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A Challenge of Enormous Magnitude

Cuba’s Economic Performance in 2012

by JOSÉ LUIS RODRIGUEZ

Havana.

Recently, the National Office of Statistics and Information (ONEI) published a digital version of the Economic and Social Outlook for 2012,  a document it publishes regularly as a preview of the Statistical Yearbook of Cuba (AEC).  [1]

The first thing that stands out in the published information is the adjustment in growth figures for last year, which were previously reported in the National Assembly of People’s Power in December 2012. Once the damage caused by Hurricane Sandy at the end of the year were estimated and which – according to estimates – cost 6.9 billion pesos, [2]  the GDP growth figure for 2012 was calculated at 3% as compared with the 3.1% previously announced and was lower than the projected 3.4%. [3]

There were other figures that had to be adjusted by sectors.  Economic performance was negative in the agricultural sector, decreasing 1.2% during the year compared with the 2% positive growth previously announced; there was an important deceleration in manufacturing where growth dropped from 4.4% to 2.3%; and the transportation and communications sector declined from 5% to 2.8%. On the other hand, construction showed favorable growth of 18% compared with the 12.4% previously estimated, while domestic trade rose from 5.9% to 6.4%.

In general, since 2009, the Cuban economy has been growing very modestly from 1.4% in that year, 2.4% in 2010 and 2.8% in 2011 for an annual average up until 2012 of 2,4%. Except for 2010, these figures have remained slightly lower than projected. Furthermore, these results compare favorably with Latin American and the Caribbean in 2009 and 2012 but are below the regional figures in 2010 and 2011.

In any case, a balanced evaluation of the country’s economic performance cannot be made without taking into account the process of transformation that has taken place since the approval of the new economic and social policy in April 2011, which assumed profound changes in the Cuban economy and its management system, all of which also has effects on the pace of the country’s growth.

In this sense, the current performance of the Cuban economy stems from a socialist economic strategy centered on the creation of conditions for sustainable development in the medium term.

To reach this objective, it is especially important to have a process for improving the balance of payments, which in the short term, is a high priority element in the Guidelines for Economic and Social Policy. [4]

This policy calls for an updating of commitments for payment of the foreign debt as an indispensable requirement for achieving an expansion of the economy taking into account the need for a greater flow of external financial resources including  greater foreign direct investment.

In pursuing  these  priorities we have increased foreign exchange earnings through  growth of more than 100% in the value of exported goods, while imports increased by only  54% between 2009 and 2012 resulting in a decrease in the current account balance in relation to GDP of -4.2% in 2008 to an estimated -0.6% in 2012. [5]

Furthermore, we have made significance advances in revising foreign financial commitments. By 2010, an agreement had been reached for the renegotiation of 2 billion dollars in foreign debt payments. [6]  Likewise, in February 2013, an agreement was reached with Russia for debt forgiveness with the old Soviet Union.  [7]

All of this has made possible a strict compliance with foreign financial obligations, which should result in greater credibility at the international level. Also, in relation to this issue, it is important to emphasize that the prioritized payment of contracted obligations basically has been backed by a reduction in the nation’s expenditures. State spending dropped in relation to GDP from 78.1% in 2008 to 67.4% in 2011; the fiscal balance dropped from -6.9% to -3.8%; liquidity in the hands of the population fell from 41.5% to 38.6%; and a process of restructuring basic social services was carried out to reduce costs without affecting essential benefits.

Along with the reduction in external financial tensions, economic efficiency must be increased through greater growth in labor productivity, a process that focuses on a gradual reduction in underemployment in the state sector, increasing activities in the cooperative, private and mixed sectors, [8]  while reorienting investment to favor the productive sphere. In this sense, there was an 8.1% growth in labor productivity between 2009 and 2012, but the pace was still insufficient although it was in harmony with the increase in median salary.

In this regard, it is worth noting that, as a consequence of the scarcity of financial resources, investment funds are still limited [9], and with low levels of efficiency in their management. All of which constitutes an obstacle to reaching higher levels of productivity in the midst of a process of real-wage depression that, in comparison with 1989, has still not recovered. [10]

The results that were achieved in 2012 can be said to be in line with what can be expected of a process of changes that substantially alters the economic management system of the country creating conditions for sustainable development while having to face a complex international economic situation and the consequences of the U.S. economic blockade.

This year and 2014 should see a change in the quality of state economic management with a greater level of decentralization, growth in economic efficiency and a gradual increase in worker income, which, along with an increase in the level of investment, will allow an increase in the pace of economic growth in a more favorable environment for external finances.

The challenge is clearly of enormous magnitude, but there are conditions to successfully face it.

Dr. José Luis Rodríguez is Cuba’s former economics minister and an advisor to CIEM.

[1]  See “Panorama Económico y Social. Cuba 2012,” in www.onei.cu.

[2]Information from the Ministry of Economy and Planning, Granma, June 6, 2013, p. 3.

[3] See, Yaima Puig and Leticia Martínez “Economía cubana creció un 3% en 2012,” Cubadebate, 06/06/13, www.cubadebate.cu.

[4]  ”Starting with the current conditions and the foreseeable international scenario, economic policy is directed at addressing the problems of the economy by applying two kinds of solutions that require mutual consistency: short-term solutions directed at eliminating the deficit in the balance of payments, which will promote foreign earnings and import substitution and at the same time responding to the problems of greater immediate impact on economic efficiency, worker  motivation and income  distribution, and creating the necessary infrastructural and productive conditions to permit a transition to a higher state of development.” VI Congreso del Partido Comunista de Cuba “Lineamientos de la Política Económica y Social del Partido y la Revolución,” Havana, April 18, 2011, p. 10.

[5] Cuba Country Forecast, Economist Intelligence Unit, March, 2013.

[6] Information from Marino Murillo to the National Assembly of Peoples’ Power, Granma, December 20, 2010, p. 10.

[7] See Granma, February 21, 2013, p. 2.  According to Russian sources, this debt reached 35 billion dollars. “Russia to write off 35 billion of Cuba’s debt,” Pravda (English version), February 22, 2013 www.english.pravda.ru .

This essay was prepared for the Cuba-L Direct service.