1. ASSESSING CUBAS ECONOMY CURRENT AND FUTURE CAPACITY TO PROVIDE SOCIAL JUSTICE Carmelo Mesa-Lago Governance and Social Justice in Cuba CRI Ottawa, June 9, 2006

2. SOCIAL JUSTICE: RISE AND DECLINE Social Justice includes a set of policies to reduce poverty, inequality and unemployment, as well as to provide social services such as education, healthcare, social security pensions and housing. Social justice in Cuba improved notably under the revolution until 1989. The severe crisis resulting from both the collapse of the socialist camp and ill-conceived economic policies for four decades reversed most of those improvements. The deterioration of social justice in Cuba under The Special Period of Time of Peace is showed in the Table, contrasting the situation in 1989 with that in 2002-2005: Poverty increased 217% it was 20% in Havana in 2002 and 31% of its population perceived they were poor. Inequality measured by the Gini coefficient rose 81%, the ratio between the wealthier and poorest 25% of the population jumped from 3.3 to 13.5 times.

3. Open unemployment declined 24% but including as employed 765,000 people who are not, when that group is excluded unemployment actually increased by 16%. A major problem is underemployment: people employed that are not really needed or have low productivity. Higher education declined 52% in 1989-99 but increased 50% by 2005; disaggregated by careers rose 60% in humanities, social sciences, education & medicine in 1989-2005, but fell 13% in technical careers, natural & exact sciences crucial for development. Infant mortality has steadily declined becoming the 2nd lowest in the hemisphere, but maternal mortality has increased 42%, mortality among the elderly increased significantly and after a recent improvement is still 3% higher, and the immunized population in 5 vaccines decreased by 54% The deficit in social security pensions (paid by the state) rose almost twice and as a percentage of GDP by 77% and will continue growing as Cubas population becomes the oldest in the region; the average real monthly pension decreased 41% and the 2005 increase has not compensated for that decline. Housing is the worst social problem in Cuba, the number of dwellings built per 1,000 inhabitants decreased from 6.1 in 1980s to 2.2 in 2004. The housing deficit exceeds 1 million units.

4. The Deterioration of Social Justice in Cuba in the Special Period: 1989-2005 Indicators19892002/2005Difference (%) POVERTY Population at risk (% of urban population)6.320.0 +217 Perception of poverty (% population Havana)n.a.31.0n.a. INEQUALITY Gini coefficient0.2250.407+81 EMPLOYMENT Open unemployment (% of EAP)7.91.9/16.0-24/+100 EDUCATION Enrollment higher education (thousands)242362+50 Humanities, social sciences, education, medicine164263 +60 Technical careers, natural and exact sciences 47 41-13 HEALTH Infant mortality (per 1,000 born alive)11.15.9-47 Maternal mortality (per 100,000 born alive)29.241.7+42 Mortality population 65+ (per 1,000)48.449.7 +3 Immunized population 5 vaccines (millions)2.31.0-54 SOCIAL SECURITY PENSIONS Pension deficit (million pesos)233696198 Deficit financed by the state (% of GDP)1.32.3+77 Average real monthly pension (pesos 1989)5633-41 HOUSING Dwellings built (per 1,000 inhabitants)6.12.2-64

5. CURRENT AND FUTURE CAPACITY OF THE ECONOMY TO CONFRONT THE DETERIORATION IN SOCIAL JUSTICE CURRENT SITUATION: ADVERSE FACTORS GDP in 1990-2000 decreased at an annual rate of -1%, the lowest in Latin America; in 2005 GDP per capital was still below the 1989 level. Capital formation essential for economic growth decreased by 59% in 1989-2004. Output of 12 key agricultural and manufacturing products (both for domestic consumption and export) decreased between 20% and 94% Exports were still last year 68% below the 1989 level but imports only 28% lower, hence the merchandise trade deficit reached a record $4 billion and increased 52% over the 1989 deficit. The external debt doubled. Average foreign direct investment (disbursed) averaged about $180 million annually, has declined in recent years and several joint ventures has been shut down by the government.

6. CURRENT AND FUTURE SITUATION: POSITIVE FACTORS Production of oil has increased 390% and output of gas has also risen significantly. There is considerable potential for further expansion of oil if large deposits with crude of fair quality are found, a probability that could be enlarged with a further opening to foreign investment. Venezuela provides a pipeline for oil and investment in key lines with generous price subsidies; China also but to considerably less extend. A political change in Cuba and/or Venezuela could eliminate or reduce this advantage (an opposition government in Venezuela could ask debt payments). China could still might be interested in Cuban nickel. Tourism generated $2.2 billion last year and according to official data (albeit incomplete) compensated for the merchandise trade deficit. An opening of the US market would enormously increased investment in tourism, the number of visitors and revenue. The multiplying effect of tourism, little realized so far, could be expanded.

7. Foreign remittances are an important source of hard currency but affected by recent monetary policies and they cannot be invested in small and medium businesses. Political and economic changes in Cuba allowing the private operation of those businesses would expand foreign remittances and their multiplying effect on the economy. Cuba has heavily invested in human resources and education although technical careers have been neglected. These resources could be important in future domestic developments as well as export of services in hard currency. Some countries like Chile and Costa Rica has based their development largely on agriculture. Cuba has enormous potential to provide winter fruits and vegetables to North America and Europe. Private or quasi-private ownership in agriculture, as in China and Vietnam, combined with foreign investment could achieve that end.