Poised for Growth: Cuba's Underappreciated Economic Potential
Rodriguez, Jose Luis, Harvard International Review
JOSE LUIS RODRIGUEZ is Vice President of the Council of Ministers and is Minister of the Economy and Planning of Cuba.
From 1989 to 1993, the Cuban gross domestic product fell 35 percent. This decline was due to the disappearance of socialist countries in Europe and the tightened US blockade. The strategy implemented to face the consequences of the fall in GDP led to the adoption of an economic emergency program in September 1990, a program known as the "Special Period." Its objectives were to overcome the effects of the crisis and to distribute as fairly as possible the impact of the contraction on society, while also preparing the groundwork for the eventual restoration of Cuba's place in the world economy. The results obtained from the strategy of the Special Period demonstrated the plan's validity. In 1994, the fall in GDP was arrested as the economy grew 0.7 percent. In 1995, there was a 2.5 percent increase in GDP; in 1996 and 1997, the economy continued to grow at over two percent per year, thus initiating a gradual but distinct economic recovery. Despite the effects of the Helms-Burton Act and dynamic prices in the international market, Cuba's recovery continues.
An Opening Economy
It was quite obvious to the Cuban government that, due to the high sensitivity of the economy to foreign trade, immediate modifications in the economy were required to prevent a collapse in foreign economic relations. To alleviate the effects of external shocks, Cuba worked to increase foreign investment. In 1990, there were only four projects with a combined foreign capital investment commitment lower than US$100 million. By 1998, the number of projects reached 340 with a foreign capital investment commitment higher that US$2.1 billion. Nearly all branches of the economy were authorized to receive foreign capital according to the new Law of Foreign Investment of 1995 which has had a significant effect on tourism, nickel and oil production, and in telecommunications. The law allowed the country access to markets, capital, and technology. During this stage of external crisis, it is remarkable that more than 35 percent of existing economic associations have been incorporated after the Helms-Burton Act was passed.
To further respond to the crisis caused by the enhanced US blockade and the fall of the socialist countries, a program for financial restructuring was adopted in May of 1994 by the National Assembly, after widespread popular consultation. The result of the restructuring was a reduction of the fiscal deficit to 7.4 percent of GDP in 1994, 3.9 percent in 1995, 2.4 percent in 1996, and to about 2.0 percent in 1997.
Concurrently with the restructuring process that began in the summer of 1993, the circulation of foreign currency in the country was authorized. A state-wide network of shops was created to absorb, through both commercial means and a sales tax policy, a portion of the circulating foreign currency. The sales of these shops amounted to US$650 million in 1996. The monetary duality allowed a link to be established between the internal monetary system and the international economy, avoiding monetary devaluation. Foreign investors and domestic enterprises dealing mainly in exports and tourism were allowed to operate in foreign currency. On December 1994, the convertible Cuban peso was issued. The convertible peso is quoted to par with the US dollar and is circulated together with the foreign currencies authorized.
Meanwhile, the Cuban government established foreign currency bank deposits at competitive rates. Additionally, at the end of 1995, the exchange of foreign currencies for pesos was officially authorized through a network of monetary exchange offices--currently in expansion--that operates according to rates prevailing in the informal economy. …