Economic Changes in Cuba: Current Situation and Perspectives

By Perez, Ricardo Torres | Harvard International Review, Summer 2012 | Go to article overview

Economic Changes in Cuba: Current Situation and Perspectives


Perez, Ricardo Torres, Harvard International Review


For over 50 years, a heated debate has raged over developments in Cuba, dealing with everything from ideology, politics, and the economy to independence and sovereignty. Today, transformations taking place on the island have inspired a renewed interest in the country.

Processes of social and economic change are often a long march into the unknown. They require significant effort to build consensus on key issues and to define appropriate pace and scope. They are usually painful and face resistance from those who stand to lose the most. However, Cuba is nonetheless embracing the route of social and economic change in the context of a failing world economy; a long-standing conflict with the United States, the world's largest economy and its closest market; an aging populace; no major international support from key institutions; no theoretical references; a difficult relationship with its diaspora; and mounting problems at home resulting from years of economic crisis.

International context

The world is going through one of the most challenging periods in its modern history. Since the terrorist attacks on the Twin Towers in New York, the political agenda in the United States and elsewhere has concentrated on terrorism rather than development in Third World countries. Cuba has become even less of a priority for the American government.

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In the international arena, the global economic crisis has created an uncertain environment for business while tightening credit conditions and diminishing international aid at a time when developing countries are increasingly in need of it. Although emerging economies have performed fairly well, their relative importance is still low compared to more mature economies.

In Cuba, this crisis has stemmed the flow of tourists from Europe, its second most important market. Between 2008 and 2010, the number of European visitors to the island fell by almost II percent. Moreover, the prices of major export products such as nickel have recently declined.

Fortunately, despite this economic malaise, Cuba has fostered strong relations with various countries. It has benefitted from stronger integration with the markets of Latin America, which accounted for 40 percent of Cuba's total trade in 2009. Venezuela and Brazil have also invested in large projects on Cuban soil. Additionally, Cuba has diversified its economic and political relations through increased partnerships with countries such as Russia, Angola, Algeria, and China.

Domestic Context

After 50 years of revolution, Cuba boasts social achievements equivalent in many respects to those of developed countries. The country's infant mortality rate (4.5 per thousand), life expectancy (79 years), and mean years of schooling (10.5 years) rank among the best in the world. However, Cuba's economic gains have been less impressive. Gross national income per capita (US$5,416) is lower than in many Latin American countries with worse social indica tors. Especially in the last 20 years, Cuba's rate of economic growth has been insufficient for the needs of the country, and inequality in income distribution and regional performance has increased. In turn, tensions remain in Cuba's external balance, some of the traditional sectors of its economy have sharply declined, and manufacturing and construction industries have performed very poorly.

Even though closer economic relations with Venezuela allowed Cuba to achieve higher growth rates after 2004, in 2008, the country was hit by three powerful hurricanes that precipitated an increase in imports. Coupled with economic slowdown, these imports helped spark a financial crisis that resulted in the partial loss of convertibility of the Cuban Convertible Peso for Cuban enterprises, the freezing of funds from key suppliers, and the temporary suspension of payment of Cuba's foreign debt service.

The Cuban government has tried hard to achieve mac roeconomic stability in prices and the exchange rate and to restore its ability to honor the country's international obligations in the short-and medium-term. …

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