Raúl Castro’s economic reforms were supposed to make life better in Cuba. Didn’t happen

The Miami Herald, December 11, 2017

Raúl Castro’s economic reforms were supposed to make life better in Cuba. Didn’t happen

By Nora Gámez Torres


Raúl Castro promised a better life for Cubans when he launched timid economic reforms and opened a few doors to private business. But after a decade in power, he will likely retire in the spring with the economy in recession for the second year in a row — an economic outlook that is worse than when he took control.

“There is little hope that the economy will finish 2017 with positive growth,” Cuban economist Pavel Vidal warned in the latest issue of the Cuba Standard magazine. “Our GDP [Gross Domestic Product] forecast for 2017 is in the range between -1.4 % and -0.3 %.”

Vidal heads the team that created the magazine’s independent index for evaluating the Cuban economy, the Cuba Standard Economic Trend Index, that correctly predicted the island’s recession last year.

Castro has said he will retire as president of the Councils of State and Ministers in February, when a new parliament selects a new national leadership. But he is expected to retain the job of first secretary of the powerful Communist Party of Cuba.

Although Castro started a limited string of reforms in a bid to jump-start the stalled economy he inherited from his late brother Fidel, he has been stymied by resistance from bureaucrats and lack of foreign investment.

“In many ways, Raúl Castro’s 10-year presidential rule, ending in February 2018, has been utterly disappointing,” said Richard Feinberg, a Cuba analyst at the Brookings Institution.

“Cuba’s economy is stagnant and economic reform has stalled,” Feinberg added.

The Cuba Standard report said positive results in agriculture, the sugar harvest, construction and tourism contributed to an upward tick in GDP in the first semester of this year, when the government claimed a 1.1 percent GDP growth. But that was not enough to make up for the overall loss of Venezuelan oil subsidies, low sugar and nickel prices, and damage caused by Hurricane Irma.

The government has not published official damage estimates for Irma, a Category 5 storm that lashed the northern coast of central Cuba. But Foreign Trade and Investment Minister Rodrigo Malmierca has said they total “many millions.”

The Castro government also stopped issuing licenses for new private businesses. Coupled with President Donald Trump’s new policies, the move could cause the first contraction of that sector since it was expanded in 2010.

The Cuba Standard report noted that although there is no data to support its analysis, it’s very probable that Trump’s decision to limit U.S. travel to Cuba and business deals with its military, as well as the mysterious incidents suffered by U.S. diplomats in Havana, will dampen the foreign investment and tourism sectors — including family restaurants and bed and breakfasts.

Although U.S. business relations with Cuba before Trump were mostly limited to airlines and cruise ships, the Obama administration’s efforts to normalize relations had reduced the perception of risk for investors, lenders and exporters who were betting that all U.S. sanctions on the island would soon be lifted.

But growing tensions with the United States and the poor performance of the economy have dampened investors’ enthusiasm. The Cuba Standard Business Confidence Index, which hit a high of 65.3 percent in 2015, has dropped by more than half and experts predict 2018 will be even worse.

The Cuban government, meanwhile, is also under pressure to pay the debts it recently renegotiated with the Paris Club and other lenders. The island faces “financial limitations at this time,” said Malmierca, repeating the same mantra of the past two years.

Restrictions on foreign credits and a shortage of hard currency revenues will likely force reductions in imports, the Cuba Standard report noted.

Cubans should get ready for more shortages, especially hard-felt during the upcoming holiday period, experts said.

China, Cuba’s largest trade partner, already announced a 29.8 percent cut in exports to the island over the past year because of Havana’s debt woes, Reuters reported.

And although Castro managed to diversify the island’s trade and investment partners, after two five-year terms in power he will leave behind an economy that produces fewer goods and is even more dependent on the export of services like medical personnel.

Following Vidal’s assessment, under Raúl Castro, manufacturing, retail and services like education and public health all dropped. All sectors of the economy that produce goods, with the exception of construction, lost ground from 2008 to 2016. The biggest growth was in tourism and telecommunications, he wrote.

Castro also has failed to resolve one of Cuba’s main problems: its two currencies. The many different exchange rates between the Cuban convertible peso, known as CUC, the national peso known as CUP and the U.S. dollar make it impossible to be sure that the government’s economic data are true.

“The postponement of monetary reform [to unify the two currencies] has in no way been favorable,” said the Cuba Standard report. “The price paid by the economy during all this time, in terms of transaction costs, competitivity, accounting transparency, and inefficient allocation of resources, is incalculable.”

The slow pace and limited scope of the reforms launched by Castro have been noted even in Granma, the official newspaper of the Communist Party of Cuba.

“Doubts, fears of the ghosts of the market and muffled domestic resistance can be seen in the delays in negotiations and stumbling blocks for foreign business people to hire Cuban workers and services,” one journalist wrote about the reforms.

“Without prosperity, socialism will always be a utopia,” the writer added.

Follow Nora Gámez Torres on Twitter: @ngameztorres