NS4540 Winter Term 2018 Cuba: Economic Woes Before Succession Oxford Analytica,Cuba: Economic Woes to Mark Succession Preparation December 13, 2017

Overview I As of early 2018 Cuba’s economy is in decline, and The reform process has stalled In addition to its structural problems, the economy is suffering from shocks, both political and natural that are beyond its control Cuba’s principal ally, Venezuela, continues to supply oil despite its own crisis, but shipments have been declining The result has been Energy shortages and Need to import oil from Russia

Overview II President Trump has imposed restrictions on US travel to Cuba Impedes most individual tourism, hitting a key sector of the economy Hurricane Irma has heavily damaged tourist resorts, infrastructure and agriculture along Cuba’s northern coast Bookings are way down as a result 18 months of drought have hit the sugar industry hard – output this year will be much below last year Agreement with China commits 400,000 tons annually leaving little to be exported on the open market to generate much- needed foreign exchange. These factors compound effects of virtual standstill of domestic economic reform process, resulting in another year of negative or near negative growth.

Private Sector Struggles I Cuba’s emergent private sector taking hits both domestically and internationally Domestically while many Cuban economists argue that Cuba’s economic crisis could be countered by new economic reforms, opposite is happening Some of the country’s most successful private businesses and cooperatives have been shut down In July 2017 a decree was passed suspending issuing of new licenses for many sectors opened to small private enterprises such as restraints and guesthouses By putting the brakes on private-sector activity the government seeking to regain credibility with large sectors of the population who were left out of the boom.

Private Sector Struggles II The lesson Cuba’s hardliners draw from regime’s survival after the Soviet Union’s collapse is that even the steepest fall in living conditions will not bring down the government -- as long as the leadership remains steadfast and united In politics as in economics, the government seems to be preparing for hardships to come Not by pursuing reform, but By further retrenchment and self-preservation.

Private Sector Struggles III The private sector’s success was divisive and increased inequality However price of restricting market forces is the curtailing the economic dynamism that had started to unfold The government has chosen to Attack rising inequality by restraining the newly well-to-do rather than by increasing the purchasing power of state employees.

Private Sector Struggles IV Foreign investment provides some hope According to officials Cuba signed a record 2 billion dollars’ worth of foreign investment in the first 10 months of 2017 – more than double that of previous years. Of the 16 signed ventures, eleven involve 100% foreign ownership. Around 80 projects are said to be under negotiation These announcements come as new US sanctions announced by Trump in November target foreign investment Specifically they bar US companies from any deals involving assets owned or controlled by Cuba’s military Given the military’s strong role in the economy will be substantial Dealings with more than 80 hotels and a large number of businesses have been banned

Domestic Tensions Standstill on economic reforms goes hand in hand with a more restrictive political climate After the Communist Party Congress in April 2016 Castro shelved his reform agenda Emphasis shifted from modernization of the economy to safeguarding elite cohesion and Efforts to guarantee a generational change of guard without ruptures in the party and state apparatus Diaz-Canal, Castro’s successor, advocated heavy handed approach towards dissidents and independent media

Assessment The return of Cold War rhetoric and confrontation with Washington is politically easier for the government to handle than Obama’s policy of embrace However Cuba’s economy has difficult times ahead Likely developments The economic downturn will strain society but an outburst of social unrest remains unlikely for now Trump’s confrontational politics force the government to seek foreign investment elsewhere and to maintain good relations with the EU and Canada The government will maintain full control of the electoral process, not allowing opposition figures on the ballot.