CUBA: ECONOMIC RESTRUCTURING, RECENT TRENDS, AND MAIN CHALLENGES

The collapse of the European socialist block caused a deep crisis in the Cuban economy, which suddenly lost: Its main suppliers of equipment, raw materials, food and particularly fuels The markets for over 80% of its exports The sources of spare parts and assistance for most of the technology installed in the previous 30 years Its sources of financing and economic preferences At the same time, the United States Government reinforced its economic embargo with several additional measures, aimed at defeating the Cuban Revolution

Effects of the external shock

Economic Reforms to Face and Reverse the Crisis Macroeconomic adjustment to correct some imbalances.Macroeconomic adjustment to correct some imbalances. Structural reformsStructural reforms ( decentralization and reorientation of foreign trade, opening to foreign investment, banking re- structuring, enterprise rationalization and decentralization) Resources were concentrated in a few sectoral programsResources were concentrated in a few sectoral programs ( aimed at developing hard currency earners or substituting imports ) Continued development of medical services and infra- structure (Continued development of medical services and infra- structure ( not only for Cuban nationals, but also aimed at exports) The US $ was allowed to circulate in the countryThe US $ was allowed to circulate in the country ( a network of state dollar shops was set up and $ remittances were allowed) Reintroduction of small private propertyReintroduction of small private property ( agricultural markets, industrial and handicraft private markets, self- employment ) Conversion of most state lands and agricultural companies into semi-private cooperativesConversion of most state lands and agricultural companies into semi-private cooperatives. THE STATE PROPERTY KEPT PREVAILING IN MOST KEY SECTORS

THE PHILOSOPHY OF TRANSFORMATION MAIN DECLARED GOALS To preserve the countrys independence To keep and improve socialism To create the economic and social basis to re-launch a development program once the crisis was over

RESULTS

Gross Domestic Product

Cuban strategy for reinsertion in world markets brought changes in sectors acting as growth engines - Sugar, traditional engine now secondary - Tourism and Remittances emerged with the reform displaced sugar - Healthcare services, biotech patent licensing, nickel, oil & gas recently emerged as key sectors For some of these sectors foreign investment played an important role

BUDGET DEFICIT / GDP ( % )

Breakdown of Budget Expenditures

UNEMPLOYMENT

EXTERNAL SECTOR

Exports of Goods Structure

Current Account (million USD)

PERFORMANCE OF FDI PERFORMANCE OF FDIMMUSD Active Joint Ventures SalesExportsDividends for the country

Reinforcement of the social content of the economic policy Improvement of the free educational system in all levels Refurbishment, expansion and retooling of the free healthcare system Increases of wages, pensions and social assistance

MAIN CURRENT CHALLENGES The low productivity prevailing in some manufacturing sectors and most of the agriculture An increase of petty and mid corruption Critical condition of dwellings, transportation, and part of the infrastructure The need to eliminate the dual currency system introduced to face the crisis

Economic Policy Measures to face these challenges To increase the productivity in manufacturing and agriculture: The government has deepened the restructuring of state companies, emphasizing on accounting, control and discipline Cooperatives and other flexible schemes are being extended in agriculture State companies, cooperatives and private producers have been granted state financing Foreign investment has been allowed and promoted in particular areas.

To face corruption: A partial re-centralization has taken place in most sectors Foreign exchange controls re-established Approval is now required for high-value import transactions Revenues of state companies were concentrated in a single account at the central bank.

To face the critical condition of infra- structure, dwelling and transportation: Program to build 70,000 houses and refurbish 150,000 per year. Gradual recovery of transportation Energy revolution Investments in highways, water pipelines, ports

To move towards currency unification: US dollar withdrawn from the domestic economy Gradual revaluation of the two Cuban currencies The prevalence of State Property in most relevant economic sectors has been confirmed as the main strategic economic policy principle of the Cuban Government.