Dimas Castellanos, 3 August 2016 — The newspaper Granma recently published an article by Randy Alonso that commenced by dismissing “media vultures” who “revel in painting a dark picture, according to which Cuba will return to the direst days of the Special Period.”
It is telling that Randy Alonso and the daily Granma would devote time and space to responding to these “vultures,” extraordinary birds that, by feeding on animals in a state of decay, play a vital role in the health of their societies.
In the fulfillment of his mission, Randy quotes Cuban President Raúl Castro on July 8: “speculation and predictions have begun suggesting the imminent collapse of our economy and auguring a return to the acute phase of the Special Period that we faced in the early 90s, and we were able to overcome thanks to the resilience of the Cuban people and their unlimited confidence in Fidel and the Party. We do not deny that adversity may arise, even greater than that we are experiencing today, but we are prepared and better positioned than then to deal with it.”
Although Raúl Castro acknowledges that “adversity may arise, even greater than that we are experiencing today,” Randy focuses on demonstrating that the Cuban economy today is in a better position to weather it than in the early 90s. To do this he chooses ten issues, which I shall summarize and address below (the remaining three: the BioCubaFarma Group, petrol production, and self-employment are not relevant to this analysis).
1- In 1990 more than 80% of Cuban foreign trade was with the USSR and the countries of Eastern Europe. Today it is more diversified, by country and region.
Diversification in and of itself does not constitute any advantage. Trading with more and more countries does a nation no good if its productive inefficiency prevents it from taking advantage of that trade, and instead forces it to spend hundreds of millions of dollars abroad each year to buy what could be produced in Cuba, like coffee, rice and milk byproducts. The strongest evidence of this inefficiency is the drop in GDP from 4% in 2015 to 1% in the first half of 2016.
2- In 1990 Cuba had no sources of credit. Today Cuba’s debts have been renegotiated with its creditors.
Randy Alonso fails to mention that Cuba ran out of sources of credit due to the infeasibility of its economic model, which rendered it unable to pay either “friends” or “enemies.” It was renegotiated with Cuba because, in view of the normalization of relations with the US, creditors, aware that they would never collect, decided keep one foot in Cuba. But renegotiation also means you have to pay. The Club de París has forgiven 8.5 billion, and Russia, 31.7 billion. The former is now owed 2.6, and the latter, 3.5, to be paid over the next few years, precisely when GDP growth is close to 0%.
3- At that time (1990) foreign investment was almost nil, but during the current stage we boast revised legislation and the promising Mariel Special Development Area (ZEDM).
Cuba, according to its own authorities, requires sustained GDP growth of 5 to 7%, which means an annual flow of investment of between 2 and 2.5 billion dollars. That amount has not been achieved under the “revised legislation” because, among other things, it bars Cubans from participating as investors, and foreign companies from directly hiring them.
Meanwhile the ZEDM, which could help to lift Cuba out of this stagnation and insert it into the global economy, is plagued by delays in the dredging of the bay to make possible the entrance of mega-ships with a capacity for approximately 13,600 containers. Hence, it has had no significant impact.
In his presentation the Minister of Foreign Trade and Foreign Investment stated that the ZEDM “represented a profound modernization of the transformative process that was undertaken at the beginning of the Revolution to place the main means of production in the hands of the Revolutionary State.” In other words, the law intends to preserve the very nationalization that is the root cause of Cuba’s economic inefficiency.
4- Tourism, which back then (90s) was only emerging as a promising economic sphere, today is the second largest generator of foreign revenue.
Tourism is the country’s third source of foreign revenue after family remittances and the export of services. However, most of this revenue is lost buying what Cuba’s inefficient economy is not able to produce. In order for tourism to constitute “a promising economic sphere,” and for the country to be able to take advantage of the increasing flow of visitors, what is needed is greater and more active participation by the private sector, and the development of a domestic industry to mitigate the financial leaks caused by the model’s inefficiency.
5- The export of Cuban services was only getting underway in the 90s. Today it is the country’s largest source of foreign revenue.
The training of people in order to rent out their services is universally considered to constitute modern slavery. It is outrageous that the State rakes in 8 billion dollars a year for these services, over 75% of which it retains.
The fact that some ideological allies, in Brazil and Venezuela, for example, look the other way, does not guarantee its permanence or infuse it with potential, much less promising to sustain a country that is fast falling behind, and from which many professionals are fleeing.
6 – Electricity generation was (in 1990) based entirely on imported fuel. Today we have an electro-energetic system largely based on domestic fuel. In addition, we are increasingly using renewable energy sources.
It turns out that the Economy Minister actually asked the National Assembly of the People’s Power: “What are we missing?” And he answered his own question: “….we lack fuel, because everything we had planned on has not reached the country.” He added: “What we are talking about here is 7,862,000 tons of total fuel that the country receives.”
Therefore, if we subscribe to Randy Alonso’s own arguments, the Economy Minister’s analyses, and Raúl Castro’s speech before the National Assembly, make no sense. According to a Reuters cable on July 8, 2016, delivery of crude to the island fell from 100,000 to 53,000 barrels a day; this suggests that Cuba was exporting some of that oil, which could explain its plummeting GDP.
7- If then (in 1990) numerous investments were partially or totally paralyzed, without any possibility of their completion and commissioning; now the country has the capacity to preserve the financing of investments slated in sectors strategic to national development.
“The other measure that we have to take,” said the Minister of Economy and Planning, “is to carefully administer the taking out of loans, to make the country’s future debt manageable”. The aim is not, in the words of Randy Alonso, “to preserve funding” but rather, in the words of the minister, to “seek financing in the medium and long term and abandon the principle of making short-term investments, because then the debt payment is very fast, and the debt is not paid with the return on investment.”
What both the minister and Randy overlook is an inefficient economy that cannot pay its outstanding debts to creditors, such that there will be no financing in the medium and long term.
In short, with an inefficient economy:
1- Trade diversification cannot be capitalized on.
2- Suppliers and creditors cannot be paid reliably, so obtaining new loans is difficult.
3- The “revised legislation” has not achieved its objectives.
4- The private sector must be permitted a greater and more active role in the Tourism industry, so as to develop a national sector, which is impossible under the current model.
5- The export of services, in its variant of modern slavery, has no future.
6- The lack of available fuel,although its price has been reduced by the market, will lead to serious problems in the country.
7- Obtaining financing in the medium and long term will be impossible if current outstanding debts with creditors are not paid, unthinkable give the sharp reduction in the GDP.
If, in addition to all this, we add Cubans’ disbelief, despair and disinterest, we must concur with the director of the Roundtable television show and the CubaDebate site that the situation today is, in fact, not like that in the 90s … it is simply and categorically worse.
Note: Translation taken from Diario de Cuba’s English site