Cuba’s Economic Forecasts for 2019 are Pie in the Sky

José Luis Rodríguez has given an account of the forecasts of the economic plan for 2019, not without first recognizing that “this year the world economy will face a situation even more complex than what was present in 2018.”

14ymedio bigger14ymedio, Elías Amor Bravo, Madrid, 27 March2019 — The The Castro regime’s former minister of the economy, José Luis Rodríguez has reported, in an article published in Cubadebate, on the forecasts for the authorities’ economic plan for 2019. He begins by acknowledging that “this year the world economy will face a more complex situation even than that of 2018.” And he is right. We have already said it several times. The Cuban economy in 2019 could be faced with a very difficult exercise in which anything can happen.

Therefore, and contrary to what Rodriguez says — to wit, “this situation will affect the economic performance of our country, to which is added the foreseeable increase in the negative impact of the US blockade, taking into account the new measures adopted by the government of Donald Trump already in the first months of this year, including the application of Title III of the Helms-Burton Act” — I intend to show in this article that the authorities are the ones to blame for the deficient “planning” for the Cuban economy.

We can orient ourselves with a look at the forecasts.

For example, for goods exports, growth is estimated to be 6%. A figure clearly excessive, if one takes into account this environment of lower growth of the global economy. And excessive if compared to the evolution experienced in this variable from 2012 to 2017. In those years, and with government data from the National Office of Statistics (ONEI), exports have decreased at an average rate of -3.5%, with some years collapsing -19.7% as happened in 2016. I do not know, therefore, where the planners of the economy invent that 6% for 2019 which, like every year, will end up being unmet, with the negative effects that this has on other variables of the economy.

Another excessively optimistic forecast it that of tourist revenues which, according to the leaders of the regime, should grow by 17.6% Another piece of incongruous data, as the lower growth of the global economy will exert an influence on the demand for tourism trips, and especially sharply so in European countries, which are Cuba’s main markets. Thinking about that 17.6% is pie in the sky to calm the Spanish hoteliers, who know that this can not be achieved. More prudence would have been the right thing to do.

And we continue.

As regards the total investments, so necessary in a decapitalized economy that has a sickly obsession for prioritizing current spending, a growth of 20.1% is planned, reaching 11.3 billion pesos. Once again, the ONEI imposes the number. In none of the 6 years elapsed between 2012 and 2017 has investment exceeded of 10 billion pesos, the average balance being 7.751 billion pesos.

To think that it can reach 11 billion pesos in 2019, with the existing difficulties, is more pie in the sky that undermines the credibility of the design of Castro’s economic policy. Furthermore, this already high level of investment continues to limit the participation of gross capital formation in GDP below 10%, with its negative effects on growth potential.

Forecasts with regards to direct foreign investment are the same thing, with growth estimated at 6.2% of that total, up to 700 million pesos, a far cry, of course, from the goal of two billion pesos that has been pointed out for years to justify the monster known as Law 119. I doubt very much that these figures will be reached with the forecasts of movements of capital at an international level associated with a lower global growth and the limited attraction of investing in Cuba.

The communist planners have established that imports will decline 11.2% compared to what was planned for 2018, with the aim of curbing the country’s foreign debt, which is based on conditions that allow access to financing new credits needed to prevent the economy from going bankrupt. The repossession of foreign currency in hotels that has been practiced since January is only the first step among all the actions that the regime must implement to avoid international bankruptcy.

Cuba’s communist planners remain convinced of the need to replace imports with domestic products, and this it be achieved in an economy that desperately needs technology, intermediate goods and even consumer goods from abroad, because domestic production is unable to meet the demands of the population.

The most curious thing is that this macroeconomic picture is expected to be achieved through the “four basic linkages with foreign investment” and Diaz-Canel talks about nothing else in his habitual meetings to report on progress. Namely, “those related to the growth of production, tourism, exports and the non-state sector, which have been estimated to contribute around 20% of GDP, although in sectors of low productivity, but which already absorb 31% of the workforce.”

With this laundering of figures — absolutely incredible — those responsible for the economy estimate a GDP growth in 2019 of 1.5%, just 4 tenths above what was achieved in 2018, which has little hope of improvement. And they remain so calm, because in Cuba nobody is going to question that scenario, much less offer another alternative that objectively improves the living conditions of the population.

Obviously, I can not trust this design, nor the estimations whose rigor is questionable, let alone give credit to the analysis made by the planners. To think that an increase in exports combined with a decrease of imports can be beneficial in the present conditions of a contracting economy is a serious error. To believe that the recovery of agriculture or tourism can increase the supply and allow the advance of investments is to fail to understand that, for the same reasons as in 2018, these forecasts can fail for meteorological reasons or whatever.

The communist planners’ other “ideas” — for lack of a better word — are to reduce idle inventories by 2%, to support 400 million dollars in the production of goods and services, to reduce the budget deficit of 9% in relation to the GDP in 2018 (predictably higher) to 6.1% this year, with a decrease of 3.06 billion pesos, without affecting the basic social services of public health, education, security and social assistance, something that is simply impossible and the authorities know it, and thus they will further strangle internal liquidity, especially for self-employed workers.

Financing the construction of 32,000 homes in just one year, certainly complicated for economic policy, is more pie in the sky, not to be fulfilled because it begs the question of where they are going to get financing. Lastly, but no less important, reducing the external debt service by 2.8% and the total debt by 1.5%, is an interesting action, but with limited effects because the level of the debt is so high that its sustainability is complicated. Small steps, without commitments or credibility, do not help much.

The Cuban economy can not improve with this design of the Castro regime’s economic policy because it is outdated, obsolete, inefficient and does not go directly to the origin of the problems. Undoubtedly, fundamental actions such as maximum respect for property rights, flexibility and liberalization in matters of production, private companies, investment by Cubans and not only by privileged foreigners, freedom of choice and development of markets and logistics are all lacking.

There are so many things that have to be done, that believing in this design of communist planning is like believing in a fairy tale. What happens is that in Cuba, these Castroite fairy tales always end badly. Very badly.


Editor’s note: This article was originally published on the blog Cubaeconomía. We reproduce it with the authorization of its author.

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