For fairly some time the Cuban economic situation has been facing a number of economic problems. There has been minimal recovery from the close to 80% fallen in the population’s real income levels due to the fact that the suspension of the subsidies listed by the Soviet Union in 1989; in fact, the official wage rate remains at around 25% that its 1989 level (See number 1).

You are watching: Which of the following is not a challenge to the cuban economy?

Figure 1. Cuba: real Inflation-Adjusted Wages, 1989–2009 (Pesos, Moneda Nacional)


For many of this period, economic policies adhered to the whims the Fidel Castro and also were dominated by political quite than economic considerations. The de-industrialization the took place carried industrial calculation in 2010 under to about one-half of its 1989 level. Sugar production, formerly the mainstay that the economy, decreased catastrophically, from approximately 7 million lots per year in the 1980s to barely end 1 million lots per year at present. Low manufacturing of foods items as a an outcome of the agricultural policies applied by the federal government has result in major food imports. Investment, at about 8.5% of GDP (compared with almost 22% on average for Latin America), was insufficient even to change the increasingly- obsolescent resources stock. Major deficiencies in the financial arena include:

Inability to produce enough food to feeding the population.Very low productivity (particularly short labor efficiency of the state sector).Exodus the young civilization coupled with far-reaching aging that the Cuban population.Deterioration the the real estate stock and lack of proper replacement.Deterioration of the country’s overall infrastructure (transportation, roads, railroads, ports, airports, water distribution and also drainage systems, etc.).Large budget deficits covered by financial injections.Large balance of payment deficits, which have resulted in suspension the the payment of outside debt obligations.High dependence on imported energy and on international assistance.Prevalence of an overvalued exchange rate and a complicated multiple currency system that makes it almost impossible to determine the genuine profitability of assorted economic activities and results in all kinds of covert subsidies and other financial distortions.Decline in the top quality of education and healthcare.

Beginning in 2009, the Cuban government uncovered itself in a jam together the problems detailed above intensified and also Cuba’s rulers confronted the worst economic dilemm in decades. The Cuban Government became cashstrapped early low residential production, the affect of 3 hurricanes the battered the island in 2008, the an international financial crisis, reduced tourism revenues, and also declining income from nickel and other exports. Food production continued to fall; the sugar harvest dropped to the lowest level in a century; international sources of credit transaction dried up; and also only the billions in subsidies native Venezuela’s Hugo Chávez retained the country afloat. In response, the government cut backs top top imports, froze the foreign money deposits of foreign firms investing and exporting to Cuba, and began to run into arrears in the negotiation of its worldwide financial obligations.

But Cuba faced much an ext than a temporary economic crisis. That state-controlled, centrally-managed economy was basically stagnant and badly in need of change. As the government became increasingly unable to accomplish the simple needs that Cuban citizens, many individuals fled the country and those left behind had actually to rotate to the black color market, wherein products— frequently stolen from the state or sent in from abroad by the exiled community—are bought and also sold.

Under these situations the authorities observed the should make a number of far-reaching policy changes. Observers of the Cuban economic climate have been looking with interest at this changes, and also in this ASCE Conference the opinions of some of them will certainly be presented regarding the appropriateness of the policies embraced to handle the troubles facing Cuba.

Here, ns briefly talk about the nature of the problems, determine the policy steps proposed so far by the authorities come cope v them (including those consisted of in the plan Guidelines approved recently by the Cuban Communist Party), and also offer part preliminary evaluation as to the likelihood that these plans will assist resolve the country’s outstanding economic problems.


Inability to develop Enough Food to feeding the Population

The first major difficulty of the Cuban economic climate that we will discuss is the lack of production and low productivity. This is specifically evident in the farming sector.

In a device where decisions room strongly centralized, the authorities recognize what crops to plant, the form of livestock to raise, and also the price that will certainly be paid because that products as well as for manufacturing inputs; they also control the commercialization and distribution the output. Under together a system, producers have actually no incentives to rise production and also as evidence of this, agricultural output has been falling off for quite some time.

The State agricultural Procurement firm (ACOPIO) stop a syndicate over many of the distribution and also commercialization of agricultural output. It creates the prices paid to farmers for produce and requires the the mass of manufacturing be turned over to them. Bad management and bureaucratization within ACOPIO results in delays in the collection and also commercialization of produce, consisting of at the retail level, which in turn provide rise come losses and spoilage. Often times farming products with the allude of revenue in poor condition, but due to the fact that of the currently price controls, sales prices room not readjusted accordingly. Moreover, over there is a lack of volume for the commercial processing of farming products, and also those existing are periodically obsolete, lacking ideal hygiene and with very low productivity.

Many economic experts blame the negative working of ACOPIO because that the shortages of agricultural production, stating the the mechanism neither rewards the finest producers nor penalizes those that fail to fulfill production targets. Paradoxically, in attempting to manage everything, the federal government has finished up controlling very little. The effectiveness of stricter state controls in reality brings about weaker actual control as it disclosure illegality, corruption and the ubiquitous violation of unrealistic regulations. Shortages of essential inputs, such as fertilizers and pesticides, and inefficiencies of the transportation, distribution and commercialization system add to hampering production. Calculation of some farming crops, such as sugar, i beg your pardon historically had been the mainstay of the Cuban economy, declined sharply as a an outcome of mismanagement under State control (Figure 2).

Figure 2. Sugar Production, 1985–2010 (Million Tons)


Before the coming to strength of the revolutionary government, Cuba was an exporter of agricultural products such together sugar, coffee, meat, and also vegetables. Currently, Cuba has to import most agricultural products (Figure 3). In fact, Cuba needs to import an estimated 60% to 80% of the food its 11 million civilization consume. The joined States has been the Communist-island’s key provider the food because that years, supplying an ext than a quarter of every its foodstuffs imports, despite political tensions in between the 2 countries and also the almost five-decades-old U.S. Trade embargo. Cuba gets chicken, corn, soy, wheat, pork and also other products from the joined States. U.S. Sales of agricultural products to Cuba have dropped by 48% due to the fact that hitting a top of united state $710 million in 2008. The factors for the decrease include Cuba’s absence of foreign exchange and also greater dependence on commercial relationships with various other countries— especially financial benefactors Venezuela and China. Also, nations such together Brazil, Argentina, Vietnam, Mexico, Canada, Russia and also Iran have been granting credits or using barter to preserve or increase trade through Cuba, including farming products.

Figure 3. Cuban Exports and also Imports the Foodstuffs, 1989–2009 (excluding tobacco and also alcoholic beverages) (Million CUP)


Very Low efficiency of the State Sector and the trouble of Corruption

Another repercussion of a system of central decision making, where the rationale for decisions is dominated by political considerations and economic after-effects are disregarded, is the demoralization of labor, indiscipline, and very low in its entirety productivity.

Since the state straight controls close come 95% of economic activity, the is very complicated to initiate transforms in the lack of significant reforms the would permit a free-market kind system. Hiring and maintenance that jobs have been conquered by political allegiance and, due to the fact that the government eliminated most possibilities because that engaging in economic tasks outside the state sphere, this has contributed to a bloating of employment in the government sector and State enterprises. The low earnings paid by the State has actually been a resource of disincentive because that individual initiative and also contributed to the low efficiency of the workers.

Raúl Castro himself realized that this is a difficulty when he claimed in his address to the vi Congress the the Cuban Communist Party that “the lesson taught by valuable experience is that excessive centralization inhibits the breakthrough of initiatives in society and in the abundant sector, whereby the cadres acquired used to having actually everything made decision ‘at the top.’ ours entrepreneurs, v some exceptions, resolved themselves comfortably safe and quiet ‘to wait’ and developed one allergy come the risks affiliated in do decisions, that is, in being right or wrong.”

The government has known that there is overfill employment in the general public sector of around 25% of the labor force. Critical year, chairman Raúl Castro startled the nation by speak that around one in 5 Cuban employees were redundant and should it is in let go from your jobs. This is not just a source of inefficiency however involves a tremendous financial burden on the government. Signaling the the job of state security of jobs must concerned an end, Raúl Castro himself has warned the unproductive or underemployed employees in the public sector will have to uncover other jobs. However, he wants to mitigate bureaucracy and also raise productivity by easing the government’s duty in the economy yet preserving the socialist system set up after Cuba’s 1959 revolution.

Cuban official statistics report a really low level of open up unemployment. Follow to main figures, unemployment in 2010 to be 1.7% and also it has actually not risen above 3% in the last eight years.1 but this ignores the countless Cubans who are not looking for jobs due to the fact that they uncover the monthly incomes that the government pays—worth just US$20 a month top top average—not attractive, and also prefer come seek different illegal means to earn a living. The pay federal government workers obtain is so low that Cubans joke that “the state pretends to pay us and also we pretend come work.”

Substantial parts of the goods and also services produced are pilfered and distributed through the common underground economy for resale or personal use. Thus, the revenues of State enterprises seem rarely to permit higher wage and salary payments. If an ext is produced, it leaks the end of the official economy. In fact, plenty of individuals want to preserve their tasks with the State companies, regardless of the low pay, due to the fact that that gives them the chance to ideal goods accessible at the agency (whether finished products or preventive parts, tools, etc.).

Another trouble affecting State companies is the absence of adequate accounting systems and also management controls. A recent analysis by the newly established Office of the Comptroller basic indicates the 37% the State enterprises had a poor or deficient accounting system. According to the same report, corrupt directors and managers of few of these enterprises had actually utilized a system of duplicate publications to conceal misappropriation of funds or the deviation of was or inputs come the black color market. At least one Minister, numerous vice-Ministers and a variety of high-level government officials and administrators that State enterprises have actually been fired and put in prison for corruption in recent times. A string of current scandals led economist and also long-time Communist Party member Esteban Morales come warn in a pillar last year the corruption was growing so lot it do a significant challenge to the government. In a society with such short levels that income and also the overwhelming presence of the State in all economic activities, the only way for individuals to make it through is to take it what they have the right to from the State. ~ all, “the residential property of the State belongs to all and also what belonging to all does no belong to anyone in particular.” come survive, civilization take whatever you can. The is accepted that civilization have come “resolver” in order to survive.

The Exodus of the Young and also an Aging Population

Contributing come the low performance is the exodus that the young people and the aging that the population. During four the the last five years, Cuba’s population shrunk, through the proportion of those older than 60 years of period rising come 17.8% of the total populace in 2010 compared to 11% in 1986. The is projected that this share could reach 22% through 2020, and 30.8% by 2030, if the existing low birth price (1.6%) is maintained and the exodus the Cubans—in details young people—continues. At the finish of 2010 it was reported that around 332,356 individuals left the country in the duration 2000–2009, nearly three time the variety of annual births because that the last couple of years.

Since 1978 the all at once fertility rate, the is the average number of children born every woman, has been less than the instead of rate and also therein lays the main cause of the aging in Cuban society. The mix of these components has resulted in a sustained growth in the number of people 60 years of age and also over, a cohort the at the end of 2010 numbered 1,996,632, while the populace within the 0 to 14 years of age cohort to be 1,946,634, because that the first time lower than those in the so-called third age.

According to demography projections, the only age group supposed to increase over the coming decades is specifically the cohort of citizens 60 years of age and older. As declared above, through 2030 it will represent around 31% the the total population, make Cuba amongst the countries with the oldest population worldwide.

The government recognizes the the existing social security device is no sustainable. End the past twenty years, the deficit in the pension system has risen 733%, and the ratio of active workers to pensioners has actually dropped indigenous 3.6 come 3.1. In 2009, the deficit of the pensions system was equivalent to 41% of full government expenditures and 8% the GDP.

While the pension device was readjusted in 2008 once the retirement period was raised, this readjust was not adequate to make a far-ranging dent to the gaue won disequilibrium confronted by the system. If the age of retirement had not been raised, by 2015 a greater number of workers would have actually been leaving the workforce 보다 entering it. Together a script would have actually worsened the financial case of the pension system and also significantly boosted state social defense expenditures.

The existing demographic case is not sustainable in a poor country with such low productivity, undergoing a de-capitalization process, and also challenged with meeting the farming current expenditures and also investments the an aging population would require. But to rotate things around the government would have actually to embrace policies that produce incentives because that the young to continue to be in the island and also for those who have left come return and also carry out productive employment.

Lack of sufficient Housing

Cuba’s federal government likes come boast the over 85% of Cubans “own” their homes. The claim may it is in technically correct, however, over there is a catch: holding location to a residential property does not provide you the best to market it. The just legal means to move in Cuba is by swapping residences—a slow, bureaucratic and also often corrupt process known together “permuta” (“exchange”), which calls for the state to provide the swap of 2 roughly similar properties. To stop this hassle, some Cubans rather marry the owner that a property, deliver the deed, and then divorce. Due to the fact that there space no incentives come build brand-new homes, Cuba suffers from a dire housing shortage. Many structures have been repetitively subdivided. In some families, 3 generations share life quarters.

Over the critical 50 years, brand-new housing building has only been roughly 300,000 units, when the population of the island around doubled, indigenous 5.5 come 11 million. According to the national Statistical Office, in 2010 just 33,000 real estate units were developed (of i m sorry 11,546 by personal individuals), not only listed below the level planned for that year but also below the 35,000 built in 2009 and also the 111,000 in 2006. Cubans this particular day live in overcrowded conditions, in old and also deteriorated residences largely built before the revolution. The housing case was more aggravated by the destruction caused by the three hurricanes that hit the island in 2008. Because that 2011 the official plans speak to for structure some 43,000 housing units.

The Cuban government has identified that a absence of housing is among the country’s best challenges. According to main estimates, the real estate shortage reached some 500,000 houses by the middle of the previous decade. Yet given the deterioration of the present stock, independent estimates put the present housing shortages at closer to 1.6 million units.

While an city reform undertaken in 1960 do it feasible for tenants to achieve some home rights to the homes where castle lived through the payment of rent to the government over a 20-year period, this properties could neither be marketed nor can mortgages be acquired on them. The constraints on property rights together with the challenges in obtaining building and construction materials and other required inputs has added to the absence of maintenance and also deterioration that the existing real estate stock. To ease this situation, in 2010 the federal government relaxed rule on forming structure companies and buying building materials and an ext recently has announced a liberalization the the rules regulating the move of housing.

Deterioration the Infrastructure

Inadequate transportation is a nation-wide difficulty that contributes come the lose of crops and low productivity. Come energize the economy and also improve efficiency it is vital to make far-reaching improvements in infrastructure. In 1958 Cuba ranked 6th in the civilization with respect to variety of automobiles every inhabitant.

In 1959, 180,511 automobiles to be registered in the island, almost all in exclusive hands and from U.S. Origin. Today, 75% that the automotive share of the nation is in the hand of the government, and of the 3.5 million family members units only around 1.2% have a vehicle available.

In recent years the government has imported a big number of passenger buses, yet the majority of them room out of service due to bad maintenance and also lack the parts. Transport of both freight and passengers have actually experienced many difficulties because of the lack of parts for repairs and also spare tires. In addition, numerous roads room in bad condition together are additionally rail tracks.

Aqueducts room in disrepair because of negative maintenance. The it is provided of drinkable water has actually reached a an essential situation in numerous parts the the country, with many of the circulation lines all set to please and around 70% that the water pumped being lost on the way to the consumer. Over 100,000 people in the resources area execute not have accessibility to running water and also depend ~ above cistern van to administer them v some it is provided of water.

In 2010, 15.9% of the electric energy generated was lost, rise of 10.2% with respect come 2009. Accident in transmission accounted because that 4.3% of power generated and losses in distribution for 11.5%. While every nation experiences part losses in electrical power transmission, the degree of losses because that Cuba is way above the norm.

Some of the losses are attributed to the steal of power by customers through illegal hook-ups, but the bulk is attributed to the bad conditions the the electricity distribution system. Most electrical energy generation plants suffer from lack of maintenance and also deterioration attributable to the exercise of processing high sulfur domestic crude as fuel. In recent years, the government policy was to establish small generation plants that operated with diesel fuel instead of investing in modernizing the old plants, or to develop brand-new sources the renewable energy. Finally, the transmission and also distribution networks have actually been damaged through hurricanes.

The destruction in the infrastructure of the country is the cumulative an outcome of lack of investment and poor maintenance of the currently facilities and also a very huge effort will certainly be forced to turn about this situation.

Large budget Deficits

The worldwide financial crisis, compounded by the damage inflicted by 3 hurricanes in 2008, compelled Cuban authorities to run a fiscal deficit the 6.7% that GDP in the year, protect against payment the credits obtained from Spain, China and also other creditors, and also cut back in plenty of investment projects. Far-ranging limitations concerning the ease of access of foreign exchange come pay because that imports and finance invest projects contributed to a sharp deceleration in financial activity. In stimulate to alleviate the budget deficit the government adopted a an extremely sharp readjustment in its expenditure plans and implemented a 6% throughout the board cut in government expenditures in 2009. Expenditure reduced backs were additional intensified during 2010. Real estate construction and also maintenance have particularly suffered indigenous the lack of funding, but most various other government activities have also been affected.

Meanwhile, because 2008 there has actually been growing monetary injections come cover the residential fiscal deficit and also therefore money in the hands of the public (liquidity) has been increasing, reaching over 40% of GDP; due to the fact that there has actually not been a concomitant boost in domestic output, this has added to the increase in residential prices and also a decline in genuine wages.

Large Balance of payments Deficit

Large and persistent deficits in the balance that payments due to the fact that 2008 have actually generated an extensive foreign exchange shortages. As a an effect of the mix of an increase in imports, a deceleration of exports, higher obligations to business a growing external debt, and lower accessibility of exterior financing, the demand for international exchange could not be met. Boosts in international industry prices, an especially of foodstuffs and also fuel, boosted the balance of payments imbalance and also were one of the determinants that prompted the require for a revolutionary of the Cuban government’s financial policies.

Given Cuba’s solved exchange rate, the above-mentioned exterior pressures ended up influence the banking system, and the absence of foreign exchange led to considerable delays in making payments overseas for imports and other obligations. Plenty of foreign exporters started to curtail their offers to the island or inquiry payment in advance.

In check out of the credit transaction crunch, foreign banks cut ago their exposure top top the island by end 16% in the an initial half of last year, follow to the latest statistics released by the financial institution for global Settlements (BIS).2 The complete external debt of Cuba to the members the the Paris Club together of December 31, 2010, totaled US$30,471 million, follow to a publishing of the organization. Exterior the Paris Club, Cuba’s biggest long-standing creditor is Argentina, through an approximated $1.8bn owed.3 China is rapidly ending up being Havana’s lender of critical resort, as it recently racked up huge loans to Cuba, probably as lot as US$4 billion, according to part Cuban sources.

In response to the degradation of the balance that payments, the authorities took actions to minimize monetary outflows through lowering take trip expenses, suspending imports, postponing investments that compelled outflows, and also limiting the capability of foreign enterprises operation in the island and also individuals to retract hard money from their financial institution accounts. In 2009, Cuba slashed security on food importing food and also other basics through 34% percent, come $9.6 billion, from $12.7 exchange rate the previous year. Additional cuts were implemented in 2010. Yet so far, the moves have actually not been sufficient to rein in the deficit.

The frozen of the bank accounts of foreign firms operating in Cuba influenced not just the picture of the country abroad but also resulted in a cut earlier of brief term credits, thus contributing to the loss in imports and also the increase in cash payment abroad.

The structure and composition the Cuban exports is exceptionally narrow and also there is an excessive dependence the exports of services (such as medical, educational and military services) the have little if any type of backward linkages. The agricultural and commercial sectors are completely unrelated come the growth of violin of this services, so there is no multiplier impact on the residential economy. The sugar industry and tourism quit playing such a function years back, as the sugar industry has virtually disappeared and tourism had stagnated in current times.

The global economic crisis also hit tourism. Critical year, the number of foreign visitors rose by 3% yet the tourism sector’s earnings dropped by 10%. Travelers from Canada, the U.S., Argentina and Russia increased, however those originating from the unified Kingdom, Italy, Spain, Germany, France and also Mexico declined. Travelers from Canada comprise the largest number of visitors native abroad; they got to 945,248 in 2010. The 2nd largest group is Cubans resident in the united States, whose numbers have grown exponentially in the last 3 years. According to approximates of tourism operators, part 300,000 Cubans life abroad saw the island in 2009 and much more than 370,000 in 2010. While traveler receipts were greater in 2010 than in 2009, at united state $2,395 million, they room still listed below the level in 2005.

Dependence ~ above Imported Energy and Foreign Assistance

Cuba is right now highly dependent on international oil, although current finds have actually piqued really hopes that the country could one day be a net exporter. Till 1989, the Soviet Union listed Cuba with essentially all of its oil needs and even enabled Cuba to resell part Russian oil. Because the rise of Hugo Chávez come the presidency that Venezuela, that nation has been offering Cuba through over 100,000 barrels every day at very advantageous terms.

In 2010, Cuba produced around 21 million barrels the oil, approximately the exact same volume as it extracted the previous year, representing a little an ext than a third of its yearly oil needs. The U.S. Geology Survey estimates Cuba may have actually up to six billion barrels that oil reserves offshore, sufficient to meet all of Cuba’s needs and also perhaps more. Cuba’s off shore oil reserves stand for a significant opportunity for the island and its potential international partners in exploration and also production. The potential that Cuban deepwater offshore make reservation would require 5–7 year to materialize and also only if Cuba is maybe to forge successful technological and financial tandem with international companies. In 2004, Spanish company Repsol drilled an exploratory well off Cuba’s northern shore that was understood not to it is in commercially viable. In 2011, the Cuban federal government announced plans to drill five deep water oil wells in the Gulf as beforehand as the summer 2011.

Cuba is perhaps one of the nations in the world that has received the largest volumes of exterior subsidies end the last 50 years. First, there to be transfers native the Soviet Unions, in the form of goods and services (including oil, wheat, fertilizers, steel, and armaments) bookkeeping for more that 30% the its GDP native the 1970s come the collapse of the Soviet empire. The quantity of unpaid credits alone indigenous COMECOM nations at the finish of 1991 price to part 30,000 million “convertible rubles” (the indistinguishable of much more the 100% the Cuba’s GDP in ~ the time). In addition, during this period, Cuba derived some US$6,000 millions in credits indigenous other federal governments that the island has not repaid.

More recently, subsidies detailed by Venezuela have actually been an important source that financing for Cuba. Cuba receives some 100,000 barrels of crude oil from Venezuela yearly in exchange for overpriced medical, military and also other solutions from the island. An estimated 30,000 to 40,000 Cubans space in Venezuela giving all kinds of solutions to the Venezuelan government. This exchange has a value of end US$6 billion every year.

Perhaps the largest resource of openly usable foreign exchange because that Cuba right now are the remittances native the exiled community, i beg your pardon in 2010 were approximated to be as lot as US$2 billion. Currently there are close come 2 million Cubans living in the United states alone. In enhancement there are big Cuban neighborhoods in Spain, Venezuela, Mexico and also other Latin American countries. Countless of the inhabitants in these neighborhoods have close family members in the island to whom they send remittances or visit carrying v them significant amounts that money and goods.

Overvalued Exchange price and complex Multiple money System

Cuba has two creates of residential currency. State employees are paid in pesos “moneda nacional” (CUP), which have the right to be offered to pay because that subsidized rations, bus fare, additional food items at agro markets, and also many forms of entertainment. International currency, such as dollars and also euros, room most regularly exchanged for “convertible pesos” (CUC), which can be provided at larger federal government supermarkets, for individual (as opposed to collective) taxis, and at many clothing and also appliance stores. Every convertible peso (CUC) is worth 24 pesos in moneda nacional (CUP) at federal government exchange houses.

Eliminating the twin currency system has been one of the main talking points in the revolutionary debates, yet so far little has been done in this regard. The existence of this double currency device is viewed as a resource of discrimination between those that receive payments in one currency versus the other. In particular, while many states employees room paid in moneda nacional, they need to pay in convertible pesos for many items that they buy in the main stores. In a feeling the dual system acts as a hidden tax on employees who obtain payment in moneda nacional.

The maintain of an exchange price that is no representative that market problems has contributed to the problems faced by the bank system and also the challenges in obtaining financing native abroad. In addition, the ubiquity of one overvalued exchange rate and also a complex multiple money system provides it virtually impossible to determine the real profitability of assorted economic tasks and outcomes in every kinds of hidden cross subsidies and also other economic distortions.

Cuban economist Pavel Vidal Alejandro has pointed out that the official exchange rate of one peso cubano in moneda nacional (CUP) equal to one peso cubano en moneda convertible (CUC) “distorts almost any financial measurement … and also the extreme value given to the peso cubano en moneda convertible makes a group of enterprises show up artificially lucrative while making an additional group of enterprises show up unprofitable, there is no there gift a true relationship between profitability and efficiency.”

Decline in the top quality of Education and Healthcare

Universal cost-free education and healthcare, the two many important accomplishments of the 1959 revolution that brushed up Fidel Castro come power, are now dealing with cutbacks. Investment in education and also healthcare has actually fallen sharply since 2005, according to a Cuban government report. Education and learning was hardest hit: the federal government invested over 500 million pesos in the sector in 2005, however only 61.8 million in 2010, one 88% drop; investment in healthcare reduced by 81% end the very same period.

Despite the increase in the variety of teachers gift trained, there was a shortage of instructors since the low incomes paid result in people shifting to other activities, favor tourism, or leave the country. Education and learning is much from what it was, as an ext than fifty percent of all classes are now taught remotely (via television) or taught by unqualified teachers. The an outcome has been a very significant rise in the variety of students that failed the enntrance gate exams at the universities and also poor performance in tests of grammar, mathematics and also orthography.

Many parents at this time pay personal tutors because that classes in mathematics and also science. This would have been not only unthinkable but likewise quite unnecessary throughout the duration when the state spent an ext than 15% the GDP top top education. The “municipal universities” and also “emerging teachers” programs confirmed to it is in expensive propositions that yielded an extremely poor results, and also therefore the federal government has quiet dismantled them.

There has likewise been a predisposition in the educational device in favor of maintain in the social sciences as protest to mathematics, engineering and agriculture. Some career streams, like economics, audit and company administration, had actually been virtually eliminated. The government attempted to to fill this gap with young world that were provided a fast training course, the so-called “emerging teacher program,” yet graduates the the program confirmed not to be as necessary trained and there was a sharp decline in the quality of the graduating university students. Ultimately the government readily available incentives because that retired teachers to come back to teach, however so much this has not proven an effective method to deal with the difficulties in the education and learning system.

With respect come healthcare, while the ratio of doctors per 10,000 inhabitants doubled in between 1989 and 2010, about one-third of them have been sent out for service abroad, the bulk to Venezuela. The government program to export medical services to other countries, while offering Cuba v a resource of foreign exchange, has been carried to together an extent that there are now shortages the physicians and also medical solutions at the neighborhood level. Moreover, other than from part chosen facilities that tend to the political nomenklatura and foreigners who room willing to salary in difficult currencies, most of the local healthcare facilities suffer shortages the the many elemental supplies. Countless medications are not obtainable or have the right to only it is in purchased at an extremely high price in the pharmacies that sell in foreign exchange.

While the government puts an emphasis on proceeding to excel through respect come some health indicators the receive lot attention at the worldwide level, such together life expectancy and infant mortality, they have actually disregarded the deterioration of the water and also sewerage systems, and also this has lugged a renewal of a number illnesses that at one suggest had been virtually eliminated. There also appear to be inconsistencies in between some of the easily accessible healthcare info that advanced troubling questions. Because that example, when the infant mortality price is an extremely low, maternal deaths and abortions space reported to have actually increased sharply, and also there room reports that patients space advised to have actually an abortion if over there is any likelihood the a high hazard pregnancy. Moreover, one has to wonder why in a nation with one aging population, the variety of hospital beds obtainable has lessened by 25%?

WHAT IS THE federal government DOING TO shot TO resolve THESE PROBLEMS

Since that took end from his brother, Raúl Castro has actually acknowledged that the Cuban economic situation is no functional and there is need for crucial structural changes.4 at the start he relocated slowly, while that consolidated his manage over the political machinery the the State, most likely fearing a an unfavorable reaction from nomenklatura members who were likely to be influenced by the changes. Early efforts focused on cutting waste native the government and also state enterprises, promoting import substitution and reducing intake of high value imported energy. In ~ the very same time, he carried out a purge of individuals who that might not monitor his management throughout the governing structure, place an increasing variety of members the the army in vital economic monitoring positions. Much more recently he has actually taken what are seen by part as bolder steps to seek a reform of the system.

A variety of measures have been taken to scale back the state’s near-total dominance of the economy, if attempting come generate brand-new revenue for a government short on cash. The setup includes bringing out of the shadows illegal exclusive businesses already operating and taxing them, leasing fallow state lands to exclusive farmers, loosening the regulation to allow farmers come sell directly to consumers rather of only to the state, issuing micro credits to part farmers for purchasing farming tools in authorized stores quite than top top the black market, adjusting salary scale to be more responsive to individual performance of the workers and eliminating hat on worker earnings, cutting earlier on employed by the State and on subsidies, granting brand-new licenses for family members businesses and other me employment activities to permit them to operate legally, and promoting joint endeavors with international investors—under the manage of the State—in those activities that are most profitable, such together tourism, mining, and oil exploration.

Some observers think about that this are essential steps in the ideal direction; others think that the measures are also timid and too late, and also they will certainly not be adequate to resolve the current crisis.


Changes presented over the past year, consisting of the ideal to interact in self-employment in 178 approved job categories, has been billed by some as a wide brand-new opening for entrepreneurship, on one island that 11 million civilization where the state employs much more than 90% of all workers and controls basically all means of production.

In reality, numerous of the brand-new jobs—from food vendor to wedding photographers, manicurists to construction workers—have existed because that years in the unshened economy, and many the those seeking job-related licenses were currently offering the exact same services under the table. Together of the end of 2009, there to be 143,000 selfemployed workers already licensed, return thousands much more worked because that themselves illegally. Moreover, around two-thirds the the 171,000 brand-new business licenses granted so much this year go to human being who were currently out that work, suggesting that the reforms may not be enough of a security net for the half-million civilization who space expected soon to be the end of a federal government job.

The new measures offer these people the opportunity to legalize their activities, but to perform so they should register with the government and also be subject to taxation. The liberalization steps are design not only as an effort to produce job avenues for people losing their State jobs, however as a way to try to regulate the black market and capture some added revenue because that the government. Paradoxically, the development of a legal totally free market might result in rise in the size of the black market, particularly with respect to goods and also services the new entrepreneurs need and the government is one of two people unwilling or can not to supply.

The variety of authorized self-employment activities is quiet very little and any task not detailed is forbidden and also illegal. In particular, no professional activities have been authorized, no one any activity involving advanced technologies. The visibility of many very detailed and also strict rules that control the permitted tasks leaves little room for an individual initiative and also the ongoing presence that price controls is a disincentive to boosted production. Violations of rules have the right to lead to high fines and/or suspension of licenses to proceed the activities. Such a heavy-handed mechanism of controls tends to encourage corruption.

Cuba plan to revolve some state-owned, small-scale manufacturing and also retail services into cooperatives together the state retreats indigenous minor businesses. The new framework additionally would permit the brand-new cooperatives to role as mid-sized carriers with many employees, a key requirement of any vibrant economy. Currently, together entities just exist in agriculture. The newly-released variation of the guidelines allows such employee-owned companies to directly sell assets to consumers or business owners, without the state operation as one intermediary. The cooperatives would likewise be totally free to decide exactly how much every worker gets paid—presumably in relationship to his or her productivity and also usefulness. However, the state will certainly still very own the cooperatives’ premises, together it does most property in Cuba, yet the workers will certainly be allowed to run them, pay operation costs and taxes and keep profits.

To help deal with the real estate shortages, the government has announced the licenses to allow self building of private housing by individuals will be authorized. While some governmental hurdles will certainly be eliminated—for example, transactions can be completed making use of a notary windy without having to look for prior authorization, family members members will have the ability to inherit property also if they space not life in the premises—others remain, because that example, people will still not be enabled to own more than one home, the sales transactions will certainly be taxed, and also individuals will need to prove that the money for the transactions comes from legitimate activities.

Changes in the Social safety and security Net

As component of the in its entirety reforms, the government has to be trimming that is social safety and security net, warning Cubans the the country’s cradle-to-grave entitlements— from complimentary education to health care—can not be continual at present levels of economic output. Also the island’s ration book, a keystone of Cuban socialism, is being winnowed away amid rumors it may be removed altogether.

The level of “real wages” (inflation-adjusted wages) in the main economy collapsed after 1989 and have not recovered significantly since then, follow to approximates from the Centro de Estudios de la Economía Cubana. Due to the fact that the government uses extensive price controls and also even regulates prices in the minimal areas of free-market activity, the price index might underestimate basic inflation. Moreover, the main inflation index, i m sorry registered rise of 1.4% in ~ the end of 2010 compared to a year earlier, stops working to reflect fully the increase in the price of living occurring from the transition of goods away indigenous the rationing system and toward a greater reliance on markets. It have to be noted, however, that in enhancement to wages, some individuals have other resources of income, such as remittances, revenue from legit self-employment about production of items or services, underground financial activities, income supplements payment to workers of international operated joint-ventures, goods in kind distributed by the State, and also widespread pilferage.

During the last 2 years, the federal government has taken a number of steps to reduce neighborhood subsidies and introduce new taxes in stimulate to mitigate the fiscal deficit. This has involved removing a number of products from the subsidized “rationed family basket” (libreta de abastecimiento). Thus, Cubans have seeing their ration cards get thinner and also thinner. The cutbacks in state subsidies end the previous year—especially in the rations cards—already have actually increased the price of living. Hit especially hard have been retirees, the disabled, widows and also others that live on resolved incomes, and the 40% the Cubans who perform not obtain remittances native abroad and also must rely on wages that officially typical a just $20 every month.

The taxes System

One way in i beg your pardon the federal government expects to have the ability to generate much more resources to finance its tasks is with the taxation system. Recently-announced new taxes will need Cubans come pay much more than a third of their earnings to the state, while those who produce businesses and hire their own employees will pay even more. Rules newly published detail four type of taxes for individuals and also businesses: (1) a sliding an individual income tax; (2) a sales tax; (3) a public organization tax; and (4) a payroll tax. It likewise establishes minimum monthly fees for various kinds of businesses, and deductions Cuban have the right to take to reduce their taxation burden.

The new tax regimen represents a minor advancement in the it patent the extinguish as prices of production of more than the 10% of full revenues that was previously allowed. This is a reasonable adjustment, as many of the self-employed tasks generate expenses that 10% of total revenues, specifically food preparation, transportation, and also handicrafts production. Yet there room a number of flaws in the new tax regimen which will proceed to stunt the development of small enterprises and will avoid the absorb of the redundant workers to it is in displaced from the general public sector:

the high level that taxes will discourage companies creation and legalization the those that have been operating as part of the black color market;the pervasiveness of State controls will proceed to encourage the existence and growth the the secret economy;the tax on hiring of employees will certainly discourage the production of tasks in microenterprise activities;microenterprises will continue to be stunted by the high effective tax prices that are incurred when prices of production exceed the enabled deductible for taxes determination purposes; andmany private activities for which there is a large demand (especially those entailing professional and technical knowhow) room still prohibited.

In addition, there continues to be taxes discrimination favouring international firms in joint ventures. The main distinction is the determination of the reliable tax base, i beg your pardon is calculate as full revenue minus expenses of production for foreign firms, however for micro-enterprise is gross revenue minus an arbitrarily and minimal allowable level of input costs. Together a result, the reliable tax rates for foreign enterprises calculated as given above are reasonable however they deserve to be unreasonable because that Cuban microenterprises together they can reach or exceed 100%.


Many the the 313 referrals in the newly-approved policy Guidelines are fairly obvious, trite and also constitute basic statements of reasonable economic management. Moreover, some of them have actually been made continuously over a number of decades, consisting of those relating to the expansion and also diversification of exports, science and modern technology policy, the sugar agro-industrial complex, or the development of byproducts and also derivatives from the sugar industry (an target at least due to the fact that 1950). Restating numerous of these as guidelines can not do much harm, however certainly does no guarantee their implementation. Over there are additionally opaque elements among the guidelines and also apparent contradictions, as some of them tension continuity that state planning and also control, while others emphasize private task and higher enterprise autonomy.

The accuse reflect one intention of maintaining the state-owned enterprises together the facility of the national economy, back they acknowledge a function for international investment and also other species of property, such together cooperatives, little farm operations, usufruct, leases, live independence workers and also others. However, they continue to ban the concentration of home in the hands of individuals or legal entities, tightening limitations on personal property also further, due to the fact that this criterion expand not only to new private enterprises, but additionally to those which exist previously. Maybe the many serious restriction is that develops of task that space not specifically permitted are prohibited, consisting of virtually all professional activities. As discussed by Cuban economist Pavel Vidal, the authorized tasks are no knowledge-intensive and thus fail to take benefit of the investment in education and learning that the country has made over the previous decades.

The restrictions inserted on the usage of the land turned end to exclusive farmers in usufruct have actually so far failed to bring around a turnaround in farming production. The residential or commercial property remains in the hands of the State, mortgages space not obtainable to finance functioning capital, and there room no incentives to make long term investments.

While the Guidelines produce some an are for private financial activity, all at once control stays in the hands of the equipped forces and the military guys close to Raúl Castro. It would be vital for civil culture rather than the equipped forces to manage economic activities. Currently GAESA (Grupo de Administración Empresarial, S.A.), the holding company of the armed Forces, controls practically 70% that the country’s economic climate through some three hundred enterprises that generate practically 90% the exports, 60% of tourism income, close to 25% of income from services, 60% of receipts in foreign exchange, and more than 65% of every the retail sales utilizing convertible pesos. Army security is the just area of the state spending plan where there have been no cuts in expenditures, and also in truth military expenditures have increased.

In some sense, the reforms happen the expense of the adjustment to the populace at large, by getting rid of excess employment ~ above the state’s rolls and also raising revenue v taxation, to buy the ruling course some time in the hope that there will be a significant discovery of offshore oil deposits. The Guidelines seek to perfect a dysfunctional version while walking a good line: they encourage a private sector that will need to absorb much more than one million unemployed workers to be exit from the public sector (excluding coercive and security agencies, whereby employment has grown), however warn that concentrating property/capital in private hands will certainly not it is in permitted.

It stays to be checked out if the federal government will be all set to create the legal frame to defend the new private sector, or instead will expand the status quo by adopting ambiguous revolutionary under continued strong State control. Of specific significance will be whether the government will enable prices and wages to be determined by the market or will continue to look for to regulate them.

There is no inquiry that reform is needed. Cuba is the one nation of the ameri that has had not one, no two, however six lost decades, enduring a destruction of living conditions relative come its partner steadily due to the fact that the mid 1950s. Something need to change. However, the present reforms will certainly not perform the trick. This is not due to the fact that the revolutionary are, economically speaking, too modest (which castle are), but because the most an important political aspect that is forced for market reforms to be efficient is tho missing— societal to trust in the state.

Cubans mistrust the state for a straightforward reason: every time the state has enabled an financial opening, sooner or later on the authorities have unilaterally take away those free away, and also ended increase punishing those who took benefit of the little breathing space that had actually been provided. Brief reforms have allowed the state come weather short-term fiscal crisis, yet when the fiscal dilemm subsided the state re-imposed draconian measures. This type of reversal has actually taken ar no under than four times during the Revolutionary period.

Totalitarianism is the method that the Cuban state conducts that business. Cubans have learned no to trust it. The existing reforms carry out nothing to strip the state of the volume to act arbitrarily. Till this change, it is hard to imagine the this round of reform will be an ext than one more failed déjà vu.



ADDENDUM:Summary the Main financial Policy Actions take away by Raúl Castro’s administration since 2007


In July 2007 Raúl Castro called “absurd” the state milk collection and also distribution system and also said the farmers should supply the product directly to regional consumers wherein possible. Prices paid for milk come farmers to be increased.

In August Castro signed a legislation ordering all state companies to adopt a device of “perfecting” management, using capitalist-style administration techniques that had been offered in the military.


In March 2008, computers, cabinet phones, DVD players and electric appliances went on revenue to the general public for the very first time, and also bans ~ above Cuban citizens renting cars and staying in travel hotels were lifted. In addition, a sweeping revolutionary of farming began. These included: decentralization the decision-making, orders come state bureaucrats to prevent favoring state ranches over private farms, increases in state prices paid to farmers, leasing of fallow state soil to private farmers and loosening of regulation on farmers selling straight to consumers instead of come the state.

In August, a labor reform to be announced that sought to tie one individual’s salaries to his or she productivity, not firm performance, and also caps on earnings were eliminated. The government announced domestic freight transport and housing construction would be decentralized come the municipal level.


In March 2009, Raúl purged his brother’s economic cabinet and also placed reliable military males in an essential economy and also planning posts. The main Bank head was replaced two month later. Also, a variety of State enterprises were closed and also some government offices consolidated.

In April, the brand-new cabinet slashed the budget and also imports, the an initial of a series of adjustments, and also plans to be unveiled to construct suburban farming about most cities and also towns, using greatly private plots.

In June, Decree legislation 268 authorized that individuals might hold an ext than one job.

In August, the nationwide Assembly created the office of the Comptroller general of the Republic v the explicit mandate come crack under on corruption. Raúl referred to as for “elimination of cost-free services and improper subsidies—with the exemption of those dubbed for in the constitution (healthcare, education and also social security).”

In September, licenses to be issued come food merchants in assorted cities, allowing them to operate legally. Studies started on converting some small retail services and manufacture framework to cooperatives.

In October, the newspaper Granma announced the lunchrooms of state enterprises would close and in exchange workers would obtain a everyday stipend to assist them salary for their lunch.


In January 2010, municipal governments were bespeak to draw up economic advancement plans that can include cooperatives and little business. A pilot task was started whereby taxi drivers might lease cabs instead of receiving a state salary began in Havana.

In March, the convertible peso (CUC) was devalued through 8% vis-à-vis the U.S. Dollar.

In April, barbershops and beauty salons with up to 4 chairs to be turned over to employee in the type of a lease, the first time state retail facilities have been handed end to employees. Rule for home construction and also improvements to be liberalized.

In May, financial Minister Marino Murillo announced plans come “create in the bulk of municipalities, sectors for provides where farmers deserve to acquire directly the important inputs come produce, substituting the current system the assigning sources centrally.”

In June, revenue of building and construction materials to the population was liberalized, and also the government authorized farm yard cooperatives to develop mini-industries to process produce.

In August, new rules authorized Cubans with little garden plots come sell create directly to consumer at roadside kiosks. Also, the state enhanced from 50 to 99 year the time international companies can lease floor as component of tourism and leisure development projects, such as golf courses and also marinas; and also stores were opened where farmers have the right to purchase gives in local currency without regulation.

In September, the government announced a slashing of the number of people ~ above the government payroll. The arrangement was to reduced one million employees over a five year period, consisting of 200,000 in the an initial year. To aid the transition, 250,000 new licenses would certainly be authorized because that the production of family members businesses and also other me employment activities, regulations governing self-employment would certainly be significantly loosened, and family businesses would be authorized because that the an initial time to hire labor and rent space. Also in September a Communist Party paper (Lineamientos de Política Económica y Social), suggest economic and also social plan guidelines because that the country, was circulated. That envisioned a radically revamped Cuban economy, v a new tax code, freshly legalized exclusive cooperatives and also a state payroll no much longer burdened through at the very least a half-million idle or incompetent workers. The paper indicated that taxes would be gathered on wages, sales, and social protection payments come retirees, and on tiny businesses that employ people.


In January 2011, State banks began issuing microcredit to would-be farmer who have actually leased land. Loan to persons authorized to run private companies could also be issued come finance working capital and investment.

In March, Castro announced that the initial timetable come lay turn off 500,000 state workers had actually been scrapped and also created a new post come oversee the financial reform, naming economic situation Minister Murillo to the job.

In April, a somewhat revised collection of Lineamientos de Política Económica y society were authorized by the conference of the Communist Party. Also, Cuba started to permit foreign investors to lease federal government land for up to 99 years to develop gulf courses, luxury housing, and also other traveler oriented facilities.

In May, the council of Ministers agreed come take steps to prolong the authorization come hire workers for all private sector tasks and come “continue with the relaxation process regarding independent work.” because then, the federal government has been stating a feasible moratorium on the arsenal of taxes indigenous independent workers.

More recently, Cuba has actually announced the first details that a extremely anticipated new law meant to loosen rule on the buying and also selling the homes and cars, which have actually been strict controlled because soon after ~ the 1959 revolution. The law is still being crafted and, follow to the Communist Party newspaper Granma, would take effect by the finish of the year. The rules space meant to aid ease a severe real estate shortage and legalize unofficial location transfers the are generally used to skirt the state’s strict rules. The government will also do away through rules under which just pre-1959 automobiles can be openly bought and sold, and also individuals will be able to own an ext than one vehicle, regardless of the version year.

See more: ‘The League Of Nations Vs United Nations To United Nations, League Of Nations


1. Independent resources have approximated hidden joblessness as high as 34% in the 1990s and also over 20% of the labor force more recently.2. According to the BIS quarterly report, foreign banks had outstanding quick term cases of $1.581 billion in Cuba as of the end of June 2010. Fifty-five percent of the amount was due in one year or less; 26.7% in two years or more. Cuba’s greatest lenders by far are European financial institutions (the BIS reports malfunction the data through nationality, not individual banks), audit for 76.28% of complete outstanding claims. French financial institutions lead the pack, v $475 million precious of loan (or 30% the the total), followed by Spanish banks ($373 million), and also German banks ($146 million).3. This debt dates ago to 1973, as soon as Argentina under the short-lived government of president Héctor Cámpora offered some commercial credits to Cuba for the purchase of Argentinian products.4. A chronological an introduction of the key measures is given in one Addendum.