Latin America Advisor

A Daily Publication of The Dialogue

Is Cuba’s Economy Facing Even Bigger Hurdles in 2019?

Cuba’s economy minister, Alejandro Gil Fernández, has blamed Cuba’s anemic growth on lower levels of revenue from tourism, among other factors. // File Photo: Agencia Cubana de Noticias. Cuba’s economy minister, Alejandro Gil Fernández, has blamed Cuba’s anemic growth on lower levels of revenue from tourism, among other factors. // File Photo: Agencia Cubana de

Cuba’s economy was expected to close 2018 with around 1 percent economic growth, down from the 2 percent that analysts had previously forecast, according to Cuban state-run media. Economy Minister Alejandro Gil Fernández has blamed the lower level of growth on factors such as lower-than-expected revenue from tourism, the sugar harvest and nickel mining. The economic downward spiral of Venezuela, previously a major source of foreign support for Cuba, has also affected the island’s economy, as did the loss of fees due to the recent departure of Cuban doctors from Brazil. What are the top factors driving Cuba’s economy, and how will they perform in the year ahead? Are there reasons for optimism in 2019? How will Cuba’s government seek to boost the country’s economy in the coming year?

Carmelo Mesa-Lago, distinguished service professor of economics and Latin American studies at the University of Pittsburgh: “There are five main factors affecting the Cuban economy. First is the selling of professional services, a major source of hard currency. Venezuela buys 75 percent of these services, but its economy contracted 18 percent in 2018. Also, the country is likely to suffer 10 million percent inflation this year, the International Monetary Fund’s Alejandro Werner told columnist Andrés Oppenheimer. Hence, a continuous decrease is expected in Venezuela’s buying of such services. Those purchases already fell 23 percent between 2014 and 2017. The second main factor affecting Cuba’s economy is tourism. After a decline in tourism in the first half of 2018 due to Trump’s restrictions and Hurricane Irma, a recovery began in the third quarter, and it is expected to continue in 2019. However, this increase is through cruises that generate less revenue than air visitors, thus revenue will probably be stagnant. Third, remittances will continue to rise. Trump hasn’t imposed restrictions. Fourth, foreign investment is rising, but it is still about one-fourth of what the country needs to sustain economic growth, which is 5 percent to 6 percent annually. Fifth, nickel output has been stagnant and may continue to be so; sugar production in 2017-18 was among the lowest in Cuba’s history. Though it will rise, it will contribute little to Cuba’s economy. The growth target for 2019 is 1.2 percent, the same growth as in 2018 and half of that year’s target. In conclusion, Cuba’s economy will continue to stagnate in 2019. To boost economic growth this year, the government will have to implement faster and deeper economic reforms, but the new Constitution and president are vowing continuity. The government wants to stay attached to the old model, which gives predominance to the central plan and state enterprise over the market and non-state property.”

Vicki Huddleston, retired U.S. ambassador and former chief of the U.S. Interests Section in Havana: “The major impediments to a healthy and growing economy in Cuba are the embargo and the overwhelming control of the economy—and political system—by the Cuban government. Undoubtedly, revenues from tourism, sugar, nickel and overseas physicians make a difference as does subsidized oil from Venezuela and Russia. But if Cubans are to enjoy a prosperous future, the Communist Party and the Cuban hierarchy must allow Cubans to innovate, make a profit and invest. Artists—until the advent of the new Constitution—had this freedom, and their success is testament to the fact that Cubans will succeed if the government doesn’t interfere. Unfortunately, restrictions in the new Constitution will dampen even their ability to thrive economically and socially. The embargo only reinforces the government’s economic and political control by limiting Cubans’ access to travel, goods, ideas and knowledge. Meanwhile, National Security Advisor John Bolton’s threatening rhetoric mostly serves to give the Cuban hierarchy an excuse not to relax its economic and political controls.”

Jaime Suchlicki, director of the Cuban Studies Institute at the University of Miami: “The Cuban economy is in an irreversible downward spiral. Low productivity, low prices for its exports, a refusal to transform the system and move toward a market economy, plus the impact of the reduction of fees from Cuban doctors abroad and reduced support from Venezuela, Iran, Russia and other allies will all conspire to continue affecting the economy. Unfortunately for the Cuban people, there are no reasons for optimism in 2019. The rise of a new benefactor after Russia and Venezuela seems unlikely. The Cuban regime, while clinging to its old ways, will seek one or more countries willing to support its bankrupt policies. It will try to increase tourism and will tax the private sector and engage in illicit activities such as drug trafficking and money laundering.”

Jorge Sanguinetty, chairman and senior advisor at DevTech Systems: “The top factors driving the Cuban economy are expected to be fees for export of professional services as well as tourism and remittances from exiled Cubans, in cash and in kind. Subsidies from friendly governments are also important. The government will continue to rely on attracting foreign investment to give the stagnant, almost moribund economy a jump start. As I write, reliable reports from the island regarding the government’s inability to guarantee the steady supply of basic staples such as bread, plus the increasing unrest of consumers and sectors such as private small businesses and transportation do not provide a basis to be optimistic about the Cuban economy for 2019, which remains strangled by an extreme degree of government centralization and intervention.”

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