,192 teachers in Havana. Half of secondary-school teachers were still
completing their degrees, and only 19 percent of primary-school teachers had
a university degree. This shortage was caused by the exodus of teachers due
largely to low salaries paid led to a reduction in the required number of years of
education training with a program called “emerging teachers” for which 4,500
inexperienced youngsters were brought from the countryside. The program’s
serious flaws were acknowledged in 2008, but new programs were launched to
quickly train workers and high-school graduates as teachers. In 2008 a law was
passed to incentivize retired teachers to return to the classroom, and a modest
salary increase for teachers was enacted in 2009. Of the 150,655 students
enrolled in municipal universities who took exams in mid 2009, 40 percent
failed during their last year due to abysmal orthographical errors, moving the
minister of education to institute a policy requiring entrance exams for such
universities (Espinosa 2008; EFE July 8, 2008; Granma, November 3, 2008 and
July 2009; Franco 2009).9 In September 2010, the new minister of education,
Ena Velázquez, reported that 9,900 pensioners had returned to teaching;
in addition, schools of education were reopened to train 7,000 primary
teachers (“Casi 10,000 maestros…” 2010). The relatively large increase in
Before the explosion in enrollment in 2003, the 2002 census reported that there
were 195,988 graduates in education. Many young people enroll to evade or cut the
number of years of compulsory military service.
9
In the short documentary “En primera persona,” cinema students interviewed
several teachers asking absurd questions: “What do you think of the wall built
between Australia and the United States?” One teacher responded by criticizing
U.S. discrimination.
8
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Carmelo Mesa-Lago
Table 3: General Health Indicators, 1989 and 2000–2009
Indicators
Hospital beds a
1989 2000 2002 2003 2005 2006 2007 2008 2009
2008/1989
(%)
6.0
5.2
4.8
4.9
4.9
4.9
4.8
4.6
4.5
-25
Physicians b
33.1
59.0
59.9
60.5
62.8
63.6
64.0
66.3
66.6
101
Infant mortality c
11.1
7.2
6.5
6.3
6.2
5.3
5.3
4.7
4.8
-56
Maternal mortality d
29.2
40.4
41.1
39.5
51.4
49.4
31.1e
46.5 e
46.9 e
61
Sources: Mesa-Lago 2000, 2008a; ONE 2008a, 2009a, 2010.
a
Ratio of beds per 1,000 inhabitants. b Ratio of physicians per 10,000 inhabitants. c For every
1,000 infants born alive. d For every 100,000 births. e New series, not comparable to the
previous one, which excludes part of the causes of death.
agricultural-science enrollment is offset by most graduates shifting to other
occupations, causing a deficit of 3,000 agricultural engineers, and in part a
sharp decline in agricultural output. “Rapid action must be taken because
the deficit of specialists cannot be reversed in the short term” (Trabajadores,
November 10, 2008; Bohemia, December 12, 2008).
2. Health Care
The main health care indicators are shown in Table 3. Concerning inputs, the
ratio of hospital beds per 1,000 inhabitants decreased from 6 to 4.5 in 1990–
2009 while that of “real” beds (actually available) fell from 5.3 to 3.8 (ONE
2010). Conversely, the ratio of physicians per 10,000 inhabitants doubled from
33 to 66.6 and was at the top in the region and one of the highest in the world
(UNDP 2007). However, of a total of 74,880 physicians, between 33 percent
and 46 percent (25,000 to 35,000) worked abroad, principally in Venezuela.
If these physicians were subtracted from the calculation, the ratio of doctors
per 10,000 inhabitants in 2009 would be between 35 and 44 (according to the
two estimates), the former on par with figures from 1989. Furthermore, many
physicians in Cuba have shifted to other occupations due to low salaries paid
by the state. Collectively the data explains the domestic shortage of doctors,
the decrease in access to services, and the long waiting-list for surgery. The
island’s potable water and sewage systems have seriously deteriorated. The
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
water system is between 50 and 100 years old and leaks cause half of the pumped water to be lost, thus increasing energy consumption. Street leaks create
pools where mosquitoes porting illnesses are incubated (Granma, January 9,
2010). Hospital infrastructure has also worsened and there is a severe scarcity
of medicine, most of which are only accessible through purchase in hardcurrency stores or “dollar shops” (Mesa-Lago, 2008a).
Infant mortality declined from 11.1 percent to 4.8 percent in 1989–2009
(per 100,000 births), the lowest in the hemisphere after Canada. By contrast,
maternal mortality rose 61 percent from 29 to 47 per 100,000; furthermore,
the data series was altered beginning in 2007, taking away some causes of
death and making it incomparable with the previous series (Mesa-Lago
2008a). Cuba has eradicated several transmissible diseases such as diphtheria,
paratyphoid, poliomyelitis, measles, and whooping cough. Out of eight morbidity rates (the upper part of Table 4), five notably declined in 1989–2009,
especially venereal diseases, but three increased: food poisoning, tuberculosis,
and acute respiratory diseases (as well as unreported dengue fever, hemorrhagic conjunctivitis, and leptospirosis—caused by rodent excrement). In any
case, even in those diseases exhibiting rising rates, Cuba’s figures were still
among the lowest in the region. The lower part of the table, however, reveals
Table 4: Morbidity Rates and Population Immunized by
Type of Vaccine, 1989 and 2009
Diseases (rates x 100,000)
Acute Respiratory
Acute diarrhea
1989
2009
Change (%)
36,804
54,685
48
8,842
7,173
-19
Chickenpox
365
291
-20
Food poisoning
87a
207
138
Gonorrhea
381
36
-90
Hepatitis
106
21
-80
Syphilis
82
13
-84
5
6
20
Tuberculosis
-
-
-
Double
Immunized Population (thousands)
157
162
3
Triple (DPT)b
354
129
-63
Tuberculosis (BCG)
320
128
-60
Sources: Mesa-Lago 2005; ONE 2010.
2002 b Diphtheria, whooping cough and tetanus.
a
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Carmelo Mesa-Lago
the potential risk of declining immunization of the population, especially in
the triple vaccine and tuberculosis (which could partly explain its increase).
Another serious hazard is the huge accumulation of garbage in the streets
due to lack of collection trucks. On the other hand, there are 23,000 foreign
students on scholarship studying health in Cuba (Granma 2-11-2008), which
is laudable, but a heavy financial burden.
3. Social Security Pensions
Cuba is one of four countries in Latin America whose law does not mandate a yearly adjustment of pensions to the cost of living. Despite nominal
increases in 2005 and 2008, the average pension annually adjusted to inflation in 2009 was 52 percent below the 1989 level and grossly insufficient
to satisfy basic necessities (Table 5).
The monthly minimum pension was 200 pesos in 2008 (US$8) while the
average nominal pension was 235 pesos (US$10). The average pension loss
of purchasing power is supported by the following data: a) the basket of food
rations covers only the first 7 to 10 days of each month and costs 30 to 40
pesos, b) the monthly electricity rate is 10 to 20 pesos, c) bus transportation
is 12 to 20 pesos (with one taxi ride costing 10 to 20 pesos), d) the telephone
and water rates from 8 to 10 pesos, e) most of the population owns its own
dwelling, but a minority pays an average rent of 33 pesos, and f) these costs
add up to between 60 and 123 pesos. With the remaining income (112 to 175
pesos), pensioners must purchase food in free agricultural markets and state
hard- currency shops (Tiendas Recaudadoras de Divisas—TRD) to meet the
food needs for the 20 to 23 days of the month not met by the ration system.
Some of these foodstuffs and products are not included in the ration cards.
One pound of beef, half a pound of both chicken and fish, four pounds of
rice, two pounds of vegetables, two onions, one bottle of soy oil, and four
eggs cost 213 pesos per month or 90 percent to 121 percent of the remaining
average pension. The essential hygiene articles in a TRD—a bar of soap, a bag
of laundry detergent, and a stick of deodorant—cost 84 pesos, 48 percent to
75 percent of the remaining average pension not calculating food cost. One
pound of ham is tantamount to the minimum pension, and an energy-saving
light bulb purchased in a TRD halves the minimum pension (Mesa-Lago
2006 updated with List of Prices 2009).
Furthermore, the previous social protection network has deteriorated due to the reduction of access to and quality of health care services,
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
Table 5: Decline of the Average Real Pension, 1989–2009
Year
Inflation Rate
(%)
1989
CPI
(1989=1.00)
Nominal
Average
Pension
(current pesos)
Real Average
Pension
(1989 pesos)
Index Real
Pension
(1989=100)
1.00
56
56
100.0
1990
2.6
1.03
57
55
98.2
1991
91.5
1.96
85
43
76.8
1992
76.0
3.46
91
26
46.4
16.1
1993
183.0
9.78
92
9
1994
-8.5
8.95
93
10
17.8
1995
-11.5
7.92
95
13
23.2
1996
-4.9
7.54
96
13
23.2
1997
1.9
7.68
97
13
32.2
1998
2.9
7.90
98
12
21.4
1999
-2.9
7.67
103
13
23.2
2000
-2.3
7.50
105
14
25.0
2001
-1.4
7.39
107
14
25.0
2002
7.3
7.93
113
14
25.0
2003
-3.8
7.63
119
16
28.6
2004
2.9
7.85
121
15
26.7
2005
4.2
8.18
179
22
39.3
2006
5.5
8.63
192
22
39.3
2007
2.8
8.87
194
22
39.3
2008
-0.1
8.86
235
26
46.4
2009
-0.1
8.77
242
27
48.2
Sources: The first two columns until 2006 from Vidal; the rest from Mesa-Lago 2008b,
updated with ONE 2008a, 2009a, 2010.
transportation problems, and the decrease in goods available through rationing that now covers only 7 to 10 days of the month. As a result, it is
impossible for pensioners who collect the minimum pension—or even the
average pension—to survive if they do not receive remittances from abroad,
family help, or additional income from work. To collect their monthly pension pensioners must stay in line for hours in the banks (payments are not
administered by mail), and many sell things on the streets or other activities
to survive.10 One poll in the city of Havana in 2000 indicated that the elderly
are among the poorest groups: 88 percent lived in mediocre or bad housing;
78 percent considered their income insufficient to meet basic living expenses;
and they complained about expensive transportation, need to receive priority
in health care, and lack of asylum facilities (ONE 2008c).
10
In 2009 the government granted elderly people licenses to perform self-employed work but
only on Sundays and paying 20% in sales’ tax to the state.
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Carmelo Mesa-Lago
Table 6: Number of Housing Units Built and Ratio per 1,000
Inhabitants, 1989 and 2000–2009
2009/
Housing
1989
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Units
(000)
63.0b
42.9
35.8
27.5
15.6
15.4
39.9
111.4
52.6
44.8
35.0
-44
6.1b
3.8
3.2
2.4
1.4
1.4
3.6
9.9
4.6
4.0
3.1
-49
Ratio a
1989
Sources: Mesa-Lago 1994, 2000; ONE 2008a, 2009a, 2010. Ratios are author’s estimates
based on the population.
a
Number of housing units built per 1,000 inhabitants. b Annual average in 1981–1989.
4. Housing
Housing, Cuba’s worst social problem was recently aggravated. While the
population increased by 62 percent in 1959–2008, the number of housing
units constructed was lower than the number of those destroyed for lack
of maintenance. Housing units built per 1,000 inhabitants fell from 6 in
1981–1989 to 1.4 in 2003–2004. Although they rebounded to 4 in 2008, this
was 15 percent less than in 2007 and 34 percent below the 1980s average. Due
to the 2009 crisis, only 35,085 dwellings were built that year, lowering the
ratio to 3.1 per 1,000 inhabitants, half of what is was in the 1980s11 (Table 6).
The projected number of dwellings built in 2010, based on 13,825 completed
by June, is 27,650, for an even lower ratio of 2.4 (ONE 2010c).
Before the hurricanes of 2008, Víctor Ramírez, president of the National
Housing Institute, reported that 47 percent of housing units were in “poor”
or “regular” (mediocre) conditon. Eighty-five percent of the 47,000 buildings
with more than three floors required repairs, but the lack of materials did not
permit this. Fulfilling the 2008 housing plan covered only 5 percent to 7 percent of the accumulated deficit, a million housing units—25 percent higher
than in 1989 ( Juventud Rebelde, July 9, 2008). Only 4 percent of the state budget
was allocated to housing in 2008, and in that year, 44,775 housing units were
completed (11 percent short of the goal of 50,000 units), while 600,032 units
Minister of Economic and Planning Marino Murillo (2009) reported to the
National Assembly at the end of 2009, only 29,000 dwellings built; ONE (2010)
raised the number by 21%.
11
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
were destroyed or damaged by the four hurricanes. The current deficit should
therefore be above one million.12 The City of Havana’s historian, Eusebio
Leal, stated on a televised program in February 2009 that 60 percent of the
housing units were in poor shape, an average of three houses collapsed daily,
and if one of the hurricanes had passed through Havana, martial law would
have had to have been declared. Leal requested one billion US dollars from
the government to save and rehabilitate thousands of housing units in the capital city. Oris Fernández, vice-president of the INV, informed the National
Assembly in mid-2010 that only 2.3 percent of 28,781 buildings had received
the necsessary waterproofing ( Juventud Rebelde, August 28, 2010).
The housing situation is abysmal: extensive zones in the capital and its
surrounding neighborhoods are virtually in ruins, with the houses simply
propped up (Old Havana, Centro Habana, Cerro, 10 de Octubre). It is common
that a divorced couple divides the house in two, and many house owners have
built a “barbacoa” (improvised mezzanine) where another family lives. In a
visit to Havana in June 2010, the author could not recognize the intersection
of the streets of San Rafael and Galiano; once the principal center of shops
before the revolution had now turned into squalors and shambles.
5. Social Assistance
In 2000–2006 the number of social assistance cases jumped 207 percent from
195,129 to 599,505, but decreased by 29 percent to 426,390 by 2009. As a percentage of the total population those receiving social assistance grew from 1.8
percent in 2000 to 5.3 percent in 2006 and fell to 3.8 percent in 2009 whereas
the number of poor rose (Mesa-Lago 2005; ONE 2008a, 2009a, 2010). In
2002 at least 20 percent of the population in Havana was poor and rates were
higher outside of the capital,13 hence most of the needy do not receive social
assistance. Social assistance expenditures stagnated at 0.5 percent of GDP in
1989–2000, but gradually increased to 1.5 percent in 2009, however, in absolute terms the budget allocation was cut 28 percent in 2009. The monthly
average social assistance benefit (dividing total social assistance expenditures
by the number of beneficiaries, based on ONE 2010) was 127 pesos (US$5)
At the end of January 2009, Carlos Lage then Vice-President reported that only
26% of the housing units damaged by the hurricanes had been repaired.
13
The incidence of poverty in Havana rose 233% between 1988 and 2002, from 6%
to 20%; a poll of self-perception of poverty showed 23% of the population considered itself “poor,” and another 23% “almost poor” (Añé 2007).
12
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Carmelo Mesa-Lago
in 2009, 47 percent less than the average social insurance pension; therefore it
does not cover basic necessities. The number of social assistance beds for the
elderly and the disabled shrank 1.9 percent from 2000 to 2007 but recovered
its previous level by 2009 (ONE 2008a, 2010).
IV. A Case Study: The Growing Cost
of
Pensions
There is consensus among Cuba experts, both on the island and abroad,
that current social services are financially unsustainable in the long-term.
Social security pensions have been selected to test such common view,
because they constitute the third most important share of the state budget
and GDP, and exhibit a rapid growth rate.
Recall that at the end of 2008, Cuba had the most liberal pension system
in Latin America: 1) retirement ages (55 for women and 60 for men) were
four years lower for women and two years lower for men than the Latin
American averages; 2) the longest average retirement period (23.4 years for
women and 20.8 for men) due to the second-highest life expectancy in the
region; 3) 25 years of work required to obtain a pension vis-à-vis a regional
average of 20 years of contributions; 4) minimum and maximum replacement
rates over the base salary higher than the regional average; and 5) employer
contribution of 12 percent of salary to an employee’s pension half of the
existing rate in comparable countries such as Argentina and Uruguay. On
the other hand, pensions are not adjusted annually to the CPI or wages, as
done in twelve countries in Latin America.
As the population ages and the pension program matures, the ratio of
contributing insured workers per pensioner falls, forcing a gradual increase
in contributions and retirement ages, a trimming of pensions—already
extremely low in Cuba—or a combination of these measures. Second
only to Uruguay, Cuba is the country with the most aged population in
Latin America: its birth rate decreased from 2.5 percent to 1 percent from
1953–2009 (the birth rate has been below the replacement rate since 1978
and is the lowest on the continent), its emigration rate rose from -0.06
percent to -0.33 percent, the average population age rose from 27 to 44
years, and its population growth rate contracted from 2 percent to -0.01
percent (in absolute terms, the population decreased in 2006–2008). The
cohort age 60 and above augmented from 7 percent to 17.4 percent of the
total population, and it is projected to reach 26 percent by 2025 (one elderly
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
Table 7: Growing Pension Cost and Deficit, 1986 and 2009
Indicators
1986
2009
Revenue (millions of pesos)
664
2,763
316
Expenditure (millions of pesos)
897
4,704
424
Deficit (millions of pesos)
233
1,941
733
Deficit financed by the state (% of expenditure)
26.0
41.3
59
Deficit (% of GDP)
1.3
3.1
135
Cost of pensions (% of GDP)
4.6
7.6
65
Contribution (% of payroll)
10.0
12.0
20
Contribution to eliminate the deficit (% of payroll)
13.5
20.4
51
10.9b
17.4
60
3.6c
3.1
-14
Percentage of the population 60 years of age and older
Ratio of active workers per one pensioner
2009/1986 (%)
Sources: Mesa-Lago 2008b; ONE 2008a, 2008b, 2010.
a
This contribution would have financially balanced the system in 2009; to set it in actuarial
equilibrium in the long-run, a contribution ranging from 29% to 86% (based on different
scenarios) would have been required. b 1981. c 1989.
person for every four inhabitants), when Cuba will have the oldest population in the region. The aging of the population aggravates the financial
non-sustainability of social security pensions (Mesa-Lago 2008b; ONE
2008c, 2009a, 2009b, 2009c, 2010).
Due to generous entitlement conditions, maturity of the pension system,
aging of the population, and insufficient financing, pension costs rose from
4.6 percent to 7.6 percent of GDP in 1986–2009 escalating the fiscal deficit
from 26 percent to 41.3 percent of total pension expenditures and (from
1.3 percent to 3.1 percent of GDP). In order to finance such growing costs,
the current salary contribution of 12 percent would have had to be raised to
20.4 percent in 2009 and continue to climb thereafter. The ratio of active
workers per pensioner fell from 3.6 to 3.1 in 1989–2009, and it is projected
to further decline to 1.7 in 2025 (Table 7; ONE 2008b).
The social security reform law enacted on December 24, 2008 addressed
many but not all of the problems afflicting the pension system: 1) increases the
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Carmelo Mesa-Lago
retirement age by five years for both sexes (from 55 to 60 for women and from
60 to 65 for men) gradually over a period of seven years with those14 who retire
earlier than 60/65 during this period receiving lower pensions; 2) calculates
pensions based on the five-year monthly average of salary and applies to this
average a replacement rate of 60 percent (instead of the previous 50 percent),
and steps up the number of required work years from 25 to 30; 3) increases
pension for each year that retirement is postponed; 4) increases one’s nominal
pensions: the minimum by 22 percent and others from 10 percent to 20 percent (the higher the pension, the lower the increase), and; 5) imposes a wage
contribution of 5 percent by workers gradually as their salaries are raised. 15
These measures should contain expenditures and increase revenue somewhat,
but will be insufficient to ensure the financial sustainability of the pension
system. For example, the worker contribution of 5 percent will be gradually
imposed in tandem with salary increases, but even if the entire labor force had
paid such contribution in 2009, the total contribution (combined with 12 percent from employers) would have been 17 percent, vis-à-vis an estimated 20.4
percent required to financially balance the system in 2009.An actuarial study is
needed to determine what such disequilibrium will be in the long run.
New reforms enacted in October 2010 mandated the affiliation of selfemployed and other workers in the private sector, solving the lack of pension
protection but raising their contributions to 25 percent of monthly income.
The self-employed can select the taxable base from nine income sums, and
their pensions will be set at 60 percent of their contributions. These measures
might balance self-employed pensions but will not solve the actuarial disequilibrium of the system as a whole. The 25 percent contribution together
with other taxes imposed on the self-employed are projected to raise fiscal
revenues by 300 percent in 2011 (from 247 to 1,000 million pesos). And yet,
such heavy taxes will significantly obstruct the creation of 250,000 expected
new self-employed jobs from October 2010 to March 2011, to provide employment to the 500,000 state employees to be dismissed during that period
(Mesa-Lago, 2010).
14
The author recommended a period from 10 to 20 years for the gradual increase in the
retirement age, but Raúl Castro (2008) stated that the pension financing crisis required it to
be done in just seven years.
15
The author recommended a period from 10 to 20 years for the gradual increase in the
retirement age, but Raúl Castro (2008) stated that the pension financing crisis required it to
be done in just seven years.
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
V. Economic Incapacity to Sustain
Social Services in the L ong-Term
Raúl Castro (2010) has stated: “The sustainability and preservation of our
social system depends on the economic battle, today more than ever our
principal task.” The current global crisis has worsened Cuba’s economic
situation and made it even more difficult to sustain social services (MesaLago and Vidal 2010). Table 8 compares 35 key economic indicators in
1989 (prior to the crisis of the 1990s) and in 2005–2009 when the economy
decelerated: 20 of those indicators were worse in 2009 than in 1989 whereas 15 were better. Furthermore, 21 indicators deteriorated in 2009 visà-vis 2008, whereas 3 were stagnant and 11 improved. If these indicators
had accounted for population growth between 1989 and 2009, the results
would be even worse. Comparison of Cuban performance against Latin
American averages shows Cuba to be lagging. The data show’s, therefore,
that the Cuban economy is incapable of sustaining the high and growing
cost of social services in the long-run (regional comparisons below from
ECLAC 2008, 2009b).
Cuba’s GDP growth rate slowed from 12.1 percent in 2006 to 4.3 percent
in 2008 (lower than the Latin American average of 4.6 percent) and 1.4 percent
in 2009 (higher than the regional average of -1.7 percent) Cuban GDP is overestimated due to the addition of the value of free social services and subsidies
to prices of rationed goods. Gross capital formation also fell from 10.4 percent
to 9.3 percent of GDP in 2006–2009 (compared with 25.6 percent in 1989
and a regional average of 22.4 percent in 2008); Cuban economists estimate
that 25 percent is needed to sustain economic growth. The annual rate of
inflation declined from 5.7 percent to -0.1 percent in 2006–2009 (compared
to 4.5 percent in the region) and was considerably below the 1989 level. On
the other hand, surplus money in circulation (M-2) grew from 21.6 percent
to 41.5 percent of GDP in the entire period. The fiscal deficit ascended from
3.2 percent to 6.7 percent but diminished to 4.8 percent in 2009 (still higher
than the regional average of -2.6 percent).
Mining has had remarkable success in Cuba with the help of foreign
investment; 2009 production compared to 1989 was: 33 times greater in natural gas, 4 times greater in petroleum, and 47 percent in nickel (however,
the last two declined from their zeniths in 2001 and 2003, respectively). In
2009 petroleum output decreased 9 percent, nickel 1.4 percent and natural
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Carmelo Mesa-Lago
Table 8: Incapacity of the Cuban Economy to Financially
Sustain Social Services, 1989 and 2005–2009
Indicators
2009/1989
(%)a
1989
2005
2006
2007
2008
2009
1.2
11.2
12.1
7.3
4.3
1.4
17
25,6
9.0
10.4
10.0
10.8
9.3
-64
Inflation rate
(IPC)
0,5
3.7
5.7
2.8
-0.1
-0.1
-120
Monetary
liquidity/GDP
21,6
48.6
38.6
37.2
41.9
41.5
92
Fiscal balance
-7.2
-4.6
-3.2
-3.2
-6.7
-4.9
-32
718
2,878
2,900
2,905
3,303
2,731
280
Natural gas
(million m3)
34
743
1,091
1,218
1,161
1,155
3,297
Nickel
47
76
73
76
70
69
47
Sugar
8,121
1,348
1,239
1,193
1,445
1,350
-83
Steel
314
245
257
262
274
266
-15
3,759
1,567
1,705
1,805
1,707
1,625
-56
15
15
16
17
18
18
20
Textiles
(million m2)
220
25
27
24
32
28
-87
Fertilizers
898
43
41
22
40
9
-99
Cigars
(million units)
308
404
418
412
386
373
21
Shoes
(million pairs)
12
5
3
2
4
3
-75
Macroeconomic
(%)
GDP rate
Fixed gross
capital formation/
GDP
Physical output
(000 metric tons)
Oil
Cement
Electricity
(billion kw/h)
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
Soap
(million units)
37
13
14
15
17
13
-65
1,016
555
373
469
392
418
-59
Rice
532
368
434
440
436
563
5
Milk
1,131
353
415
485
545
600
-47
Eggs (000 units)
2,673
2,066
2,341
2,352
2,328
2,426
-9
42
26
30
26
22
25
-45
681
1,801
1,330
1,378
1,392
1,565
129
4,920
3,704
3,737
3,787
3,821
3,893
-21
192
51
55
61
61
65
-66
Exports of goods
5.4
2.4
3.2
4.0
3.9
3.0
-44
Imports of goods
8.1
7.6
9.5
10.1
14.3
8.9
10
-2.7
-5.2
-6.3
-6.2
-10.4
-5.9
118
Trade balance
of services
6.4
6.4
7.7
8.1
7.8
22
Total trade
balance
1.2
0.1
1.5
-2.3
1.9
58
100.0
126.2
132.9
87.0
79.5
-20
Citric
Tobacco leave
Tubers
Cattle
(000 heads)
Fish/sea food
External
(billion pesos)
Trade balance
of goods
Terms of trade
(2005=100)
External debt
(US$ billion)
6.2
12.6
15.4
17.8
18.3
Thousand foreign
tourists
270
2,319
2,221
2,152
2,347
2,106
680
Tourism revenue
(US$ million)
168
2,399
2,235
2,236
2,359
2,097
1,148
64
61
61
60
59
-8
Tourism room
occupation (%)
Sources: ECLAC 2009a; Mesa-Lago 2009a; ONE 2008a, 2009a, 2010.
a
A few percentages based on 2005 due to lack of data for 1989.
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195
Carmelo Mesa-Lago
gas 1 percent. There is potential for the discovery of extensive oilfields, but
despite various announcements since 2004, there are no oilfields producing
commercially profitable crude.
Due to the de-industrialization and de-capitalization suffered under the
Special Period, the industrial share of GDP fell from 28 percent to 15 percent
between 1989 and 2008 and the industrial sector value also fell 2 percent in
2009 (ONE 2010). Manufacturing production in 2009 was below that of 1989:
-99 percent fertilizers, -87 percent textiles, -83 percent sugar, -75 percent
shoes, -59 percent soap, -56 percent cement, and -15 percent steel. Electricity
and cigars showed the only increases, at 20 percent and 21 percent above 1989
levels, respectively. Agricultural production in 2009 was below 1989 levels as
follows: -66 percent fish and shellfish, -59 percent citrus, -47 percent milk,
-45 percent tobacco leaf, -21 percent cattle and -9 percent eggs; but tubers and
vegetables were 129 percent above 1989 and rice 5 percent.
Exports of goods in 2009 were 44 percent below 1989 levels, but imports were 10 percent above; the trade balance of goods reached a historic
deficit of US$10.4 billion in 2008, four times higher than the deficit in
1989. Due to the decrease in domestic output and the global crisis, in
2009 exports decreased 23 percent, imports 38 percent, and the balanceof-goods deficit 43 percent. The balance of services (professionals abroad
and tourism) generated a surplus that increased steadily in 2005–2008 and
helped to compensate the trade deficit of goods (except for 2008); the service surplus fell 4 percent in 2009. Terms of trade deteriorated 20 percent
in 2005–2009 due to the increase in world prices of oil and food and the
decrease in nickel prices. The external debt in hard currency (excluding
Russia and Eastern Europe) was US$18.3 billion in 2008, three times the
amount of 1989. There was a severe lack of liquidity in 2009 and, as result,
Cuba suspended payments to external providers owing between US$500
and US$1,000 million.
The number of tourists in 2008 was 2.35 million, nine times the number in 1989, while gross earnings from tourism were US$2.538 billion, 15
times the amount in 1989, although both figures were only slightly higher
than those in 2005. In 2009 the number of tourists declined 10 percent and
gross revenue dwindled 11 percent. The number of hotel rooms for tourists
doubled between 1989 and 2009, but the occupation rate decreased from
65 percent to 59 percent in 2005–2009 due to the low quality of services
and competition from the Dominican Republic and Cancun.
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
Venezuela, Cuba’s number one commercial partner, took 26 percent of the
total volume of foreign trade and subsidized the Cuban economy by US$9,405
million in 2008 through: a) payments of US$5,650 million for services of
Cuban professionals working in Venezuela (which partly compensated Cuba’s
balance-of-goods deficit); b) a price subsidy of US$2,400 million for the daily
supply of 97,000 barrels of crude oil (at US$27 per barrel) and derivatives (65
percent of total Cuban demand); and c) investments of US$1,355 million in
76 different projects. Trade of goods with Venezuela fell 36 percent in 200916
whereas the sale of professional services decreased about 40 percent. Cuba’s
heavy dependence on Venezuela carries a high risk: with the fall in world oil
prices to a third of their former price due to the world economic crisis, Hugo
Chávez now faces serious difficulties in maintaining both Venezuela’s domestic
spending and the enormous external aid, particularly to Cuba.17 Raúl Castro is
trying to diversify commerce, investment, credit, and oil supply (with China,
Brazil, Russia, Angola, Iran, etc.) however, a further reduction of Venezuelan
trade and aid to Cuba would provoke an economic decline similar to that
which accompanied the fall of the socialist camp, a second Special Period,
with adverse effects on social services.
VI. Needed Changes to Improve Social
Services and their Sustainability
Cuba’s economic system and current financial capacity, deteriorated by the
current global crisis, cannot sustain its costly social services over the long
term and demand structural reforms such as those called for by Raúl Castro
and recommended by numerous Cuban economists. Not yet implemented
(Mesa-Lago 2008a), reforms include increasing fiscal revenue and reducing
social expenditures through improvements in the allocation and use of scarce
resources. Social services are excessively centralized by the state monopoly
without effective participation by the people in their management, monitoring,
and evaluation, necesitating decentralization and social participation.
The Guidelines for the VI Congress of the Communist Party of Cuba
(PCC), released in November 2010, acknowledged that social expenditures
��
Trade with other four main partners also fell in 2009: 48% with Canada, 36% with Spain,
30% with USA, and 22% with China (ONE 2010). Author’s estimate based on ONE 2010
17
In 2009 Venezuelan GDP declined by 2.3% and by 5% in the first quarter of 2010; inflation
is the higher in the region.
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Carmelo Mesa-Lago
and the growth of social services must be adjusted “to the real possibilities of
financial resources generated by the country’s economy” requiring a “redesign
of current policies” including the “reduction or elimination of excessive social
expenses” (PCC 2010: 12, 19). Several specific recommendations necessary to
ensure the sustainability of social services are noted below.
Health Care. Maintain the public health care system but with the following changes: prioritize potable-water and sewage infrastructure; reallocate
resources from continued reduction in infant mortality (a problem resolved
many years ago) toward said infrastructure, medicine imports, decreasing maternal mortality, and other areas of greater need; discontinue high-education
scholarships as well as health care aid to other countries unless they pay the cost
of such services; convert maternity and pediatric hospitals with low occupancy
rates into geriatric hospitals and senior living facilities; increase the ratio of nurses per physician to improve efficiency and reduce costs; charge the full cost for
private hospital rooms to citizens in the country’s highest income strata; attract
more foreigners to seek medical attention in Cuba; authorize self-employment
of health professionals as well as health-care cooperatives that compete with
state services. The PCC Guidelines do not include any of the preceeding
suggestions, but rather ask for: reduction of unnecessary expenses, particularly excessive personnel; strengthening promotion and prevention actions;
encouragement of a more rational use of medication and placing maximum
attention on the development of natural and traditional medicine.18
Education. Preserve the public education system but with the following
modifications: shift a portion of elementary-school resources (taking into
account the decreased birth rate and the population in primary-school age)
to pay better salaries to teachers; place more emphasis on the higher-education disciplines geared toward development, like business administration,
as well as vocational education; reduce excessive enrollment in marginal disciplines through stricter admission standards;19 increase the ratio of
graduates per registered students; allow the operation of non-state
The health sector has 600,000 employees, many of whom will be dismissed or
relocated; hospitals, health centers, and clinics with scant users will be closed totally
or partially. Granma has reported significant “irrationalities”: maternal homes with
only 3–5 beds but an average payroll of 20 employees, and municipalities with a
single ambulance served by 30 workers (De la Osa 2010).
19
In 2009/10 there were significant cuts in enrollment in several disciplines: 50%
in medicine, 29% in economics, and 23% in humanities and social sciences, but also
17% in agronomy and 7% in technical sciences (ONE 2010).
18
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Social Services in Cuba: Antecedents, Quality, Financial
Sustainability, and Policies for the Future
universities following proper norms and requirements; authorize selfemployment of teachers and professors; eliminate existing obstacles to
the entrance of foreign scholars and researchers (hopefully as reciprocity
for President Barack Obama’s relaxation of U.S. visas to Cuban scholars).
Some of these suggestions were incorporated in the Guidelines: increased
quality and rigor in elementary and secondary levels through improved use
of existing resources, alocating them according to demographic changes
(decline in young population), and cutting transportation and meal costs;
adjust enrollment of university disciplines based on economic needs, augmenting it in technological and basic-science; and increasing the percentage
of graduates related to enrollment in the previous five years. Additionally,
they stated that workers who want to study at the higher level must do so
on their own time and without state subsidies.
Social Security Pensions. Reform the current system with the
following measures: establish salary contributions for all non-state businesses with a minimum number of employees, incorporating them into
the social security system; charge self-employed workers, instead of the
current 12 percent, the same 5 percent that salaried workers pay gradually
or grant low-income self-employed workers a state subsidy to replace
their lack of employer contribution; integrate into the general pension
system the costly armed forces and internal security pension programs
(based on seniority independent of age, which results in lower retirement
ages and higher replacement rates); close the current general pension system to new entrants, make the state responsible for ongoing pensions, and
create a new public system for young workers already insured in the old
system as well as new workers, with a reserve that is invested to generate
capital returns and help in the long-term financing and improvement of
pensions; raise pension levels and adjust them to the cost of living. The
Guidelines do not refer to any of these recommendations but call for
a reduction in fiscal subsidies by expanding workers’ contributions in
the state and non-state sectors; new rules have raised the self-employed
contribution from 10 percent to 25 percent.
Housing. A radical reform is required: facilitate the population’s access
to construction materials to repair and build housing; authorize the investment of foreign remittances in these activities; eliminate the current system of exchange (permuta) and authorize the buying and selling of housing
with adequate regulations; permit the use of individuals’ owned houses
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Carmelo Mesa-Lago
as collateral for loans that would finance their repair. The Guidelines call
for: authorizing the construction of new dwellings as well as maintenance
of existing ones largely through private effort; facilitating construction
materials at the lowest cost without subsidies; and making the exchange
(barter), selling, buying, and leasing of housing more flexible.20
Social Assistance. Substantial changes are needed: gradual reduction
of the ration system and target social assistance to the poor and vulnerable
groups of the population with the goal of creating a wide social safety net
to protect all those in need; permit churches to receive direct foreign aid
in order to establish and expand free asylums for elderly people in need.
The Guidelines incorporate the core of these suggestions: reduction of
unnecessary universal free benefits and subsidies - as well as gradual elimination of the rationing system - while targeting aid to those in need. The
latter are defined as unable to work and lacking family help; benefits will
be terminated when the beneficiary can be supported by relatives.21
The above social policy changes require increased production and
productivity which in turn demand the implementation of structural reforms in the economy. Some positive steps have been taken but they have
been largely marginal, limited, and slow. Indeed, the problems identified by Raul Castro and Cuban economists as most important remain yet
unaddressed more than three years after of Castro’s speech from July 26,
2007 for structural changes.
20
In the first semester of 2010, 36.7% of the total number of homes had been built
by the population and 63.3% by the state (ONE 2010c).
21
Yusimi Campos, head of the social assistance department in the Ministry of Labor
and Social Security, reports a cut in welfare benefits to recipients who have a family
with enough resources to support them (García 2010).
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Sustainability, and Policies for the Future
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Latin American Program
Woodrow Wilson International Center for Scholars
1300 Pennsylvania Ave., NW
Washington, DC 20004
Tel. (202) 691-4030
Fax (202) 691-4076
www.wilsoncenter.org/lap